Thursday, January 14, 2016

Payroll Claims … Bear Market … Managing a trend Change … Stock Market Analysis

“The number of Americans filing for unemployment benefits unexpectedly rose last week, but remained below levels associated with a healthy labor market.” Story at…
BEAR MARKET (McClellan Financial Publications)
“…the presumption is that we are in for a bear market year.  It does not have to be of the magnitude of 2008, or 2001-02, but a downward trend is still what is upon us.” – Tom McClellan. Commentary at…
MANAGING A TREND CHANGE (Real Investment Advice)
“With the markets having issued multiple sell signals, broken very important support and both technical and fundamental deterioration in progress, it is suggested that investors use these “snap back” rallies to reduce equity risk in portfolios.” – Lance Roberts.  Commentary at…
Lance presented charts along with his advice that showed the markets may be close to a snap-back rally.
-Thursday, the S&P 500 was up about 1.7% to 1922 at the close.
-VIX fell about 5% to 23.95.
-The yield on the 10-year Treasury increased 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
New-High/New lows improved Thursday, but not by a dramatic amount especially when compared to the August correction.  For example, in August there was a 6-standard deviation change in the spread between new-highs and new-lows at the bottom.  Thursday’s change was zip – not enough to register. In real numbers the spread improved by over 1000 in August, but only by 85 Thursday.   Perhaps it will improve Friday.  If not, I will put little faith in this rally. The lack of much improvement to me looks like an indication that the rally is narrow, i.e. only confined to the highest quality, large-cap stocks. That’s been a problem for months and it continues – the Russell 2000 was up about 1.5% vs. 1.7% for the S&P 500.  It may not seem like much, but in a normal correction, I would buy the Russell coming off the bottom; if conditions are getting better, smaller cap stocks have more room to move and should outperform.
VIX improved too, but again, it only declined by about 5%. In August the day after the low VIX fell by about 16%.
The Overbought/Oversold Ratio (a Wall St. “classic” indicator based on breadth), my own Smart Money Index and RSI all remain oversold Wednesday so further upside is possible.
Thursday was a statistically significant day and that means that the price-volume move UP exceeded my statistical parameters and, in about 60% of the time, that leads to an down-day the next day (Friday) This time there will probably be more follow-thru to the upside so it is probably a day to avoid statistics.  If there isn’t an up day Friday, it’s a bad sign.
The August rally established resistance around 1990.  That is a point that should be watched for an end of this rally. 
I had too much on my plate Thursday and didn’t get to trade.  If I had a long trading position now in a 2x ETF, I would probably look to take profits Friday at what looks like a high. (I’d watch the charts and make a best guess.) In August the first bounce was 2.5% and only lasted 2-days. I try to avoid losses when trading.
No long-term buy today.  There wasn’t a volume reversal on the up-move that would provide a buy signal.  Without that, we need to make lower lows and that didn’t happen either.
(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 36.2% Thursday vs. 32.4% Wednesday.  (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks improved slightly to 48.5%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved, but it remained negative.
New-lows outpaced New-highs again. The spread (new-highs minus new-lows) was minus-714. (It was -752 Wednesday.)   The 10-day moving average of the change in spread was -75 Thursday.  In other words, over the last 10-days, on average; the spread has DECREASED by 75 each day. Market Internals remained 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.
Thursday, the VIX & Volume indicators were negative.   Sentiment & Price indicators were neutral. The long-term NTSM indicator is SELL; it has indicated SELL 9-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.

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…