Thursday, May 19, 2016

Unemployment Claims … Philadelphia Fed … Leading Economic Indicators … Stock Market Analysis

Friday's blog will be posted Saturday; Friday is a busy day.
“The number of Americans who applied for unemployment benefits in mid-May fell by 16,000 to 278,000 — with most of the drop concentrated in New York — in a reassuring sign the labor market is still fairly healthy.” Story at…
“The Federal Reserve Bank of Philadelphia has released its manufacturing business outlook survey results for the month of May. Manufacturing growth in the region was tenuous in May, but the diffusion index for current activity was in the red at −1.8 this month…Instead of improving as was expected, the report went deeper into the red.” Story at…
“The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.6 percent in April to 123.9 (2010 = 100), following no change in March, and a 0.1 percent increase in February. The U.S. LEI picked up sharply in April…“Despite a slow start in 2016, labor market and financial indicators, and housing permits all point to a moderate growth trend continuing in 2016.” - Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. See Conference Board at…
-Thursday, the S&P 500 finished down 0.4% to 2040 at the close.
-VIX rose about 2% to 16.33.
-The yield on the 10-year Treasury slipped to 1.85%.
The S&P 500 is 1.4% above its 200-dMA and 0.9% below the 50-dMA.
Indicators are mostly bearish Thursday, but if the index closes below 2040 (today’s close) it will be another bearish signal. 2042 was the line-in-the-sand, bear signal for a head and shoulders pattern failure. Further, New-lows outpaced new-highs today and that is usually a very bearish indication. We’ll see.
The short-term Money Trend indicator is still drifting up, Thursday, a bullish signal, but I continue to hold short positions mostly in SH and some in QID. 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) declined to 48.1% Thursday. It was 49.9% Wednesday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks decreased to 51.4%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) declined and remained negative – a negative indicator in the short-term.
In a negative reversal, New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-14 Thursday. (It was +47 Wednesday).   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 neutral, but only because up-volume is slightly outpacing down volume on a smoothed 10-day basis. Overall, Market Internals deteriorated, but 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.
Thursday, 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 12-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…