Tuesday, March 22, 2016

Economy Slowed - Chicago Fed National Activity Index Falls … Flash US PMI Manufacturing … FED Might Hike in April? … Stock Market Analysis

“Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.29 in February from +0.41 in January. All four broad categories of indicators that make up the index decreased from January, and three of the four categories made negative contributions to the index in February.” - Chicago Fed's National Activity Index, report. Commentary at…
“Economic readings for March are showing very marginal upticks from the weak readings seen in December to February...we have a PMI Manufacturing Index flash reading, which came in at 51.4 for March.” Story at…
FED MAY HIKE IN APRIL? (Marketwatch)
“Treasury prices tumbled Monday [yesterday], pushing yields to their largest single-day jump in over a week, as the market’s rate-hike expectations rose after two Federal Reserve officials floated the possibility of an interest-rate hike as early as April.” Story at…
-Tuesday, the S&P 500 was down about 0.1% to 2050 at the close.
-VIX rose about 3% to 14.17 near the close.
-The yield on the 10-year Treasury rose to 1.94%.
SENTIMENT (%-Bulls in Rydex Funds):
Sentiment (%-Bulls) was 49% Monday (data is a day late) and 49% on a 5-dMA basis.  Traders in the Rydex funds I track have not been bearish (below 50%-bulls) since September of 2013. These traders are betting that this rally is just a Bear-Market rally that will end soon.
The Overbought/Oversold Ratio remained “Overbought” Tuesday for the twenty-first day in a row. RSI was overbought a week ago and was overbought again Friday.  All are short-term bearish for the markets.  As I have often heard, “Overbought conditions can last for longer than you think.” That’s the case this time.
S&P 500 is now 1.6% above its 200-dMA.  I wouldn’t call this a trend break yet. The 200-dMA is still sloping down and that is a critical trend indicator.
The short-term Money Trend indicator is flat Tuesday, suggesting confusion. I continue to hold short positions mostly in SH and some in QID.

(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 58.6% Tuesday vs. is 56.3% Monday. (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 50.5%. 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) fell again, but 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 +61 Tuesday. (It was +50 Monday.)   The 10-day moving average of the change in spread dipped to minus-1. In other words, over the last 10-days, on average; the spread has DECLINED by 1 each day. Market Internals remained neutral on the markets, but the new-high new low data turned down and up-volume continues to fall. The only reason the Internals are positive is that Breadth is above 50%.

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, Price, Volume & VIX were positive. Sentiment was neutral. The long-term NTSM indicator is BUY. I have not followed the guidance yet. My numbers suggest that the Index is topping out. I have been saying that for a while as the market has moved up; but the data remains bearish.  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…