“The Institute for Supply Management (ISM) said its index of national factory activity fell to 52.7 from 53.5 the month before. The reading was shy of expectations that the pace would remain unchanged at 53.5, according to a Reuters poll of economists.” Story at…
http://www.cnbc.com/2015/08/03/july-ism-manufacturing-at-527-vs-535-prior-reports.html
My cmt: This is a very small dip and still indicates expansion. The ISM number is based on a survey of Purchasing Managers so there is no point in worrying over small shifts.
PERSONAL INCOME/PERSONAL SPENDING (Brifing.com)
“Personal income increased 0.4% for a second consecutive month…Personal spending increased 0.2% in June…[overall]… Income and spending trends slowed in June.” Details at…
http://www.briefing.com/Investor/Calendars/Economic/Releases/income.htm
CHINA’S DILEMMA (Guggenheim Funds)
“…Despite the recent selloff, the Chinese stock market is still grossly overvalued, with the median price-to-earnings (P/E) ratio* for the Shanghai Composite Index hovering around 40, more than double the median P/E ratio of the S&P 500…
…From here, the best case for Chinese equity markets may be a scenario similar to what happened in 1987 in the United States, when, after a huge selloff in October, the market retraced, then reversed, but ultimately established a base that began a rally that lasted until 1989. The alternative scenario to 1987 is 1929, the course upon which China currently seems set. Chinese policymakers’ unorthodox attempts to bridle the runaway market resemble the policy response of the United States in 1929, which basically relied on investor groups to purchase large blocks of stock in the hope of propping up equity markets.” - Scott Minerd, Chairman of Investments and Global CIO, Guggenheim Investments. Commentary at…
http://guggenheiminvestments.com/perspectives/macro-view/chinas-dilemma-is-it-1987-or-1929
I made similar comments on 9 July 2015 in paragraph, “Conclusion” at…
http://navigatethestockmarket.blogspot.com/2015/07/jobless-claimsstock-market-analysis.html
MARGIN DEBT SUGGESTS A CRASH (Jesse Felder’s Tumbler)
“As I recently demonstrated, margin debt relative to GDP has a very high correlation to future 3-year returns in the stock market. Right now, margin debt is forecasting about a 50% decline in stocks over the coming 3 years.” Commentary at…
http://jessefelder.tumblr.com/post/120120109570/3-uber-bearish-studies-foreshadow-the-death-of
EUROPEAN STOCKS (Hussman Funds)
“…rising valuation multiples have been the nearly singular cause for higher prices over the last few years [in European stocks]. Second, the component of returns driven by rising valuation multiples - which have diverged so extensively from fundamental growth - is highly correlated to US stock market fluctuations. To be bullish on European stocks, one should be bullish on US stocks.” - William Hester, CFA, Senior Financial Analyst, Hussman Funds. For commentary see…
http://www.hussmanfunds.com/rsi/eurval.htm
My cmt: “Highly correlated” means that if there is a sell signal on the US Markets, one should also sell Europe.
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was about 0.3% to 2098 at the close.
-VIX was up about 4% to 12.56.
-The yield on the 10-year Treasury dropped to 2.15%.
Sentiment is sitting at 83%. The sell-point for this indicator in my system is based on a multiple of standard deviations from the mean and is now 84.5%. The markets can go up from here, but not much, unless Sentiment falls. For a discussion of Sentiment see paragraph, “Sentiment” at…
http://navigatethestockmarket.blogspot.com/2015/07/sentiment-says-sell-stocksjobless.html
There was late day buying today and that can be bullish in the short run, but I am becoming less optimistic on the Stock market.
As of now, the data shows less likelihood that stocks will advance too much farther. The indicators can improve, so that doesn’t mean the market is going to correct. In the mean time, I am watching my long term indicators and they remain neutral.
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47.2% Monday, down from 47.5% yesterday. 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. Further, I read a surprising fact on CNBC that over half of the stocks in the S&P 500 are down over 10%. And in another measure of long-term breadth, only 40% of Stocks on the NYSE are above their 200-day moving average as of Friday – this number is very large. Unless this improves – markets are going down.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 47% Monday vs. 46% yesterday. (A number below 50% is usually BAD news for the markets. In a negative reversal, New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was minus-99. (It was +49 Thursday.) This is another reversal and suggests trouble. Usually, the spread is slow to change direction from positive to negative. The back and forth movement with new-lows outpacing new-highs is worrisome, but it’s too soon to infer too much..
The 10-day moving average of change in the spread fell to +10, Monday. In other words, over the last 10-days, on average; the spread has INCREASED by 10 each day. Internals remained neutral 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
Monday, the NTSM long term indicator is HOLD. Price is positive, because up-moves have outpaced down moves. 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. TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
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.
Sold my position in SSO (2x S&P 500) for a small loss Monday.
