Tuesday, April 19, 2016

Housing Starts … Housing Permits … Nordstrom Cutting Staff Again … Stock Market Analysis

“The pace of homebuilding in the U.S. fell in March to its lowest level since October, another sign momentum in the housing market is slowing after a strong 2015…But Millan Mulraine, economist at TD Securities USA LLC said the fundamentals that underpin a firming housing market, such as steady job growth and low interest rates, are still in place.” Story at…
PERMITS (builderonline)
“Housing starts took an unexpected turn southward, falling 8.8% from February to a seasonally adjusted annual rate of 1,089,000, the Commerce Department reported Monday. Analysts polled by Econoday were expecting a rate of 1.167 million. Similarly, permits took a dive, down 7.7% from February…” Story at…
My cmt: New Home construction is considered by many to be a tell for the economy so it is followed carefully by economists.
“Nordstrom Inc. said on Monday that it expects to cut between 350 and 400 jobs as it undergoes changes to its operating model. The changes are estimated to save about $60 million in fiscal 2016.” Story at…
They did this last year too.  All is not well with the upper crust.  Whether it’s falling premium retail, Ferrari auction values or high-end housing prices, evidence is mounting that the high-end market is hurting.  Will it trickle down?
DUE FOR A PULL-BACK (Financial Sense)
“John Kosar CMT, Director of Research at Asbury Research LLC. John believes we are vulnerable to a pullback near term, as momentum is stretched and the market is up against overhead resistance. John is more, positive longer term, but advises adding tighter stops and not adding to positions at these levels.” Commentary at…
-Tuesday, the S&P 500 was up about 0.3% to 2101 at the close.
-VIX dropped about 0.8% to around 13.24.
-The yield on the 10-year Treasury rose to 1.78%.
Buy the rumor sell the news.  The rumor is: the FED won’t raise rates at the April 26-27 meeting. There doesn’t look like any chance they will raise rates, so a sell-off may be the “sell-the-rumor” action. Will it happen? Maybe, but I will follow my plan and put some funds to work in the stock market if the Index breaks above 2110. I think at this level its best to income average back in rather than jump in all at once, so perhaps I’ll get back to 30% invested.  (I am still kicking myself for ignoring multiple Buy signals after the February low.)
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. The Index is not just overbought it is massively overbought - the percentage of stocks-advancing on a 10-dMA (day moving average) and 20-dMA basis is exceeding the 2010 top right before a 16% correction.
The upside potential seems somewhat limited while the potential for a return to more selling remains.
Intel beat on earnings, but missed expectations on revenues. The stock fell 2% after hours.  Intel announced job cuts of 12,000, 11% of the workforce. (Year over year earnings were up 20% and sales were up 7% - didn’t seem that bad to me.) Johnson and Johnson boosted its earnings guidance based on weakening of the dollar. Philip Morris also was optimistic about the impact of the weakening dollar. That’s good news for the multi-nationals.
The short-term Money Trend indicator is clearly 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 63% Tuesday. It was 59.1% Monday. (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 52.1%. A value above 50% generally indicates an up-trend and the numbers suggest a long-term up-trend.  The problem is that there remains a lot of doubt about the status of the markets and whether they can make significant new-highs.  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 +187 Tuesday. (It was +144 Monday).   The 10-day moving average of the change in spread rose to +11. In other words, over the last 10-days, on average; the spread has increased by 11 each day. Market Internals remained 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.
Tuesday, 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 indicated a turn-around. There are now 3-top indicators: the current overbought indication; a money trend indicator (it’s too good) & my Breadth Index Top Indicator.  They suggest a top is close – damn I am tired of writing that; but the numbers are the numbers.  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…