Saturday, May 21, 2016

19-Months of a Difficult Stock Market … Stock Market Analysis

“The past 19 months have been the most difficult stock market I have ever experienced in more than 50 years of investing,” said Jeffrey Saut, chief investment Strategist, Raymond James Financial Inc., which oversees $500 billion. In bear markets, “at least we knew stocks were going to go down. However, over the past 19 months the up one session, and down the next, has been extraordinarily frustrating.” – Jeffery Saut, Chief Investment Strategist, Raymond James Financial Inc.
- Friday, the S&P 500 finished up 0.6% to 2052 at the close.
-VIX dropped about 7% to 15.22.
-The yield on the 10-year Treasury remained 1.85%.
Friday saw low volume on the NYSE that was about 10% below the monthly average. This suggests that many remained un-convinced that Friday was a good time to buy.
The S&P 500 has now failed to make new highs in a year.  That’s a bearish indicator, but I must note that when compared to 2007 (another instance where this occurred) the comparison is not 1 to 1.  In 2007 the markets were much lower after stagnating for such a long time.  One wonders whether this time will be different.  Could we avoid the bear? I doubt it, but it doesn’t seem imminent. Still, new-high new-low data is weakening. On the whole, indicators remain mostly bearish Friday, but they did improve marginally.
The short-term Money Trend indicator is still moving up, Friday, and that’s a bullish signal.  I continue to hold short positions mostly in SH and some in QID. Those will have to go if the market reverses upward and exceeds my pain-target of 2110 on the S&P 500; I may sell these positions sooner if the market indicators trend upward.
The 10-day moving average of the percentage of stocks advancing (NYSE) improved to 49.7% Friday. It was 48.1% Thursday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks remained 51.4%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) improved, but remained negative – a neutral indicator in the short-term.
In a positive reversal, New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +24 Friday. (It was -14 Thursday).  
The 10-day moving average of the change in spread was minus-11. In other words, over the last 10-days, on average; the spread has decreased by 11 each day. Market Internals remained neutral, but only because up-volume is slightly outpacing down volume on a smoothed 10-day basis. Overall, 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, the Volume, VIX, Sentiment & Price indicators were all neutral.  The long-term NTSM indicator remains 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 12-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…