“Volume of new orders, backlog of new orders, capacity utilization, and average workweek have crashed making the report details far worse than the headline reading.” – Mish Shedlock. Commentary at…
http://globaleconomicanalysis.blogspot.com/2015/09/richmond-fed-region-unexpectly-bad-new.html
CHINA PMI FALLS AGAIN (Fortune)
“Research firm Markit and its local partner Caixin said Wednesday the flash estimate of its Purchasing Managers’ Index fell to 47.0 in September from 47.3 in August. That’s the lowest reading since March 2009, at the low point of the global recession…” Story at…
http://fortune.com/2015/09/23/chinas-pmi-just-fell-to-a-new-six-year-low/
My cmt: And the Shanghai Composite is down 40%. Does anyone believe that China is not in recession?
ADS BUSINESS CONDITIONS INDEX (Philadelphia Federal Reserve)
The take-away from this chart is that business conditions have been worse than average for much of 2015 and that includes current conditions. More on the ADS Index below…
Chart from… https://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/
“The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data….The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions.” – Philly Fed.
CRUDE INVENTORIES (CNBC)
“The Energy Information Administration reported U.S. commercial crude stockpiles fell by 1.9 million barrels in the last week, compared with analysts' expectations for a decrease of 533,000.” Story at…
http://www.cnbc.com/2015/09/22/oil-edges-up-on-falling-us-inventories-but-asia-concerns-to-drag.html
MARKET REPORT / ANALYSIS
-Wednesday, the S&P 500 was down about 0.2% to 1939 at the close.
-VIX rose about 1.4% to 22.13. (The Options Boys seem to have doubts about the correction since they are showing less fear.)
-The yield on the 10-year Treasury rose to 2.14%. (The Bond Ghouls too, seem less concerned today.)
Not me. I am concerned about market internals (Jeepers! Look at the new high new-low numbers – they stink.) Then there’s sentiment.
Sentiment remains stubbornly high at 59%-bulls {5-dMA of bulls/(bulls+bears)} using selected Rydex/Guggenheim long/short mutual funds. The correction is now 85-days past the prior high on the S&P 500. At the 85th day of the 2011 correction, sentiment was 29%-bulls. The comparison shows that investors remain extremely complacent and it suggests that the correction may surprise people by falling a lot further than many are expecting. We won’t know until the 1867 level is retested. Another data point to examine is VIX.
VIX is currently 22.13; it was almost 33 at day-85 in 2011. Should we take the other side? If so, one could argue that the VIX is low and Sentiment high because those investors are right. I wouldn’t agree with that view. Over the last month, Rydex investors have been right only half the time, not exactly a stellar return. More importantly, I don’t think Market Internals lie and they are suggesting we go lower.
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 49.9% Wednesday vs. 48% Monday. (A number below 50% is usually BAD news for the markets. On a longer term, the 50-day moving average of advancing stock was 47%. That’s remains a negative.
While I’m on the subject of long-term breadth (measured as % of stocks advancing), the 200-dMA of advancing stock is 50.2%. I have data going back to November 2010. 50.2% of stocks advancing over the last 200-days is the lowest value I have recorded. In essence, this means that over the last 10-months, only slightly more stocks have advanced than declined.
New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was minus-222. (It was -202 Tuesday.) The 10-day moving average of change in the spread remained -18 Wednesday. In other words, over the last 10-days, on average; the spread has DECREASED by 18 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 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.
