Charts and analysis from Doug Short at…http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
High margin debt is a negative for the markets. Speaking of margin; next up - Chinese efforts to pump-up margin.
CHINESE GOVERNMENT ATTEMPTS TO HALT STOCK DECLINE (CNBC)
“China's biggest banks have lent 1.3 trillion yuan ($209.4 billion) to the country's state-backed margin lender to halt a meltdown in Chinese shares, local media said on Friday, underlining the government's determination to support stock prices.” Story at…
http://www.cnbc.com/2015/07/18/china-banks-lent-209b-to-halt-market-meltdown.html
FOSBACK NEW-HI/NEW-LO LOGIC INDEX
I’ll cover this is more detail tomorrow, but this indicator is beginning to look stretched as it climbs toward the danger zone. There are too many new-highs AND new-lows now indicating divergence and market confusion. I have calculated this indicator back 4-years and it has only reached the danger zone previously for a few days in December and January of 2014/15. One-half of the Hindenburg Omen signal is based on Fosback’s work so this is an important signal. On a 5-day, 10-week basis, it is now around 8%. Fosback has noted in his writings that a double digit value has always preceded a market crash – but I’m not saying there is a market crash lurking in the near future.
MARKET REPORT/ANALYSIS
-Monday, the S&P 500 was up about 0.1% to 2128 at the close.
-VIX was up about 3% to 12.25.
-The yield on the 10-year Treasury was up to 2.37%.
The 50-dMA of advancing stocks REMAINED 49% Monday. Below 50% is not good.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) remained 53% at the close Monday. (A number above 50% is usually GOOD news for the markets.
Once again, New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was -195. (It was -129 Friday.) That is not good news for the bulls. Further deterioration will be cause for alarm.
The 10-day moving average of change in the spread rose to minus -2 Monday. In other words, over the last 10-days, on average; the spread has DECREASED by 2 each day.
Internals remained neutral on the markets. I will be very concerned if new-hi/new-low stats deteriorate again tomorrow, especially if market internals turn negative.
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 long term indicator is HOLD. All long-term indicators are neutral.
MY INVESTED STOCK POSITION
On Monday, 13 July, I increased my investments from 30%
invested to 50% invested in stocks. I spilt stock investments roughly equally
between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index
(DWCPF) as noted in an earlier post. My bet on smaller cap stocks is not working too well so far. The high number of new-lows and new-highs while the S&P 500 continues higher is an indication of divergence in the market. In other words, fewer and fewer large-cap stocks seem to be carrying the market higher and small-cap stocks are suffering.
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.) I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable. (40years old: 100-40 = 60% in stocks) 50% would be the minimum.
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%
