The U.S. economy rebounded strongly this spring after a first-quarter contraction, eking out positive growth over the past six months and raising hopes for sustained growth in the second half of 2014. Gross domestic product, the broadest measure of goods and services produced across the economy, advanced at a seasonally adjusted annual rate of 4.0% in the second quarter…The report showed the personal consumption expenditure price index, the Fed's preferred inflation gauge, an advanced at an annualized 2.3% in the second quarter. That was an acceleration from the first quarter, and above to Fed's 2% inflation target for the first time since early 2012.” Story at…
http://online.wsj.com/articles/second-quarter-gdp-expands-at-4-0-rate-1406723867
So the recession comments offered by some were totally off the mark. But of some concern, the inflation rate is now above the Fed target rate. As noted below, this apparently will be a huge surprise to the Fed since they were talking about keeping rates low for “a considerable period" on the assumption that inflation would remain tame.
4% GDP GROWTH? 2-WEEKS AGO THE
FED WAS SOMBER ON THE ECONOMY
Yellen said, “…in June the Committee reiterated its
expectation that the current target range for the federal funds rate likely
will be appropriate for a considerable period after the asset purchase program
ends, especially if projected inflation continues to run below the Committee’s
2 percent longer-run goal and provided that inflation expectations remain well
anchored. In addition, we currently anticipate that even after employment and
inflation are near mandate-consistent levels, economic conditions may, for some
time, warrant keeping the federal funds rate below levels that the Committee
views as normal in the longer run.”
ADP PAYROLLS DISAPPOINT (CNBC)
“Private businesses created 218,000 jobs in July, a
number that while solid and in line with trend fell below expectations,
according to ADP. The number also fell well short of the 281,000 created in
June…” Story at…http://www.cnbc.com/id/101878695
MARKET REPORT
Wednesday, the S&P 500 was unchanged at 1970 (rounded).
VIX rose about 0.4% to 13.33. (No worry here.)
The yield on the 10-year Treasury Note rose to 2.55% at the close. (The bond Ghouls breathed a sigh of relief after the GDP numbers.)
The decliners outpaced advancers today even though the
S&P 500 was flat. There was selling;
it just wasn’t in the Index. Usually
the index will catch up so I’d say on that clue alone Thursday would probably
be a down day. Futures are down a tad as
I write this so there’s another (better) clue.
ALL IS NOT WELL FOR STOCKS
“…maybe this is just the lull before the storm. As Josh
Brown of the Reformed Broker CEO of Ritholtz Wealth Management notes in the
attached clip, under the surface things are worse than they seem. Small caps
are underperforming, the Nasdaq is being led by a tiny fraction of major stocks
and it’s all but impossible to find ideas that are particularly fresh by any
reasonable standard. For want of a better term the market is choppy and choppy
is bad. “Tops are a process. A choppy market can sometimes be indicative of a
change in trend.” Video at…http://finance.yahoo.com/news/don-t-be-fooled--all-is-not-well-for-stocks-173341410.html
CORRECTION NOW?
-GDP news is good for the Economy, but may be bad for
stock market because the Fed may act sooner to raise rates.
-The percent of stocks trading above their 200-dMA fell
to 57% Tuesday (data is a day late) and that is below the mean of 61. This is a bearish sign.-Market Internals remain negative. If the 10-dMA is below 50%-advancing (it is now 47%), the trend is down. Simply stated, most stocks have been falling over the last 10-days. (That could change with a big up day though.) This stat is typically around 53% in a rising market.
-The market has been too quiet with smaller than normal moves each day.
-At the recent top of 1985 (3 July 2014) the Index was at its upper trend line and it is due for a 5% pullback just as a normal cycle.
-The index made a triple top of 1985, 1987 and 1988 on 3 July, 23 and 24 July respectively and has pulled back 3-successive days.
Still, I haven’t seen that big short covering up-day that would say, “The pullback is NOW,” but in fact it may well have already started. There was a big up-day at the first top of 1985 on 3 July.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks
advancing (NYSE) fell to 47% at the close Wednesday. (A number below 50% for the 10-day average is
generally BAD news for the market.) New-highs outpaced New-lows Wednesday. The spread (new-highs minus new-lows) was +26 Wednesday. (It was +48 Tuesday.) The 10-day
moving average of change in the spread fell to minus -7 . In other words, over the last 10-days, on
average, the spread has DECREASED by 7 each
day. The smoothed 10-dMA of up-volume was DOWN today and the Internals remained
negative on the market.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late. They are most useful when they diverge from
the Index. In 2013, using these
internals alone would have made a 16% return vs. 30% for the S&P 500 (in on
Positive out on Negative – no shorting).
Of course, few trend-following systems will do well in an extreme
low-volatility, straight-up year like 2013.
NTSM
The NTSM analytical model for LONG-TERM MONEY remained
HOLD Wednesday. Sentiment inched up to 77%-bulls
(5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim
funds at the close on Tuesday (data is a day late). (84% is the current
negative level for the Sentiment indicator.) This value was 85%-bulls on 19
May. Price, Sentiment, Volume & VIX indicators are neutral, but all
indicators have deteriorated over the past 2-weeks.
MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks
on 26 March because of the NTSM indicators turned positive 24 Mar at the
close. 50% in stocks is fully invested
for me, given my age (semi-retired) and the risk inherent in today’s stock
market. I am watching closely to see if it is time to reduce my long-term stock
holdings.
--INDIVIDUAL STOCKS--ENSCO (ESV): HOLD (Earnings announce 31 July)
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
I like the dividend.
