Unemployment Claims … Existing Home Sales … Leading Economic Indicators … Draghi – ECB Offers More Stimulus … Stock Market Analysis

LEADING ECONOMIC INDICATORS (Bloomberg)
The index of U.S. leading economic indicators…declined 0.2 percent, the biggest drop since February…“The U.S. LEI still suggests economic expansion will continue, although at a moderate pace,” Ataman Ozyildirim, director of Business Cycles and Growth Research at the Conference Board, said in a statement.” Story at…
http://www.bloomberg.com/news/articles/2015-10-22/index-of-leading-indicators-in-u-s-fell-0-2-in-september
My cmt: For a detailed discussion of the LEI, follow the below link to Advisor Perspectives.
 
LEADING ECONOMIC INDICATORS – NO NEAR TERM RECESSION RISK (Advisor Perspectives)
“…the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk.” Commentary at…
http://www.advisorperspectives.com/dshort/updates/Conference-Board-Leading-Economic-Index.php
 
UNEMPLOYMENT CLAIMS (Marketwatch)
“New applications for U.S. unemployment benefits inched up by 3,000 to 259,000 in the seven days ended Oct. 17…The latest report on initial claims fits with a healthy labor market…The average of new claims over the past month, meanwhile, edged down to a seasonally adjusted 263,250…” Story at…
http://www.marketwatch.com/story/us-jobless-claims-rise-slightly-after-two-straight-declines-2015-10-22
 
EXISTING HOME SALES (Fox Business)
“U.S. home resales rose more than expected in September to the second highest monthly sales pace since February 2007, suggesting the housing market continues to show strength compared to the rest of the economy.” Story at…
http://www.foxbusiness.com/economy-policy/2015/10/22/existing-home-sales-jump-far-more-than-expected/
 
DRAGHI SAYS ECB TO CONSIDER FURTHER MEASURES (Guardian)
“Stock markets have enjoyed a buoyant day, after the European Central Bank stuck with its quantitative easing programme and hinted that it would consider whether further measures were necessary in December.” Story at…
http://www.theguardian.com/business/blog/live/2015/oct/22/markets-expect-ecb-draghi-to-hint-on-more-qe-business-live
 
MARKET REPORT / ANALYSIS        
-Thursday, the S&P 500 was UP about 1.7% to 2053 at the close.
-VIX was down about 14% to 14.45.
-The yield on the 10-year Treasury remained 2.03%.
 
I have been surprised at the movement of VIX.  The Options Boys are convinced the market will continue to head up and VIX is falling at an unprecedented rate.  The 200-dMA of the S&P 500 is now sloping up, hinting at a trend change. The S&P 500 now is only 0.4% below its 200-dMA and if it can break thru the 200-dMA decisively it may be all up from there. Not all the news is positive though.
 
The new-high/new-low data is not very impressive and continues to be a question mark in this rally. Further, Thursday was a statistically significant up-day and that means simply that the price-volume move exceeded my 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. The new-high/new-low data also suggests down. I think today may have been a short-term top, although it is possible that the market may make some further small gains.  My guess is that the S&P 500 will head down toward the prior low.  It remains to be seen whether the index will actually get to that prior low (1868) or make a higher low.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) slipped to 53% Thursday vs. 53.3% Wednesday.  (A number above 50% is usually GOOD news for the markets.  On a longer term, the 50-day moving average of advancing stocks rose to 50.7%.
 
New-highs outpaced New-lows Thursday. The spread (new-highs minus new-lows) was +60. (It was +27 Wednesday.)   The 10-day moving average of the change in spread was +2 Thursday.  In other words, over the last 10-days, on average; the spread has increased by 2 each day.  The internals remain neutral on the markets, but they deteriorated significantly today.

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         
Thursday, the NTSM long term indicator was BUY. Price and VIX indicators are positive.  Sentiment and Volume are 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: high RSI; inability to break appreciably above 2030; falling up volume (on a 10-day basis); deterioration in 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%