Tuesday, May 24, 2016

New Home sales … More on the Markit Manufacturing PMI Why eh FED Won’t Raise Rates … Stock Market Analysis

“New U.S. single-family home sales recorded their biggest gain in 24 years in April, touching a more than eight-year high as purchases increased broadly, a sign of growing confidence in the economy's prospects.” Story at…
Here’s a bit more on yesterday’s Markit Manufacturing PMI. The press release from Markit indicated a poor manufacturing status that questioned the strength of the US economy...
“[The]  Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™ )  [registered] only slightly above the neutral 50.0 mark at 50.5. This was down from 50.8 in April and signaled only a marginal improvement in overall business conditions that was the weakest since the current upturn started in October 2009…
…Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said: “The weak manufacturing PMI data cast doubt on the ability of the US economy to rebound from its disappointing start to the year in the second quarter…
…Output is falling for the first time since the height of the global financial crisis, with factories hit by slowing growth of order books and falling exports.” The news in the full press release didn’t get any better at…
WHY THE FED WON’T RAISE RATES (RealInvestmentAdvice)
“…since the average American was never allowed to actually deleverage following the financial crisis, and [is] still living well beyond their means, economic growth will remain mired at lower levels as savings continue to be diverted from productive investment into debt service. The issue, of course, is not just a central theme to the U.S. but to the global economy as well.  After seven years of excessive monetary interventions, global debt levels have yet to be resolved.” – Lance Roberts. Commentary at…
My cmt: This was a long discussion of the US economy and presents a generally bearish view of the economy and stock market. The issues presented are bearish, but not necessarily right now.
-Tuesday, the S&P 500 finished up 1.4% to 2076 at the close.
-VIX dropped about 9% to 14.42.
-The yield on the 10-year Treasury rose to 1.86%.
Tuesday, we again saw low volume on the NYSE; it was about 7% below the monthly average. If this was a strong rally, volume should be increasing on improving optimism. As it is, there’s a lot of skepticism.
Tuesday, we had another 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 (Wednesday). This is the fifth statistically significant day in the past 3-weeks and the eighth in the past month.  These up/down moves tend to happen near tops, so this flip/flopping (up and down) is a bearish indication.
On the whole, indicators declined today and remain mostly bearish.
The short-term Money Trend indicator is now trending down, Tuesday, and that’s a bearish signal.  I continue to hold short positions mostly in SH and some in QID.
The 10-day moving average of the percentage of stocks advancing (NYSE) remained 49.9% Tuesday. It was 49.9% Monday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks improved to 51.5%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) fell and remained negative – a bearish indicator in the short-term.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +83 Tuesday. (It was +5 Monday).  
The 10-day moving average of the change in spread was minus-15. In other words, over the last 10-days, on average; the spread has decreased by 15 each day. Market Internals remained 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.
Tuesday, 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 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…