Wednesday, February 24, 2016

Crude Inventories … Manufacturing Slows in Richmond FED Region … Stock Market at Critical Juncture … Stock Market Analysis

“Oil fell below $33 a barrel on Wednesday after Saudi Arabia ruled out production cuts and U.S. crude inventories rose, though a decline in U.S. gasoline stocks limited losses.” Story at…
“Fifth District manufacturing activity slowed in February, according to the most recent survey by the Federal Reserve Bank of Richmond…Despite the current soft conditions, manufacturers remained upbeat about future business conditions.” – FED Press release. Details, charts and analysis at…
“SPX bounced strongly off the 1810 support level. That level extends all the way back to April 2014, and it has now been tested and held four times: April 2014, October 2014, January 2016 and February 2016. If it gives way, the next support is likely to be at 1740, but more importantly, if that support at 1810 gives way, then a larger bear market looms.” Story at…
My cmt: This article was a good technical discussion for current support & resistance levels – I recommend it.
-Wednesday, the S&P 500 was down 1% in the morning, but rallied back to close up 0.4% to 1930 at the close.
-VIX dipped about 1% to near 20.72.
-The yield on the 10-year Treasury dipped slightly 1.74%.
Unlike the piece above regarding the “Critical Juncture”, I look at closing values.  The closing low so far is 1829; that value is likely to be breached lower. My guess is that the S&P 500 will make a preliminary closing low of 1780, but the 1740 level (noted above) makes sense too.  There is support at both levels. Before then, 1829 needs to be retested again – then we’ll have a better idea where the market is going.
There is a rally coming that will last 1 or 2-months, most likely it will start after the test of 1829.  There are some good signs now (improving long-term indicators, improving Russell 2000, stock-market, daily statistical-moves are getting smaller, etc.) so it could surprise us sooner. Whether that big rally signals an end to the correction, or fails, is likely to depend on the earnings data for Q1 of 2016.
The smart money is still retreating on a 10-day basis. 
The Overbought/Oversold Ratio remained “Overbought” Wednesday.  This has been a trouble point for the markets recently.
The short-term Money Trend indicator looks like it is topping, but it was still up at Wednesday’s close. I still am holding short positions in SH and QID.

(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 59.1% Wednesday vs. 55.7% Tuesday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks improved to 49.1%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved and remained solidly positive.
In a bearish reversal, New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-27 Wednesday. (It was +15 Tuesday.)   The 10-day moving average of the change in spread slipped to +39. In other words, over the last 10-days, on average; the spread has INCREASED by 39 each day. Market Internals (based on 10-dMA) are positive on the market, but perhaps too positive - The last time the 10-dMA of the % of stocks advancing was higher than today, Wednesday, was on 29 December. The S&P 500 is down about 7% since then.

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.
Wednesday, 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…