Friday, February 5, 2016

Payrolls / Unemployment … Stock Market Analysis

“The U.S. economy added just 151,000 jobs in January while unemployment dropped slightly, to 4.9 percent, according to the latest figures from the Bureau of Labor Statistics.” Story at…
My cmt: The markets didn’t like the payrolls number and they fell after it was released.  A number below 200,000 does not provide enough jobs to keep up with population growth so the hiring is muted.
-Friday, the S&P 500 was down 1.9% to 1880 at the close.
-VIX was up about 7% to 23.31.
-The yield on the 10-year Treasury slipped to 1.85%.
“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) turned neutral Friday.
“Everything is proceeding as I have foreseen.” – The Emperor
Whenever, I get overconfident, outcomes are bad. Let’s hope this time I am right…
My Money Trend indicator turned down Friday and is now bearish. It has been a pretty good short-term indicator recently. Even though the general trend may be down, it is still possible to get some tradable bounces up for a day or so. I went long in the afternoon at 1880 using a 2x S&P500 fund, primarily because of the big down-day and my belief that the market was due for another try at 1920. I’ll take profits Monday if the market is up.  Otherwise it may take patience or "I'll sell" to limit losses. See “Stock Market Scenarios” below.
They say the market doesn’t bottom on Friday’s – investors fret over the weekend and sell Monday and Tuesday.  There was some bounce at the close so I’ll have to hope it was enough to calm some investor fears.
It is likely that we’ll see a retest of the recent low of 1859 on the S&P 500 sooner rather than later.  It could happen next Monday or Tuesday; the S&P 500 is about 1% above its prior low of 1859. There are other possibilities though.
I think the market may move higher and try again to push above 1920 before a retest. After that, I’m guessing the Index drops and retests the prior recent low of 1859. A retest should include falling below 1859 and it still could be very soon.
Whenever it happens, a successful test could propel the market to new highs; even a failed test might result in a 50% retracement upward, back to the 1980 region.  The rally could last for several weeks or even months. Have I got enough “coulds” in there?  I will try to identify the bounce and buy-it if there is one.
(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 51.3% Friday vs. 57.8% Thursday.  (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks dipped to 48.8%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) was down dramatically, but remained positive.
New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-108 Friday. (It was -15 Thursday.)   The 10-day moving average of the change in spread fell to minus-9. In other words, over the last 10-days, on average; the spread has DECREASED by 9 each day. Market Internals switched to neutral 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.
Friday, the VIX indicator was negative. The Volume, Price & Sentiment indicators were neutral. 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.
We could be close to a tradable-bottom or a final correction-bottom.  I plan to go back in the market if there are signs of bullishness.  The purpose is to take advantage of a possible bounce. The amount, if any, will depend on indicators at (or below) the prior-bottom.
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…