Thursday, March 3, 2016

Unemployment Claims … Factory Orders … Productivity … ISM Services … Buffet Valuation Indicator … Beware the Ides of March … Stock Market Analysis

“The number of Americans who applied for unemployment benefits rose by 6,000 to 278,000 in the last week of February, but the overall pace of layoffs still hovered near postrecession lows.”
My cmt: This stat bottomed at 256k in October 2015 so today’s number is about 10% higher than the Oct low. It’s probably too early to infer too much from the rise; but it is headed the wrong direction.
“Orders to U.S. factories increased in January by the most in seven months, while a key category that tracks business investment plans rose by the largest amount in 19 months.” Story at…
“The Bureau of Labor Statistics reported nonfarm labor productivity decreased at a 2.2% annual rate during the fourth quarter ( consensus -3.3%) versus a preliminary report showing a 3.0% decrease…Productivity has increased at an annual rate of less than 1.0% in each of the last five years, which helps explain the stagnant growth of the US economy. That is well below the long-term rate of 2.1% from 1947 to 2015.” Charts and commentary at…
“The U.S. economy's service sector expanded in February but at a slightly slower pace than the previous month and employment in the sector declined for the first time in two years, according to an industry report released on Thursday.” Story at….

Chart and analysis available at…
While Jill Mislinski of Advisor Perspectives notes the indicator is not acceptable for short term trading, the chart shows that the Buffet Indicator is a pretty good long term indicator.  Almost every peak corresponds to a peak in the S&P 500 index.
BEWARE THE IDES OF MARCH (Real Investment Advice)
“With the markets still in a negative trend, and back to overbought levels, investors may well be suited to “Beware the Ides Of March.”  - Lance Roberts. Commentary at…
-Thursday, the S&P 500 was up 0.4% to 1993 at the close.
-VIX dropped about 2% to 16.7.
-The yield on the 10-year Treasury dipped to 1.83%.
The Overbought/Oversold Ratio remained “Overbought” Thursday for the eighth day in a row. RSI is now indicating “Overbought” too. This rise probably won’t last too much longer, but overbought conditions can remain for extended periods.
Thursday we got 2-consecutive days above the trend line.  According to the old Wall Street truism the down trend appears broken.  Another Wall Street truism says that the Index must close 3% above trend and it isn’t there yet. For a real confirmation of long-term trend the index would need to make new highs and that seems unlikely.
The S&P 500 is 1.6% below the 200-dMA and the slope of the 200-dMA remains down. My Breadth indicator of trend remains on the edge with 50% of stocks advancing over the last 150-days.  All in all, the Index is still in a down trend.
The short-term Money Trend indicator was strongly suggesting downside ahead in the morning, but bounced up later in the day as it has recently. At the close, it is still showing down.
I still am holding short positions in SH and 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 63.7% Thursday vs. 61.2% Wednesday. (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%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved and remained solidly positive.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +73 Thursday. (It was +39 Wednesday.)   The 10-day moving average of the change in spread slipped to +7. In other words, over the last 10-days, on average; the spread has INCREASED by 7 each day. Market Internals switched to positive on the markets.

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.
Thursday, Price & Volume were positive; VIX & the Sentiment indicator were neutral. The long-term NTSM indicator is BUY. I have not followed the guidance yet. With overbought conditions I do not trust the Price indicator right now.
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 9-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…