The Institute for Supply Management said its services sector index rose to 60.3, its highest reading since August 2005, a sign of confidence that the non-manufacturing sector, which accounts for more than two-thirds of U.S. economic activity, was growing swiftly.” Story at…
http://www.reuters.com/article/2015/08/05/usa-economy-services-idUSN9N10A00G20150805
FOSBACK HIGH LOW LOGIC INDEX
While the spread of new-highs vs new-lows is not good (new-lows have exceeded new-highs recently), the Fosback Logic Index is beginning to look downright scary. It climbed to 9.5% today. 10% was Fosback’s “danger” level. Since 2011, 10% has been rarely exceeded. In fact, since 2011 it has been exceeded for only 4-days in December 2014 (S&P 2035) and again for 3-weeks in Late January and February of 2015 (S&P 500 2057). Is it a valid indicator? Well, the S&P 500 is only up 2% since the last time the Fosback Logic Index exceeded 10% on 5 Feb 2015. Fosback noted that a >10% value has been followed by sharply falling stock prices and that every major crash has been preceded by a Logic Index reading greater than 10%.
Mark Hulbert called the Fosback High Low Index an “…indicator that has correctly called every major market top and bottom in recent decades—with few false signals…”
For further details on the Fosback High Low Logic Index
see my previous blog at…
http://navigatethestockmarket.blogspot.com/2015/07/tech-problems-norman-fosback-high-low_21.htmlThe High Low Logic Index is also a component of the “Hindenburg Omen” which adds the McClellan Oscillator and a falling S&P test to form the Omen. I use a 10-day version of the High Low Logic Index in my calculation of the Omen and there have been 7 Hindenburg Omens from 2013 thru 2015, generally corresponding to the dates above for the 50-day version of the stand-alone High Low Logic Index. We may have a Hindenburg Omen soon too, but it is not guaranteed.
I’m still guessing that a test of the recent low of 2047 is likely.
MARKET REPORT / ANALYSIS
- Wednesday, the S&P 500 was up about 0.3% to 2100 at the close.
-VIX was down about 4% to 12.46.
-The yield on the 10-year Treasury rose to 2.27%.
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47.9% Wednesday, up from 47.3% 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% (week of 1 Aug). And in another measure of long-term breadth, only 38% of Stocks on the NYSE are above their 200-day moving average as of Tuesday – this number is way too small. Unless this 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 48% Wednesday vs. 47% yesterday. (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-136. (It was -97 Tuesday.)
The 10-day moving average of change in the spread rose to +12, Wednesday. In other words, over the last 10-days, on average; the spread has INCREASED by 12 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
Wednesday, the NTSM long term indicator is HOLD. Price is positive, because up-moves have outpaced 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.
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.
