Wednesday, April 13, 2016

China Exports… Retail sales … Producer Price Index …. Crude Inventories … Time to get Bullish … Bull/Bear Fight Dangerous … Stock Market Analysis

“Chinese exports expanded in March for the first time in nine months, mildly buoying an economy that is struggling to regain momentum. Economists cautioned that the export boost, after months of decreases, in part reflects a seasonal upturn after the Lunar New Year holiday in February and isn’t likely to be sustained...” Story at…
“Sales at U.S. retailers unexpectedly fell in March, raising concern consumer spending is losing momentum. The 0.3 percent drop in purchases followed little change the prior month…” Story at…
“U.S. producer prices unexpectedly fell in March as rising energy prices were offset by a decline in the cost of services, pointing to tame inflation that supports the Federal Reserve's cautious approach to raising interest rates.” Story at…
“U.S. commercial crude inventories increased by 6.6 million barrels last week, maintaining a total U.S. commercial crude inventory of 536.5 million barrels. The commercial crude inventory remains at historically high levels for this time of year, according to the EIA.” Story at…
“While the S&P 500 has gotten ahead of itself since the mid-February lows, I suspect whatever pullback we get will be more consolidating and working off overbought conditions versus the start of another major move downward. Improving stock market breadth, a more dovish Fed, and the prospect that the worst of the earnings declines could very well be behind us tell me that the bear market scenario that we worried about at the beginning of the year is off the table for now. Investor positioning shows a reluctance to hop on board this rally, which also tells me there is still enough fuel in the tank for the S&P 500 to grind higher in the weeks and months ahead once we work off the overbought conditions. I think for the time being equity market weakness will be confined to the 1950-2000 region for the S&P 500 and this is where I would selectively add back to equities for underinvested accounts. [comment by Mick St. Amour, The Collier Group] ….”Plainly, we agree.” – Jeffery Saut, Raymond James. Commentary at…
My cmt: Clearly this scenario is possible. This general line of thinking is that the earnings will be bad, but will beat expectations thus driving the market higher.  If the markets continue higher it will be time to get back in and my trading portfolio will take a big negative hit.
If earnings beat expectations, but are worse than 2015-Q4 earnings, I think the markets will be concerned about the continued downtrend. This should limit the upside and may lead to another retreat. If earnings are worse than expected…look out below.
“…there will also likely be much whipsaw — suggesting that less-experienced market players should perhaps sit this one out…for most investors, the sidelines are advisable right now. But should the bullish pattern confirm in the summer, we will have a signal that we are on our way to 2500-2600 going into 2017.” – Avi Gilburt. Commentary at…
-Wednesday, the S&P 500 was up 1% to 2082 at the close.
-VIX fell about 7% to 13.84.
-The yield on the 10-year Treasury dipped to 1.77%. (The Bond Ghouls don’t seem to believe in the stock rally.)
Volume popped up again and for the past 2-days volume has been about 10% above the monthly average on the NYSE. The late-comers are jumping in – one wonders if the rally will continue much further.
The size of the up-move Wednesday 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 (Thursday). One could read my comment from yesterday so I won’t repeat why, but this is a bearish indicator short-term. It looked like a top Tuesday; it looks like a top Wednesday.
At the bottom on 11 February there were several Buy signals that I ignored because I thought this would be a rally in a bear-market. It has now popped up about 12% and that’s more than I expected, but it is in-line with the 10% pop in the 2007 bear market. The point is that the size of the bounce does not, by itself, indicate that the bear market is over. Still it is cause for reflection.
My system indicated sell on 18 December 2015 at S&P 500 2063.  The index is now 2082 or about 1% above my 1st sell-point. I will need to show discipline and move some back in the stock market to avoid underperformance very soon if the market continues up.  I am not there yet, but if it moves up another 1%, say above 2110, I will add to stock allocation.
The short-term Money Trend indicator is now pointing up indicating further upside.  In spite of that, I continue to hold short positions mostly in SH and some in QID.  I expect a reversal down based on other indicators. I can’t say I will make a profit – at this point the goal is to minimize loss.
(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) climbed to 55% Wednesday. It was 53.5% Tuesday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks remained 51.6%. 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) improved and remained positive on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +105 Wednesday. (It was +113 Tuesday).   The 10-day moving average of the change in spread dipped to minus-11. In other words, over the last 10-days, on average; the spread has decreased by 11 each day. New-hi/new-lo data is turning down and that is a top indicator. Market Internals remained neutral 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.
Wednesday, 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 suggest that the Index is topping out. I have been saying that for a while as the market has moved up; but there are some topping indicators (RSI & the Breadth Index Top Indicator) that 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 another 1%, say 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…