“Last week, the Bank for International Settlements, which acts as the central bank to central banks, issued its annual report. It is about the most insightful warning that one is likely to see from the central banking system, even if the Federal Reserve, ECB and other individual central banks are the ones being warned…’In the countries that have been experiencing outsize financial booms, the risk is that these will turn to bust and possibly inflict financial distress. Based on leading indicators that have proved useful in the past, such as the behaviour of credit and property prices, the signs are worrying…In contrast to what is often argued, central banks need to pay special attention to the risks of exiting too late and too gradually.’” – John Hussman, PhD, Weekly Market Commentary at…http://www.hussmanfunds.com/wmc/wmc140707.htm
FALLING VOLUME: A DIRE WARNING (Advisor Perspectives)
“…we have a dire situation at hand. Companies on the key
stock indices are buying back their shares in bulk (to make per-share earnings
look better), and central banks are buying stocks because they don’t want to
miss out on the returns. As this happens, “retail” investors are forced to bid
prices higher as there is only a limited number of shares that can be traded.
What do you get as a result of this? Rising key stock indices…the fundamentals
that drive the key stock indices like the S&P 500 higher are deteriorating;
corporate earnings and revenues simply aren’t growing. Any investment analyst
knows the key to a healthy stock market is rising volume (rising demand), not
falling volume…The risk in the stock market remains elevated. And all the hype
aside, the Dow Jones Industrial Average is up only three percent for 2014 -- a
gain that can be easily erased.” – Michael Mombardi, posted at…http://www.advisorperspectives.com/dshort/guest/Michael-Lombardi-140707-Market-Volume.php
CORRECTION CALL (CNBC)
“Though he is otherwise strongly bullish, Jeffrey Saut,
chief market strategist at Raymond James, believes a run higher that has been
virtually unabated for the past two years now faces a major challenge…Saut sees
the market's "internal energy readings" at levels around the summer
of 2011, and believes investors should take heed as that period saw an 18
percent slide before steadying and leading to the current rally. He joins a
chorus of other market pros calling for a correction—predictions that all have
been proven wrong. The market is up 27 percent since its last meaningful
pullback in 2012.” Story and video athttp://www.cnbc.com/id/101816114
MARKET REPORT
Monday, the S&P 500 was down
0.4% to 1978 (rounded). VIX rose about 10% to 11.33.
The yield on the 10-year Treasury Note was down to 2.61% at the close. The Bond Ghouls showed some concern today.
CORRECTION WATCH – CLUES BOTH WAYS
No Correction: The Percentage of Stocks above their
200-dMA was 71% Friday (data is a day late); 61% is the trouble point for that
stat. The S&P 500 is 8% above the
200-dMA and 10% above the 200-day is the trouble point for that one. Sentiment
is 79%-bulls and this indicator will switch to negative at 83%. There was late day buying today.
Correction Now: VIX rose sharply today, so the options
boys are worried. RSI declined but remained Overbought at 73. (70 is overbought).
Chart wise, the index is at the top of the 3-month chart upper trend line and
that is often a point where there are reversals. It is also near the top of the
1-year chart upper trend line. Statistically, the index is too “quiet” (as it
has been since mid-May) and a pullback is suggested by that stat too. The Internals are barely positive Monday.
Monday’s down day was probably profit taking by the Pros
in reaction to the strong Holiday week. In the absence of any negative news, I
think the Markets will make a valuation top reasonably soon and that means the
S&P 500 should tick up to 10% above its 200-day moving average before a
pullback starts. We’ll see.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks
advancing (NYSE) remained 55% at the close Monday. (A number above 50% for the 10-day average is
generally good news for the market.) New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +79.
(It was +171 Thursday.) The 10-day moving average of change in the spread fell
to minus-22. In other words, over the last 10-days, on
average, the spread has DECREASED by 22 each day. The smoothed 10-dMA of up-volume
was DOWN today and the Internals remained neutral on the market. Only the 10-dMA of percentage of stocks
advancing kept the internals from flashing a negative.
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 Monday. Sentiment slipped to 79%-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, Volume & VIX indicators are all neutral. The Price indicator remains positive because up-moves have been larger than down-moves recently.
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. As of Monday it is 55.57 so time to get more cautious.
