Submitted by John Rubino via DollarCollapse.com,
Think of “market internals” as the blood pressure and insulin levels of the financial world. They operate below the surface, frequently unnoticed, but over time they have a big say in the health of the patient.
And right now they’re pointing to a heart attack.
[NorthmanTrader.com provides some more color on internals]
NYSE - Percent > 200DMA...
S&P - Percent > 200DMA...
Let’s start with junk bonds. These are loans to financially and/or operationally-weak companies that because of their weakness have to pay up to borrow. Such bonds have a risk/return profile that’s more akin to equities than to, say Treasury bonds, and they trade accordingly, rising and falling on the likelihood of default rather than their relative yield.
Recession means higher default rates for weak borrowers, so when the economy is slowing down or otherwise hitting a rough patch, the junk bond market is often where it registers first. Lately, junk has been tanking relative to stocks (chart created by Hussman Funds):
Another widely-followed internal is the relationship between large-cap (i.e., relatively safe) stocks and riskier small caps. When large caps outperform small caps, it’s frequently a sign that the broader economy is weakening. Since September, that’s been happening too:
In general, when market leadership gets extremely narrow — that is, when only a few things are going up and everything else is either flat or falling — trouble ensues. During the late 1990s tech stock mania, for instance, the global economy ended up being supported by the US, whose economy was supported mostly by the NASDAQ, which was supported by just a handful of high-flying tech stocks. When those stocks finally cracked, they took the whole world down with them.
Now something similar is happening, thanks in large part to this cycle’s dominant tech firms, especially Apple. From CNBC:
The S&P 500’s profit margin growth over the past five years has been driven largely by tech, and one name in particular: Apple. Unfortunately for the market and for Apple, the days of exceptional expansion may be over.
That’s according to David Kostin of Goldman Sachs, who wrote in a note Monday to clients that he expects margins to remain flat at 9.1 percent for 2016 and 2017.
“Many of the drivers of margin expansion during the past few decades appear to be behind us,” Kostin wrote, listing former catalysts such as lower interest rates, lower taxes, a switch from manufacturing to services and technological innovations.
Since 2009, information technology has been responsible for about 48 percent of overall S&P 500 margin expansion. Apple alone has been responsible for 18 percent. [But that is about to change.] According to BK Asset Management’s Boris Schlossberg, Apple’s “lack of gusto” when it comes to profit margins is a result of unsatisfactory products, aside from the new iPhone.
“At this point, the watch is a bust, TV is a bust, the big iPad is not really flying off the shelves,” Schlossberg said Tuesday on CNBC’s “Trading Nation.” “I don’t see any other place where they’re going to be able to get the kind of margin expansion that they’ve been able to get for the last five years.”
And while Apple is up 7 percent for the year, Schlossberg said investors may be losing enthusiasm for the stock as well, at least compared with other tech outperformers this year.
To summarize, Apple will remain a great company but won’t continue to make more on each new dollar of sales. And this will cause investors to start treating it like a non-deity, revaluing its stock accordingly.
Meanwhile there’s a good chance that Apple will soon fall victim to a combination of falling tech prices and rising quality. Low-end consumer electronics are now adequate for most people, leaving the average consumer far less anxious to buy the best. Today there are 70-inch flat-screen TVs with a great picture to be had for $1,000 or less. Low-end smart phones, meanwhile, can now do most of what the best iPhone could do just a few years ago. A friend recently bought an $80 Windows-based phone that he describes as “okay…pretty good screen and it texts just fine.” He pays about $25 less per month than with his old, much more expensive phone, and is happy with the trade-off. Barring a new must-have iPhone killer app, this trade-off is only going to become more compelling going forward.
So what happens to a market that’s balanced precariously atop the shares of a handful of “must own” companies when those companies lose their halos? Historically, the previously-strong sectors join the rest in a broad sell-off.
Mumbai: Paving the way for stock exchanges to get listed, the Securities and Exchange Board of India (Sebi) on Monday approved a new set of revised norms for the IPO and listing of bourses.
The new norms, which have been finalised after taking into account the representations received for listing of stock exchanges, aim to put in place necessary safeguards and procedures with respect to shareholding norms, the 'fit and proper' criteria and other issues of conflict of interest.
The exchanges would need to take steps for maintaining 51 percentage of shareholding of public category and ensuring that the holding of trading members, associates or agents does not exceed 49 per cent.
A mechanism would need to be put in place providing for approval of the listed stock exchange as and when holding of trading members/associates/agents reaches 45 per cent, market regulator Sebi said after its board meeting here on Monday.
Similar rules would apply for listing of depositories as well.
BSE has been seeking to get listed for a long time, but its plans have been hanging in balance due to lack of regulatory clearances although Sebi had first announced its norms for listing of exchanges over three years ago.
Sebi has been of the view that necessary safeguards need to be first put in place for tackling conflict of interest and other issues.
Welcoming the Sebi move, a BSE spokesperson said, "BSE will try to expedite the listing process based on the regulations. Listing of exchanges are expected to bring additional transparency to the working of the exchanges."
However, he said that the exchange will be able to give its detailed comment only after final regulations are published.
As per the new norms, approved on Monday, every shareholder be 'fit and proper', all applicants in the IPO or offer for sale will be required to make declaration to this effect at the time of making application.
Sebi will also issue necessary procedures to ensure compliance of the provisions post listing.
The shareholding threshold of 2 per cent, 5 per cent or 15 per cent (for different classes of investors), as the case may be, will be monitored through the depository mechanism.
In order to effectively implement the provisions of listing of its associates on listed stock exchanges, Sebi will also amend the definition of associates.
The national grassroots initiative, now in its third year and backed by American Express, aims to promote the quality and diversity of small enterprises and persuade communities to support their local traders in reviving high streets all year round.
Britain’s five million small businesses are finding the public increasingly willing to shop small and locally, according to a recent survey. The desire to buy British and something different to the mainstream, along with the personal service touch are said to be the main reasons.
Rachel Gilbertson, 22, started her jewellery and accessories business Roxiie’s Treasures two years ago after a frustrating struggle to find a job. Now with a shop in Crosby, Liverpool, Rachel says being part of this year’s Small Business Saturday’s campaign “provided me with a great opportunity to meet other owners and market to the community”.
Magpie’s Nest gift shop owner Liz Attenborough from Stalybridge, Cheshire, saw sales rise 300 per cent on the day last year and some customers make return visits. “We made an effort to publicise ourselves on the back of the campaign and it really paid off,” she says.
Losing his high profile job opened up another life of creativity and entrepreneurship for John Thomson, 57, who owns the North East Arts Collective in Newcastle.
“One night in the local pub I got talking to an artist complaining about the lack of galleries in the area,” he says.
“Despite being colour-blind and knowing very little about art before starting this business five years ago, North East Art Collective now exhibits the work of over 150 local artists and I have 160 on a waiting list.
“Small Business Saturday provided us with excellent coverage in our local media and we were invited to Downing Street by the team too.”
One of the stand-out successes of the campaign has been the picturesque town of Helmsley in north Yorkshire blessed with an array of quality small shops and a fiercely loyal customer base.
Carolyn Frank, who owns Libby Butler Jewellers there, explained how traders banding together has paid dividends for the town.
“Small Business Saturday activity in Helmsley has grown every year,” she says. “This one sees even more businesses coming together. Last year around 30 local businesses were involved, this year over 50 businesses will participate.
“We are offering a variety of activities as well as some festive fun in the market square including invited Alpacas and Mangalitsa pigs.
“Our ice rink is returning bigger and better. The whole event this year is themed for the first time, as is its pantomime, lots of businesses are dressing up and we will have the ugly sisters beauty salon, a S(Elfie) photobooth, Button's burgers and the Fairy (godmother) cakes.
“It's all about the whole community having some festive fun and highlighting all our small businesses and the great variety they have to offer. We've seen people booking to stay in Helmsley especially to come to the event this year and we know they won't be disappointed.”
There is still time for traders to get involved. Campaign director Michelle Ovens urges firms to “print off a poster, tell your customers, call the press, get on social media, get out the mince pies and put on the music - Small Business Saturday is here to give you the spotlight you deserve. You are one in five million and you are worth it!”
Visit www.amexshopsmall.co.uk and www.smallbusinesssaturdayuk.com for ideas including downloading a shop window marketing pack and signing up to the website’s Small Business Finder feature which enables consumers looking to shop locally find firms in their region.