Monday, April 18, 2016

Cass Freight Index … Stock Market Analysis

CASS FREIGHT INDEX (Cass Information Systems)
The Report indicated that freight shipments are down 1.5% and expenditures are down 7% year over year.  The report concluded: “Global economic conditions are still weak and fragile in some economies, adding a level of uncertainty to the U.S. economy. 2016 is turning out to be difficult to predict. Anecdotally, however, many players in the supply chain remain cautiously optimistic for the rest of the year.” Cass Freight Index Report available at…
“I have been in this business for 30 years and have never seen a central bank chief slip the word “uncertainty” into the headline…It begs the question: what has gone wrong?”…[Mr. Rosenberg explains issues facing the economy in a long commentary and concludes]…
…So all this means lower for a lot longer — low growth, low inflation, and low interest rates — from an investment strategy standpoint, it is all about “Safety & Income at a Reasonable Price”, all over again.” – David Rosenberg
-Monday, the S&P 500 was up about 0.7% to 2094 at the close.
-VIX dropped about 2% to around 13.35.
-The yield on the 10-year Treasury rose to 1.77%.
Monday was another fairly big up-day…I won’t let the S&P 500 index get too much higher without getting back in or at least beginning to move in: I first sold on 19 Dec at S&P 500 - 2021. The Index closed today about 3% above my sell point. If it gets above 2110, I’ll be buying stocks.
The S&P 500 is again overbought using the old tried and true Overbought/Oversold Ratio (utilizing advance decline data), but the elusive pull-back I have expected seems to remain out of reach.
Volume was roughly 10% below the monthly average.  While that is normal at a bottom, because traders don’t believe the bottom is in, when volume doesn’t begin to pick up as a rise continues, it is an indication that trouble may be coming or at least that the rise still has a lot of skeptics. There should be rising volume as more people are convinced the bottom was real.
I am waiting for some bright spots in earnings, but we didn't get much today: Netflix gave poor guidance and is down over 13% after-hours; IBM revenue was down about 5%; Morgan Stanley sales fell by 21%; Pepsico had better news overall, but still missed revenues, down 3%. I am not impressed, but as we have seen so far, the markets are shrugging off lots of negatives; let’s see what the market thinks tomorrow.
The short-term Money Trend indicator is moving up, suggesting stocks will follow.  I continue to hold short positions mostly in SH and some in QID, but those will have to go if the market exceeds my pain-target above.
(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) rose to 56.4% Monday. It was 54.4% Friday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks increased to 51.8%. A value above 50% generally indicates an up-trend. The slope of the 200-dMA is still up and we probably should acknowledge a long-term trend change; I can't seem to admit it because of my bearish bias - can the S&P 500 make new highs? That's the ultimate test. The McClellan Oscillator (a Breadth measure) increased and remained positive on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +144 Monday. (It was +82 Friday).   The 10-day moving average of the change in spread rose to +1. In other words, over the last 10-days, on average; the spread has increased by 1 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.
Monday, Price & VIX were positive. Sentiment & Volume were neutral.  The long-term NTSM indicator is BUY. I have not followed the guidance. Other short-term numbers have suggested that the Index had topped out. I said that for a while as the market moved up; but topping indicators prevented me getting bullish. The only remaining top indicators are the current overbought indication & my Breadth Index Top Indicator.  They suggest a top.  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. If the S&P 500 index moves up above 2110, I plan to add to my stock allocation.

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…