Wednesday, January 13, 2016

Crude Inventories … FED Beige Book … Chart Bearish Pattern … Tom Lee Bullish …Stock Market Analysis

Another site that provided free historical stock market data is gone.  I may need to purchase some data, so it’s time to put up some ads.
“Crude oil inventories rose 234,000 barrels last week. The consensus was looking for a drop of 2.72 million barrels…” Story at…,000+Barrels+Last+Week+-+EIA+(OIL)/11216608.html
“The U.S. economy continued to show mixed signals from late November to early January, with improvements in the labor market and consumer spending offset by the drag of a strong dollar and low energy prices, the Federal Reserve said on Wednesday. U.S. economic activity expanded in nine of the country's 12 districts…” Story at…

“The Dow Jones industrial average has developed a strong and powerful reversal pattern, which means previous bullish analysis must be revised.” Commentary at…
“While investors wait, we believe the case is increasingly tilting towards ‘growth scare’—and as a consequence, with each passing day, we see the probability of a V-shaped recovery rising,” he said, adding that things have been so dismal that most of the bad news has been “baked in.” Story at…
My cmt: …but watch out.  Mr Lee has been a longtime-Bull. Since the markets traditionally advance about 2-thirds of the time, bullishness is usually right; but not always.  As reported by WSJ: “On Dec. 5, 2007, when the S&P 500 was on the brink of a 38% yearly decline, he [Tom Lee] said the market was “near a tradable bottom” and set a year-end target of 1590 for 2008.” -
I am not critical of Mr. Lee – I have been wrong plenty of times.  This is just cautionary since I don’t think this is not the time to be bullish, at least not yet.
-Wednesday, the S&P 500 was down about 2.5% to 1890 at the close.
-VIX fell about 12% to 25.22.
-The yield on the 10-year Treasury dropped to 2.07.
“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
My Money Trend indicator reversed to Bearish this morning so I sold my remaining long position in the morning. Since this was the second reversal in as many days, I was leery about shorting and I was busy in the PM. Hah - maybe next time!
The S&P 500 is now 11.3% below its all-time high from last May and only 1% above the August 25 low.  You may remember I commented on numerous occasions that this level needed to be retested; well here we are. My numbers indicate that this was not a successful test so further downside is expected.  Market Internals are worse now than at the prior low.  That could change if the S&P stabilizes lower and internals improve. There could be a buy-signal as early as Thursday – it just depends on the numbers.
On the other hand, there will probably be those who will buy the dip in hopes that it is a bottom.  One characteristic of a bottom is extremely low up-volume. We got that today on the NYSE, so again, a possible buy could be close.  Thursday we may find out if investors are panicked or if the panic is over.
(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) dropped to 32.4% Wednesday vs. 38.6% Tuesday.  (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks slipped to 48.4%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) declined and remained negative.
New-lows outpaced New-highs again. The spread (new-highs minus new-lows) was minus-752. (It was -563 Tuesday.)   The 10-day moving average of the change in spread was -189 Wednesday.  In other words, over the last 10-days, on average; the spread has DECREASED by 189 each day. Market Internals remained neutral on the markets, because up-volume increased – not today, but over the 10-day period. (That may be affected by the New Year’s Holiday numbers.)

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.
Wednesday, the VIX & Volume indicators were negative.   Sentiment & Price indicators were neutral. The long-term NTSM indicator is SELL; it has indicated SELL 8-times since 18 December without a BUY signal in the intervening time so the NTSM indicator has been warning about a sell-off for several weeks.
I said yesterday that “I wouldn’t be surprised to see a swing to neutral Wednesday.” The Indicator did switch to neutral Wednesday morning, but that didn’t last as the VIX moved higher when the market sold off.

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, but it’s possible that a Buy signal might not be too far off.
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 8-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…