“The initial claims level fell to 304,000 for the week ending July 5 from an unrevised 315,000 for the week ending June 28. The Briefing.com consensus expected the initial claims level to fall to 311,000…Claims data over the past few weeks confirm a general improvement in labor market conditions.” Story and commentary at…https://www.briefing.com/Investor/Calendars/Economic/Releases/claims.htm
BANKS FAILING AGAIN? IN EUROPE (ZeroHedge)
“Espirito Santo International SA - is in a ‘serious financial condition’ according to a central bank driven external audit by KPMG identified "irregularities in its accounts." Sure enough, the 'ponzi-like' maneuvers have left the bank unable to pay its bonds as Bloomberg reports bonds plunged to record lows after a parent company delayed payments on short-term notes.” Story at…http://www.zerohedge.com/news/2014-07-09/portugals-largest-bank-misses-bond-payment-bonds-collapse
CMT: I suggested that there would be no correction unless
there was bad news. This worried the
markets and was a major catalyst for this morning’s selloff. In the end, cooler
heads prevailed and this (at this point) does not appear to be a systemic problem. “This wasn’t a Lehman Moment” said one
trader.“Espirito Santo International SA - is in a ‘serious financial condition’ according to a central bank driven external audit by KPMG identified "irregularities in its accounts." Sure enough, the 'ponzi-like' maneuvers have left the bank unable to pay its bonds as Bloomberg reports bonds plunged to record lows after a parent company delayed payments on short-term notes.” Story at…http://www.zerohedge.com/news/2014-07-09/portugals-largest-bank-misses-bond-payment-bonds-collapse
WORRIES OVER EUROPE/EU (Yahoo Finance)
“Italian industrial output dropped 1.2 percent in May, its steepest monthly fall since November 2012, casting doubt over prospects for the country's economic recovery.” Story at…http://finance.yahoo.com/news/us-stocks-wall-st-set-130518674.html
CMT: It isn’t ONLY Europe though. See the following article…“Italian industrial output dropped 1.2 percent in May, its steepest monthly fall since November 2012, casting doubt over prospects for the country's economic recovery.” Story at…http://finance.yahoo.com/news/us-stocks-wall-st-set-130518674.html
LUMBER LIQUIDATORS (Yahoo Finance)
“Robert M. Lynch, President and Chief Executive Officer,
commented, "Customer traffic to our stores was significantly weaker than
we expected, particularly in geographic areas severely impacted by the
unusually harsh weather in the first quarter. The improvement in customer
demand we experienced beginning in mid-March did not carry into May, and June
weakened further.” Story at… http://finance.yahoo.com/news/lumber-liquidators-provides-second-quarter-
202000375.html
CMT: CNBC reported on Lumber Liquidators (LL) several
times. LL fell about 22%. The worry for
the stock market is that the weather effects on the economy may have masked
real trouble. They are not the only
company to suggest that the consumer is in trouble and LL shows weakness in
housing, an important driver of the economy.
Not all is bad though…
CHINA ECONOMY IMPROVING (Financial Sense)
“The slowdown in China’s economy, which in the first half
had been one of the negative factors affecting the global economy and equity
markets, appears to have come to an end, with Chinese manufacturers reporting
an improvement in business conditions in June, the first improvement since last
December. Demand is strengthening and destocking is accelerating. Growth in the
service sector is the fastest it has been in over a year.” Commentary at…http://www.financialsense.com/contributors/bill-witherell/china-s-economy-returns-leading-asia-recovery
MARKET SET FOR BIG CRASH – WE JUST DON’T KNOW WHEN (CNBC)
“The market is setting up for a big decline that could be as bad as the crash of 1987, according to Marc Faber, known as "Dr. Doom." He just isn't sure exactly what will set it off…” Story at…
http://www.cnbc.com/id/101823798
CMT: And for this, he gets the big bucks??
MORGAN STANLEY CYCLICAL INDEX
Regular readers know that I have followed the Morgan Stanley Cyclical Index (CYC) vs. the S&P 500 as a recession proxy. The indicator works similar to the Dow Theory. In the Dow Theory, Transportation stocks are compared to the Industrials because the transportation stocks are more recession sensitive. As of last week the price of the CYC is not being reported. Unless this issue is resolved, I’ll have to reinvent my recession indicator.
MARKET REPORT
Thursday, the S&P 500 was down 0.4% to 1965 (rounded).
VIX rose about 8% to 12.59.
The yield on the 10-year Treasury Note was down to 2.54% at the close. The Bond Ghouls still aren’t happy. Troubles around the world are also sending buyers to the US and driving interest rates down.
CORRECTION WATCH – CLUES BOTH WAYS
No Correction: The Percentage of Stocks above their 200-dMA was 66% Wednesday (data is a day late); 61% is the trouble point for that stat. The S&P 500 is 7% above the 200-dMA and 10% above the 200-day is the trouble point for that one. Sentiment is 78%-bulls and this indicator will switch to negative at 83%. RSI declined to a neutral 53. {70 is overbought}. Sentiment has been falling, albeit, slowly, and this usually means there is room for advance.
Correction Now: Statistically, the index is too “quiet” (as it has been since mid-May) and a pullback is suggested anytime. Chart wise, the index has pulled back from the top of the 3-month chart upper trend line several days ago and that could mean the Index is already in pullback mode. The Market Internals on the NYSE turned negative today and that usually indicates a pullback. The last negative day was 15 May 2014. The Internals reversed to the upside 6-days later back in May so it was not a good signal.
I would like to see more evidence of a correction before I consider going short. The trend is still up and one must be careful trading against the trend, although there are some people who are very good day-traders. Not me. I’d just as soon miss the top than be wrong again.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 49.9% at the close Thursday. (A number above 50% for the 10-day average is generally good news for the market. I’d call this a tie.) New-highs outpaced New-lows Thursday. The spread (new-highs minus new-lows) was +48. (It was +76 Wednesday.) The 10-day moving average of change in the spread rose slightly 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 turned negative on the market, but just barely.
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 Thursday. Sentiment remained 78%-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). (83% is the negative level for the Sentiment indicator.) This value was 85%-bulls on 19 May. Sentiment, Price, Volume & VIX indicators are all neutral.
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 28 July)
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
Ensco has surpassed the mean and median analyst price targets so time to get more cautious.
