“The number of Americans filing new applications for unemployment benefits fell more than expected last week, pointing to a steadily firming labor market. Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 271,000 for the week ended Aug. 22…” Story at…
http://www.reuters.com/article/2015/08/27/us-usa-economy-jobless-idUSKCN0QW1ID20150827
GDP REVISED UP (Marketwatch)
“The U.S. economy grew at a faster 3.7% annual pace in the second quarter, up from the initial estimate of growth at a 2.3% clip, the Commerce Department said Thursday… business investment was stronger than expected.” Story at…
http://www.marketwatch.com/story/us-economy-looks-much-stronger-after-upward-revision-to-gdp-report-2015-08-27
JIM PAULSON ON THE MARKET (CNBC)
“Who knows if we’re done [on the correction]…One thing I really don’t like is the reaction to this, to me so far, has been that it’s just a refreshing pause in an ongoing bull market…I believe that myself, but I hate it that everyone believes that…I see no panic; no flight to safety; treasury yields are going up, not down; the dollars down; gold’s down…I think we ‘gotta’ go lower maybe down to 1800 or so…”
http://www.cnbc.com/2015/08/27/jim-paulsen-overpriced-market-was-too-complacent.html
My cmt: When everyone believes the same thing in the markets, something else is going to happen. Steve Grasso (trader and CNBC commentator) said on the air that he thought the markets would fall 10% from here. That would take the S&P 500 down to about 1790.
CHINA
Evercore Partners tracks Chinese growth thru its own analysis. Evercore is now projecting that Chinese GDP is in contraction at -1.1% year-over-year. That would seem to fit with the Chinese stock market since markets usually predict economic conditions. Read a report from ZeroHedge at…
http://www.zerohedge.com/news/2015-08-26/china-stunner-real-gdp-now-negative-11-evercore-isi-calculates
My cmt: I don’t do technical analysis on the Chinese stock market, but the chart of the Shanghai Composite does not look like a bottom has been made to me. Their correction has only been going on for 2-months. It has bounced at support, but it still looks like it’s going to 2500. That would represent roughly a 50% drop, typical in bear markets. Combined with Chinese recession worries, it is quite possible that China will again rattle world markets.
MARKET REPORT / ANALYSIS
-Thursday, the S&P 500 was up about 2.4% to 1988 at the close.
-VIX fell about 14% to 26.1.
-The yield on the 10-year Treasury remained 2.17%.
The high for the day was 1990 around 1:30PM. A 50% retracement from the low of this correction would put the S&P 500 at 1999, only 9 points higher than Thursday’s high. After the high, the markets began to fade down in the afternoon. This led to some wild moves as the Index dropped to 1950 only to bounce back near the previous high on extreme volume late in the day. This may be related to the 2011 correction.
The first bounce in the 2011 correction was 3-days long. We’ll see what happens tomorrow (the 3rd day in this correction), but I think traders were anticipating the end of the bounce Thursday. Expect a fade in the afternoon if Friday is up.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 44% Thursday vs. 39% Wednesday. (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-18. (It was -214 Wednesday.) There were only 3 new-highs Thursday.
The 10-day moving average of change in the spread rose to +4, Thursday. In other words, over the last 10-days, on average; the spread has INCREASED by 4 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
Thursday, the NTSM long term indicator remained HOLD. Price is positive. VIX and Volume indicators are negative. Sentiment is neutral.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 70%
C-Fund (S&P 500): 15%
I-Fund (EFA): 15%
At this point, I think the S&P 500 is a buy when it’s below 1890, but I will be looking at technical to make a final decision. When I do move back into stocks, I will initially invest a high percentage into stocks and phase back if the Index gets to prior highs.
I’ll buy some XIV if the VIX climbs above 40 assuming the S&P 500 has not made a new low.
