“The Conference Board LEI for the U.S. increased slightly in August with large positive contributions from the yield spread and building permits more than offsetting the large negative contributions from initial unemployment claims and the ISM® new orders index…"The U.S. LEI suggests economic growth will remain moderate into the New Year, with little reason to expect growth to pick up substantially," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board.” Charts and commentary at…
http://www.advisorperspectives.com/dshort/updates/Conference-Board-Leading-Economic-Index.php
ANOTHER ECONOMIC INDICATOR
Chart from Overthinkingit.com at…My cmt: The chart is a bit dated. Oil production is booming due to the fracking revolution. Perhaps classic rock will return? This is tongue-in-cheek of course, but it does remind us that correlation does not mean causation.
MAJOR BEAR MARKET MAY BE UNDERWAY (Jesse Felder’s Tumblr)
“Margin debt is telling us that if there’s any time to be ‘highly cautious’ it’s right now because, if the past two cycles are any guide at all, there’s a very good chance we are witnessing the early stages of a new, major bear market.” – Jesse Felder. Commentary at…
http://jessefelder.tumblr.com/post/129356681580/the-latest-margin-debt-figures-confirm-a-major
FED FUMBLE
“Not raising rates when you’ve telegraphed it is not good news” – Doug Cote, Chief market Strategist at Voya Investment management as quoted in Friday’s WSJ.
MARKET REPORT / ANALYSIS
-Friday, the S&P 500 was down about 1.6% to 1958 at the close.
-VIX rose about 5% to 22.28. (That’s a small rise for such a big down day, but that may be related to options expiration Friday.)
-The yield on the 10-year Treasury fell to 2.13%.
It is difficult to interpret an extreme day like Friday when the market is driven by Options expiration (quadruple witching).
Huge volume Friday (230% of the monthly norm) made the day statistically significant in price-volume action. High volume resulted from Options expiration and, to some extent, disappointment with the FED. A statistically significant day usually brings an up-day the next day about 62% of the time.
The TRIN (Traders Index, based on a formula that relates advancers and decliners to up and down volume) was 2.7 at the close Friday. That’s a bit high, but numbers higher than 3.5 usually signal a bottom in a pullback and bear Markets get to much higher extremes so no real news here.
The collapse in the S&P 500 in afternoon on Thursday (down more than 1% in the last hour) suggested a reversal. That was confirmed by downward price action Friday, but Market Internals stubbornly did not reverse down so there is no clear picture. We could see an up-day Monday followed by further selling next week.
Investors must worry now because it seems that the Fed is less confident about the world economy.
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) fell to 50.5% Friday vs. 54% Thursday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 50-day moving average of advancing stock was 48.8%. That’s remains a negative.
In a negative reversal, New-lows outpaced New-highs Friday. The spread (new-highs minus new-lows) was minus-100. (It was +17 Thursday.) The 10-day moving average of change in the spread fell to -8 Friday. In other words, over the last 10-days, on average; the spread has DECREASED by 8 each day. The internals remained neutral on the markets, but they were close to negative.
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
Friday, 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.
