Wednesday, May 11, 2016

Crude Inventories … Head and Shoulders Pattern on the S&P 500 … Stock market Analysis

CRUDE INVENTORIES (24/7 Wall Street)
“U.S. commercial crude inventories decreased by 3.4 million barrels last week, maintaining a total U.S. commercial crude inventory of 540 million barrels. The commercial crude inventory remains at historically high levels for this time of year…” Story at…
“[There is a possible]…developing head and shoulders formation (neckline would be the dashed blue line while the blue curves represent the head and shoulders). In order for this pattern to come to fruition, we would need to see the S&P make a rally attempt that failed below 2100, followed by a drop below 2040.” – Matthew Kerkoff. Commentary and chart at…
The “head-and-shoulders” chart pattern is one of the most well-known and reliable bearish patterns around.
-Wednesday, the S&P 500 fell about 1% to 2064 at the close.
-VIX rose about 8% to around 14.69.
-The yield on the 10-year Treasury dipped to 1.74%.
Wednesday we had a big move down. The size of the down-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 an up-day the next day (Thursday). This is the fifth statistically significant day in the past 3-weeks.  These up/down moves tend to happen near tops, so this flip/flopping is a bearish indication. Further, Market Internals deteriorated significantly Wednesday; late day market action has been down over the past month (suggesting the Pros are selling) and my sum of 16 indicators fell from +4 to -2.
All in all, there is now a bearish bias for the market.
The short-term Money Trend indicator is mixed, but mostly trending down, Wednesday, and that’s a mildly bearish to 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) fell to 47.6% Wednesday. It was 51% Tuesday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks dipped to 51.9%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) declined remained negative – a bearish indicator in the short-term.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +113 Wednesday. (It was +230 Tuesday).   The 10-day moving average of the change in spread fell to minus-1. In other words, over the last 10-days, on average; the spread has decreased by 1 each day. 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, 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…