Monday, May 16, 2016

Cass Freight Index Falls … Empire State Manufacturing Falls … Stock Market Analysis

CASS FREIGHT INDEX REPORT (Cass Information Systems)
“The April freight shipments index increased a meager 0.7 percent from March”… The report noted that the April 2016 Freight Shipments index was down 4.9 percent and the Freight Expenditure Index was down 8.3% on a year-over-year basis. The report concluded: “The U.S. economy decelerated in the first four months of 2016…Based on the trends of many economic indicators, it appears the economy may get worse before it gets better.” – Rosalyn Wilson, Cass Freight Matters.  Report available at…
My cmt: The fact that Shipments were down 5% and Expenditures were down 8%, both on a year-over-year basis, must be very disconcerting for the bulls. Dow Theory is based on an indicator that says when the transport stocks underperform the Dow, it is a bearish signal.  That’s because shipping tends to be an advance warning for manufacturing. Today, unlike in Dow’s time, the Transportation index includes airlines which tends to cloud the Dow Theory signal. The Cass index looks directly at shipping and the news is pretty bad.  This news isn’t a surprise though; manufacturing has been sending warnings for some time and Monday we got another warning from the Empire State Manufacturing Report.
“A reading of New York-area manufacturing conditions fell sharply in May, one that could make the likelihood of an interest rate hike more remote. The Empire State general business conditions index nose-dived to a reading of negative 9, from positive 9.6 in April.” Story at…
- Monday, the S&P 500 rose about 1% to 2067 at the close.
-VIX fell about 2% to 14.68.
-The yield on the 10-year Treasury rose to 1.75%.
CNBC spent a good bit of time reminding us that the market has not made a new high in a year (as of this Saturday). At least one market stat continues to suggest that we have seen all-time highs for a while – the percentage of issues making new highs at the market tops has been wholly unimpressive.  If we go back to the all-time high on 21 May 2015, only 2.3% of issues on the NYSE made new highs. That number is, ominously, the same as it was at the all-time high on 9 September 1929. (One note: In 1929, only stocks were traded on the NYSE; today there are ETFs, REITS and Bond funds on the NYSE, so my numbers aren’t exactly apples to apples. Still, I suspect they are close enough.)  More recently, the numbers have improved, but not by much.
The S&P 500 has topped out above the 2100 level a couple of times since May of 2015.  The percentage of issues making new highs at those interim market tops were 3.4% in November, 3.2% in December and 4.7% at the recent high on 2 May 2016. This seems to imply improvement; but it’s not enough.  Of the 16 all-time highs that preceded bear markets going back to 1929, the average percentage of issues making new highs at tops was 5.8%. Further, 12 of those were higher than 4.7%. In summary, this stat still indicates that the market remains too narrow with few leaders. That tends to suggest that a new all-time high may not be seen in the near future.
Monday, we had a big move up. The size of the up-move was statistically significant and that means that the price-volume move exceeded my statistical parameters and, in about 60% of the time, that leads to a down-day the next day (Tuesday). This is the sixth statistically significant day in the past 3-weeks.  These up/down moves tend to happen near tops, so this flip/flopping (3-days-up and 3-days-down) is a bearish indication.
The short-term Money Trend indicator is flat, Monday, a neutral signal.  I continue to hold short positions mostly in SH and some in QID, but those will have to go if the market reverses upward and exceeds my pain-target of 2110 on the S&P 500.  
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 49.3% Monday. It was 48% Friday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks increased to 51.5%. 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.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +148 Monday. (It was +67 Friday).   The 10-day moving average of the change in spread was +1. In other words, over the last 10-days, on average; the spread has increased by 1 each day. Market Internals improved slightly and switched to  neutrall 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, 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 11-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…