“A measure of the services side of the economy slowed in September to a below-forecast reading that was the lowest in three months. The Institute for Supply Management said its services index fell to 56.9% from 59% in August…” Story at…
http://www.marketwatch.com/story/ism-services-index-slows-to-below-forecast-569-reading-2015-10-05
RECESSION COMING? (Hussman Funds)
“While leading measures and our Recession Warning Composite do not currently provide enough evidence to anticipate an oncoming recession with confidence, they do suggest much greater prospects for economic weakness than the Wall Street consensus suggests. The disappointing job figures were met with initial market weakness on Friday, but enthusiasm later in the day on expectations that the Federal Reserve will be unable to raise interest rates from zero…I strongly disagree that investors should view weaker economic prospects as a good thing….Fed easing has typically done nothing to support stock prices…” - John Hussman, PhD. Weekly Market Commentary from Hussman Funds at…
http://www.hussmanfunds.com/wmc/wmc151005.htm
My Cmt: My recession indicator is a simple comparison of the Industrial Select Sector ETF (a basket of cyclical stocks) vs. the S&P 500. The reasoning is that cyclical stocks will be sold by investors in advance of a recession more than the S&P 500. Currently, the XLI is underperforming the S&P 500 on most time periods, but not at a fast enough rate to cause a recession signal. Let’s just say investors are concerned, but not alarmed. This indicator improved today and the XLI is now beating the S&P 500 over the last 10-days.
MARKET REPORT / ANALYSIS
- Monday, the S&P 500 was up about 1.8% to 1987 at the close.
-VIX finished down 7% at 19.54.
-The yield on the 10-year Treasury climbed to 2.06%.
I wrote Friday, “I can’t begin to explain the power move up today [Friday].” I still can’t, but I did see a trader write that the correction was over because the S&P 500 made a higher low. (I also note that the NYSE composite made a lower low last week.) While it is true that the S&P 500 made a higher low, a higher low must meet the same criteria as a lower-low if it is to be a “successful test”. The theory is the same in each instance. As the market falls, volume decreases dramatically as a bottom is retested, because there are fewer sellers. If a higher low (or lower low) is to signal an end to the correction, it must also occur with improvements in market internals. The NYSE did not exhibit those characteristics last week. This suggests that the correction has further to go. No guarantees of course - Mr. Market will do what he wants and he doesn’t always follow the rules.
Monday was a statistically significant up-day and that means simply that the price-volume move exceeded statistical parameters and, in about 62% of the time, that leads to a down-day the next day. This is widely known and the moves seem to have gotten more exaggerated as more traders play this game. Usually, a move of 1% is statistically significant; that isn’t true when the volatility increases, but that hasn’t stopped traders from exploiting moves around the 1% size.
The S&P 500 closed today (Monday) at 1987. That sets up a potential bearish head-and-shoulders pattern with the left shoulder at 1889 and the head at 1995 and may lead to a retreat in the next few days if Tuesday is a down day. (Today’s close of 1987 forms the right shoulder.) I have suggested that a retreat from the 1995-2000 range was likely since that is the 50% retracement region for the correction. I wouldn’t be surprised to see a failure from here.
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.
This correction is very similar to the 2011 correction. In 2011, the correction lasted 108-trading-days. The current correction has lasted 94-trading-days so far, assuming it isn’t over. If 1868 was the low, it ended after 66-days (28-trading days ago).
There are some indications that the correction may be over: (1) XLI is now beating the S&P 500 in the short term. (2) The smart money has been buying the Index late in the day. (3) New-highs outpaced new-lows Monday. (4) VIX has been falling recently. I don’t believe it yet, but time will tell.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 49% Monday vs. 46% Friday. (A number below 50% is usually BAD news for the markets. On a longer term, the 50-day moving average of advancing stock rose to 49%. That’s remains a negative.
In a positive reversal, New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +30. (It was -223 Friday.) The 10-day moving average of the change in spread rose to +9 Monday. In other words, over the last 10-days, on average; the spread has risen by 9 each day. The internals improved, but remained 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
Monday, the NTSM long term indicator was HOLD. The Volume & Sentiment indicators are neutral. Price is positive. The VIX indicator 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.
If I am able to identify a BUY point before the close when the Index is in the 1868 region, I will post it late in the day.
