“In my view, we are likely witnessing the peak of the third equity valuation bubble in the past 14 years, the first two which saw major indices plunge by at least 50%. It’s important to recognize that market peaks are a process, not an event. Internal deterioration has actually been developing since early July, and became measurable in early...This process has been quite like what we observed in 2007, when deterioration became measurable in July of that year (see Market Internals Go Negative). Despite an initial selloff, the major indices recovered to a marginal new high in October 2007 before continuing lower. As conditions presently stand, the equity market remains vulnerable to the same kind of abrupt air-pocket we observed several weeks ago.” Commentary at…
http://www.hussmanfunds.com/wmc/wmc141208.htm
A BOTTOM IN CLAIMS MAY SUGGEST RECESSION TIMING (dShort.com)
Doug Short had a fascinating article on the Advisor perspectives website regarding unemployment claims and recession. He presented the following chart (among others) and noted that a bottom in claims can be used to predict timing to the next recession. His Tables (not shown) indicated that recessions have started from 3 to 20-months after a bottom in claims (with claims calculated as a percent of labor force). As a side note, it is curious that as a percent of claims to labor force, the recent recession is well below the 1974, 1980 and 1982 recessions for unemployment claims. I recommend the article at the website below:
Chart, commentary and analysis at…http://www.advisorperspectives.com/dshort/commentaries/Unemployment-Claims-and-the-CLF.php
JAPAN RECESSION DEEPENS (Bloomberg)
Japan’s recession was deeper than initially estimated as company investment unexpectedly shrank…The economy contracted an annualized 1.9 percent in the July to September period…The surprise decline in business investment sapped the strength of the world’s third-biggest economy…” Story at…
http://www.bloomberg.com/news/2014-12-07/japan-recession-deeper-than-first-thought-as-abe-faces-election.html
One wonders how long the US economy can hold up if our trading partners are in trouble.
HINDENBURG OMEN
A large part of the Hidenburg Omen seems to be based on the New-High/New-Lo logic Index devised by Norman Fosbeck back in the 70’s. That Index calculates the percentage of the smaller value of new-highs or new-lows compared to the number of stocks on the NYSE. The idea is that when the Index is high, it means that both new-highs and new-lows are at high values since the Index uses the smaller value of the two. When new-highs AND new-lows are both large, all is NOT well in the stock market.
I described the Hindenburg Omen here last Friday. It is very similar to the New-High/New-Lo logic Index, but it adds the McClellan Oscillator for confirmation. (I’ve played with the McClellan Oscillator and I am still trying to get my equations right.) Fosbeck looked at 15-years of statistics (1965-1980) and found that when the 10-day New-High/New-Lo logic Index was greater than 2% (and especially 3%) there was generally a pullback very soon afterward.
The New-High/New-Lo logic Index was 3% Friday and 3.8% today, Monday.
Fosbeck also looked at the long term and suggested using a 50-day exponential moving average (50-dEMA) for long–term calls for more serious bear markets. The 50-dEMA currently is not extended, thus, any downturn, is likely to be small (I’d guess 5% or so) at least as suggested by Fosbeck’s work.
ANOTHER VIEW OF HINDENBURGS (Hussman)
“Recent market action includes a concurrent expansion in the number of individual stocks setting both new 52-week highs and new 52-week lows. This is also an indication of growing internal dispersion. As I’ve noted before, instances where both new highs and new lows exceed, say, 2.5% of issues traded are relatively common, and represent practically useless information…A better definition of a Hindenburg requires additional signs of dispersion – strength in the indices coupled with weakness in the internals, and multiple signals within a few weeks of each other in order to filter out one-off outliers…Aside from one instance in August 2013 that was followed by just a quick 5% pullback, the only points in recent years we’ve seen that combination turned out, in hindsight, to be the 2000 and 2007 peaks.
http://www.hussmanfunds.com/wmc/wmc141208.htm
Given that today’s reading was of the New-high/New-low Index was 3.8%, a pullback is probably in the offing.
MARKET REPORT
Monday, the S&P 500 was up about 0.7% to 2060 (rounded).
VIX was UP about 20% to 14.21.
The yield on the 10-year Treasury Note dropped to 2.26.
ANOTHER STATISTICALLY SIGNIFICANT DAY
Monday was statistically-significant in my system, because the size of the day’s move was larger than the recent normal as measured by standard deviation from the norm. That implies Tuesday would be an up-day about 62% of the time. There have been a number of these bigger days recently and that suggests a downturn soon. If we have another big up move in the next day or two, I may even go short for a quick trade. (Warning: I am not a good short term trader.) I may not get the chance, because the markets may break down from here.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 49% at the close Monday. (A number below 50% is usually BAD news for the markets.) New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was minus-72 . (It was +36 Friday). The 10-day moving average of change in the spread was minus-26. In other words, over the last 10-days, on average, the spread has decreased by 26-each day.
Internals switched to 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 long-term NTSM system analysis switched to HOLD Monday. Only VIX is positive. Others are neutral.
MY INVESTED STOCK POSITION
I moved some funds back into the market on 17 October
2014 as a trade and increased my position
in stocks from 30% to about 40% overall.
I added more 20 Oct, to bring my stock investments up to 50%. I am
semi-retired, 50% is Fully-invested for me. I remain 50% invested in stocks.--INDIVIDUAL STOCKS FROM A VALUE HOUND--
ENSCO (ESV): HOLD
Ensco price is going to reflect oil prices. If you think they are near a bottom, this is a great buy with high dividends. If not; it’s a dog.
ENSCO ANALYSIS FROM THE STREET.COM
http://www.thestreet.com/story/12968993/1/ensco-esv-stock-hits-52-week-low-as-oil-prices-hit-four-year-low.html?puc=yahoo&cm_ven=YAHOO
I will sell ENSCO as a tax loss strategy this year.
