"One measure of national economic activity recovered mid-summer as production industries ramped up their output, but the three-month average of the indicator shows an economy still churning below its potential, the Chicago Federal Reserve said Monday. Led by improvements in production-related indicators, the Chicago Fed national activity index rose to +0.27 in July from +0.05 in June.” Story at…
http://www.marketwatch.com/story/chicago-feds-national-economic-activity-index-improves-to-12-month-high-2016-08-22
My cmt: This is similar to the FED’s ADS Business Conditions Index I first reported here on 11 July …
http://navigatethestockmarket.blogspot.com/2016/07/earnings-ads-business-conditions-index.html
RECOVERY HAS FAILED? (SafeHaven)
“…If the employment condition is booming why are payroll taxes falling? There are a couple of answers to that question and neither is favorable. The BLS numbers are either wrong or the quality of new jobs created must be very poor. The latter response seems the most credible; a combination of an increase in the proportion of part-time workers and full-time jobs that provide lower compensation. This would also explain the economy's falling rate of productivity. After all, it's hard to increase the output per hour of barmaids and waiters…The truth is the economy is most likely already in a recession and there never was a viable economic recovery. Just an anemic, ersatz and transitory bounce in GDP derived from artificial, record-low interest rates and asset bubbles. Investors need to keep their eyes open…And, most importantly, have a strategy to protect their portfolios once sanity returns to the market.” – Michael Pento. Posted at…
http://safehaven.com/article/42340/proof-the-economic-recovery-has-ended
THIS IS A COMPLACENT MARKET
Complacent: “pleased, especially with oneself or one's…situation… often without awareness of some potential danger or defect; self-satisfied…”
http://www.dictionary.com/browse/complacent
While there isn’t obvious defect that is going to trash the markets, a complacent market often reacts poorly to any bad news. Here are a few indications of complacency: low VIX; tight Bollinger Bands; NTSM calm-before-the-storm indicator.
VIX. “The VIX is quoted in percentage points and represents the expected range of movement in the S&P 500 index over the next year, at a 68% confidence level (i.e. one standard deviation of the normal probability curve).” From…
https://en.wikipedia.org/wiki/VIX
To get the current expected range over the next month we can divide Monday’s closing VIX of 12.27 by the square root of 12 (3.464) and get 3.5%. So 3.5% is the range of the S&P 500 implied by Monday’s value of VIX 30-days out. Low VIX implies low movement in the Index and indicates complacency.
Tight Bollinger Bands.
Bollinger Bands are based on standard deviation of price moves over a 20-day period. To get values of Bollinger Bands, calculate the 20-day simple moving average of the S&P 500. Then calculate the standard deviation of the same 20-day period. The upper band is determined by multiplying the std. dev by 2 and adding it to the simple moving average (SMA). The lower band subtracts 2x std. dev from the SMA. Narrow Bollinger Bands means the markets have been moving in a narrow range without big moves in either direction – a bearish indication.
NTSM Calm-Before-the-Storm Indicator.
This indicator is similar to Bollinger Bands, because it uses statistical analysis to gauge market swings in price-volume. It usually signals a top early, in a range about 20-days in advance, but it can signal a top within 5-days or less. Like all indicators it isn’t 100% accurate, but it has been pretty good over the last 2-years.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was down about 0.1% to 2183.
-VIX rose about 8% to 12.27. (Clearly the Options Boys are nervous.)
-The yield on the 10-year Treasury dipped to 1.54%. (The Bond Ghouls were concerned too.)
The 10-dMA of Tick (sum of closing up minus down trades) was again over 300 and that is a bearish sign according to Tom McClellan. There was continued deterioration in Market Internals and short-term indicators are pointing down, but not drastically so. My bearish short-term stance remains and I suspect this week will be down.
VXX TRADE:
Today, the calm-before-the-storm indicator (low standard of deviation in recent market moves) still remains down and that suggests that VXX remained a buy as of Monday’s close. It’s a better buy today than when I first bought it about 2-weeks ago and VIX is nearly the same value as it was then. (Unfortunately, VXX isn't tracking VIX so well, but as previously discussed, that's the nature of VXX.)
SHORT TRADE
I am still holding short positions, but I am slowly paring the positions and transitioning into additional VXX positions. (This books a loss for the trade for tax purposes and maintains a short-term bearish stance.)
MONEY TREND INDICATOR
My short-term Money Trend indicator can be volatile; Monday it is down slightly, to nearly flat; a slightly bearish to neutral indication.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) declined to 51.9% Monday. It was 52.5% Friday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks rose to 55.1%. A value above 50% generally indicates an up-trend. The McClellan Oscillator was essentially unchanged at -20.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) dipped to +82 Monday. (It was +108 Friday.) The 10-day moving average of the change in spread was minus-17. In other words, over the last 10-days, on average, the spread has decreased by 17 each day. Market Internals remained neutral on the market.
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).
LONG TERM INDICATOR
Monday the VIX and Price indicators were positive; Sentiment & Volume indicators were neutral. The long-term indicator is BUY; but keep in mind the important Buy-signal was in June and before that at the bottom in February (Too bad I was too stupid to follow my own system!). Now a BUY-signal just shows that the markets have been pretty good recently. Now I think we are near a short-term Top so this is not a great time to buy.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATIONOn 12 July I increased my invested position in my retirement account to 25% invested in stocks thru an S&P 500 Index fund (“C”-fund in the TSP). I added to that position Thursday 21 July bringing my invested total up to 40% in stocks. I expect to add more stocks should we get the anticipated pullback.
The NTSM system indicated Buy at the 11 Feb bottom; and again 2-days after the bottom on high up-volume; and from 22 Feb thru 25 April. I ignored the early signals convinced that it was a bear market bounce; I ignored more recent signals due to overbought conditions. I’m following my system now, especially since the Index has climbed above my initial sell-point of 2100 on the S&P 500 back in November 2015.
