Friday, May 6, 2016

Non-Farm Payrolls … Hourly Earnings … Average Workweek … Recession Warning – The Big Four … Recession Warning from Truck Sales … Stock Market Analysis

“The U.S. economy added the fewest number of jobs in seven months in April and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Federal Reserve will raise interest rates before the end of the year. Nonfarm payrolls increased by 160,000 jobs last month…” Story at…
The “consensus” was around 200,000 so this was a big miss.
“While the April jobs report added the fewest number of workers in seven months, there was one bright spot: wages. Average hourly earnings climbed 0.3 percent from the prior month after a 0.2 percent advance. Worker pay increased 2.5 percent over the 12 months ended in April…”
While the pundits assert this is good news, wage growth leads to inflation – the question is when.
“The average workweek rose to 34.5 hours from 34.4 hours, possibly foreshadowing a pickup in hiring.” Story at…
There is…a general belief that there are four big indicators that the committee [NBER Business Cycle Dating Committee] weighs heavily in their cycle identification process [to identify recessions]. They are: Nonfarm Employment; Industrial Production; Real Retail Sales; and Real Personal Income.
Chart and commentary at…
My simple recession indicator compares the S&P 500 index to the Industrial Select Sector SPDR ETF (XLI) because it is a cyclical ETF and should be more recession sensitive than the S&P 500.  Currently the XLI is out-performing the S&P 500 in almost all time frames; Investors don’t see a recession risk any time soon.
Mike Shedlock at Global Economic Trend reports the following:
“Last month, trucking fleets ordered just 13,500 Class 8 trucks, the big rigs used on long-haul routes, down 16% from March and 39% from a year earlier. It was the fewest net orders in any April since 2009…” WSJ.
“Heavy truck sales are oddly a good leading indicator for the economy. It is odd because a lot of industrial production is coincident with the business cycle. However, if you go back over forty years, you can see that recessions have always been preceded by a decline in heavy truck sales.” – Variant Perception  
For his commentary, see…
- Friday, the S&P 500 rose about 0.3% to 2057 at the close.
-VIX dipped about 7% to 14.72.
-The yield on the 10-year Treasury climbed to 1.78%.
Another Freaky Friday? Fridays have been generally good recently.  I’m guessing traders don’t want to hold short positions over the weekend, but I don’t really know. The jobs number was a huge disappointment Friday, but investors seem to think its good news because the FED will hold off raising rates.  That’s true, but as I suggested a while back, it is highly unlikely they will raise rates in 2016 unless inflation picks up. Too many of the FED’s own indicators are giving negative signals. The FED has to talk optimistically about the economy or they will spook the stock market. 
Once again up-volume declined on a 10-day basis and unchanged volume was high.  Some believe high unchanged volume is a bearish signal.  It can be, but it is prone to false signals so I don’t follow it anymore.
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 9-days ago. The S&P 500 is now 1.8% above tits 200-dMA.  That is a critical support level; if the Index falls below that point traders will get worried and selling may pick up. 
RSI was oversold around mid-day but improved to neutral at the close. Breadth (the Overbought/Oversold Ratio) is far from oversold.
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 -4. It was -2 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.
In summary: downside bias remains.
The short-term Money Trend indicator was down, Friday, a bearish signal, but it was not a very strong 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) dipped to 49.7% Friday. It was 50.3% Thursday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks inched up to 52.23%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) was up a little but remained negative – a bearish indicator in the short-term.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +138 Friday. (It was +136 Thursday).   The 10-day moving average of the change in spread rose to +8. In other words, over the last 10-days, on average; the spread has increased by 8 each day. New-hi/new-low data remains down, but today it suggests an improvement that could bring a turn-around soon. Market Internals remained 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.
Friday, 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…