Friday, April 15, 2016

Earnings … Empire Manufacturing … Industrial Production … The Big Four Economic Indicators … Michigan Sentiment … Stock Market Analysis

The following excerpted from Earnings Insight from FACTSET:
-With 7% of companies in the S&P 500 reporting earnings to date for Q1 2016, 71% have reported earnings above the mean estimate and 60% have reported sales above the mean estimate…
-For Q1 2016, the blended earnings decline is -9.3%. If the index reports a decline in earnings for Q1, it will mark the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008 through Q3 2009…
-On March 31, the estimated earnings decline for Q1 2016 was -8.7%.
Factset Earnings Insight available from FACTSET at…
My cmt: 2-weeks ago analysts estimated an earnings decline of -8.7%.  1-week ago analysts estimated a decline of -9.1%.  We are only a little ways into earnings reporting-season, but so far, reported declines combined with companies yet to report (the blended decline) are estimated at -9.3%, worse than prior estimates. Further, negative guidance is quite high so far. All-in-all, it doesn’t make sense to me. Stocks are priced about where they were a year ago; earnings have (by all reasonable estimates) fallen by nearly 10%.
More than 100 S&P 500 companies report next week.  It will be an interesting week, especially with regard to “forward guidance”. Expectations remain high.
“A reading of New York-area business conditions rose in April to the highest level in more than a year, the New York Fed said Friday. The Empire State manufacturing index for April rose to 9.6 from 0.6 in March.”

Chart and story at…
“With mining and utilities output showing notable decreases, the Federal Reserve released a report on Friday showing a much bigger than expected drop in U.S. industrial production in the month of March. The Fed said industrial production fell by 0.6 percent in March, matching the…” Story at…
“Official recession calls are the responsibility of the NBER Business Cycle Dating Committee…There is…a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are: Nonfarm Employment; Industrial Production; Real Retail Sales; Real Personal Income…” – Doug Short.
Detailed charts, analysis and commentary at…
Good reading as always!
“Consumer sentiment eased to 89.7 in the University of Michigan’s preliminary reading for April. That was down 1.3 points from a March reading of 91.0.” Story at…
- Friday, the S&P 500 was down about 0.1% to 2081 at the close.
-VIX dipped slightly to around 13.7.
-The yield on the 10-year Treasury slipped to 1.75%.
The S&P 500 bounced in a narrow range today, but this was one of the few Fridays that have been down recently; let’s wait till Monday to see if there is any downward follow through. The majority of my indicators are neutral or pointing up – almost none are signaling down, although there have been negative top-signals fairly recently. I’ll continue to wait.  
The short-term Money Trend indicator is moving up, suggesting stocks will follow.  The chart of the S&P 500 didn’t agree today.  We’ll see. 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) rose to 54.4% Friday. It was 53.9% Thursday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks remained 51.7%. A value above 50% generally indicates an up-trend. The slope of the 200-dMA is now up, but it needs to stay there for a few days to confirm a trend change. The McClellan Oscillator (a Breadth measure) dropped, but remained positive on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +82 Friday. (It was +89 Thursday).   The 10-day moving average of the change in spread dropped to minus-9. In other words, over the last 10-days, on average; the spread has decreased by 9 each day. New-hi/new-lo data has certainly stalled; whether it will head down or not remains to be seen. 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.
Friday, 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 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…