“About an hour into the trading day Thursday, with the S&P 500 (^GSPC) at its lows [James Bullard, non-voting Fed Governor, said] “We have to make sure that inflation expectations remain near our target,” said Bullard in reference to the FOMC’s ongoing war against deflation. “And for that reason, I think a reasonable response by the Fed in this situation would be to…. pause the taper at this juncture.” Just like that feverish selling broke. Bullard’s stirring cry to non-action ringing in their ears, traders began furiously bidding for shares. Yes, a non-voting Fed board member’s oblique reference to the possibility that the Fed may not completely eliminate its now $15 billion monthly QE program this month marked the lows for the correction thus far…
…If that seems absurd to you it’s only because you haven’t been paying attention. The Fed’s commitment to transparency means everything they say is taken as gospel. The perceived leverage of the Fed is such that Bullard got 30 months-worth of QE priced into stocks just by suggesting they may pause the taper here. Was it enough? Probably not for the long term but it was good enough for now.” Commentary at...
http://finance.yahoo.com/news/after-wild-week--stocks-snap-back-on-fed-speak-114004961.html
This was an amazing speech by a Fed hawk.
UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT (Briefing.com)
“The University of Michigan Consumer Sentiment Index increased to 86.4 in the preliminary reading for October from 84.6 in September… Sentiment levels are at their highest point since July 2007.” More details at…
http://www.briefing.com/Investor/Calendars/Economic/Releases/mich.htm
BOTTOM IS IN: NAJARIAN (Yahooo Finance)
“The bottom’s in!” So says Jon Najarian…market activity this week flushed out oil bulls and bond bears which is sign number one that the bottom is in… Using the VIX as a bellwether he says the “42% pop above the old high and nearly triple the lows of the year [we saw this week] was a pretty good sign that there was panic in the market….we haven’t technically hit the magic 10% number that signals an official correction. Still, as Najarian points out, that’s pretty tough to attain in the age of algorithms. Traders of that ilk were lying in wait for that 9.9% fall at which point the buy signal was on.” Story and Video at…
http://finance.yahoo.com/news/the-bottom-is-in--jon-najarian-has-3-reason-to-get-back-into-the-market-140521567.html
It looked like the CNBC crowd (regulars and guests) were split on whether the correction is over.
HEDGE FUND SALES
According to CNBC there was not much retail selling. Selling was mostly by Hedge Funds. If the retailers had been involved, it would have been much worse.
MARKET REPORT
Friday, the S&P 500 was up 1.3% to 1887 (rounded). Volume was high.
VIX was down about 12% to 22.13.
The yield on the 10-year Treasury Note rose to 2.20%.
YESTERDAY A BOTTOM? PROBABLY
See Blog comments from this morning and yesterday. Here’s more…
- The XLI (Industrial Select Sector SPDR ETF) is a collection of cyclical industrial stocks. It had been underperforming the S&P 500 during this downturn. Traders sell cyclical stocks when they are worried about recession and corrections. As of Wednesday, 15 October, it has been outperforming the S&P 500. This is another indicator that a bottom has been made.
- The McClellan Timer (a sensitive technical indicator) has switched to “Buy”.
- There was very strong, late day-buying today – another bullish sign.
- Market Internals improved again.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 46% at the close Friday. (A number below 50% is usually bad news for the markets.) IN A BULLISH REVERSAL, New-highs outpaced New-lows Friday. The spread (new-highs minus new-lows) was +22. (It was -577 Thursday). The 10-day moving average of change in the spread fell to +6. In other words, over the last 10-days, on average, the spread has increased by 6 each day.
Internals improved again today, but remained neutral on the market because the 10-dMA of stock advancing remains below 50%.
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
Friday, the NTSM long term indicator is a TOSS-UP. The VIX indicator fell dramatically and I would like to see the VIX continue to fall to convince me that the options boys think this correction is over. I think the market is a BUY; the technical analysis says it’s a BUY. NTSM indicators are negative, but they will take a while to reset so they can be discounted. I did buy stocks as noted below.
MY INVESTED STOCK POSITION
I moved some funds back into the market on Friday, 17 October 2014 as a trade and increased my position in stocks from 30% to about 40% overall. This move was based on my comments 16 Oct that a Tradable bottom had been set. If the Markets don’t continue up from here I will be out again. Long-term money remains mostly on the sidelines, but that too will change if conditions look good for a bit longer. I may move as soon as Monday depending on the news and Monday morning market action.
--INDIVIDUAL STOCKS FROM A VALUE HOUND--
ENSCO (ESV): HOLD
