FEDERAL RESERVE MINUTES (WSJ)
“The minutes of the Federal Reserve’s July policy meeting
provided no clear signal of when the central bank will start raising interest
rates…” Story at…http://www.wsj.com/articles/fed-minutes-provide-window-into-officials-thinking-1440011827
It appears that only one member was ready to raise rates.
CRUDE INVENTORY BUILDS (CNBC)
“U.S. oil prices hit their lowest in almost six and a half years on Wednesday after U.S. data showed an unexpected rise in crude stockpiles. U.S. crude stocks were up 2.6 million barrels at 456.21 million barrels last week, the U.S. Energy Information Association (EIA) said.” Story at…
http://www.cnbc.com/2015/08/19/oil-prices-fall-again-as-lower-demand-us-season-looms.html
MARKET REPORT / ANALYSIS
-Wednesday, the S&P 500 was down about 0.8% to 2080 at the close.
-VIX was up about 11% to 15.25. Holy rate hike Batman – who woke up the Options Boys?
-The yield on the 10-year Treasury fell to 2.13%.
The S&P 500 fell to the 200-dMA and about 0.7% below the 50-dMA Wednesday. The S&P 500 has not dropped below the 200-dMA in recent short downturns, but that may not be the case this time. Volume increased today (suggesting more fear) and the Internals deteriorated.
The 50-dEMA of the Fosback Hi-Low Logic Index is nearly up to 20, a reasonably high level that preceded the December 2014 Market troubles. It’s not time to panic though; December 2014 wasn’t that bad.
For all of the churning, the S&P 500 is only 2.4% below its all-time high of 2131.
All in all, the data suggests that selling is not over. So much for being short term bullish a few days ago! Short term indicators don’t look good, but making short-term calls is mostly witchcraft.
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE dipped to 48.5% Wednesday, from 48.7% 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.
Stocks on the NYSE that are above their 200-day moving average dropped to 40% as of Tuesday – this number is way too small. Unless it improves – markets are going down. (The average is 64%.)
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 47.1% Wednesday vs. 49.5% Tuesday. (A number below 50% is usually BAD news for the markets. Again, New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was minus-244. (It was -77 Tuesday.)
The 10-day moving average of change in the spread fell to minus-11, Wednesday. In other words, over the last 10-days, on average; the spread has DECREASED by 11 each day. Internals switched to negative 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
Wednesday, the NTSM long term indicator is HOLD. Indicators haven’t changed in a while. Price is positive, because up-moves have outpaced down moves recently. All other long-term indicators remain neutral, but VIX has finally started to show signs of fear as the VIX indicator is almost a sell. One indicator won’t trip the overall indicator, though.
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 25%
I-Fund (EFA): 25%
(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.
