“The retail trader in the last week is scooping up energy-related equities and ETFs in a bet that oil has finally bottomed after losing half its value in six months and that shares of these companies, which are rapidly cutting spending, now offer attractive value. But professionals don't feel the oil drop is over or that the cutting has been severe enough, as evidenced by the fact that short interest data show their biggest bets against the sector in seven years.” Story at…
http://www.cnbc.com/id/102421185
MICHIGAN SENTIMENT (Bloomberg)
“Consumer confidence declined in February for the first time in seven months as gasoline prices started to rise from a six-year low and tempered Americans’ optimism about the economy. The University of Michigan preliminary sentiment index decreased to 93.6 from a final January reading of 98.1 that was the highest since the start of 2004.” Story at…
http://www.bloomberg.com/news/articles/2015-02-13/consumer-sentiment-in-u-s-fell-in-february-from-11-year-high
BETTING ON VIX
I saw comments today on a stock discussion board that the poster was using VXX to bet on the VIX rising. VXX is the Exchange Traded Note that attempts to track VIX; it manages to move about half the VIX. If VIX moves up 10%, VXX moves up about 5% and vice versa. The catch is “contango.” Since expiring options cost less than those needed to replace them, the fund loses money even if VIX is flat. If the VIX remains flat, VXX will lose about 2% value per month, therefore, VXX is best left only for very short term trades.
MARKET REPORT
- Friday, the S&P 500 was up about 0.4% to 2097 (rounded). (The Russell 2000 was up 0.6%.)
-VIX fell about 4% to 14.69.
-The yield on the 10-year Treasury Note rose to 2.04%. The bond market is showing a glimmer of optimism.
Except for sentiment (which remains stubbornly high), everything looks quite bullish. RSI (Relative Strength Index) is not near overbought so it would appear this market can go higher. Greece and Ukraine remain the concerns and that may have been reflected in today’s low volume that was 25% below the monthly average.
SMALL CAPS
I saw a talking head on CNBC suggest that small cap stocks will outperform large caps due to the strong dollar. I had the same thought 2-weeks ago and that’s why I shifted toward small cap stocks at the end of January, but I have seen others take the other side of the argument. It seems like the Pros are evenly split whether small caps or large caps will do better. That’s probably better than if everyone agreed since usually “everyone” is wrong.
WATCING THE CHARTS
The Russell 2000 pushed up to 1223 Friday and that’s a little past the prior high of 1219. That’s an important trend to watch. If it can continue a little higher it would be a bullish sign. So far, one small break higher does not make a trend.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 59% at the close Friday. (A number above 50% is usually GOOD news for the markets.) New-highs outpaced New-lows Friday. The spread (new-highs minus new-lows) was +185. (It was +171 Thursday). The 10-day moving average of change in the spread was +9. In other words, over the last 10-days, on average, the spread has INCREASED by 9-each day.
Internals remained positive 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
Friday, the NTSM analysis is BUY. The PRICE, VOLUME & VIX indicators are positive; Sentiment is neutral. The more important BUY signal was in late October after the bottom and more recently 2-days after the mini-bottom on 20 January. Stock market direction from here is likely to be influenced by news as much as technical indications. For now, things look good. Of course that doesn’t mean they can’t change tomorrow.
MY INVESTED STOCK POSITION
I remain fully invested at 50% invested in stocks in the long-term portfolio. 50% is conservative, but appropriate for a retired guy.
My position in the S&P 500 is very small now. I have invested in the Dow Jones US Completion Total (^DWCPF) instead, because that is the only small-cap choice in my retirement account. (The DWCPF includes all stocks EXCEPT the S&P 500.)
I’ll be following this closely
to see if the call works out. Some Pros
disagree. I have no intention of
remaining in smaller caps if they don’t outperform the S&P 500. So far, the DWCPF is 1.3% ahead of the
S&P 500 in February.
