Wednesday, March 16, 2016

Consumer Price Index (CPI) … Housing Starts … Industrial Production … CASS Freight Index … FOMC Rate Decision … Stock Market Analysis

“Inflation was tempered again in February by plunging gasoline prices, but a measure of core prices posted a solid increase for a second straight month.” Story at…
My cmt: CPI fell 0.1% but core inflation (excluding food and energy) rose a higher than expected 0.3%.
“Housing starts in February climbed 5.2 percent to a 1.18 million annualized rate from a 1.12 million pace the prior month, a Commerce Department report showed Wednesday in Washington.” Story at…
My cmt: While housing starts were up, Permits were down so this report was at best neutral.
“After hopeful signs of stabilization in January, industrial production decreased 0.5% in February, according to data released by the Federal Reserve on Wednesday.” Story at…
Reports from CASS Information Systems show that year-over-year shipments have fallen 2.6% while Expenditures have fallen 5.1% in February 2016. These are hardly robust numbers and one must conclude that improvements in the transport stocks are not the result of increased amounts of freight hauled. The report stated in its conclusion  “…underlying economic indicators are pointing to a sluggish first half of 2016.”  Press release at…
”A dovish Federal Reserve held the line on interest rates Wednesday and substantially scaled back its expectations for further moves ahead. Where the U.S. central bank at its December meeting had projected four rate hikes in 2016, new estimates released Wednesday reduced that number to two.” Story at…
-Wednesday, the S&P 500 was up about 0.6% to 2027 at the close.
-VIX was down about 11% to 14.99.
-The yield on the 10-year Treasury slipped to 1.94%.
The Overbought/Oversold Ratio remained “Overbought” Wednesday for the seventeenth day in a row. RSI was overbought a week ago and is still close to overbought today.  Tick remained overbought for the past month and the Smart-Money indicator (based on late day action) was overbought Friday.  All are short-term bearish for the markets.
S&P 500 is now 0.4% above its 200-dMA.  I wouldn’t call this a trend break yet.
The short-term Money Trend indicator remains down Wednesday, suggesting downside ahead; but the signal is not particularly strong. I continue to hold short positions mostly in SH and some in QID. So far, these trades aren’t working. 
(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 57.9% Wednesday vs. is 56.5% Tuesday. (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 50.4%. A value above 50% indicates an up-trend since slightly more stocks have advanced over the last 150-days. The McClellan Oscillator (a Breadth measure) rose and remained positive. (Tom McClellan wrote on his website that he considers the recent high values of the Oscillator to be too high and that they should be interpreted as bearish.)
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +82 Wednesday. (It was +41 Tuesday.)   The 10-day moving average of the change in spread rose to +4. In other words, over the last 10-days, on average; the spread has INCREASED by 4 each day. Market Internals remained neutral on the markets. The new-high new low data looks like it is getting close to a turn-around.

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 & VIX were positive. Sentiment & Volume were neutral. The long-term NTSM indicator is BUY. I have not followed the guidance yet. My guess is still that the Index is topping out. We’ll see.

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 10-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…