Friday, April 29, 2016

Earnings … Personal Spending … Chicago PMI … Michigan Sentiment … Stock Market Analysis

-“For Q1 2016, the blended earnings decline is -7.6%. 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.”
-“Looking at future quarters, analysts do not currently project earnings and revenue growth to return until Q3 2016.”
-“In aggregate, companies are reporting earnings that are 4.1% above expectations. This surprise percentage is slightly below both the 1-year (+4.2%) average and the 5-year (+4.2%) average.”
-“In terms of revenues, 55% of companies have reported actual sales above estimated sales and 45% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is above the 1-year (50%) average but below the 5-year average (56%).” Earnings Insight available from FACTSET at…
My cmt: I’ve posted this before, but it’s important because unless the downward trend in earnings reverses significantly, the stock market is likely to fall. FACTSET has reported that analysts expect company earnings will return to growth by Q3 2016. I might point out that at the beginning of 2016 analysts were projecting a 0.3% INCREASE in earnings for Q1 2016. That current earnings number for Q1 is estimated at -7.6%, better than the estimate of -8.9% last week, but still not inspiring much confidence. An earnings recession is usually followed by a real recession.  Will this time be different?
“U.S. consumer spending rose less than forecast in March, while core PCE prices were in line with expectations, official data showed on Friday… personal spending increased by a seasonally adjusted 0.1% last month, worse than expectations for a 0.2% increase… Personal income, meanwhile, rose by a seasonally adjusted 0.4%, above forecasts for a 0.3% gain…” Story at…,-core-pce-prices-up-0.1-398890
My cmt: Personal spending rose by only 0.1% even though income rose by 0.4%. It appears that the consumer is still trying to reduce debt.
CHICAGO PMI (MarketWatch)
“A measure of Chicago-area economic activity softened in April, indicating that manufacturers and other large companies are still struggling to cope with lower exports, tepid global growth and even some weakness in the United States. The Chicago business barometer, or Chicago PMI, fell 3.2 points to 50.4 in April…” Story at…
My cmt: The article noted that a number above 50 indicates expansion, but also cautioned that the indicator has remained near 50 for more than a year.
“The University of Michigan says American consumers were a bit more downbeat in April. The university's index of consumer sentiment slid to 89 in April from 91 in March. It is the lowest reading since September and the fourth straight drop.” Story at…
- Friday, the S&P 500 was down about 0.5% to 2065 at the close.
-VIX was up about 3% to 15.70.
-The yield on the 10-year Treasury dipped to 1.82%.
Friday couldn’t print a positive day even though it was the Last day of the month and a Friday too. Friday’s have been positive recently and the last day of the month is usually up due to mutual fund inflows associated with automatic retirement investments. This tendency can carryover for the first 4-days of a new month so we’ll see what happens next week.
As of Friday, the smart money (indicated by late-day movement in the S&P 500) has been buying at a slower rate for 6-weeks; further, there has been a slight tendency for selling over the last 20-days.  This is a negative indicator.
The S&P 500 remained overbought using the old tried and true Overbought/Oversold Ratio (utilizing advance decline data) & the Breadth vs. S&P 500 Topping Indicator signaled a top in late March and again last week. 
The 200-dMA of the S&P 500 is falling again, but the “Golden Cross” with the 50-dMa crossing above the 200-dMA remains. The Golden Cross is a bullish indication, but it has not generated much enthusiasm since it appeared 4-days ago. 
My snapshot sum of 16 indicators, of which only about half are included in the NTSM long-term or Market Internals trend followers that I mention regularly, is currently 0. It was +9 just 8-trading days ago. (I assigned +1 to bullish indicators and -1 to bearish indicators.) Except for big reversals, this isn’t a great indicator, but it does show recent market deterioration. All in all, there appears to be a slight downside bias indicated for next week.
The short-term Money Trend indicator was down, Friday, an indication that the S&P 500 is most likely to trend down in the near term.  The indicator flattened some, so the signal is not as strong today. 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 of 2110 on the S&P 500.
The 10-day moving average of the percentage of stocks advancing (NYSE) dipped to 56.4% Friday. It was 57.5% 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 52.2%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) was down and switched to negative on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +90 Friday. (It was +111Thursday).   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. New-hi/new-low data has turned down and is now suggesting further declines ahead. Overall though, 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, VIX, Sentiment, Price & Volume indicators were all neutral.  The long-term NTSM indicator is HOLD.


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 closes 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 11-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…