The number of people who applied for U.S. unemployment benefits at the end of July rose for the second straight week, but don’t be fooled: the labor market is still the healthiest it’s been in a long time. Initial jobless claims edged up 3,000 to 270,000 in week ended Aug. 1…” Story at…
http://www.marketwatch.com/story/meh-jobless-claims-rise-again-but-still-very-low-2015-08-06
40% CRASH – 60% CRASH; ARE YOU TOO BULLISH? (Jesse Fielder’s Tumblr)
“Grantham’s firm suggests that investors are now risking about a 40% drawdown in order to earn less than the risk-free rate of return. I have also demonstrated recently that margin debt in relation to GDP has been highly correlated to future 3-year returns in stocks for some time now. The message we can glean from record high margin debt levels is that a 60% decline over the next three years is a real possibility. Know that I’m not predicting this outcome; I’m just sharing what the statistics say is a likely outcome based on this one measure. This horrible risk/reward equation is simply a function of extremely high valuations.” Commentary at…
http://jessefelder.tumblr.com/post/125433250725/am-i-bearish-or-are-you-just-way-too-bullish
FOSBACK HIGH LOW LOGIC INDEX
The Logic Index remained 9.5%, less than the 10% danger level, but Fosback’s data showed that if the Index was above 5% the markets were down around 1-percent, 3-months later. At 9.5%, it suggests little reward going forward.
MARKET REPORT / ANALYSIS
-Thursday, the S&P 500 was down about 0.8% to 2084 at the close.
-VIX was up about 10% to 13.77.
-The yield on the 10-year Treasury rose to 2.23%.
“Don’t worry,” the pundits say, “We are in a sideways correction and that is just as good for the stock market as a correction in price.” Don’t’ count on it; corrections don’t last 7-months. The S&P 500 has gone nowhere since 26 December (S&P 500, 2089 then; 2084 now). Earnings and revenues are down and companies are issuing poor forward guidance and there’s more:
RSI is 35 and falling. 30 is the oversold number so it is possible that the markets will bounce at 30 and that could happen fairly soon…but…Markets can remain oversold for some time so RSI isn’t a guarantee of a bounce.
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE dropped to 47.2% Thursday, from 47.9% 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 more than 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 Wednesday – this number is way too small. Unless this improves – markets are going down. (The average is 64%.)
It is now difficult to be bullish. It looks like a correction is coming soon, but that belief has been wrong a lot in the last 3-years, so I won’t go into it any further.
One good sign: Today’s big down day suggests an up-day Friday about 62% of the time based on statistics.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 49% Thursday vs. 48% yesterday. (A number below 50% is usually BAD news for the markets. Again, New-lows outpaced New-highs Thursday. The spread (new-highs minus new-lows) was minus-283. (It was -136 Wednesday.)
The 10-day moving average of change in the spread fell to minus-6, Thursday. In other words, over the last 10-days, on average; the spread has DECREASED by 6 each day. Internals deteriorated, but 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
Thursday, 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.
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.
