Coppock Curve Says Stock Crash Now…Blow-off Top…S&P 500 Top is Near

Here is a collection of cheery market calls for all you bears:

COPPOCK CURVE SAYS SELL (Investing.com)

“The Coppock Curve's message is straightforward: Get out of the market and stay out until at least the first quarter of 2015. After five years of upside, the old trading saw comes to mind: bulls make money, bears make money, but pigs get slaughtered.” Commentary at...http://www.investing.com/analysis/coppock-market-message:-get-out-and-check-back-in-q1-'15-211608

 
HEAD AND SHOULDERS ON THE NASDAQ – BLOW OFF TOP (of two minds.com)
“Interestingly, the NASDAQ index has traced out a textbook example of this [head-and-shoulders] pattern…If this…pattern plays out, the NASDAQ should experience a major… decline…If the NASDAQ surpasses the high of 4,371 and moves higher, the head and shoulders pattern is negated. If the NAZ fails to rally to new highs, that could be a signal that the rally from 2009 is reversing or has entered a new phase.” -  Charles Smith. Commentary at…
http://charleshughsmith.blogspot.com/2014/05/nasdaq-classic-head-and-shoulders-and.html
 
S&P 500 TOP IS NEAR (CNBC)
“Typically, markets have two moves up with an intermediate decline of 60%, and we did see that. What we do is look for a market at that high that looks similar to what took place at the intermediate correction and the New York stock exchange, you have the charts there, it shows that from the peak in July 2011 into the October 4th low, 62 trading days. We inverted that chart and we're currently at 62 days. We're saying right now we're getting the inversion of what occurred into the low on October 4th at this peak, and we should see a high -- once we go above the recent highs and have a new recovery high close, we should exhaust the market.” - Thomas Denmark, Denmark Analytics. Commentary from CNBC, the Santelli Exchange, Video and transcript at…
http://video.cnbc.com/gallery/?video=3000271931&__source=yahoo%7cheadline%7cquote%7cvideo%7c&par=yahoo
 
They could be right.  Right now, my indicators aren’t showing such a negative view, but that would change very quickly if market participants decide these guys are right.
 
MARKET REPORT

Tuesday, the S&P 500 was DOWN about 0.9% to 1868 (rounded).

VIX rose about 4% to 13.80.
The yield on the 10-year Treasury Note fell to 2.59% at the close.
 
The Bond Ghouls are worried about the stock market.  If the smart money is selling, some are buying bonds.
 
RSI closed at 68 Tuesday.  That is neutral, but the damage has been done with overbought readings the prior 3-trading days.  It will be a while before we get an oversold reading.  We might not need to wait that long though.  The S&P 500 is only 5% above the 200-day moving average (dMA) and is nearly at the 50-dMA now. I think a drop to the 200-dMA is more likely than a reversal now.
 
I’m going to make this point until the S&P 500 breaks thru the old highs: The S&P 500 has closed within about 1% of the all-time high of 1891 20-times (prior blogs had a typo here) since 1 Jan 2014. It needs to punch higher or the correction will be back.  The prior high was 1891.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE declined to 50.0% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Tuesday.  The spread (new-highs minus new-lows) was +49.  (It was +56 Monday.) The 10-day moving average of change in the spread was minus-8.  In other words, over the last 10-days, on average, the spread has DECREASED by 8 each day. The smoothed 10-dMA of up-volume continued to decline today.  The internals remained neutral on the market, but only because Breadth is neutral at 50% advancing; otherwise Internals would be negative 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 2013, using these internals alone would have made a 16% return vs. 30% 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, straight-up year like 2013.
 
NTSM
The NTSM analytical model for LONG-TERM MONEY remained HOLD Tuesday.  Sentiment was 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. On a statistical basis, Sentiment is negative.  Price, VIX & Volume indicators are neutral.

MY INVESTED POSITION

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at the close.  50% in stocks is fully invested for me, given my age (semi-retired) and the risk inherent in today’s stock market. I am watching closely to see if it is time to reduce my long-term stock holdings.

                             --INDIVIDUAL VALUE STOCKS--
ENSCO (ESV): BUY

The techniques I use to identify a bottom can be used to find turn-around possibilities in individual stocks so here is one I bought today.

 
Ensco is an oil rig owner that leases rigs. ESV made recent highs in Nov of 2013 around 62. Since then it has been generally falling.  It made an initial low on 13 March 2014 on high volume and lower lows 14 and 17 March on greatly reduced volume.  Recently, it has made higher highs and higher lows.  Technically, this looks like a good buy point.
 
Fundamentals hint at a turnaround with higher rig-utilization expected.  ESV currently has a 6% dividend yield so I am well compensated while I wait for improved performance in the stock price.  With a current P/E of 8.5 this is a true value play. Here are a couple of videos…
The Street:
http://www.thestreet.com/_yahoo/video/12695584/ensco-symantec-remain-smart-plays-for-value-seekers.html?cm_ven=YAHOOV&cm_cat=FREE&cm_ite=NA&s=1
Motley Fool:
http://www.fool.com/investing/general/2014/05/05/here-are-the-numbers-you-should-really-watch-with.aspx
Do your own due diligence. A broad economic downturn could pose problems for oil services companies.
 
Research has shown that to have a diversified portfolio no one stock should be more than 4% of the portfolio total or stated another way, if your total portfolio consisted of individual stocks, you would need 25 stocks to be “diversified.”

ISM Services Up…QE to End in October…Fed Might Raise Rates Earlier…

ISM SERVICES UP (WSJ)
“The ISM's nonmanufacturing purchasing manager’s index increased to 55.2 in April from 53.1 in March…Within the ISM nonmanufacturing survey, "the majority of survey respondents' comments indicate that both business conditions and the economy are improving."  Story at…
http://online.wsj.com/news/articles/SB10001424052702304101504579543662161042676?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304101504579543662161042676.html

FED WON’T CONSIDER RATE RAISE UNTIL OCTOBER (CNBC)

“The Federal Reserve will likely bring its massive bond-buying program to an end in October, and only after that will it consider when to raise U.S. interest rates, a top Fed official said on Sunday. ‘I personally expect us to end that program in October," Dallas Federal Reserve Bank President Richard Fisher said in an interview on Fox News. "Then we have to see how the economy is doing, including these broader measures of unemployment and where we stand before we can talk about how we might move the short-term rate.’" Story at…

http://www.cnbc.com/id/101640080
Even “considering” a rate raise in October will be too early for the Markets.
 
THE END IS NEAR (Hussman Funds)
"Taking the broad stock market as a whole, and considering all stocks – not simply the largest of the large caps – investors are now making the broadest and most leveraged bet on overvalued equities in U.S. history. Conditions somehow do not feel so dangerous because profit margins are cyclically extreme, but I suspect that this only means that investors will be surprised by the depth of the markets losses, as they were in 2000-2002 and 2007-2009. The lessons on this really are freely available all the way back to the South Sea Bubble. Meanwhile, with Bernanke out, the Federal Reserve no longer appears inclined to pursue his wildly experimental and financially distorting policies. That’s not a good mix for speculators, and there may not be much time left until Judgment Day.” – John Hussman, PhD.  Excerpted from Hussman Funds Weekly Market Commentary for 5 May 2014 at…
http://www.hussmanfunds.com/wmc/wmc140505.htm

MARKET REPORT

Monday, the S&P 500 was UP about  0.2% to 1885 (rounded).

VIX rose about 3% to 13.29. Values of VIX in the range of 12 to 13 have ocurred at short-term tops in 2013.
The yield on the 10-year Treasury Note rose slightly to 2.61% at the close.
 
The Bond Ghouls are worried about the stock market.  If the smart money is selling, some are buying bonds. 

SUGGESTIONS A DOWNTURN IS COMING

The slope of S&P 500 is relatively flat and this pattern has persisted since 30 December.  Going back to December of 2009 I have only seen one instance when the S&P was moving upward at such a slow pace for this length of time and that was from mid-May to Mid-September of 2013.  That period was followed by about a 5% retreat to the lower trend line.
 
I’m going to make this point until the S&P 500 breaks thru the old highs: The S&P 500 has closed within about 1% of the all-time high of 1891 27-times since 1 Jan 2014.It needs to punch higher or the correction will be back.  The prior high was 1891 so, not yet.

 

The Relative Strength Indicator (RSI) remains “overbought” Monday at 78.  In simple language, RSI is a technical indicator that shows the percentile of the size of up-moves compared to the size of all moves (up and down) over a given period of time usually 14-days.  An RSI (SMA) of 78 (based on the 14-day simple moving average) means that the up moves are in the 78^th percentile of all moves during the recent 14-day period and that is a strong value signifying “overbought.”

I mentioned a few other “suggestions” in yesterday’s blog-post.

MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE declined to 54% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Monday.  The spread (new-highs minus new-lows) was +56.  (It was +112 Friday.) The 10-day moving average of change in the spread was minus-3.  In other words, over the last 10-days, on average, the spread has DECREASED by 3 each day. The smoothed 10-dMA of up-volume continued to decline today.  Only Breadth is positive.  The 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 2013, using these internals alone would have made a 16% return vs. 30% 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, straight-up year like 2013.

NTSM

The NTSM analytical model for LONG-TERM MONEY remained HOLD Monday.  Sentiment climbed to 85%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. This is a very high number and on a statistical basis Sentiment is negative.  Price, VIX & Volume indicators are neutral.

MY INVESTED POSITION

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at the close.  50% in stocks is fully invested for me, given my age (semi-retired) and the risk inherent in today’s stock market. I am watching closely to see if it is time to reduce my long-term stock holdings.

Market Report…Internals…Daily Stock Market Rating…RSI now Overbought

MARKET REPORT
Friday, the S&P 500 was DOWN about 0.1% to 1881 (rounded).
VIX fell about 3% to 12.91. Values of VIX in the range of 12 to 13 have been at short-term tops in 2013.
The yield on the 10-year Treasury Note fell again to 2.58% at the close.
 
The Bond Ghouls are getting more worried about the stock market.  If the smart money is selling, some are buying bonds.

DOWNTURN COMING

RSI turned “overbought” yesterday (Thursday) at 70.  In simple language RSI is a technical indicator that shows the percentile of the size of up-moves compared to the size of all moves (up and down) over a given period of time usually 14-days.  As of Friday, the RSI (SMA) was 80 based on the 14-day simple moving average.   That means that the up moves are in the 80^th percentile of all moves during the recent 14-day period and that is a strong value signifying “overbought.” This suggests a turn is coming as does the current value of VIX.  There have been some statistical “calm-before-the-storm” readings too.  As I noted earlier, the number (or percentage) of stocks above their 200-day moving average continues to fall.  I’d expect a reversal soon, but that doesn’t mean it will happen or that it will be anything more than a retreat to the lower trend line as has been the case all thru 2013.

I’m going to leave this posted until the S&P 500 breaks thru the old highs: The S&P 500 has closed in the vicinity of 1880 about 8 to 10 times since 31 December.  The index has only closed above 1880 3-times and then only about ½-% higher.  It needs to punch higher or the correction will be back.  The prior high was 1890 so, not yet.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE declined to 55% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Friday.  The spread (new-highs minus new-lows) was +112.  (It was +95 Thursday.) The 10-day moving average of change in the spread was +0.  In other words, over the last 10-days, on average, the spread has remained UNCHANGED each day. The smoothed 10-dMA of up-volume remained down today.  The 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 2013, using these internals alone would have made a 16% return vs. 30% 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, straight-up year like 2013.

NTSM

The NTSM analytical model for LONG-TERM MONEY remained HOLD Thursday.  Sentiment climbed to 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. This is a very high number and on a statistical basis Sentiment is now negative.  Price, VIX & Volume indicators are neutral.

MY INVESTED POSITION

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at the close.  50% in stocks is fully invested for me, given my age (semi-retired) and the risk inherent in today’s stock market. I am watching closely to see if it is time to reduce my long-term stock holdings.

Good News on Payrolls…ISM Manufacturing UP…Stocks Above their 200-dMA: Down!

PAYROLLS UP BIG (Bloomberg)
"America’s job-creation machine kicked into higher gear in April as employers boosted payrolls by the most in two years and the jobless rate plunged to the lowest since the collapse of Lehman Brothers…The 288,000 gain in employment marked the biggest upside surprise since February 2012…'The economy is gathering momentum after the bad winter,' said Michael Gapen, senior U.S. economist at Barclays Plc…”  Story at…
http://www.bloomberg.com/news/2014-05-02/payrolls-in-u-s-rise-by-most-since-2012-unemployment-at-6-3-.html
Finally, we see a number higher than required to keep up with population growth.
 
ISM MANUFACTURING INDEX (Briefing.com)
"The ISM Manufacturing Index increased to 54.9 in April from 53.7 in March… It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends."
http://www.briefing.com/Investor/Calendars/Economic/Releases/napm.htm
 
WORRISOME STAT
The percentage of NYSE stocks above their 200-day moving average continues to fall.  It’s now at 62.6%. Historically, a value in the low 60’s (especially values below 61) has been trouble for the markets.

I’ll post the Market Report, Internals, and our daily market rating later tonight or tomorrow.  It’s a busy day today.

Jobless Claims Jump…Consumer Spending Rises…QE tapering; Three Steps and a Stumble

JOBLESS CLAIMS RISE (Bloomberg)

Jobless claims rose by 14,000 to 344,000 in the period ended April 26, the highest level since Feb. 22, Labor Department data showed today…“This is a time of the year when there’s a lot of seasonal issues to work through,” said Stephen Stanley, chief economist at Pierpont Securities LLC…“Eventually we’ll settle out. If we were to settle at 320,000, it would be modest improvement.” Story at…

http://www.bloomberg.com/news/2014-05-01/jobless-claims-in-u-s-unexpectedly-climb-to-nine-week-high.html

CONSUMER SPENDING JUMPS (Bloomberg)
“Household purchases, which account for about 70 percent of the economy, climbed 0.9 percent, the most since August 2009…”  Story at…
http://www.bloomberg.com/news/2014-05-01/consumer-spending-in-u-s-jumps-by-most-in-almost-five-years.html
 
QE TAPERING; DOES IT MATTER? (STA Wealth)
"The reason it matters to investors is that stock and bond prices have benefited greatly from QE and deficit spending. Not only has QE expanded M2 [a measure of money supply], but a large portion of that M2 has found its way directly into stocks, pushing equity valuations higher and higher. The reason QE hasn't produced significant economic growth is in part the fact that the money created on the front-end of this process has been invested in risk assets rather than flowing into the economy to stimulate GDP growth… with the Federal Reserve now withdrawing that support…this leaves the market vulnerable to the actual underlying economic and fundamental underpinnings.  That story is much less exuberant." – Lance Roberts. Commentary at…
http://streettalklive.com/index.php/analysis/daily-x-change.html?id=2194

The Fed has completed its third QE reduction.  Will the 3-steps and a stumble rule apply?

THREE STEPS AND A STUMBLE (Financial Dictionary)

“A rule of thumb stating that the prices of stocks fall significantly after the Federal Reserve raises interest rates three times in a row. In a booming economy, minor adjustments in key interest rates, both up and down, are fairly normal. However, if the Fed raises interest rates three times in a row, this is taken as an indicator that it intends for interest rates to remain at a comparatively high level for the foreseeable future. This leads investors to sell stock, because the businesses underlying the stock now have the added cost of high interest rates, which reduces profits. The selling of stock causes stock prices to drop.” Definition from…

http://financial-dictionary.thefreedictionary.com/Three+Steps+and+Stumble+Rule

I posted a little more on the 3-steps rule here (in December 2013):

http://navigatethestockmarket.blogspot.com/2013/12/qe-taper-three-steps-and-stumbleq-ratio.html

THREE STEPS AND A STUMBLE – TROUBLE AHEAD

Actually, a more accurate statement of the 3-steps and a stumble rule says that when the Fed tightens one of its basic policy variables (Discount rate, Margin requirement, or Reserve Requirement) three times in succession then the markets should fall.  There is no track record for QE since bond buying on this massive scale has never been tried before.  With the Fed withdrawing QE, and thus support for the markets, one must conclude that the markets will be in trouble.  In 2000 it took 4-tightenings before the major dot.com top.  In some years it has only taken 2-tightenings.  It is doubtful that QE reduction will have the impact that a tightening of interest rates has had in the past.  Trouble is expected, but perhaps not an all-out crash and it may take more than 3 or 4 reductions.  All I can do is warily watch the markets.

 

Down the road, there are new regulations that will require more Bank reserves.  Bank reserve requirements have been called the single most accurate stock market indicator of all time.  Higher reserve requirements infers market declines.  Conversely, there are some economists who say that this current stock boom began in 2009 when “mark-to-market” accounting rules were dumped. That was a de facto reduction of reserve requirements for banks.  The new-rules requiring greater reserves are due to be enacted 1 or 2-years in the future.  I’m sure there will be more out there as this comes closer into view.

MARKET REPORT

Thursday, the S&P 500 was UNCHANGED at about 1884 (rounded).

VIX fell about 1% to 13.25.
The yield on the 10-year Treasury Note fell again to 2.61% at the close.
 
The Bond Ghouls are getting more worried about the stock market.

 

I’m going to leave this posted until the S&P 500 breaks thru the old highs: The S&P 500 has closed in the vicinity of 1880 about 8 to 10 times since 31 December.  The index has only closed above 1880 3-times and then only about ½-% higher.  It needs to punch higher or the correction will be back.  The prior high was 1890 so, not yet.

MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE declined to 56% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Thursday.  The spread (new-highs minus new-lows was +95 .  (It was +66 Wednesday.) The 10-day moving average of change in the spread was +1.  In other words, over the last 10-days, on average, the spread has INCREASED by 1 each day. The smoothed 10-dMA of up-volume reversed down today.  The internals turned 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 2013, using these internals alone would have made a 16% return vs. 30% 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, straight-up year like 2013.

NTSM

The NTSM analytical model for LONG-TERM MONEY remained HOLD Thursday.  Sentiment climbed to 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. This is a very high number and on a statistical basis Sentiment is now negative.  Price reversed to neutral and VIX & Volume indicators are neutral.

MY INVESTED POSITION

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at the close.  50% in stocks is fully invested for me, given my age (semi-retired) and the risk inherent in today’s stock market. I am watching closely to see if it is time to reduce my long-term stock holdings.