Thursday, March 17, 2016

Unemployment Claims Fall … JOLTS Job Openings … Philadelphia FED … Leading Economic Indicators … Stock Market Analysis

“The number of Americans filing for unemployment benefits has reached its lowest level since October, suggesting sustained strength in the labor market. The Labor Department said on Thursday that initial claims for state unemployment benefits declined 18,000 to a seasonally adjusted 259,000…” Story at…
JOLTS (Bloomberg)
“Job openings outpaced hiring in January, consistent with further improvement in the U.S. labor market. The number of positions waiting to be filled increased by 260,000 to 5.54 million…” Story at…
“A reading of manufacturing activity in the Philadelphia area returned to positive territory in March, marking the first positive reading in seven months. The Philadelphia Fed manufacturing index rose to 12.4 from a negative 2.8 in February.” Story at….
“A measure of U.S. leading economic indicators rose in February for the first time in three months and suggests steady if mild growth in the months ahead. The leading economic index rose 0.1% to 123.2 last month, according to the nonprofit Conference Board.” Story at…

-Thursday, the S&P 500 was up about 0.7% to 2041 at the close.
-VIX was down about 4% to 14.44.
-The yield on the 10-year Treasury slipped to 1.90%.
The economic news was good today, but yesterday one wouldn’t have guessed that outcome based on the FED comments noting economic weakness as a reason for leaving rates unchanged.
Regarding the regional improvements in manufacturing (Philly and Empire Fed reports) Mike Shedlock at Global Economic Perspectives said, “So why the jump? Things don’t fall or rise forever…Orders get put off, and off, and at some point they have to rise, from very depressed levels. Stabilization or even slight improvements from here do not represent good times for manufacturers.” See his full comments at…
SENTIMENT: Sentiment is usually wrong.  By that I mean it is a contrarian indicator.  If everyone is bullish it is usually time to be bearish.  That’s true at the extremes. The high of 85%-Bulls back in July 2015 was a bearish number. The 15%-Bull reading at the bottom in 2002 was a bullish number. So where are we now?  Sentiment (%-Bulls = 5dMA of {Bulls/Bulls+Bears} based on funds invested in selected Rydex mutual funds) has fallen to its lowest reading since September of 2013.  Sentiment (%-Bulls) is now 55% on a 5-day basis and on a daily basis it was 50% Monday. Amateur traders are turning Bearish.  This seems like an odd result.  Traders are getting more bearish as the S&P 500 has rallied over 10%.  What gives? Simply put, they are voting that this rally is not sustainable.  They are betting that we are in a Bear-Market. At the extremes the crowds are wrong; in between, like now, they are often right. The Stock Indexes are headed up though, so one wonders whose crystal ball is working. Recently, mine has been in the toilet.
The Overbought/Oversold Ratio remained “Overbought” Thursday for the eighteenth day in a row. RSI was overbought a week ago and is close to overbought today.  The Smart-Money indicator (based on late day action) was overbought 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 1.1% above its 200-dMA.  I wouldn’t call this a trend break yet. Some would, though, since the index has remained above the 200-dMA for 2-days straight. The 200-dMA is still sloping down and others use that as a trend indicator.
Looking over the numbers a few things jump out: Breadth is falling; up-volume is falling; and Tick is falling, i.e. fewer last trades of the day are up. So these Market Internals are suggesting some down side ahead.
The general trend of the short-term Money Trend indicator remains down Thursday, suggesting downside ahead; but the signal is mixed since today’s reading was up. I continue to hold short positions mostly in SH and some in QID. So far, these trades aren’t working – at this point I will try minimize the damage.
(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 58.3% Thursday vs. is 57.9% Wednesday. (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 50.6%. 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 +162 Thursday. (It was +82 Wednesday.)   The 10-day moving average of the change in spread rose to +9. In other words, over the last 10-days, on average; the spread has INCREASED by 9 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. Up-volume continues to be problematic, even on an up day like today.

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 & VIX were positive. Sentiment was 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…