Wednesday, February 3, 2016

ISM Services … Crude Inventories … 2007 Again? – It’s Possible … Sanders Slams Walton Family … Stock Market Analysis

“The U.S. economy's service sector expanded in January but at a slower pace than the previous month, according to an industry report released on Wednesday.

The Institute for Supply Management (ISM) said its index of non-manufacturing activity fell to 53.5 from 55.8 the month before.” Story at…
“Inventories of US crude rose by 7.8m barrels in the week to January 29, according to the latest data from the Energy Information Administration. This was wider than expectations for a build of 4m barrels.” Story at…
2007 AGAIN? – IT’S POSSIBLE (Jesse Felder’s Tumblr)
“The incredible boom we have seen in corporate credit in recent years is actually very similar to the boom in the mortgage market which led to the financial crisis. As Jeff Snider noted yesterday, just the past few years issuance of lower-rated corporate debt dwarfs the size of the entire subprime mortgage market in 2007.” Commentary at…
“It is absurd that one family (the Waltons of @Walmart) has more wealth than the bottom 130 million Americans.” – Bernie Sanders, Democratic Candidate for President of the United States.
My cmt: That’s called capitalism.  Imagine the risks Sam Walton took to build that empire from scratch.  I had a “rich” friend of mine whose father, a contractor, gave him a Porsche 911 for his college graduation. In conversation one day, he confessed to me that his father put their house up as collateral every time his father built a new project.  Who would begrudge someone taking risks and working hard to better their family?
-Wednesday, the S&P 500 was up 0.5% to 1913 at the close.
-VIX was down about 1.5% to 21.66.
-The yield on the 10-year Treasury was up slightly to 1.88%.
“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 Index, AKA the Advance-Decline Ratio (a Wall St. “classic” indicator based on breadth) again signaled “overbought” Wednesday.  That’s a headwind, but this can remain overbought for some time.
As I guessed yesterday, Wednesday was “up” and it could follow-thru for week or two. I don’t think it will break 1940. After the rally’s end, we’ll need to re-test the 1859 low.  If past history holds, that would occur in 1 to 7-weeks after the low. (Those are wide-ranging numbers from looking at 4 corrections with steep declines.) It’s already been 2-weeks.
My Money Trend indicator is up slightly Wednesday. It has been a pretty good indicator recently.
I did go long Wednesday, but as the markets faded in the afternoon I bailed for a loss. If I had been more patient I would have finished with a gain. There was no point in sharing my pain, so I didn’t do a mid-day post today.  Oh well…
I may sit out for a while until the picture is a little clearer. I would like to see a bounce high enough to short since a re-test of 1859 seems fairly certain.
(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 a surprisingly high 57.9% Wednesday vs. 54.4% Tuesday.  (A number above 50% is usually GOOD news for the markets, but it’s now too good since it is overbought. 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) was up and remained positive.
New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-138. (It was -56 Tuesday.)   The 10-day moving average of the change in spread rose to +125.  (That is primarily due to the poor number 11-days ago.  Today’s value was down.) In other words, over the last 10-days, on average; the spread has INCREASED by 125 each day. Market Internals remained positive on the markets, but new-high/new-low numbers are headed down.

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, the VIX indicator was negative. The Price & Sentiment indicators were neutral. Volume was positive.  The long-term NTSM indicator is HOLD.


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…