Investors who wonder why the stock market failed to advance on the Fed’s decision to leave interest rates unchanged would do well to understand that the market is following a script that has played out repeatedly across a century of market history…When investors are risk-seeking (which we infer from the behavior of market internals), Fed easing tends to be very favorable for the stock market…However, once investors become risk-averse, Fed easing has no favorable effect at all, on average, because low-interest liquidity is desirable to risk-averse investors. In short, the market response to Fed easing is conditional on the prevailing risk preferences of investors.
The upshot is simple. Given unfavorable market internals, and given that we continue to classify the negative market return/risk profile as negative based on historically reliable measures, investors should not expect a favorable market response from the Federal Reserve’s decision to defer a rate hike. Every instance is different, but on average, stocks have lost value under present conditions.” – John Hussman, PhD. Weekly Market Commentary at…
http://www.hussmanfunds.com/wmc/wmc150921.htm
THE UPTREND IS OVER (Marketwatch)
“The S&P 500 had been riding a strong weekly
uptrend, defined by the trendline connecting the bottom of the last correction
in October 2011 with the bottom of the November 2012 pullback and the October
2014 low. The S&P 500 fell below that line in late August, meaning the
uptrend flipped to a downtrend. Based on the Occam’s razor principle, the
uptrend was the friend of investors for four years, but now it isn’t.” Story
at…http://www.marketwatch.com/story/occams-razor-says-the-stock-market-is-in-a-downtrend-2015-09-18
My cmt: Occam’s Razor says that the simplest solution is usually the best solution. Regarding the end of the uptrend, we must remember that the trend can always flip back to a positive position. We’ll have a better idea after the August bottom of 1968 on the S&P 500 is re-tested. That seems more likely due to Fed inaction and the resulting investor concern that the economy is in worse shape than previously thought.
MORE ON THE LEI (Advisor perspectives)
Here's a chart from Doug Short on the Leading Economic Indicators. I recommend his commentary linked below the chart.
Chart from (with commentary)…BOND BULL MARKET OVER? (Streeet Talk Live)
“Will the "bond bull" market eventually come to an end? Yes, eventually. However, the catalysts needed to create the type of economic growth required to drive interest rates substantially higher, as we saw previous to the 1960-70's, are simply not available today. This will likely be the case for many years to come as the Fed, and the administration, come to the inevitable conclusion that we are now caught within a "liquidity trap" along with the bulk of developed countries.” Commentary at…
http://streettalklive.com/index.php/component/flexicontent/2-the-daily-x-change/2722-omg-putting-jump-in-interest-rates-into-perspective.html
My cmt: This was a good article on Bonds.
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was up about 0.5% to 1967 at the close. (It had been up over 1% in the morning, but faded before noon.)
-VIX fell about 10% to 20.14.
-The yield on the 10-year Treasury rose 2.21%.
The XLI (an ETF of Cyclical Industrial stocks ) is underperforming the S&P 500 on a 10 and 20-dMA basis. Investors may be getting concerned that this correction is not over. We may have a better idea this week which way the markets will go. Some stabilization was expected today so we didn’t learn much.
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.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 54.1% Monday vs. 50.5% Friday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 50-day moving average of advancing stock was 48.4%. That’s remains a negative.
New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was minus-63. (It was -100 Friday.) The 10-day moving average of change in the spread rose to +6 Monday. In other words, over the last 10-days, on average; the spread has INCREASED by 6 each day. The 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 was HOLD. Volume, Sentiment and Price indicators are neutral. VIX is negative.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATIONG-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.
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.
