Tuesday, March 29, 2016

Yellen FED Speech … Consumer Confidence … Atlanta FED GDP Model Drops to +0.6% … Downside Risk to the Stock Market … Stock Market Analysis

“Fed Chair Janet Yellen reassured markets that the U.S. central bank will move cautiously with further rate hikes, pushing back at recent hawkish comments from other Fed officials... "Curiously, for a central bank presumably in the middle of a tightening cycle, Yellen's speech focused more on downside risks that those to the upside," wrote Dana Saporta, director of economic research at Credit Suisse.” Story at…
“Consumer confidence bounced back in March as stocks rallied and job growth surged, more than offsetting rising gasoline prices. A closely watched index of Americans' perceptions of the economy and labor market rose to 96.2 from an upwardly revised 94 in February…” Story at…
ATLANTA FED MODEL DROPS TO 0.6% (Global Economic Perspectives)
“In the wake of a dismal personal income and outlays report today [Monday, March 28], the Atlanta Fed GDPNow Model forecast plunged to +0.6%.” Commentary at….
“…as we close out the first quarter and enter earnings season in the coming weeks, there is a bit of unease.
1) The market is not cheap…
2) The earnings multiple has high risk to the downside because earnings have an unusually high degree of uncertainty...
3) GDP forecast has weakened...” – Bob Pisani, CNBC. Commentary at…
-Tuesday, the S&P 500 was up about 0.9% to 2055 at the close.
-VIX fell about 9% to 13.82.
-The yield on the 10-year Treasury fell to 1.81%
Volume picked up today, so it looks like traders were back from a short Easter vacation to hear Yellen’s speech.
The S&P 500 crawled back slightly above its high of about a week ago. This is the fourth time the index has been in the 2050-2055 area in the last week or so.  It needs to move-up or give-up. The size of the up-move Tuesday was statistically-significant and that means that the price-volume move up exceeded my statistical parameters and, in about 60% of the time, that leads to a down-day the next day (Wednesday).
Further, the Overbought/Oversold Ratio was “Overbought” Tuesday and RSI (Relative Strength Index) was again overbought. Combined with the big up-move, it may (finally) suggest a turn down that has been suggested by short-term indicators for at least 2-weeks.
The S&P 500 is 5.6% above its 50-dMA and was as high as 6.1% above its 200-dMA a week ago.  These are extreme numbers that usually indicate a top (short-term or long-term).
Up-volume remains in a down trend; until it turns up; it continues to look like “down” is the most likely direction for this market.
The short-term Money Trend indicator bounced up today, but the longer pattern remains trending down Tuesday; overall, this indicator is neutral at this point. 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 56% Tuesday vs. is 52.4% Monday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks climbed to 51.4%. A value above 50% generally indicates an up-trend, but the slope of the 200-dMA is still down, so the trend must still be considered down. The McClellan Oscillator (a Breadth measure) was nearly bounced up and is now positive.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +194 Tuesday. (It was +97 Monday.)   The 10-day moving average of the change in spread rose to +16. In other words, over the last 10-days, on average; the spread has INCREASED by 16 each day. Market Internals remained neutral on the markets, but the up-volume continues to fall. New-high new-low data is now positive.

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 and Volume (a variant of on-balance-volume) were 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…