Tuesday, January 26, 2016

Q4 Earnings … Consumer Confidence … The Deficit? Don’t Worry me with Trivialities … Extreme Losses in the Stock Market … Stock Market Analysis

“For Q4 2015, the blended earnings decline is -6.0%. If the index reports a decline in
earnings for Q4, it will mark the first time the index has seen three consecutive quarters of year-overyear declines in earnings since Q1 2009 through Q3 2009.” Excerpted from Factset Earnings Insight available at…
My cmt: Obviously this is a problem for stocks.
“A key measure of consumers' attitudes was better than expected this month. The Consumer Confidence index hit 98.1 in January, up from a revised 96.3 in December 2015…” Story at…
“A declining number of Americans — roughly 56%, compared with 64% last year — think that reducing the budget deficit should be a top priority for the president and Congress this year…” Story at…
How ironic. The economy was the number one issue, but the Government has very little control over the business cycle and therefore can do little about the economy.
EXTREME LOSSES (Hussman Funds)
“…the market return/risk classification we identify here could not be more hostile. In particular, relief rallies under current conditions tend to be truncated by fresh losses…On the economic front, I continue to believe that a U.S. recession is not only a risk, but is now the most probable outcome.” – John Hussman, PhD. Weekly Market Commentary from Hussman Funds at…
-Tuesday, the S&P 500 was up about 1.4% to 1904 at the close.
-VIX fell about 7% to 22.50.
-The yield on the 10-year Treasury dipped to 1.99%
Apple reported earning that exceeded expectations, but missed on revenues.  It will be interesting to see if this affects market trend Wednesday.
“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.
RSI and the  Overbought /Oversold Ratio are no longer oversold.
We’ll need to re-test the 1859 low.  If past history holds, that would occur in 1 to 7-weeks after about a 5% retracement upward. (Those are wide-ranging numbers from looking at 4 corrections with steep declines.)
My Money Trend indicator is trending upward. It has been a pretty good indicator recently.  I still need to do some back testing to confirm its reliability.  I have been too busy to short-term trade the market recently. If I am holding a 2x position (for example QLD or QID) I watch the charts closely. Alternatively, one could set close stops. The trend is now down, and has been for some time. The 200-dMA is falling, so going long now is the same as shorting the market a few years ago.  Many traders lost money betting against the trend and FED.
(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) jumped up to 45.8% Tuesday vs. 41% Monday.  (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks rose to 48.3%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved to positive, reflecting the recent improvements in the percentage of stocks advancing.
New-lows outpaced New-highs again. The spread (new-highs minus new-lows) was minus-54. (It was -86 Monday.)   The 10-day moving average of the change in spread was +54 Tuesday.  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.
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 indicator was negative. The Volume, Price & Sentiment indicators were neutral. The long-term NTSM indicator is HOLD.
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…http://navigatethestockmarket.blogspot.com/2015/12/stocks-are-topping-time-to-sell-hussman.html