Stock Market Report for Friday 15 May and TSP Allocation

MARKET REPORT
-Friday, the S&P 500 was up about 0.1% to 2123 at the close.
-VIX was down about 3% to 12.38.
-The yield on the 10-year Treasury Note dropped to 2.14%. 
 
VIX below 12 has led to some pullbacks in the 5% range in the recent past. Since the S&P 500 is coming off a long flat period (a sideways pullback if you will) I suspect VIX can fall lower this time around, unless there is a big pop up in the S&P 500 that would carry it to an overbought indication (top of the trend line; high RSI, etc.).
 
Market Internals look good. 57% of stocks advanced Friday (ignoring unchanged issues).  That’s big for the small move up in the S&P 500 we saw Friday.  That is a positive for the markets Monday.
 
There was a lot of chatter on CNBC about the poor performance of the Transportation stocks and how this is negative when applying Dow Theory. It may be, but if investors were worried about recession, I’d expect the XLI (a basket of Industrial cyclical stocks) to underperform the S&P 500. That’s not happening. The XLI is outperforming the S&P 500 on a 10-day, 20-day, and 30-day moving average basis.  Up until a week ago, the XLI was underperforming on every time frame.  There has been a change in confidence among sophisticated investors regarding the markets.  Unsophisticated investors are betting the other way as sentiment (measured as %-bulls based on funds invested in selected Rydex/Guggenheim funds) is falling. Rydex investors are less bullish; but that too is bullish for the markets since this is a contrary indicator.
 
The S&P 500 made new highs and closed at consecutive new highs Thursday and Friday.  That’s also a positive move. If the S&P 500 can move up a couple of percent we might be able to call it a breakout, but not yet.
                                                                          
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) remained 52% 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 +69. (It was +75 Thursday.)  The 10-day moving average of change in the spread slipped to +6.  In other words, over the last 10-days, on average; the spread has increased by 6 each day.
Internals remained positive on the markets.

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         
Friday, 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, mostly 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) remains ahead of the S&P 500.  Since 1 February it is 2% ahead of the S&P 500. Since 1 March the Euro-Pacific ETF (EFA) (“I”-fund) is 4.2% 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.)