Monday, February 22, 2016

Stock Market Crash … Markit Flash Manufacturing PMI Falls … Another Hussman Warning … Cleveland Financial Stress Index … Stock Market Analysis

“I believe the S&P will fall ~30% to $1,350 in 2016, and then trade to $1,100 (-43%) in 2017, as it overshoots to the downside…[It is] predicated on a perception change among market participants leading to the convergence of price and fundamentals, which have been disconnected due to excessive central bank intervention…” Commentary and analysis at…
My cmt: You’ll need to set aside some time to digest this huge article.  I was already signed in to Seeking Alpha when I surfed to the Pervalle site so you may have to register for Seeking Alpha to see this piece.

Markit Flash U.S. Manufacturing PMI: “The latest survey pointed to the weakest overall improvement in business conditions for just over three years. At 51.0 in February, down from 52.4 in January, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1 was also at its joint-lowest level since September 2009.” Markit Press release from…
HUSSMAN WARNING (Hussman Fundds)
“…a further 40-50% collapse in the S&P 500 over the completion of this market cycle would not represent a worst-case scenario, but rather a run-of-the-mill outcome from current valuations… the conditions and concerns we presently observe are identical to what I expressed at the 2000 and 2007 peaks.” – John Hussman, PhD.  Weekly Market Commentary from Hussman Funds at…
My cmt: One of the supporting points presented by John Hussman was the escalating Cleveland Financial Stress Index used by the FED (and available to the public). Here is the chart from the St Louis FED:

From St. Louis FED at…
-Monday, the S&P 500 was up 1.5% to 1946 at the close.
-VIX fell about 6% to 19.38.
-The yield on the 10-year Treasury rose to 1.77%.
There were strong signals at the 11 February bottom suggesting a return to bull market conditions.  Those included a large improvement in hew-highs vs. new-lows followed by 3-days of up-volume greater than 80%, both fairly unusual signals, but not all signals are positive.
I have been resisting the 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…
My long-term, Volume-indicator, a variant of on-balance-volume, switched to positive Monday. My VIX indicator too has peaked, and may soon signal a buy if it falls quickly. I can only say, we’ll see. My guess is that the markets are at considerable risk now due to world-wide economic issues. Technically, there is now a potential bearish, “Head and Shoulders” pattern evident on the S&P 500 charts. (It would take further declines to confirm the pattern.)  That would not be cleared until the S&P 500 breaks above 2100. It seems unlikely that market will get that high.
The short-term trend is up, based on my Money Trend indicator, but I still am holding a short position, because I am negative on a longer-term.
(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 54.4% Monday vs. 49.1% Friday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks rose to 48.9%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) was up and remained solidly positive.
In a positive reversal, New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +41 Monday. (It was minus-8 Friday.)   The 10-day moving average of the change in spread rose to +15. In other words, over the last 10-days, on average; the spread has INCREASED by 15 each day. Market Internals (based on 10-dMA) remained 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.
Monday, Price & Volume were positive; VIX and & Sentiment indicators were neutral. The long-term NTSM indicator switched to BUY Monday, but I am not following the guidance at this point. Perhaps if the VIX indicator joins the party I’ll become more bullish.
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.
I’ll stay out of the market until the VIX indicator joins the party.
I am long-term bearish so this may be a short-term move. 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.