ADP Employment … Chicago PMI Shows Contraction … “It’s too early to buy this market” - Steve Grasso … Stock Market Analysis

ADP EMPLOYMENT (CNN/Money)
“Private sector employment increased by 200,000 jobs from August to September according to the September ADP National Employment Report®.” Story at…
http://money.cnn.com/news/newsfeeds/articles/marketwire/1220096.htm
 
CHICAGO PMI (Business Insider)
“Manufacturing activity in the Midwest is back in contraction. The Chicago purchasing manager's index (PMI) for September was reported at 48.7 by the Institute for Supply Management (ISM).” Story at…
http://www.businessinsider.com/here-comes-chicago-pmi-2015-9
 
STEVE GRASSO (CNBC)
Steve Grasso of Stuart Frankle and frequent CNBC contributor said on Tuesday that the market needs to show some stability, but “You know where I’ve been…I’ve been negative on the market, I think we go much lower from here…it’s too early to be buying into this market.” Video at…
http://video.cnbc.com/gallery/?video=3000426423&play=1
 
MARKET REPORT / ANALYSIS        
- Wednesday, the S&P 500 was up about 1.9% to 1920 at the close.
-VIX finished down 9% at 24.50.
-The yield on the 10-year Treasury rose to 2.06%.
 
Sentiment remains at a very high 59% bulls based on amounts invested in Rydex/Guggenheim Bull/Bear funds smoothed to a 5-day moving average.  A 59%-bulls value means that nearly 2 out of 3 investors are betting long. There was one small pullback of 7% last year that ended with a sentiment value of 67%.  All other pullbacks greater than 10% have ended with a sentiment value below 50%.  In 2011, sentiment was 24% at the bottom. The reason Sentiment is high now may be that the drop in this correction took place so quickly that very few investors were able to get short.  The risk is that bad news may send investors scrambling for the exits since many apparently have remained long.  When asked in surveys, investors are bearish; but in the funds I track, investors are still betting bullish. This could be a problem.
 
Any bad news may create panic.  Look what happened in bio-tech when Hillary Clinton tweeted about reducing drug costs. Still, I wouldn’t be surprised to see the markets move up. There have been a lot of down days recently and the market doesn’t move in one direction forever. So my upside target is again around 1995 - 2000.  The market needs to break above the recent high (1995) before it would have any credibility that this correction is over. Based on technicals so far, it doesn’t look over to me, but nothing is ever certain.
 
Because of the big up-day that exceeded my statistical parameters, Thursday is

likely to be a down-day.

 
The Death Cross remains in effect since the 50-dMA is below the 200-dMA for the S&P 500. This is a long term signal for many.  In 2011, the Death cross occurred about 7% before the low.  In 2010, the Death Cross first occurred at the low so it was not a good signal then. 
 
This correction is very similar to the 2011 correction. In 2011, the correction lasted 108-trading-days. The current correction has lasted 91-trading-days so far.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 43% Wednesday vs. 43.2% Tuesday.  (A number below 50% is usually BAD news for the markets.  On a longer term, the 50-day moving average of advancing stock rose to 46.9%.  That’s remains a negative.
 
New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was minus-186. (It was -475 Tuesday.)   The 10-day moving average of change in the spread fell to -17 Wednesday.  In other words, over the last 10-days, on average; the spread has fallen by 17 each day.  The internals remained 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 was SELL. Price is positive because this correction is long in the tooth; this particular indicator within the “Price” category has a very low weighting in the overall system. The Sentiment indicator is neutral. VIX and Volume indicators are negative. VIX and Volume are the highest weighted. Since the Index is 1% above the prior low it may be too late to sell now.  This indicator shows that the market is not healthy, but we could still see a quick turn-around at the bottom.

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%
 
This is a conservative allocation.  The number one priority now is return of capital; not return on capital.
 
While I don’t expect a test of 1868 immediately, it could happen.  If I am able to identify a BUY point before the close on a test-day, I will post it late in the day.  If so, I will buy SSO or QLD in the trading portfolio. These are 2x ETF’s that double market moves up or, dangerously, down. (XIV is also a good play on a falling VIX.) I would also move to a 75% invested position in the Retirement account.
 
These are high risk moves, so don’t do it unless you have a high tolerance for risk.  There were several bottoms in the 2011 correction, but fortunately, the market didn’t fall much further after those false bottoms.