Thursday, January 28, 2016

Unemployment Claims … Durable Goods Orders … This isn’t 2008 … This is Still a Bear Market … Stock Market Analysis

“The number of people seeking unemployment benefits fell last week, a sign that employers aren't cutting jobs in response to global economic weakness and sharp stock market drops. Weekly applications for unemployment benefits fell 16,000 to a seasonally adjusted 278,000.” Story at…
“Demand for long-lasting “durable” goods sank in December, reflecting a downturn in business investment in 2015 that was especially acute in the waning months of the year. Orders for durable goods fell a seasonally adjusted 5.1% last month…” Story at…
"We probably have a ways to go before the next recession," Sonders said on Wednesday at the "Inside ETFs" conference in Hollywood, Florida. "We don't think it's 2008." - Liz Ann Sonders, chief investment strategist, Charles Schwab. Story at…
-Thursday, the S&P 500 was up about 0.6% to 1893 at the close.
-VIX dropped about 3% to 22.42.
-The yield on the 10-year Treasury dipped slightly to 1.99%
“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 and after about a 5% retracement upward. (Those are wide-ranging numbers from looking at 4 corrections with steep declines.)
There is a technique used by some on Wall Street that consists of finding an analog of the current chart in past history.  Tom McLellan uses analogs in his analysis and he recently suggested that the current trend looks like the 2007-2008 bear market. In 2007 at this point the S&P 500 was 16% down from its top; at the S&P 500 22 Jan recent bottom, the Index was down 13%. That’s reasonably close - Coincidence? Perhaps, but it is another clue that this downturn may turn out to be more than the “correction” that is expected. I hate to disagree with Liz Ann Sonders (see above “This Isn’t 2008”); it may not be 2008, but the charts sure look like 2007. In the end, I’ll be following indicators; it’s never a good idea to be married blindly to an opinion.
I keep hearing/reading that the Bull market is still going and there won’t be a Bear market in our near future.  In my opinion, this completely misses the point. The Stock Market is still in a Secular Bear market that started in 2000 when the bubble collapsed. Why? The NASDAQ Composite had the most extreme valuation during the 2000 bubble.  As shown in the following chart (NAZDAQ COMP in blue and the S&P 500 in Red), the NASDAQ Composite has not appreciably exceeded its 2000 high, so by definition it remains in a Bear market. Bear markets typically have 3-peaks and three valleys.  The NASDAQ and other indices appear to be making a third peak now.

Chart from…
My Money Trend indicator continues to trend up. It has been a pretty good indicator recently.
The markets traded down at 10AM Thursday.  The news at 10 was a weak new-housing number that had more to do with supply than demand. Since Money Trend was positive and the selloff made no sense, I went long for a short-term trade with UDOW (3x Dow 30) and made about 1.5% in an hour or two. I’ve never intended to be a day trader, but I remain cautious trading against trend.  Trend is now down.  A long trade should be held cautiously.
(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 to 50.3% Thursday vs. 44.8% Wednesday.  (A number below 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks increased to 48.4%. 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-78. (It was -27 Wednesday.)   The 10-day moving average of the change in spread remained +67.  In other words, over the last 10-days, on average; the spread has INCREASED by 67 each day. Market Internals switched to positive 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.
Thursday, 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…