Tuesday, March 15, 2016

Retail sales … Producer Price Index (PPI) … Empire Manufacturing … It’s a Bear Market Rally … Stock Market Analysis

RETAIL SALES (MarketWatch)
“Retail sales fell a seasonally adjusted 0.1% last month, the Commerce Department said Tuesday. And sales for January were revised sharply lower to show a 0.4% decline instead of a small increase.” Story at…
My cmt: Much of the decline in January and February was due to falling gas prices, but autos, department stores and furniture retailers all showed declines. Generally the news was regarded as disappointing.
PPI (Reuters)
“U.S. producer prices fell in February on lower energy and food costs, but prices were unchanged from a year ago, suggesting the downward trend was near an end.” Story at….
“The latest Empire State manufacturing index came in at 0.62 for March…this is the first positive reading since July 2015.” Story at…
My cmt: Economists expected an improvement, but the positive reading (showing expansion) was a surprise.  This is good news for manufacturing, but it will take additional information from other regions and a continued improvement before manufacturing is out of the woods. Jill Mislinski of Advisor Perspectives pointed out that the monthly data is noisy and suggested that a 3-month moving average clarifies the trend.  For more, see…
“If you want to know what a bear-market rally in stocks looks like, the past month has been a sterling example. That’s because rallies as sharp as we’ve seen since the Feb. 11 lows are hardly unusual, even when the major trend is down.” Commentary at…
-Tuesday, the S&P 500 was down about 0.2% to 2016 at the close.
-VIX was down about 0.5% to 16.84.
-The yield on the 10-year Treasury remained unchanged at 1.96%.
While opinions abound, my question remains: Was the low on 11 February a durable bottom or simply a temporary bounce that will be violated later by new lows? I.e., is this really a bear market rally or have we seen the bottom?
As I noted at the time, there didn’t seem to be enough fear with relatively low VIX and a lack of panic as evidenced by breadth and down-volume; neither made extremes associated with important lows. The question remains, however, because other stats met the criteria for a BUY. I will be watching carefully for any reversal signals, if the market heads down.  It is far from certain that this is really just a bear market rally.  My opinion remains that it is; but based just on stats, it could go either way.
The Overbought/Oversold Ratio remained “Overbought” Tuesday for the sixteenth day in a row. RSI was overbought a week ago and is still close to overbought today.  Tick remains overbought and the Smart-Money indicator (based on late day action) is was overbought Friday.  All are short-term bearish for the markets. 
Volume on the NYSE continues its recent trend with below normal volume Tuesday. As I noted previously, that is not the way it is supposed to work.  In a bounce, volume starts out low as traders don’t believe the bottom is in.  As it proceeds, more investors pile in and the volumes improve as the rally moves higher.  The stat is a bit worse when one considers that up-volume is now falling faster than down volume.
The short-term Money Trend indicator turned very sharply down Tuesday, suggesting downside ahead. 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 56.5% Tuesday vs. is 62.0% Monday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks dropped to 50.1%. 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) was significantly lower, and remained barely 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 +41 Tuesday. (It was +35 Monday.)   The 10-day moving average of the change in spread fell to minus-1. In other words, over the last 10-days, on average; the spread has DECREASED by 1 each day. Market Internals remained neutral on the markets. Market Internals deteriorated further.

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 & VIX were positive. Sentiment & Volume were neutral. The long-term NTSM indicator is BUY. I have not followed the guidance yet. My guess is 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…