Thursday, May 5, 2016

Jobless Claims … Oil and Gas Defaults Hurting Credit Market … Druckenmiller Says, “Sell” … Stock Market Analysis

“Applications for U.S. unemployment benefits increased to a five-week high, a sign that progress in the strongest part of the economy may be moderating.

Jobless claims rose by 17,000 to 274,000 in the week ended April 30…”
The 4-week moving average continues to fall, so the increase isn’t a major story…yet.

“The high default rate in the oil and gas sector after a long period of low oil prices is starting to hurt the broader high-yield market, according to a new report from Moody’s…the commodity-driven climb in defaults is contributing to an increase in investor risk aversion and borrowing costs,” said analysts led by Moody’s Senior Vice President John Puchalla.” Story at…

“Legendary billionaire investor Stanley Druckenmiller told Sohn Investment Conference attendees to sell their equity holdings Wednesday.” Story at…

-Thursday, the S&P 500 finished unchanged at 2051.
-VIX dipped about 1% to 15.91.
-The yield on the 10-year Treasury slipped to 1.75%.

Today we saw High unchanged volume and theoretically that can signal a top (confusion by investors), but I have not seen much correlation with that indicator.

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 8-days ago. The S&P 500 is now only 1.5% above its 200-dMA.  That is a critical support level; if the Index falls below that point traders will get worried and selling may pick up. 

While it seems like the S&P 500 has been down a lot recently, it has actually been down only 6-days in the last 10 and 9-days in the last 20. The Index can fall further in the near term.

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 -2. It was -7 yesterday. (I assigned +1 to bullish indicators and -1 to bearish indicators.) Except for big reversals, this isn’t a great indicator, because there is a lot of variability in the summation. Overall though, the downside bias remains – it’s just not as strong Thursday.

The short-term Money Trend indicator was neutral, Thursday, signifying an improvement in market conditions, but not enough to be bullish.  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) rose to 50.3% Thursday. It was 49.2% Wednesday. A number above 50% is usually GOOD news for the markets; but the 10-day moving average of advancing volume is only 46% and that is a negative.

On a longer term, the 150-day moving average of advancing stocks slipped to 52.2%. 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 +136 Thursday. (It was +118 Wednesday).   The 10-day moving average of the change in spread rose to +6. In other words, over the last 10-days, on average; the spread has increased by 6 each day. New-hi/new-low data remains down, but today it suggests an improvement that could bring a turn-around soon. Market Internals switched to 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.

Thursday, the Volume indicator (variant of on-balance-volume) switched to neutral; VIX, Sentiment & Price indicators were all neutral as well.  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…