Thursday, January 7, 2016

Unemployment Claims … Stock Market Analysis

JOBLESS CLAIMS (Marketwatch)
"The number of Americans who applied for new unemployment benefits in 2015 fell to the lowest level in 42 years.” Story at…
277,000 people filed for initial jobless claims and that was down 10,000 from the prior week
-Thursday, the S&P 500 was down about 2.4% to 1943 at the close.
-VIX rose about 21% to 24.99.
-The yield on the 10-year Treasury dipped to 2.15.
“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
So far, there has not been sustained downside in the markets that would indicate a true major bear market is here. On the other hand, there have been no signs that the decline is over, either. 
The S&P 500 is 8.8% below its all-time top of 2131 set back in May of 2015. The NYSE Composite is 14% below its all-time high set on the same day. Only 25% of all stocks on the NYSE are above their 200-dMA. Most stocks are much closer to a bear market (>20%-down) than the S&P 500; therefore, the S&P 500 needs to catch-up, or down rather, and fall further before this decline is over.
The NYSE Composite tested its August low today (around the 9622 level); that test was not technically successful since volume was considerably higher Thursday, i.e. the NYSE Comp will probably continue down and it will be necessary to check for further testing as it declines.  A turn-around could be signaled anytime.
Thursday I got an “oversold” reading from both RSI and my Smart Money indicator, but not the Breadth Overbought/Oversold Ratio. In August, all 3 were oversold at the bottom and the RSI had been “oversold” for 3-sessions. Bottom line: I don’t think a short-term bottom is in yet, but it may not be too far off.
Market Internals are negative. The Money Trend indicator is now clearly bearish.
Thursday was another statistically significant day and that means that the price-volume move down exceeded my statistical parameters and, in about 60% of the time, that leads to an up-day the next day.
Long-term the markets don’t look good and I am 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 45.1% Thursday vs. 51.3% Wednesday.  (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 48.8%. 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-464. (It was -216 Wednesday.)   The 10-day moving average of the change in spread was -43 Thursday.  In other words, over the last 10-days, on average; the spread has DECREASED by 43 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.
Thursday, the VIX & Volume indicators were negative.   Sentiment & Price indicators were neutral. The long-term NTSM indicator is SELL; it has indicated SELL 4-times in the last 2-weeks including just 3-days ago 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…