Wednesday, May 4, 2016

ADP Employment … Productivity … Labor Costs … Factory Orders … ISM Services … Crude Inventories … Stock Market Analysis

“US private payrolls increased by 156,000 in April, the lowest level in three years, according to ADP Research Institute.” Story at…
This was a weak number, far below expectations.
“Nonfarm productivity decreased by 1.0% on an annualized rate during the first quarter of 2016…Unit labor costs in the nonfarm business sector increased by a sharp 4.1% in the first quarter of 2016.” Story at…
“New orders for U.S. factory goods rose more than expected in March, while shipments and inventories increased after eight straight months of declines, signs that the downturn in manufacturing was nearing an end. The Commerce Department said on Wednesday new orders for manufactured goods increased 1.1 percent….” Story at…
“The pace of growth in the U.S. economy's service sector increased in April, according to an industry report released on Wednesday. The Institute for Supply Management (ISM) said its index of non-manufacturing activity rose to 55.7 from 54.5 the month before.” Story at…
“…U.S. government data showed crude inventories rose more than expected. U.S. commercial crude stockpiles rose by 2.8 million barrels in the previous week to a total of 543.4 million barrels.” Story at…

-Wednesday, the S&P 500 dropped about 0.6% to 2051 at the close.
-VIX rose about 3% to 16.05.
-The yield on the 10-year Treasury slipped to 1.78%.
My sentiment indicator (%-bulls based on amounts invested in selected Guggenheim/Rydex bull/bear funds) has gone from 62% to 75% in 2-weeks.  That’s a fast rise and also indicates that investors are buying the dip.  Generally, there has been a “risk-on” attitude that may have gotten ahead of the markets even as the markets have fallen.
I can’t get away from the FACTSET statement from their last Earnings Insight: “For Q1 2016, the blended earnings decline is -7.6%.” You have to be a pretty big optimist to ignore this and buy on the belief that that earnings are going to significantly improve over the next 2-quarters. I am more of a show-me investor – I’ll believe it when I see it. My guess is that most investors may agree and remain cautious for a longer time.  May can be a difficult time for the markets and that's especially true in an election year.
The slope S&P 500, 200-dMA is still falling; the “Golden Cross” with the 50-dMa crossing above the 200-dMA remains. The Golden Cross is a bullish indication, but it has not generated much enthusiasm since it appeared 7-days ago.
My snapshot sum of 16 indicators, of which only about half are included in the NTSM long-term or Market Internals trend followers that I mention regularly, is currently -7. It was +8 just 9-trading days ago. (I assigned +1 to bullish indicators and -1 to bearish indicators.) Except for big reversals, this isn’t a great indicator, but it does show recent market deterioration.
The downside bias remains.
The short-term Money Trend indicator was down, Wednesday, an indication that the S&P 500 is most likely to trend down in the near term.  The indicator remains sharply down today which makes a strong signal. I continue to hold short positions mostly in SH and some in QID, but those will have to go if the market reverse upward and exceed my pain-target of 2110 on the S&P 500.
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 49.2% Wednesday. It was 50.9% Tuesday. (A number below 50% is usually BAD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks remained 52.4%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) was down again – a bearish indicator in the short-term.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +118 Wednesday. (It was +70 Tuesday).   The 10-day moving average of the change in spread rose to minus-1. In other words, over the last 10-days, on average; the spread has decreased by 1 each day. New-hi/new-low data remains down and is suggesting further declines ahead. Market Internals switched to negative 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, the Volume indicator (variant of on-balance-volume) switched to negative.  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 11-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…