UPS SAYS THE ECONOMY IS SLOWING (MarketWatch)
“United Parcel Service Inc. has fired warning shots across the bow of the Federal Reserve and the stock market, by saying on Tuesday that U.S. economic growth appears to be slowing.” Story at…
http://www.marketwatch.com/story/ups-fires-warning-shot-across-the-bow-of-the-stock-market-and-the-fed-2015-07-28
FOSBACK HIGH LOW LOGIC INDEX
There isn’t much to say about this indicator now. With new-highs at very low levels, the High-Low Logic Index is falling so the Index is out of the picture.
SENTIMENT (%-Bulls)
8-days ago Sentiment {5-day, %-bulls based on funds invested in selected Rydex/Guggenheim bulls/bear funds, Bulls/(bulls+Bears)} was 76%. At the close Tuesday it was 83%. That’s huge for a stat that usually moves slowly. (85% is the sell point for the Sentiment Indicator.)
Traders have been buying the dip. Today they were buying solely on the Index test of the 200-dMA. Since the 200-dMA was not violated, the “correction” may be over. I am not sure though, so I’ll wait a bit longer before resetting trading positions. Market Internals still look lousy, although there was a significant improvement in New-High/New-Low data Tuesday.
MARKET REPORT / ANALYSIS
-Tuesday, the S&P 500 was up about 1.2% to 2093 at the close.
-VIX was down about 14% to 15.6.
-The yield on the 10-year Treasury rose to 2.25%.
Yesterday the S&P 500 bounced up from the 200-dMA and Tuesday it was down to within a couple of points above the 200-dMA in the morning. It bounced upward and didn’t look back.
The 200-dMA is watched by traders because it is rarely violated to the downside. In the last 3-years, there have only been 3-periods when the S&P 500 has broken below the 200-dMA (Nov 2012, Oct 2014, and 9&10 July 2015). It begs the question, what has the market looked like when the S&P 500 has broken the 200-dMA in the past? I looked at the percentage of stocks advancing on the NYSE over the prior 50-days for each case when the 200-dMA was broken. Results are noted below:
Nov 2012: 50-dMA of %-Advancing = 52%
Oct 2014: 50-dMA of %-Advancing = 48%
8/9 July 2015: 50-dMA of %-Advancing= 47%
27 July 2015: 50-dMA of %-Advancing = 46% (200-dMA was not broken)
The trend does show that the number of stocks advancing over the prior 2.5-months has been lower at each test of the 200-dMA. This can’t be good news, but I have no analysis to show that this means a correction is coming. It is just another sign of longer-term market deterioration.
Tuesday was statistically significant up-day and that means simply that the price-volume move up exceeded statistical parameters and, in about 62% of the time, that leads to a down-day the next day. It is normal to see a string of these back and forth big moves near a top because the dip buyers are jumping in, but there is still confusion by many market participants. I am not calling a top; yesterday could have been a bottom, but either way, a down-day tomorrow is expected.
The S&P 500 retraced 50% down from the bounce up from 8 July and that too is a popular point for a turn-around.
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47% Tuesday. Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 41% Tuesday. (A number above 50% is usually GOOD news for the markets. Once again, New-lows outpaced New-highs Tuesday. The spread (new-highs minus new-lows) was -150. (It was -451 Monday.) This was a nice 1-day turn-around but the 10-day numbers still are unimpressive.
The 10-day moving average of change in the spread fell to minus-22, Tuesday. In other words, over the last 10-days, on average; the spread has DECREASED by 22 each day. Internals remain negative on the markets but did improve today.
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
Tuesday, the NTSM long term indicator is HOLD. Price is positive, becaue up moves have exceeded down moves recently. All other long-term indicators remain neutral.
MY INVESTED STOCK POSITION
On 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 401k
{the TSP} is limited in its choices.)
Since 13 July the Dow Jones Completion Index (DWCPF) has underperformed the S&P 500 by about 2%. The Euro-Pacific (EFA) has underperformed by 0.2%. With this unsettled market there has been a flight to safety. I’ll do the same and shift to S&P 500 (C-fund) at the end of the month or sooner if I get a sell signal in the long-term indicators.
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 lowest stock allocation unless conditions deteriorate.
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%
