10 Updates

The Week Ahead: Is Now the Time to Change Your Strategy?

May 16 2014, 6:26pm CDT | by

It was a wide-ranging week for the stock market, while bond prices kept rising as yields hit new six-month lows. Though volume for the week was low, the daily volume was a bit  higher on the down...

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10 weeks ago

The Week Ahead: Is Now the Time to Change Your Strategy?

May 16 2014, 6:26pm CDT | by

It was a wide-ranging week for the stock market, while bond prices kept rising as yields hit new six-month lows. Though volume for the week was low, the daily volume was a bit  higher on the down days.

The sharp selloff was blamed in part on the comments by a well-known hedge fund manager while others guessed that the “sell in May crowd” decided to pick the middle of the month to dump their stocks.

In any case, many investors and traders seem to be risk adverse as we head into the often-difficult summer months. The decline in yields has been a global phenomenon as this table from Bloomberg illustrates. It shows that while the yield on the US 10-year T-note has dropped 11 basis points in the past month, those in Germany and France have declined 17 points.

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Even more surprising is the 22 basis points decline in the 10-year bonds in Mexico and Brazil. On a yearly basis, the bonds of Portugal and Greece have declined over 160 basis points in the past year.

The yields on the 10- and 30-year US Treasuries have not yet dropped below their key support levels but they are much closer now than they were last week . A break of these levels would indicate a further drop in yields but I would still not chase the long side of the bond market.

If you have been shortening the maturity of your bond portfolio as I first recommended a year ago, you shouldn’t change the structure of your bond portfolio now. If rates drop further, it will lag the performance of a longer-maturity portfolio. However, the outlook for rates over the next few months is uncertain, and I think yields are likely to be significantly higher a year from now.

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This interesting table from CXO Advisory provides a different spin on the well-known data that leads some to sell in May and then buy stocks in November. As you can see, the performance during the May-October period was worse in even years and 10 times better in odd years.

Since I focus on market timing, along with identifying market-leading sectors and stocks, I have never been a big follower of this approach. Oftentimes, there are good buying opportunities during the summer months.

For example, in early June of 2012, the technical studies gave strong positive signals . Over the next six months, the S&P 500 gained 9.7% but if you bought at the start of November you finished the year with a slightly loss.

The NYSE Advance/Decline line shows no signs of an intermediate-term top, so I would recommend a high allocation to stocks unless you need the funds before the end of the year. Those who watch their portfolios nervously throughout the year may consider raising an additional 10-15% in cash on the next market rally. That way you will have more cash to invest this fall.

Globally, the concern has shifted more to a fear of deflation but it seems pretty certain that the ECB will lower rates in June as the pressures are mounting. A Financial Times editorial argued that “Draghi must tackle threat of deflation .”

Last week’s GDP numbers reflected stronger than expected growth for Germany and Japan while Italy was weaker than expected. The next reading on the US GDP does not come until May 29.

Investors seemed to focus last week on the economic data that was disappointing. The Retail Sales last Tuesday were up an anemic 0.1% when most were expecting 0.4%. These disappointing numbers for April will make May’s numbers even more important.

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The data for the housing market was mixed as the Housing Market Index declined but expectations for future sales were strong. The chart shows the breakout above resistance, line a, that I pointed out in 2012. The short-term uptrend, line b, has been broken but as long as the HMI does not drop below the low from the spring of 2013, the trend will remain positive./>/>

The housing stocks are still acting weak as the iShares Home Construction ETF (ITB ) made new correction lows last Thursday. The Housing Starts last Friday showed an unexpected 13.2% gain in April and they were up 26.4% on a year-to-year basis.

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Last Thursday’s disappointing Industrial Production data did not provide any confidence to investors who were already worried about the strength of the economy. Largely ignored was the 19-point surge in the Empire State Manufacturing Survey (see chart) and the Philly Fed Survey kept up April’s trend of stronger growth. The downtrend in the Philly Fed data (line a) is close to being broken.

The weaker than expected preliminary consumer sentiment reading form the University of Michigan was disappointing but it is the final monthly numbers that are more important.

The economic calendar is light early this week with Fed Chair Janet Yellen giving a commencement speech on Wednesday and the FOMC minutes will also be released that afternoon.

Thursday will be the key day as in addition to the jobless claims we get the PMI Flash Manufacturing Index , Leading Indicators, and Existing Home Sales. The Pending Home Sales report for April comes out on Friday.

What to Watch
The Spyder Trust (SPY ), NYSE Composite (NYA ), and SPDR Dow Industrials (DIA ) finally got the upside breakout that I was looking for but it was mostly negated by the selling last Wednesday and Thursday./>

The market turned higher in the last 90 minutes of trading on Friday, which helped to reduce much of the losses from early in the week as both the NYSE Composite (NYA ) and Spyder Trust (SPY ) were flat for the week in late trading.

As I noted in Friday’s technical review , many investors are wondering whether the market is destined to test the lower boundaries of the trading range, which has contained prices for much of the year.

The oversold reading from the Arms Index on Thursday was consistent with a short-term selling climax. This favors a further rebound early this week but it will need to be watched closely. The weekly analysis of the market internals on the NYSE Composite (NYA ) is clearly positive while the weekly OBV on the Spyder Trust (SPY ) has deteriorated.

The low readings of the VIX is not generating any strong warnings, and while the individual investor turned a bit more bullish last week (up to 33.2% from 28.3%), they are at levels closer to a market bottom than a top.

It was another crazy week for earnings as J.C. Penney Company, Inc. (JCP ) surprised the market as it was up over 145 on Friday and was joined by a 13% gain in Nordstrom Inc. (JWN ) . On the other side of the coin, there was World Wrestling Entertainment (WWE ), which was down over 43%.

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The five-day MA of the % of S&P 500 stocks above their 50-day MAs has stayed in its narrow range as it was at 58% Thursday, which is just below the mean of 63%. It is holding above the recent lows but a drop below 46% would be consistent with a drop in the S&P to the lower boundaries of its trading range.

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The weekly chart NYSE Composite (NYA ) will close the week above the monthly pivot at 10,522./>/>

The monthly projected low is at 10,375, which is very close to the 20-week EMA at 10,359. The quarterly pivot is at 10,270 with additional support in the 9900-10,000 area. Of course, the NYSE dropped to a low of 9732 in February but I think it would take the completion of a more significant top before we would go that low.

There is initial daily gap resistance from last week at 10,637-10,647 with further at 10,700.

The weekly NYSE Advance/Decline made a new high three weeks ago and is holding near its highs. It is well above the rising WMA as it has been since the end of last year.

The weekly OBV made a slightly lower high in early May and is now testing its rising WMA. This makes the close this week quite important. The OBV has long-term support now at line c.

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S&P 500
The weekly chart of the Spyder Trust (SPY ) shows the narrow range over the past four weeks, which is a cautionary sign. As I noted on Friday, a daily close below the May 7 low of 186.01 will increase the odds of a drop to the minor 38.2% Fibonacci support at $183.75. The 20-week EMA is at $184.14./>

This is just above the quarterly pivot at $182.70 with the 50% support at $181.69. The weekly uptrend is at $181.72 with the starc- band much lower at $178.43.

There is first resistance now at last Thursday’s opening price of $188.67 and then at Wednesday high of $189.88.

The S&P 500 A/D after making a new high on Monday looks ready to close the week below its WMA and the recent lows.

The weekly on-balance volume (OBV) has dropped below its WMA after diverging from prices, line b, since February. A decisive break of the uptrend, line c, would be a sign that a more important top could be forming.

The daily OBV (not shown) does look stronger as it made a new high last week and is just slightly below its rising WMA. It therefore does not yet show a completed top formation.

Dow Industrials
The SPDR Dow Industrials (DIA ) made a  new weekly and all-time high last week before closing lower. The 20-week EMA is at $162.10 with the April low at $159.88. There is further weekly support, line d, at $158.33 with the starc- band at $156.92./>

The weekly relative performance is close to dropping below its WMA. The downtrend, line e, was broken a few weeks ago. The daily RS analysis (not shown) still looks as though it has completed a bottom formation.

The weekly OBV was able to break out above its prior highs, line f, before it turned lower. It is well above its WMA and has long-term support at line g.

The monthly pivot is now being tested with the monthly projected pivot support at $161.49.
/>

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Nasdaq-100
The PowerShares QQQ Trust (QQQ ) dropped back below its 20-day EMA last Thursday before stabilizing above the monthly pivot of $86.78. There is further support at $85.50-$85.85 with the daily starc- band at $85.26. There is long-term support at $83.28, line b./>

There is minor resistance now at last Tuesday’s doji high of $88.61, and a move above this level would reverse last Wednesday’s daily LCD sell signal.

The daily OBV turned up Friday but is still below its WMA with more important resistance at the downtrend, line c.

The Nasdaq 100 A/D made a marginal new high last week and is clearly acting stronger than prices. This may be a sign that just a few of the Nasdaq 100 stocks are taking the index lower. The A/D line did close the week below its WMA with long-term support at line d.

Russell 2000
The iShares Russell 2000 Index (IWM ) continues to act the weakest as it broke support at line e last week. It is down 9.5% from the March 4 high at $120.27. It has been below its quarterly pivot at $114.53 since April 11./>

The quarterly projected pivot support is at $108.80 was also broken last week with the daily starc- band at $106.29 The monthly projected pivot support is at $103.22.

The declining 20-day EMA is at $111.18 with the monthly pivot at $113.04. There is more important resistance now at $115.05.

The daily OBV has not yet made new correction lows and is trying to run up. It needs to move above its downtrend, line f, and the previous peak to turn positive.

The Russell 2000 A/D continues to show a pattern of lower highs and lower lows, which is a sign of weakness.

NEXT PAGE: Sector Focus, Commodities, and Tom’s Outlook

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was told today ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by ro ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was reje ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammuddin Hus ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 mill ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 millio ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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