“Housing starts rose 6.5% between August and September to an annualized rate of 1.21 million… the second-highest level in eight years [surpassing] analyst expectations…Building permits, however, fell 5.0% overall…” Story at…
http://www.constructiondive.com/news/housing-starts-surge-65-but-market-slowdown-looms-ahead/407622/
SHANGHAI STOCK MARKET COMPOSITE
I hear many saying the stock market problems in China are over because the Shanghai Composite is up over 10% in the past week. Does the following 5-year chart instill confidence? No. It shows the massive bubble that began in late 2014 and popped in June of 2015. Not only does it not look over, it may be in the process of forming a massive head-and-shoulders bearish chart pattern. I previously guessed that the Shanghai would fall to 2500. That’s an optimistic number when one looks at the chart. It’s hard to guess though, because the Chinese Government has been purchasing stocks to prop up the market.
Chart from…https://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"range":"5y","allowChartStacking":true}
MARKET REPORT / ANALYSIS
-Tuesday, the S&P 500 was down about 0.1% to 2031 at the close.
-VIX finished up about 5% to 15.75.
-The yield on the 10-year Treasury rose to 2.07%.
I have on several occasions presented links to commentary by others related to record high margin debt and its correlation to subsequent market declines. As Jesse Felder noted in his Tumblr blog yesterday, the last two times the 12-month rate of change turned negative for both stocks and margin debt were: (1) before the Dot.com Crash of 2000 and (2) before the Financial Crisis of 2008. Norman Fosback noted in his book, “Stock Market Logic,” that the 12-month trend in stock margin debt is an excellent indicator. When the indicator is trending down (as it is now), the odds that a Bear-market is underway double from 30% to nearly 60%.
Tuesday, both the advance-decline ratio and Relative Strength Indicator (a measure of the size of up-moves – “RSI”) continue to signal overbought. “Overbought” suggests some downside ahead. When RSI and the A-D Ratio are both overbought I expect the Index to retreat. Further, up-volume rose Tuesday, but continues to decline on a 10-day basis so a downturn of some sort seems to be coming.
The 200-dMA of the S&P 500 is now sloping up, hinting of a trend change. The S&P 500 remains 1.4% below its 200-dMA.
I have been counting the number of days in this correction from the prior high and comparing it to prior corrections. This is a reasonable check, but the start point is somewhat arbitrary. If we started the count at the first major low and matched the length to the 2010 correction, this correction wouldn’t end until late-November.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) remained 58% Tuesday vs. 58% 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 50.4%, still a good news signal for bulls.
New-highs outpaced New-lows Tuesday. The spread (new-highs minus new-lows) was +45. (It was +39 Monday.) The 10-day moving average of the change in spread was + 4 Tuesday. In other words, over the last 10-days, on average; the spread has risen by 4 each day. The internals remain 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 BUY. Price, Volume and VIX indicators are positive. Sentiment is neutral. I am not following this guidance for the time being. The NTSM system is a trend following system and other indicators (overbought conditions; inability to break appreciably above 2030; falling up volume) are suggesting we may see a turn down soon. If that doesn’t happen fairly soon I will be buying stocks.
I will wait
before increasing stock holdings; I think there will be a better entry point.
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%
