Wednesday, March 23, 2016

New Home Sales … Crude Inventories … Richmond FED Manufacturing … Correction Over … Stock Market Analysis

New U.S. single-family home sales rebounded in February, but the increase was concentrated in one region, which could suggest a loss of momentum in the housing market as the busy spring selling season kicks off.” Story at…
“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 9.4 million barrels from the previous week. At 532.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year.” Story at…
My cmt: Supply continues to outstrip demand.  This is not a recipe for rising oil prices.
RICHMOND FED (Advisor Perspectives)
“…the Richmond Fed Manufacturing Composite Index jumped 26 points to 22 from last month's -4. had forecast -1.0. Because of the highly volatile nature of this index, we include a 3-month moving average to facilitate the identification of trends, now at 6.7, indicating expansion.” Commentary at…
“According to Craig Johnson of Piper Jaffray, improving market breadth has convinced him that investors have now seen the 2016 lows. The S&P 500's ability to break above its 200-day moving average was a "major hurdle," and the recent move above 2,050 has pushed stocks toward a new resistance level at 2,080, he said.” Story at…
“Ralph believes the current rally is getting overbought and is due for a correction, but he also sees this as more than just a bear market rally. He has changed his outlook, with the broadening of the rally to include the major averages, the emerging markets, oil, commodities and gold.” Story at…
“As of last Friday, equities rose for a fifth week in a row. In many important ways, the current uptrend does not fit the profile of a bear market rally.” Story at
-Wednesday, the S&P 500 was down about 0.6% to 2037 at the close.
-VIX rose about 5% to 14.94 near the close.
-The yield on the 10-year Treasury dropped to 1.88%.
SENTIMENT (%-Bulls in Rydex Funds):
Sentiment (%-Bulls) was 48% on a 5-dMA basis Tuesday (data is a day late).  Traders in the Rydex funds I track have not been bearish (below 50%-bulls, 5-dMA) since March of 2013. These traders are betting that the recent rally is just a Bear-Market rally that may already be over.
I think the market is still in a Bear Market, but it’s always a good idea to listen to others.  After all, I did get a buy signal at the bottom that I ignored – duh; but my overall view of the market has not changed. The earnings picture looks too bad. Another point to consider is that the S&P 500 has been flat for a very long time.
The S&P 500 has not made a new-high in the last 211-days.  That is a fairly rare occurrence. In the past 30-years, periods when the Index went 211-days without making a new-high started in years: 2007, 2000, 1994, and 1987. Note that all instances were near the start of significant bear-markets except for 1994.  In 1994, the Federal Reserve raised interest rates 6-times from 3% at the beginning of the year to 5.5% at its end. The stock market (and economy) avoided serious repercussions on the strength of the tech-boom that was getting underway.  It is possible that lower oil prices might prevent a full-blown bear-market this time, but given the dire predictions for corporate earnings, it doesn’t seem likely.  Add high valuations to the mix and the Stock Market appears to be headed for more trouble ahead.  We’ll see. As noted by three “correction-over-commentaries” in today’s blog, my opinion is far from universal 
The Overbought/Oversold Ratio cleared its “Overbought” signal Wednesday on the large drop in advancing stocks. Since overbought conditions, RSI, and Smart Money have all suggested an overbought top recently, it is likely that the trend will be down moving forward.

S&P 500 is now 1% above its 200-dMA.  It will be bearish for the markets if the Index drops below its 200-dMA.
The short-term Money Trend indicator is trending down Wednesday, suggesting a downtrend is prices. 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 54.1% Wednesday vs. is 58.6% Tuesday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks remained 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 and turned negative.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +51 Wednesday. (It was +61 Tuesday.)   The 10-day moving average of the change in spread dipped to minus-4. In other words, over the last 10-days, on average; the spread has DECLINED by 4 each day. Market Internals remained neutral on the markets, but the new-high, new-low data is headed 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…