Tuesday, April 12, 2016

Small Business Survey … Stock Market Analysis

SMALL BUSINESS SURVEY (Advisor Perspectives)
“The Index of Small Business Optimism fell 0.3 points from February, falling to 92.6. Statistically, no change….For a broader perspective, the Index has turned decidedly "south" over the last 15 months falling from a reading of 100 in December 2014 to 92.8. A "chartist" looking at the data historically might conclude that the Index has clearly hit a top and is flashing a recession signal. The April survey will decide whether or not the alarm should be rung.” – NFIB Press Release. The usual solid analysis with charts and commentary available at…
-Tuesday, the S&P 500 was up about 1% to 2062 at the close.
-VIX fell about 9% to 14.85.
-The yield on the 10-year Treasury rose to 1.78%
The size of the up-move Tuesday was statistically-significant and that means that the price-volume move up exceeded my statistical parameters and, in about 60% of the time, that leads to a down-day the next day (Wednesday).
As I noted recently, when a number of statistically-significant, up-and-down days (each one reversing the prior move) fall close to one another, it usually signals a top. There have been 5-significant days in the past 11-trading days and that’s a decent top warning. This time it didn’t occur at the upper trend-line of the recent up-move; instead it stalled at the overhead line of descending tops that has been in place since last November. That is now 3.2% below the S&P 500 all-time high of 2131. It is unlikely that the index will move much higher. I expect a 5-8% retracement and then…we’ll see.
I measure Sentiment by %-bulls, calculated from funds invested in Rydex/Guggenheim long-short funds {(Bulls/(Bulls+Bears)}.  It is currently a very high reading of 72% showing almost three times as many investors betting long compared to shorts. This high reading is a bearish indication.  It was 85%-bulls about a month after the all-time high on the S&P 500 and that is comparable to the readings at the major high in 2000. (Valuation was not an issue in 2007 so I am not particularly interested in the 2007 sentiment high.)
4% of stocks on the NYSE made new-highs Tuesday. That stat is below 12 of the 16 major highs going all the way back to 1929; as we approach all-time highs, internals are not confirming the optimism of the talking heads on CNBC. This market remains too narrow for my taste. Only 2.3% of stocks made a new-high on the NYSE at the all-time high back in May 2015.  That is the same value as occurred at the top in 1929.
The short-term Money Trend indicator is neutral.  I continue to hold short positions mostly in SH and some in QID. Looks like a top Tuesday.
(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) slipped to 53.5% Tuesday. It was 53.6% Monday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks bounced up to 51.6% from 51.2%. (I may have had a typo here yesterday.) A value above 50% generally indicates an up-trend, but the slope of the 200-dMA is still down, so the trend must still be considered down. The McClellan Oscillator (a Breadth measure) improved and switched to positive on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +113 Tuesday. (It was +102 Monday).   The 10-day moving average of the change in spread dipped to minus-8. In other words, over the last 10-days, on average; the spread has decreased by 8 each day. Market Internals switched to 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.
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 suggest 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 has occurred.  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.
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…