Monday, April 25, 2016

New Home Sales … Bear Markets …Falling Profit Margins … Stock Market Analysis

“New home sales in March ran at a seasonally adjusted annual rate of 511,000 ( consensus 521,000)… new home sales in March were up 5.4% versus the same period a year ago.” Charts and analysis at…
My cmt: This level of sales shows the very slow recovery after the Housing Crisis that began in earnest in 2008. The current level of sales is below the level associated with all 6-recessions going back to 1973; however, this time it isn’t an advance warning for recession since new sales are rising, albeit very slowly. 
FOUR BAD BEARS (Advisor Perspectives)
What do the worst bear markets look like going back to 1929?  Doug Short answers the question by plotting the days after the all-time high vs. the percentage drop from the all-time high for each Bear Market. Note that the recent peak in May 2015 was roughly 1900 days after the all-time high.  All 4 of the Bears peaked in the 1800 to 1900-day time frame before making a significant retracement down.

Charts and commentary at…

Discussion from…
My cmt: I’ve posted this before, but it’s important because unless the trend 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 analyst were projecting a 0.3% INCREASE in earnings for Q1 2016. The current number for Q1 is estimated at -8.9% (as of this past Friday).
-Monday, the S&P 500 was down about 0.2% to 2188 at the close.
-VIX rose about 7% to 14.08.
-The yield on the 10-year Treasury rose to 1.9%.
The so called “Death Cross” (50-dMA lower than the 200-dMA) ended Monday at least for today.  The last time there has not been a Death Cross in effect was during this past Christmas Holiday season. The Index remains about 3% above its 200-dMA and the slope of the 200-dMA is up. One would be tempted to say “all clear” with these upward trend signals, but this is happening in the context of a falling S&P 500 so we could see reversals in trend soon.
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 is again signaling a top.  The Index is only up 1.4% since the last time it signaled a top so this is just another indication that the Index has gotten ahead of itself.
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. For this snapshot all are equally ranked.  I assigned +1 for bullish indications and -1 for Bearish. Currently the sum of all 16 indicators is +3. It was +9, 4-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 is now down (suggesting stocks will follow), but not sharply so it’s not a strong indicator Monday.  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 59.4% Monday. It was 62.1% Friday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks remained 51.8%. A value above 50% generally indicates an up-trend and the numbers suggest a long-term 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 +33 Monday. (It was +63 Friday).   The 10-day moving average of the change in spread slipped to minus-7. In other words, over the last 10-days, on average; the spread has decreased by 7 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.
Monday, VIX and Price were positive. Sentiment & Volume were neutral.  The long-term NTSM indicator is BUY. I have not followed prior guidance to BUY; I think the market will give me a better buy-point later. Other short-term numbers have suggested that the Index has topped out.

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…