Thursday, January 21, 2016

Unemployment Claims … Philadelphia Fed … Crude Inventories …Stock Market Analysis

“The number of applications for unemployment benefits unexpectedly increased last week to a six-month high, indicating tempered progress in the labor market. Initial jobless claims climbed by 10,000 to 293,000 in the week ended Jan. 16…” Story at…
“The Philadelphia Fed's manufacturing index was in negative territory in January for the fifth month in a row. The index rose to negative 3.5…” Story at…
“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.0 million barrels from the previous week. At 486.5 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…
-Thursday, the S&P 500 was up about 0.5% to 1869 at the close.
-VIX fell about 3% to 26.69.
-The yield on the 10-year Treasury was up slightly to 2.02%
“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 Overbought/Oversold Ratio (a Wall St. “classic” indicator based on breadth), my own Smart Money Index and RSI all remain oversold Thursday, but that won’t last long if we see a rally.
There was a significant improvement in the new-high/new-low data Thursday. That is a pretty good signal that we may be getting near a bottom or maybe I should just say we made an intermediate bottom. I’d like to see more confirmation though before we get too optimistic.  At the first end of significant selling in August 2011 there were similar improvements in new-high/new-low data, but in addition, VIX improved by about 30%. There were also 3-days with less than 10% of stocks advancing in the 2-prior weeks and VIX peaked at 48 and that shows there was a lot more fear back in 2011. The recent high in VIX was about 28.   As I noted yesterday, there was a much lower sentiment value too. 
While the improvement in New-high/new-low data looks promising, we probably haven’t seen a bottom yet. In 2011, the final bottom was 6-weeks after that major new-high/new-low reversal. The good news is that the S&P 500 was only down another 2% at the final low in October 2011, but I doubt that we’ll be as lucky this time around.
I sold my QLD position near the highs Thursday for a 1% gain – not much, but after the wild day Wednesday I decided to take profit rather than risk.  I won’t be able to pay attention to the markets Friday and during difficult times rallies can be very short.  (Besides, I got tired of sitting in front of the computer all morning today after watching all day yesterday.)
(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 35.1% Thursday vs. 31.2% Wednesday.  (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 48.2%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved but remained negative.
New-lows outpaced New-highs again. The spread (new-highs minus new-lows) was minus-96. (It was -1391 Tuesday.)   The 10-day moving average of the change in spread was +12 Thursday.  In other words, over the last 10-days, on average; the spread has INCREASED by 12 each day. Market Internals switched to 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.
Thursday the Price, VIX & Volume indicators were negative. The Sentiment indicator was neutral. The long-term NTSM indicator is SELL; the first sell this cycle was 18 December and there has not been a BUY since. I am expecting a Bounce up so this may not be a great time to sell.

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…