Tuesday, February 23, 2016

Consumer Confidence … Falling Chinese Demand Hurts Shipping … Analysts Predicting More Earnings Declines … Stock Market Analysis

“A key measure of attitudes on Main Street fell more than expected in February, a survey said Tuesday. The Consumer Confidence Index hit 92.2, in February, from a revised 97.8 in January, The Conference Board said.” Story at…
“Idled ships are dotting coastlines world-wide as companies that ship iron ore, coal and other bulk commodities try to weather the industry’s worst downturn in decades. The parked vessels are a stark sign of how crumbling Chinese demand for commodities is pummeling the global shipping industry.” Story at…
My cmt: This is just another point that underscores China’s importance to the world’s economy.
“For Q4 2015, the blended earnings decline is -3.6%. 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….Looking at future quarters, analysts do not currently project earnings growth and revenue growth to return until Q3 2016." Story at...
My cmt: It is alarming that analysts are now projecting growth to return in Q3. As recently as November, analysts were projecting growth in Q1. One must be concerned that they may be wrong again. Even if they are right, Q3 may be too late to save the stock market.
-Tuesday, the S&P 500 was down 1.3% to 1922 at the close.
-VIX rose about 8% to near 21.
-The yield on the 10-year Treasury dipped to 1.75%.
The Overbought/Oversold Ratio switched to Overbought Tuesday.  At first, this seems odd, because it was a down day and makes one wonder how the number of stocks advancing over the last 10-days could have improved. On a 10-day basis, they did improve, but only because 11-days ago the breadth was worse than today.  Bottom line, an oversold reading has not been good for the market recently.  Further, the index was near the top of the upper channel Monday so some further retreat is suggested.
The smart money is retreating too.  Late day buying is falling sharply and could switch to late-day selling as soon as Wednesday.
The short-term trend is up, based on my Money Trend indicator, but it has now reached a high level that has been a reversal point recently.  Whether that will be true this time remains to be seen.
Technically, there is now a large bearish, “Head and Shoulders” pattern that may be developing on the S&P 500 charts with the left shoulder going back to September.  It will be in play of the Index drops below about 1840.
I still am holding short positions in SH and QID.
I have been resisting the current rally for several negative reasons:
…No capitulation at the bottom.
…Not enough fear.
…Market internals did not appreciably improve when compared to the prior low.
…TRIN was not elevated.
For more details see 17 Feb 2016 blog at…
(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) is 55.7% Tuesday vs. 54.4% Monday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks remained 48.9%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) declined substantially, but remained solidly positive.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +14 Tuesday. (It was +41 Monday.)   The 10-day moving average of the change in spread rose to +41. In other words, over the last 10-days, on average; the spread has INCREASED by 41 each day. Market Internals (based on 10-dMA) remain neutral on the market.

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, Price & Volume were positive; VIX was negative; & the Sentiment indicator was neutral. The long-term NTSM indicator is HOLD.  The long-term indicator has been improving, but I am watching VIX to see what the Options Boys think.


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) and on 15 Jan I reduced stock allocation to zero in long-term accounts.
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 9-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…