Friday, May 13, 2016

Producer Price Index (PPI) … Retail Sales … Retailers warning of Recession … Michigan Consumer Sentiment … Stock Market Analysis

“U.S. producer prices rose in April as energy prices increased, but a marginal gain in the cost of services pointed to a moderate increase in inflation in the coming months. The Labor Department said on Friday its producer price index climbed 0.2 percent last month…” Story at…
RETAIL SALES (MarketWatch)
“Sales at retailers posted the biggest increase in April in a year, offering the strongest proof yet that the U.S. economy is rebounding after a weak first quarter.

Retail sales leaped 1.3% last month…” Story at…
Retail sales were better than expected, but some of the increase was due to gasoline sales.  The following article from yesterday shows how big a surprise the good retail numbers were today.
“Even industry executives can't figure out what's wrong with retail. After posting their steepest quarterly same-store sales declines since the recession, management at both Kohl's and Macy's said they were scratching their heads over the disconnect between the improving economy, and a pullback in traffic and spending at their stores in the first quarter.” Story at…
Thursday Nordstrom joined the parade with earnings less than half of what was expected. Same store sales were down about 2%.  Surprisingly, same store sales at their off-price stores (Nordstrom Rack) were up nearly 4%. It could be that online sales are stealing business from brick and mortar stores.
“The Index of Consumer Sentiment hit 95.8 in May, the University of Michigan said Friday, its highest level since June 2015.” Story at…
-Friday, the S&P 500 fell about 0.9% at 2047 at the close.
-VIX rose about 4% to 15.04.
-The yield on the 10-year Treasury dropped to 1.71%.
The S&P 500 closed 0.4% below the 50-dMA and that’s a bearish technical signal for many. The Index remains 1.7% above the 200-dMA (a good sign), but the slope of the 200-dMA is still trending down. It will be important for the Index to remain above its 200-dMA.
As Brian Kelly noted on CNBC’s Fast Money show Friday, the Market was down on good news Friday (Retail sales; Michigan Consumer Sentiment) and that’s a bearish sign. My collection of 16-indicators fell from -4 Thursday to -6 today. Given all the evidence I’d say there’s more downside ahead.
The short-term Money Trend indicator is mixed, Friday, but mostly down; it’s a mildly bearish 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 48% Friday. It was 49% Thursday. 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 51.4%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) declined and remained negative – a bearish indicator in the short-term.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +67 Friday. (It was +95 Thursday and +230 just 3-days ago).   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 declined by 2 each day. Market Internals deteriorated and 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.
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…