Wednesday, April 27, 2016

FOMC Rate Decision … Crude Inventories … China … Recession? … Stock Market Analysis

“Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed…In light of the current shortfall of inflation from 2%, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” Press release at…
The FOMC declined to raise rates Wednesday as was widely expected. Language was seen by FED watchers as Dovish, effectively eliminating a rate-hike in June. It was noteworthy that the FED mentioned a slowing of the US economy.
“The Energy Information Administration (EIA) said crude inventories climbed 2 million barrels to all-time peak of 540.6 million barrels for the week ended April 22.” Story at…
Apple’s China numbers were awful.  Revenues from China fell 26% year-over-year. Tim Cook, Apple CEO, had cautioned back in January that there were “signs of economic weakness” in China. This once again makes us question the near 7% GDP increase claimed by the Chinese government. Last month import/export data improved. This leads me to comment: bad numbers compared to worse numbers may be an improvement, but they are not good numbers. China remains in recession in my somewhat informed, un-schooled non-economist opinion. This isn’t good for US companies.
My cmt: My simple recession indicator compares the S&P 500 index to the Industrial Select Sector SPDR ETF (XLI) because it is a cyclical ETF and should be more recession sensitive than the S&P 500.  Currently the XLI is out-performing the S&P 500 in all time frames; Investors don’t see a recession risk any time soon.
- Wednesday, the S&P 500 was up about 0.2% to 2095 at the close.
-VIX dipped about 1% to 13.77.
-The yield on the 10-year Treasury dropped to 1.86%.
Today’s small gain occurred after the FED announcement so it was positively received overall. Unless the economy picks up again (as predicted by economists), I don’t see a rate hike this year. I previously suggested this in the paragraph titled, ADS BUSINESS CONDITIONS NEGATIVE & FALLING (Philadelphia FED) here…
The S&P 500 is again 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 so called “Death Cross” (50-dMA lower than the 200-dMA) ended Monday so now it’s a “Golden Cross” with the 50-dMa crossing above the 200-dMA.  So far it hasn’t generated much excitement.
I decided to take a snapshot of 16 indicators, of which only about half fall in the NTSM long-term or Market Internals trend followers that I mention regularly. I assigned +1 to bullish indicators and -1 to bearish indicators.  Currently the sum of all 16 indicators is +1. It was +9 just 6-days ago. Except for big reversals, this isn’t a great indicator, but it does show recent market deterioration.
The short-term Money Trend indicator has turned sharply down, Wednesday, an indication that the S&P 500 is most likely to trend down in the near term.  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.
The 10-day moving average of the percentage of stocks advancing (NYSE) dipped to 58.4% Wednesday. It was 59.2% Tuesday ay. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks rose to 52.3%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) was up and switched to positive on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +118 Wednesday. (It was +74 Tuesday).   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 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, VIX was positive. Sentiment, Price & Volume were neutral.  The long-term NTSM indicator is HOLD reflecting recent weakness.

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…