Chart from…Another of Doug Short’s charts “divide[s] the monthly valuations into quintiles” and notes that the current PE10 is in the top quintile. He wrote that “…when the P/E10 has fallen from the top to the second quintile, it has eventually declined to the lowest quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 550. Of course, a happier alternative would be for corporate earnings to continue their strong and prolonged surge. If the 2009 trough was not a P/E10 bottom, when might we see it occur? These secular declines have ranged in length from over 19 years to as few as three. The current trend is now in its 14th year…the history of market valuations suggests a cautious perspective.” See Doug Short’s commentary and extensive analysis at…
http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php
CORRECTION OVER? I STILL SAY YES
CNBC was touting concerns over the Russell 200 and its failure to make a higher high and they suggested we may see more trouble ahead. Action on the Russell 2000 is a concern, but it still looks like the correction has ended even with the Russell 2000 down today. VIX has fallen 8% in the last 4-trading days even including today’s rise. Market internals continue to improve and one my internals indicators in the NTSM system flashed “Buy” due to the significant turnaround in new-high/new-lo data that continues. At Thursday’s low last week, RSI (14) for the S&P 500 was 33 at the mid-day low and that’s just barely above an oversold indication for RSI.
If I don’t see upside follow-through Tuesday I may change my mind.
MARKET REPORT
Monday, the S&P 500 was down 0.2% to 1965 (rounded).
VIX was up about 6% to 15.46.
The yield on the 10-year Treasury Note fell slightly to 2.42%.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 45% at the close Friday. (A number below 50% is usually bad news for the markets.) New-lows outpaced New-highs Friday. The spread (new-highs minus new-lows) was minus-32. (It was -42 Friday). The 10-day moving average of change in the spread rose to +10. In other words, over the last 10-days, on average, the spread has increased by 10 each day.
Internals switched too neutral. Only Breadth prevented the internals from being positive and if trends continue, market internals will switch to positive soon.
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
Thursday, the NTSM long term
indicator is HOLD. Volume is now
positive and a "Market Internal" indicator turned positive. All told, I remain of the opinion that last
Thursday was a low that will allow markets to advance 5-10% from here.
I made a BUY call on Monday, 18 August 2014 because the charts were looking better; therefore, I upped my invested percentage to 50% invested in stocks on Tuesday 19 August. 50% is Fully invested for me since I am semi-retired.
--INDIVIDUAL STOCKS FROM A VALUE HOUND--
ENSCO (ESV): HOLD
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
ENSCO’s chart doesn’t look good now since it has fallen below prior lows as the oil drillers have not performed well. On the plus side, dividend is 6%. PE is 8.5 so downside is somewhat limited. Wait for a bottom call. I will sell Ensco if it drops much further. I married this stock and that is always a mistake. The divorce will be messy. That probably means it is near a bottom.
