Friday, May 27, 2016

GDP … Yellen Speech … Michigan Sentiment … Stock market Analysis

GDP REVISION (24/7 Wall St.)
“First-quarter GDP growth saw a revision, and it raised to 0.8% from the prior 0.5%. This report was incredibly slow, and it was also under the expectations.” Story at…

“It’s appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said at a high-profile visit to Harvard University on Friday. That means a move could be appropriate in coming months, she said.” Story at…
Consumer confidence in the U.S. climbed to an almost one-year high in May as Americans grew the most upbeat about incomes after inflation than at any time in a decade, the University of Michigan’s report showed on Friday.” Story at…
- Friday, the S&P 500 was up 0.4% 2099.
-VIX dropped about 2% to 13.17 near the close.
-The yield on the 10-year Treasury rose to 1.85%.
We saw low volume today (about 20% below the monthly average) due to the 3-day Holiday.
I’ve mentioned that investors are skeptical of the rally due to lower than normal volume prior to today. Here’s further evidence of a bearish sentiment trend.  My sentiment indicator (%-bulls in Rydex bull/bear funds) has fallen from 76%-bulls to just 60%-bulls in just 3-weeks. The S&P 500 is up 2% over that period, but bullish sentiment is falling.  It is still very high, with 6 out of 10 investors bullish, but the trend is down.
The 5-10-20 Timer issued a BUY signal yesterday.  That is a simple system based on the 5-dEMA and the 10-dEMA higher than the 20-dEMA.  When combined with my market Internals (that are also bullish), I would normally issue a BUY signal now.  Given the low volume day, I am inclined to wait for a more believable signal, perhaps early next week. The S&P 500 has moved slightly higher than my sell point last December, so if bullish conditions remain next week, I’ll get back in. Previously I set 2010 as a re-entry point and that's where it may wind up.
There was one important negative signal today; the S&P 500 is overbought using the old tried and true Overbought/Oversold Ratio (based on advance decline data). Next week is also bearish for the markets in general with most years down (based on a piece I read somewhere).
Indicators are mostly bullish and trending generally higher, the new-high, new-low data reversed higher so my signals are getting more bullish.
The short-term Money Trend indicator remains in an uptrend, Friday, and that’s clearly a bullish signal.  In spite of that, I continue to hold short positions mostly in SH and some in QID. Those will have to go if the market exceeds my pain-target of 2110 on the S&P 500.
The 10-day moving average of the percentage of stocks advancing (NYSE) climbed to 56.8% Friday. It was 53.5% Thursday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks remained 51.7%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) improved and remained positive – a bullish indicator in the short-term.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +76 Friday. (It was +74 Thursday).  
The 10-day moving average of the change in spread remained minus-2. In other words, over the last 10-days, on average; the spread has decreased by 2 each day. Market Internals switched to bullish.

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 indicators were all neutral.  The Price indicator (measuring the size of up vs down moves) was positive. 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 2015 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…