Friday, January 8, 2016

Payroll Report (Unemployment) … Tom McClellan on the Correction … Trucking Reflects the Slowdown in the US Economy … Stock Market Analysis

“U.S. payrolls surged in December and the job count for the prior two months was revised sharply higher, showing the economy on solid ground despite a troubling international backdrop. Nonfarm payrolls increased by 292,000 last month….” Story at…
TOM MCCLELLAN ON THE CORRECTION (McClellan Financial Publications)
Tom McClellan was on CNBC Thursday.  He suggested that the markets would make a preliminary bottom in April and a final bottom in Oct of 2016.  He predicted about a 25% drop, though his work remains more focused on the timing rather than the size of the decline.  Watch the video at…
TRUCKING (American Trucking Association)
“American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index declined 0.9% in November…Compared with November 2014, the SA index increased 0.2%, which was the smallest year-over-year gain since February 2013... ‘I remain concerned about the high level of inventories throughout the supply chain. We recently learned that inventories throughout the supply chain and relative to sales rose in October. This will have a negative impact on truck freight volumes over the next few months.’” - ATA Chief Economist Bob Costello
ATA noted a “clear deceleration in truck tonnage” Sept thru Nov. This 22 December press-release is just more evidence that the US economy is slowing.

10-year Unannotated chart from…{"range":"10y","allowChartStacking":true}
A 50% drop after an extreme parabolic run-up is the norm.  I’d expect the Shanghai to drop to 2300-2500 before their “correction” ends. The chart agrees. That won't be good for world markets.
-Friday, the S&P 500 was down about 1.1% to 1922 at the close.
-VIX rose about 8% to 27.01.
-The yield on the 10-year Treasury dipped to 2.13.
“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
The NYSE Composite was down 1.3% and the S&P 500 finished 1.1% lower Friday.  There was lower volume on the NYSE than yesterday. That suggests that the selling was not as intense.  Market internals improved, but internals deteriorated late in the day and just missed meeting my criteria for a successful test.  Therefore, it is not clear that Friday was a successful test that would indicate a likely temporary end to selling. It’s a close call.
Both RSI and the Overbought/Oversold Ratio (based on Breadth) were oversold.  That does suggest a bit of a bounce from this level. With or without a bounce Monday, it does not look like a final bottom is in yet and it will take further testing down the road to identify a bottom.
Market Internals are negative. The Money Trend indicator remains bearish.
Friday was NOT another statistically significant day in my system, but the tendency of the market to bounce after big moves is widely known.  With a 1.1% drop on the S&P 500 Friday, many may look for a bounce up Monday and buy it if there is one.
Long-term the markets don’t look good and I remain mostly out of stocks.
(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) fell to 39.7% Friday vs. 45.1% Thursday.  (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 48.7%. A value below 50% indicates a down trend.
The McClellan Oscillator (a Breadth measure) remained negative.
New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-499. (It was -464 Thursday.)   The 10-day moving average of the change in spread was -53 Friday.  In other words, over the last 10-days, on average; the spread has DECREASED by 53 each day. Market Internals remained negative on the markets.

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.
Friday, the VIX & Volume indicators were negative.   Sentiment & Price indicators were neutral. The long-term NTSM indicator is SELL; it has indicated SELL 5-times in the last 2-weeks including yesterday 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.

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…