Tuesday, January 5, 2016

Auto Sales … Chart of the Stock Market Downtrend … Stock Market Analysis

“Automakers capped 2015 with another solid month of sales gains, marking what analysts say was likely the biggest year ever for the the industry, based on preliminary numbers.” Story at…
Auto sales have been a bright spot in the recovery.
On my chart, connecting the highs (starting with 17 July 2015) runs directly thru 2090 and that’s why I noted Monday that 2090 would likely be an upper bound for the Index. On the bottom channel line (for short term thinking), I don’t include the correction. A channel is usually about 5% top to bottom, so I look at that and to see if it makes sense; and I check to see if most lower-low points are included in the bottom channel line.  The correction is a transient event that is over so I don’t include it.  There are other longer term charts where one would include the lows of the August correction. Let me say again that I am not a chartist – there are many technical analysts who use far more sophisticated analysis of charts than I do; this does show my reasoning for the downtrend, at least from a chart perspective.

-Tuesday, the S&P 500 was up about 0.2% to 2017 at the close.
-VIX fell about 6% to 19.44.
-The yield on the 10-year Treasury was unchanged at 2.25.
“As an investor, you should remember that making money in the market is only one-half of the job. Keeping it is the other.” – Lance Roberts
Market Internals remain neutral, but have been improving and that is bullish.  New-hi/new-low numbers reversed to the up-side today. The Money Trend indicator is now mildly bullish; I may get a better sign tomorrow from this indicator.
Tuesday the S&P 500 finished 2.1% below its 200-dMA – a bearish sign. The slope of the 200-dMA is moving down.  This is also a bad sign and is further evidence that the bull market may be over. Still, I think the market can advance from here, especially if Internals continue to improve.
(I am getting data from various sites. Some of the numbers are subject to minor revision so the previous day’s numbers may be slightly different than reported yesterday.)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 55.3% Tuesday vs. 52.9% Monday.  (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks remained 49.0%. A value below 50% indicates a down trend.
The McClellan Oscillator (a Breadth measure) switched back up to a positive reading. That’s just another sign that Internals are improving.  Breadth is improving faster than the S&P 500 so the Index looks like it can go higher.
In a positive reversal New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +13. (It was -92 Monday.)   The 10-day moving average of the change in spread was +22 Tuesday.  In other words, over the last 10-days, on average; the spread has INCREASED by 22 each day. Market Internals remained neutral Tuesday, but it should be clear from the numbers that they improved.

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.
Tuesday, the VIX indicator was negative.   Sentiment, Volume & Price indicators were neutral. The long-term NTSM indicator switched to neutral. The Index is close to an overbought position so I doubt that I will be moving into the market with long-term money Wednesday.

On 30 Dec I reduced my invested position in my retirement account to 30% invested in stocks thru an S&P 500 Index fund (“C”-fund in the TSP). The remaining 70% is invested in cash yielding about 2%.  Short-term bonds would be OK too. I remain bearish long-term.
The S&P 500 peaked in Mid-May has not been able to break higher in the past 7-months.  That looks like a top to me, so I’ll be using short-term indicators for long-term money. That may be too conservative for many, but at least it is a strategy. Be warned: unless there is a correction, this strategy will probably underperform a buy-and-hold strategy. Short-term trading is usually a losing proposition.
See “Why the Bull Market May be Dead” in my 14 December blog at…