Tuesday, January 12, 2016

Job Openings (JOLTS) Report … There Has Never Been a Bear Market without a Recession … Stock Market Analysis

JOLTS (Reuters)
“U.S. job openings rose in November and employers appeared to have trouble finding qualified workers, a trend that could trigger a pick-up in wage growth this year.” Story at…
I’ve heard that bit of Wall Street wisdom several times by CNBC guest contributors recently. Really? Let’s review the year 2000 for those pundits with short-term memory loss. There was a screaming bull-market and a hot economy. I remember one of my M.B.A. co-workers say that he was taught that the unemployment rate could never get below 4%; but in 2000 it did. When the Fed raised rates for the third time, the party was over. The stock market peaked in March 2000 as Abbey Joseph Cohen, partner at Goldman Sachs, recommended that investors reduce stock exposure. Unemployment began climbing a year later. From the National Bureau of Economic Research: “The NBER's Business Cycle Dating Committee has determined that a peak in business activity occurred in the U.S. economy in March 2001.”  (i.e. March 2001 was the start of the recession and that was a year after the stock market peaked.)
When the recession started the S&P 500 was down nearly 30%. So the next time someone says there hasn’t been a Bear-Market without a recession….forgedaboudit.
-Tuesday, the S&P 500 was up about 0.8% to 1939 at the close.
-VIX fell about 8% to 22.31.
-The yield on the 10-year Treasury dropped to 2.10.
“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
I took profits in 2-thirds of my trading portfolio near the high Tuesday morning.  I didn’t expect the huge drop that followed, but it is hard to turn down 3% profit in 24-hours. I let the other 1-third remain invested long in a 2x S&P 500 ETF.
Market Internals are neutral; the Money Trend indicator is turning bullish along with the Breadth/S&P 500 comparison. I may add to long positions in the trading portfolio Wednesday.
The new-hi/new-low numbers haven’t improved much and, longer-term, the markets don’t look good. The S&P 500 is now down 9% from its all-time high. I remain mostly out of stocks in my retirement accounts.
(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 38.6% Tuesday vs. 37.7% Monday.  (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks remained 48.8%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) rose slightly, but remained negative.
New-lows outpaced New-highs again. The spread (new-highs minus new-lows) was minus-563. (It was -595 Monday.)   The 10-day moving average of the change in spread was -59 Tuesday.  In other words, over the last 10-days, on average; the spread has DECREASED by 59 each day. Market Internals switched to neutral on the markets, because up-volume increased.

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 & Volume indicators were negative.   Sentiment & Price indicators were neutral. The long-term NTSM indicator is SELL; it has indicated SELL 7-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 wouldn’t be surprised to see a swing to neutral 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 8-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…