Earnings Report…Margin Debt at Record High

EARNINGS REPORT FROM FACTSET (Factset)
“With 40% of the companies in the S&P 500 reporting actual results for Q1 to date, the percentage of companies reporting actual EPS above estimates (73%) is equal to the 5-year average, while the percentage of companies reporting actual sales above estimates (47%) is well below the 5-year average….The blended revenue decline for Q1 2015 is -3.5%. If this is the final revenue decline for the quarter, it will mark the first year-over-year decrease in revenue since Q1 2013 (-0.3%), and the largest year-overyear decline in revenue since Q3 2009 (-11.5%).” “Earnings Insight” from Factset at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_4.24.15/view
 
MARGIN DEBT AT RECORD HIGH – A BEARISH INDICATOR (Advisor Perspectives)
“The latest debt level is up 2.5% month-over-month and at a record high. Real (inflation-adjusted) debt rose 1.9% month-over-month and also at a record high.” Commentary and analysis from Doug Short at…
http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
Margin is essentially the practice of borrowing money from your broker to buy more stocks using the stocks as collateral on the loan.  Needless to say, it is risky because if the value of your stocks falls, your broker will call and demand more collateral. This “”margin call” forces the borrower to sell some stocks to raise cash to reduce the size of loan. Thus, it can create a cascading down market due to forced selling. In the past, margin peaks have coincided with market tops. A breaking point is coming…we just don’t know when.
 
MARKET REPORT
-Monday, the S&P 500 was down about 0.4% to 2109 at the close. 
-VIX was up about 7% to 13.12.
-The yield on the 10-year Treasury Note rose slightly to 1.92%.
 
CORRECTION WATCH
-VIX popped up today getting away from the low value of 12 that was a correction start point back in September. On the other hand, a rising VIX can spell trouble too, so I’ll watch to see if today's trend continues.
-The variability of market moves has dropped into the danger zone. 
-As of Monday, there have been only 48 “up-days” in the last 100-days and that is less than 50%.  So by that measure, a correction (if it were to start now) would already be starting from a weak point. That might suggest a bigger down-turn.  Perhaps we’ll finally get that 10% correction on a closing basis that has been so elusive.  There are often dual interpretations though, and only 48 up-days in the last 100 can be seen a positive indicator too.
-RSI is now 63 (14-day, SMA) and that’s not close to an overbought indication.
-I’ll suspect any correction is probably weeks away.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) remained to 53% at the close Monday.  (A number above 50% is usually GOOD news for the markets.) New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +76. (It was +102 Friday.)  The 10-day moving average of change in the spread was minus-2.  In other words, over the last 10-days, on average; the spread has declined by 2 each day.
 
Internals remained neutral on the markets; “advancing volume” (or up-volume as it is sometimes called in the internals) is still increasing on a 10-day basis.  That is usually a positive development.  It will definitely be positive if it continues.

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 2014, using these internals alone would have made a 9% return vs. 13% 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, nearly straight-up year like 2014.
 
NTSM         
Monday, the NTSM analysis remained HOLD. PRICE is positive. VOLUME, VIX and SENTIMENT indicators are neutral, although (as always) sentiment remains extremely high.

MY INVESTED STOCK POSITION
I remain fully invested at 50% invested in smaller cap-stocks in the long-term portfolio with some international stocks. 50% is conservative, but appropriate for a conservative retired guy. 
 
The Dow Jones US Completion Index (all stocks except the S&P 500 – the “S” fund in the TSP) continues to outperform the S&P 500.  Since 1 February it is 3.0% ahead of the S&P 500. The S&P 500 Index has gained on the smaller cap stocks during earnings season since earnings were not as bad as feared for the big boys.  Since 1 March the Euro-Pacific ETF (EFA) (“I”-fund) is 3.8% ahead of the S&P 500.
 
THRIFT SAVINGS PLAN (TSP) MEMBERS
My TSP Allocation: 50%-G; 10%-C; 25%-S; 15%-I.  (50% cash is too high for non-retirees, however, the “G”-fund did return 2.2% over the last 12-months and that is exceptional for risk-free money.)