Wednesday, January 27, 2016

New Home Sales … FOMC Rate Decision … Crude Inventories … Stock Market Analysis

NEW HOME SALES (Bloomberg)
“Purchases of new U.S. homes surged in December to the highest level in 10 months, closing out the best year for housing since 2007. Sales jumped 10.8 percent last month…” Story at…
“The Federal Reserve opted not to hike interest rates at its January meeting and gave no indication that it was changing course on its rate-hiking path ahead. Amid substantial turmoil in financial markets, the Federal Open Market Committee statement issued Wednesday did say it was "closely monitoring global economic and financial developments," Story at…
“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.4 million barrels from the previous week. At 494.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years.” Story at…

SELL THE RALLY (Real Investment Advice)

“NOTE: For conservative investors it is currently unlikely the market will rise much more than between 1970-1990 during this rally. I would do the majority of your portfolio rebalancing and risk reduction in this range.”– Lance Roberts. Commentary at…
My cmt: Lance Roberts pointed out the Head and Shoulders chart-pattern on the chart above. See his piece at the above link.
"Difficult global economic conditions in agriculture and slower growth in emerging markets are expected to continue, challenging the company's sales growth in 2016." – DuPont earnings statement.
My cmt: This sentiment was echoed by Apple in their earnings conference call too, especially with regard to Hong Kong. It does appear that the world economy is retreating and the FED statement noted slowing too.
-Wednesday, the S&P 500 was down about 1.1% to 1883 at the close.
-VIX rose about 3% to 23.11.
-The yield on the 10-year Treasury rose slightly to 2.00%
“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 am tentatively guessing around 1950 as a top for this rally, but I’ll be watching my Money Trend Indicator because the markets will do what they want.
We’ll need to re-test the 1859 low.  If past history holds, that would occur in 1 to 7-weeks after the low with about a 5% retracement upward. (Those are wide-ranging numbers from looking at 4 corrections with steep declines.)
My Money Trend indicator continues to trend up, but it slowed today. It has been a pretty good short-term indicator recently.
(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) slipped to 44.8% Wednesday vs. 45.8% Tuesday.  (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks dipped to 48.2%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) switched to slightly negative, reflecting today's weakness in the percentage of stocks advancing.
New-lows outpaced New-highs again. The spread (new-highs minus new-lows) was minus-27. (It was -54 Tuesday.)   The 10-day moving average of the change in spread remained +54.  In other words, over the last 10-days, on average; the spread has INCREASED by 54 each day. Market Internals remained neutral on the markets, but there has been improvement in internals.

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 Volume & VIX indicators were negative. The Price & Sentiment indicators were neutral. The long-term NTSM indicator is Sell. The first sell-signal this cycle was 18 December and there has not been a BUY since. The S&P has been rallying, so this may not be a great time to sell – a better time might after a 5% climb from the bottom or above 1950 on the S&P 500 if one is bearish.
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). Friday, 15 Jan I reduced stock allocation to zero in long-term accounts. That leaves 100% invested in cash yielding about 2%.  Short-term bonds would be OK too.
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…