Correction Probably NOT Over … We are in a Bear Market … Beware the Bubble (Risk-Aversion) – John Hussman … Stock Market Analysis

CORRECTION MAY NOT BE OVER (CNBC)
“Wells Capital Management's Jim Paulsen on Monday reiterated his call that the stock market correction may not be over, and said that it could in fact hit new lows.” Video/interview transcript at…
http://www.cnbc.com/2015/10/12/jim-paulsen-markets-may-hit-new-lows-yet.html
 
BEAR MARKET IS NOW (Financial Sense)
“…the world is severely over-indebted (debt to GDP ratio of 286%, Figure 1) and without fiscal measures, viable reforms and debt restructuring, we will probably remain stuck in this low growth environment for years. Unfortunately, you cannot solve a problem of too much debt by encouraging even more borrowing; yet policymakers are trying to fix this mess by lowering interest rates and injecting liquidity…There are no certainties when dealing with the future, but our work leads us to believe that the bull market is now in the rear view mirror and the odds of new highs over the following months are slim to none.” Commentary at…
http://www.financialsense.com/contributors/puru-saxena/calm-before-storm
My cmt: Scary conclusion with a lot of data and reasonable analysis - well worth a read. The world’s debt problems are well known; the scary part is the detailed explanation of why there is a bear market NOW.
 
BEWARE THE BUBBLE (Hussman Funds)
“The time to be tolerant of bubbles is when the uniformity of market internals provides clear evidence of risk-seeking among investors. In that situation, even extreme overvaluation tends to lose its bite. On the other hand, once investors shift to risk-aversion, as evidenced by breakdowns and divergences across a broad range of market internals, extreme overvaluation should be taken seriously.” – John Hussman, PhD.  Weekly Market Commentary at…
http://www.hussmanfunds.com/wmc/wmc151012.htm
 
MARKET REPORT / ANALYSIS        
-Monday, the S&P 500 was up about 0.1% to 2017 at the close.
-VIX finished down about 5% to 16.17.
-The yield on the 10-year Treasury slipped to 2.09%.
 
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. 
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 65% Monday vs. 61% Friday.  (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 49.8%.
 
New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +46. (It was +42 Friday.)   The 10-day moving average of the change in spread rose to +53 Monday.  In other words, over the last 10-days, on average; the spread has risen by 53 each day.  The internals remained positive 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. The Volume indicator is positive.  The VIX, 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%