Federal Reserve Rate Decision … Consumer Confidence … Crash for Chinese Stocks … US Stock Market Correction Coming?; Maybe Not

FOMC STATEMENT (Marketwatch)
“The Federal Reserve was slightly more upbeat about the economy on Wednesday, leaving its options open for an interest-rate hike at one of the three meetings left this year. By making subtle changes to the six-paragraph policy statement, “the Fed did just enough to preserve the option to hike rates at the September meeting,” said Eric Green, head of rates and economic research at TD Securities.” Story at…
http://www.marketwatch.com/story/federal-reserve-is-noncommittal-on-timing-of-first-interest-rate-hike-2015-07-29?dist=countdown
 
CONSUMER CONFIDENCE FALLS SHARPLY DOWN (WSJ)
“Consumers unexpectedly took a dimmer view of the U.S. economy this month. Householders were especially less optimistic about current and future job growth. The Conference Board, a private research group, said Tuesday that its index of consumer confidence plunged to 90.9 in July…” Story at…
http://www.wsj.com/articles/u-s-consumer-confidence-falls-back-sharply-in-july-1438093315
 
SHANGHAI COMPOSITE INDEX SUGGESTING CRASH FOR CHINESE STOCKS (Kimble Charting)
“…seldom has the Shanghai index created a 10% reversal pattern after a 100% rally in 12-months. Until this past month, only one time in the past 25-years has the index created at least a 10% reversal pattern after a 100% rally in 12-months, which was 2007. A large decline followed this reversal pattern back in 2007… What the Shanghai index does going forward…should end up being very important for stock markets around the world in the next 6-months!” Commentary at…
http://kimblecharting.tumblr.com/post/122938302371/shanghai-index-creates-historic-reversal-pattern
My cmt: The SSE is down 11% since Chris wrote this piece on 1 July.
 
STOCK MARKET CORRECTION COMING? (CNBC)
“…the Chinese market is crashing…Commodities have crashed. From crude oil to copper, basic materials have fallen 50 percent or more over the past year or so…Interest rates are falling, not an encouraging sign of future growth or stable inflation…[I am] more cautious about our market than I have been in quite some time…” – Ron Insana. Story at…
http://www.cnbc.com/2015/07/28/stock-market-headed-for-correction-commentary.html
 
MARKET REPORT / ANALYSIS
-Wednesday, the S&P 500 was up about 0.7% to 2109 at the close. 
-VIX was down about 7% to 12.5.
-The yield on the 10-year Treasury rose to 2.28%.
 
Ron Insana’s comments above are all true and I share his concerns, but once again, the S&P 500 has bounced up from its 200-dMA and, after a 50%-down retracement of the prior rise, is moving up.  For the immediate future, the stock market correction appears to have been avoided. So I may move some funds into a trading ETF such as SSO (2x S&P 500) tomorrow if I feel lucky, but be careful. 
 
The VIX has already moved down to 12.5 and VIX around 12 has been a point that preceded corrections in recent years. Sentiment too (Bulls/{Bulls+Bears} in selected Rydex/Guggenheim bull and bear funds) is already up to 83.6%.  84.4% is the current Sell point for this indicator.  As I detailed in the blog dated 2 July 2015, paragraph titled: “SENTIMENT: %-BULLS (Bulls/(Bulls+Bears)” at…
http://navigatethestockmarket.blogspot.com/2015/07/sentiment-says-sell-stocksjobless.html
…the S&P generally goes nowhere (or worse) when my Sentiment indicator has been exceeded in the past. Even though it looks like the correction is over…maybe not. Nothing is certain and I still think China’s stock market collapse has further to go and I expect that it will rattle the US markets.
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47% Wednesday, but it did improve from 46.7% to 47.1%. Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months. 
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 45% Wednesday.  (A number below 50% is usually BAD news for the markets. Once again, New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was -8, a huge improvement from just a few days ago. (It was -150 Tuesday.)  
 
The 10-day moving average of change in the spread rose to minus-1, Wednesday.  In other words, over the last 10-days, on average; the spread has DECREASED by 1 each day. Internals switched to neutral on the markets and improved 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         
Wednesday, the NTSM long term indicator is HOLD.  Price is positive, because up moves have exceeded down moves recently. All other long-term indicators remain neutral.
 
MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks. I spilt stock investments roughly equally between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index (DWCPF) as noted in an earlier post.  (My 401k {the TSP} is limited in its choices.)
 
Since 13 July the Dow Jones Completion Index (DWCPF) has underperformed the S&P 500 by about 2%.  The Euro-Pacific (EFA) has underperformed by 0.6%. The failure of the small caps to outperform or even keep up with the S&P 500 is a concern since it suggests investors are sticking with the safety of the big-caps, even with the risk of a strong dollar that erodes overseas profits. I’ll change TSP allocations on Friday to drop the S-Fund.
 
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
 
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%

UPS Says Economy is Slowing … Fosback High Low Logic Index … Sentiment is High not Low …Market Analysis/ Report

Busy day today, so it’s a late post again…
 
UPS SAYS THE ECONOMY IS SLOWING (MarketWatch)
“United Parcel Service Inc. has fired warning shots across the bow of the Federal Reserve and the stock market, by saying on Tuesday that U.S. economic growth appears to be slowing.” Story at…
http://www.marketwatch.com/story/ups-fires-warning-shot-across-the-bow-of-the-stock-market-and-the-fed-2015-07-28
 
FOSBACK HIGH LOW LOGIC INDEX
There isn’t much to say about this indicator now.  With new-highs at very low levels, the High-Low Logic Index is falling so the Index is out of the picture. 
 
SENTIMENT (%-Bulls)
8-days ago Sentiment {5-day, %-bulls based on funds invested in selected Rydex/Guggenheim bulls/bear funds, Bulls/(bulls+Bears)} was 76%. At the close Tuesday it was 83%.  That’s huge for a stat that usually moves slowly. (85% is the sell point for the Sentiment Indicator.)
 
Traders have been buying the dip. Today they were buying solely on the Index test of the 200-dMA. Since the 200-dMA was not violated, the “correction” may be over.  I am not sure though, so I’ll wait a bit longer before resetting trading positions.  Market Internals still look lousy, although there was a significant improvement in New-High/New-Low data Tuesday.
 
MARKET REPORT / ANALYSIS
-Tuesday, the S&P 500 was up about 1.2% to 2093 at the close. 
-VIX was down about 14% to 15.6.
-The yield on the 10-year Treasury rose to 2.25%.
 
Yesterday the S&P 500 bounced up from the 200-dMA and Tuesday it was down to within a couple of points above the 200-dMA in the morning.  It bounced upward and didn’t look back.
 
The 200-dMA is watched by traders because it is rarely violated to the downside.  In the last 3-years, there have only been 3-periods when the S&P 500 has broken below the 200-dMA (Nov 2012, Oct 2014, and 9&10 July 2015). It begs the question, what has the market looked like when the S&P 500 has broken the 200-dMA in the past? I looked at the percentage of stocks advancing on the NYSE over the prior 50-days for each case when the 200-dMA was broken. Results are noted below:
Nov 2012: 50-dMA of %-Advancing     = 52%
Oct 2014: 50-dMA of %-Advancing      = 48%
8/9 July 2015: 50-dMA of %-Advancing= 47%
27 July 2015: 50-dMA of %-Advancing = 46% (200-dMA was not broken)
The trend does show that the number of stocks advancing over the prior 2.5-months has been lower at each test of the 200-dMA. This can’t be good news, but I have no analysis to show that this means a correction is coming. It is just another sign of longer-term market deterioration.
 
Tuesday was statistically significant up-day and that means simply that the price-volume move up exceeded statistical parameters and, in about 62% of the time, that leads to a down-day the next day. It is normal to see a string of these back and forth big moves near a top because the dip buyers are jumping in, but there is still confusion by many market participants.  I am not calling a top; yesterday could have been a bottom, but either way, a down-day tomorrow is expected.
 
The S&P 500 retraced 50% down from the bounce up from 8 July and that too is a popular point for a turn-around.
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47% Tuesday. Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 41% Tuesday.  (A number above 50% is usually GOOD news for the markets. Once again, New-lows outpaced New-highs Tuesday. The spread (new-highs minus new-lows) was -150. (It was -451 Monday.)  This was a nice 1-day turn-around but the 10-day numbers still are unimpressive.
 
The 10-day moving average of change in the spread fell to minus-22, Tuesday.  In other words, over the last 10-days, on average; the spread has DECREASED by 22 each day. Internals remain negative on the markets but did improve 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         
Tuesday, the NTSM long term indicator is HOLD.  Price is positive, becaue up moves have exceeded down moves recently. All other long-term indicators remain neutral.
 

MY INVESTED STOCK POSITION

On 13 July, I increased my investments from 30% invested to 50% invested in stocks. I spilt stock investments roughly equally between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index (DWCPF) as noted in an earlier post.  (My 401k {the TSP} is limited in its choices.)

 
Since 13 July the Dow Jones Completion Index (DWCPF) has underperformed the S&P 500 by about 2%.  The Euro-Pacific (EFA) has underperformed by 0.2%. With this unsettled market there has been a flight to safety. I’ll do the same and shift to S&P 500 (C-fund) at the end of the month or sooner if I get a sell signal in the long-term indicators.
 
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
 
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%

China Markets Down Big … Durable Goods Orders … Stock Market Analysis

CHINA STOCKS DOWN 8% (Marketwatch)
The Shanghai Composite Index ended down 8.5% at 3,725.56, its second-straight day of losses and worst daily percentage fall since February 27, 2007. China’s main index is up 6% from its recent low on July 8, but still off 28% from its high in June…Analysts say the selling came as investors fear the government is curbing its buying of blue-chip stocks—and could even be testing whether the market can support itself.” Story at…
http://www.marketwatch.com/story/shanghai-plunges-8-on-worries-beijing-is-ratcheting-down-inflows-2015-07-27
 
DURABLE GOODS ORDERS UP (USA Today)
“Orders for durable goods jumped 3.4% in June from May, when orders had fallen 2.1%, the Commerce Department reported Monday. The gain was the best result since March and largely reflected a surge in demand for commercial aircraft…Orders for machinery were up 1.4%, while demand for computers and related products shot up 9.1%.” Story at…
http://www.usatoday.com/story/money/markets/2015/07/27/durable-goods/30726285/
My cmt: That last sentence is why Intel did well today.  It was up 0.7% vs the S&P 500, down 0.6%.
 
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was down about 0.6% to 2068 at the close. 
-VIX was up about 14% to 15.6.
-The yield on the 10-year Treasury dipped slightly to 2.23%.
 
Monday, the S&P 500 tested 2064 (the 200-dMA) right after the open.  It didn’t fall below the 200-dMA, but it couldn’t climb much higher afterward, either. It is 0.2% above the 200dMA at today’s close.  Market Internals continued to deteriorate and it looks like the S&P 500 wants to test its prior low of 2047 on 8 July.  It has not broken the 200-dMA yet though, I suspect that this time it will do it. We’ll see.
 
The numbers support the bearish tone in the Markets and until we see some turn-around, I am short-term bearish on the markets.  Personally, I am not short now, but I will look for an opportunity to go long in my trading portfolio with a leveraged ETF like QLD or perhaps even a purchase of XIV if we can manage to see a bottom.
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 46% Monday. Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 41% Monday.  (A number above 50% is usually GOOD news for the markets. Once again, New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was -451. (It was -383 Friday.)
 
The 10-day moving average of change in the spread fell to minus-49, Monday.  In other words, over the last 10-days, on average; the spread has DECREASED by 49 each day. Internals remain negative on the markets and continue to get worse.

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 is HOLD.  All long-term indicators remain neutral. 
 

MY INVESTED STOCK POSITION

On 13 July, I increased my investments from 30% invested to 50% invested in stocks. I spilt stock investments roughly equally between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index (DWCPF) as noted in an earlier post.  (My 401k {the TSP} is limited in its choices.)
 
Since 13 July the Dow Jones Completion Index (DWCPF) has underperformed the S&P 500 by about 1.8%.  The Euro-Pacific (EFA) has underperformed by 0.2%. With this unsettled market there has been a flight to safety. I’ll do the same and shift to S&P 500 (C-fund) at the end of the month or sooner if I get a sell signal in the long-term indicators.
 
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
 
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%

Earnings … New Home Sales … China Market Manipulation … Stock Market Analysis

EARNINGS (FACTSET)
“…With 37% of the companies in the S&P 500 reporting actual results for Q2 to date, more companies are reporting actual EPS above estimates (76%) and fewer companies are reporting actual sales above estimates (54%) compared to the 5-year averages.….
…Looking at future quarters, analysts are expecting year-over-year declines in earnings to continue through Q315, and year-over-year declines in revenue to continue through Q415. Despite the estimate reductions, analysts are looking for record level EPS to resume in Q4 2015. Analysts expect net profit margins to remain relatively flat in the 2nd half of 2015 with the profit margin being reported for Q2 based on per-share estimates)...”  Factset Earnings Insight from…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_7.24.15/view 
 
NEW HOME SALES FALL (Bloomberg)
“Purchases of new U.S. homes unexpectedly retreated in June and prior readings were revised down, painting a picture of less robust improvement during the industry’s busiest time of year. Sales fell 6.8 percent to a 482,000 annualized pace, the weakest since November…” Story at…
http://www.bloomberg.com/news/articles/2015-07-24/sales-of-new-homes-in-u-s-unexpectedly-fall-to-seven-month-low
 
CHINA’S MARKET MANIPULATION (Reuters)
“China has enlisted $800 billion worth of public and private money to prop up its wobbly stock markets, a Reuters analysis shows, but the impact of the unprecedented government-orchestrated rescue has so far been modest. Public statements, media reports and market data reveal that Beijing unleashed 5 trillion yuan (515 billion pounds) in funds - equivalent to nearly 10 percent of China's GDP in 2014…” Story at…
http://uk.reuters.com/article/2015/07/23/uk-china-markets-rescue-idUKKCN0PX0AU20150723?link=mktw
My cmt: The article seems to agree with my earlier comments; sooner or later these efforts are bound to fail. We need only remember the turmoil last January when Switzerland gave up trying to cap the Swiss Franc against the Euro.   
 
MARKET REPORT / ANALYSIS
-Friday, the S&P 500 was down about 1.1% to 2080 at the close. 
-VIX was up about 9% to 13.74.
-The yield on the 10-year Treasury dipped slightly to 2.27%.
 
Friday was statistically significant and that means simply that the price-volume move exceeded statistical parameters and, in about 62% of the time, that leads to an up-day the next day. In this case, it may well lead to a reversal.  The S&P 500 closed 0.8% above its 200-dMA and that may be close enough to the 200-day MA to warrant a turn-around.
 
Unchanged volume was low and that is sometimes bullish since it can indicate too much one-sided thinking at a bottom. Friday wasn’t a test of a prior low though, so calling a bottom for Friday is mostly guesswork and there are likely to be indicators each way.
 
Unfortunately, Market Internals continued to deteriorate and didn’t give any signs of a turn-around or a Friday bottom. With only 47% of stocks on the NYSE advancing in the last 50-days and shorter term internals negative it is hard to be bullish now. 
 
LONG TERM BREADTH
The 50-dMA of advancing stocks dropped from 48 Thursday to 47% Friday. Below 50% is not good. Back in October of 2014 the 50-dMA dropped to 39% before the index bottomed during a 7% mini-correction.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) collapsed from to 51% at the close Thursday to 45% Friday.  (A number above 50% is usually GOOD news for the markets. 
 
Once again, New-lows outpaced New-highs Friday. The spread (new-highs minus new-lows) was -383. (It was -225 Thursday.)
 
The 10-day moving average of change in the spread fell to minus-37 Friday.  In other words, over the last 10-days, on average; the spread has DECREASED by 37 each day. Internals are negative 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         
Friday, the NTSM long term indicator is HOLD.  All long-term indicators remain neutral.
 
MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks. I spilt stock investments roughly equally between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index (DWCPF) as noted in an earlier post.  (My 401k {the TSP} is limited in its choices.)
 
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
 
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%