“The pace of new-home sales in the U.S. sank 11.5% in September to the lowest level in 10 months, owing to an unusually large dropoff in the Northeast.” Story at…
http://www.marketwatch.com/story/new-home-sales-slump-115-in-september-2015-10-26
My cmt: New Home sales are considered to be one of the better indicators for predicting economic conditions.
STOCK MARKET TOP MAY BE IN (CNBC)
“Cyclical patterns could point to a market top that may last more than a decade, said Peter Eliades, technician and analyst at Stockmarket Cycles. ‘A lot of my indicators and cycles have been pointing to 2015 for several years now,’ he told CNBC's ‘Squawk on the Street’ on Friday. ‘So I think we saw a very important top in May of this year on the Dow and the S&P 500, and frankly I'm surprised by the strength of this rally.’" Story at...
http://www.cnbc.com/2015/10/23/technician-market-top-could-last-a-decade.html?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=103104659
VALUATION (Factset excerpt)
“The P/E ratio of 16.2 for the index as a whole is above the prior 5-year average forward 12-month P/E ratio of 14.1 [The current value is 15% above the average reported by Factset.], and above the prior 10-year average forward 12-month P/E ratio of 14.1.”
From 23 Oct 2015 Earnings Insight from FactSet at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.23.15/view
My cmt: We see earnings trending down (blue line), but price (S&P 500, dashed green) headed up. This is not a healthy divergence. Earnings trending down suggests further downside in price. The length of the earnings weakness (I’ve delineated with red-arrows) now is the same as it was in 2007-2008. Then it was a financial crisis. Now energy is the problem area with the strong dollar hurting multi-nationals. The dollar is likely to get stronger with central banks in Europe and China cutting interest rates. I don’t see how this helps the US. Stock prices rely on earnings. Unless earnings reverse – this will be trouble for the stock market; not necessarily a crash, but trouble. Actually, since PE’s are above average, it is likely to be trouble for stocks sooner rather than later – especially if there is a FED rate hike in December or early 2016.
Some are calling for a Santa Claus rally – the Grinch is more likely, but far from certain.
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was down about 0.2% to 2071 at the close.
-VIX was up about 6% to 15.29.
-The yield on the 10-year Treasury fell slightly to 2.06%.
I am not the only one having doubts about this rally. $30-million was added to the short side in funds I track for my sentiment value {Bulls/(bulls+bears)}. While the overall value for Sentiment remains Bullish, this change does indicate there are many who doubt the rally. That said, Sentiment overall is creeping up toward an overly bullish reading. Sentiment is again elevated at 65% (on a 5-day basis) which means there are twice as many traders betting long vs. short. Still, Sentiment has a long way to go before there would be a Sentiment sell signal. The sell for this indicator is now over 85%.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) dropped to 51.8% Monday vs. 53.2% 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 50.5%.
New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +6. (It was +54 Friday.) The 10-day moving average of the change in spread was minus-4 Monday. In other words, over the last 10-days, on average; the spread has decreased 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
Monday, the NTSM long term indicator was BUY. Price, VIX and Volume 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 the following other indicators are suggesting we may see a turn down soon: falling up volume (on a 10-day basis) and weak Internals). If we don’t see a pullback 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%
