Bear Market Warnings … Chinese Stocks in the Doldrums … Understanding the Risk of Stocks … Fair (?) Trade Agreement … Stock Market Analysis

BEAR MARKET WARNINGS – WHY YOU SHOULD PAY ATTENTION (Street Talk Live)
“No professional or successful investor every bought and held for the long-term without regard, or respect, for the risks that are undertaken. If the professionals are looking at "risk" and planning on how to protect their capital from losses when things go wrong - then why aren't you?” Commentary at…
http://streettalklive.com/index.php/blog.html?id=2939
 
BEJING RESCUE LEAVES CHINA STOCKS IN THE DOLDRUMS (WSJ)
“Low volume, low volatility and a tight trading range” are hallmarks of a market getting stuck, said Hao Hong, managing director at Bank of Communications Co….Median valuations for Shanghai are still at around 39 times, skewed by technology stocks.”  Story at…
http://www.wsj.com/articles/beijings-market-rescue-leaves-china-stocks-stuck-in-the-doldrums-1444543381
My cmt: The “Low volume, low volatility and a tight trading range” syndrome is one that may be foreshadowing further downside.  When I see this on the S&P 500 (as indicated by low standard deviation compared to average moves in price-volume) it is usually a reliable sell signal. Here, there is no way to know because we don’t have the stats.
 
RISK OF STOCKS - TOTAL RETURN ROLLER COASTER (Advisor Perspectives)
“…investing in equities carries substantial risk. Households approaching retirement should understand this risk and make rational decisions about diversification. In the past we've suggested that they should also consider fixed income alternatives for that part of the nest egg that will pay non-discretionary expenses not covered by Social Security and pensions. Unfortunately this traditional wisdom has been less helpful in recent years owing to the Fed Zero Interest Rate Policy (ZIRP) and various stimulus strategies, which have collectively shrunk interest rates.” Commentary at…
http://www.advisorperspectives.com/dshort/updates/Total-Return-Roller-Coaster.php
 
FAIR (?) TRADE
“To some, TPP stands for Trans Pacific Partnership (an alleged free trade agreement). To me it's synonymous with toilet paper, with a dangling P at the end that stands for politics.”  Commentary at…
http://globaleconomicanalysis.blogspot.com/
My cmt: This will make you mad…and I’m not writing about the part that includes commentary on Hillary Clinton.  As presented by Mike Shedlock the Agreement sounds incompetent.
 
MARKET REPORT / ANALYSIS        
-Tuesday, the S&P 500 was down about 0.7% to 2004 at the close.
-VIX finished up about 9% to 17.67.
-The yield on the 10-year Treasury slipped to 2.06%.
 
The advance-decline analysis shows an overbought condition remains in place today. RSI is not yet overbought.
 
I am going to repeat yesterday’s note:
"I remain cautious given that there are cross-currents in the signals.  Most indicators lean toward “correction over”.  It bothers me that in my analysis, there was no successful test of the low of 25 August. Another issue is the high Sentiment {5-dMA of (Bulls/(Bulls+Bears) in selected Rydex/Guggenheim funds} of 59% at the higher-low test. It’s an indicator that the correction never got to a high fear level and suggests there may be more to come.

 

The turn-around has not been very robust either. New-highs have improved over new-lows, but they have not continued to improve very much. That may be a bad sign for the bulls.
 
I think the market will drift lower, but I could easily be wrong; I seem to be in the minority." 
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) dipped to 64% Tuesday vs. 65% Monday.  (A number above 50% is usually GOOD news for the markets.  On a longer term, the 50-day moving average of advancing stocks dipped to 49.6%.
 
New-highs outpaced New-lows Tuesday. The spread (new-highs minus new-lows) was +32. (It was +46 Monday.)   The 10-day moving average of the change in spread slipped to +51 Tuesday.  In other words, over the last 10-days, on average; the spread has risen by 51 each day.  The internals switched to 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         
Tuesday, the NTSM long term indicator was HOLD. The Volume indicators is positive.  VIX is negative.  Price & Sentiment indicators are 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%