Tuesday, February 16, 2016

Global Trade Collapses … Empire State Manufacturing Index … Stock Market Analysis

AP Møller-Maersk warned that it was facing conditions significantly worse than the financial crisis after it plunged to a large net loss as global trade growth ground to a halt last year.” Story at…
“Manufacturing conditions across New York state remained weak in February, the most recent indication that forces including a strong dollar, a flagging oil industry and softening global demand are weighing on manufacturing activity. The Empire State's business conditions index edged up to -16.6…” Story at…
My cmt: The Street expected a -10, so number this was a big disappointment.
-Tuesday, the S&P 500 was up about 1.6% to 1895 at the close.
-VIX fell about 5% to 24.11.
-The yield on the 10-year Treasury rose to 1.78%.
The oversold condition in breadth has cleared, but the bounce that it initiated continues. I’m guessing around 1920 as a top for this rally.
There was a lot of bullish talk on CNBC Tuesday, but I’m not buying it.  The world economy is in too much flux and Indicators didn’t indicate a durable bottom. Not all market drops have a decent buy-signal at the bottom, but for drops greater than 10%, almost all do.
Smart money was very active, buying late in the day, Tuesday, so the traders remain bullish.
The smoothed version of the Money Trend switched to UP Tuesday. I switched out my short for a long position in the AM and established a small long position.
(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 45.5% Tuesday vs. 42.3% Friday. (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks remained 48.5%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved, and switched to positive on the day.
New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-34 Tuesday. (It was -116 Friday.)   The 10-day moving average of the change in spread rose to minus-8. In other words, over the last 10-days, on average; the spread has DECREASED by 8 each day. Market Internals (based on 10-dMA) 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.
Tuesday, Volume and VIX were negative; Price & Sentiment indicators were neutral. The long-term NTSM indicator is SELL. At this point a sell indication just reiterates that market conditions are poor.  The first SELL signal of this cycle was 18 Dec 2015 and there has not been a BUY signal since.

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 9-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…
Even if that is true, there could still be a rally for 2 or 3-months.