Wednesday, June 1, 2016

ADP Employment … ISM Index … Construction Spending … Auto Sales … Fed Beige Book … Raising Rates During a Profit Recession … Stock Market Analysis

“ADP Employment Change (Apr) 156K vs 195K Expected…Mark Zandi, chief economist of Moody's Analytics, said, "The job market appears to have stumbled in April. Job growth noticeably slowed, with some weakness across most sectors. One month does not make a trend, but this bears close watching” Story at…
“U.S. manufacturers grew in May but at a very slow pace, suggesting the sector is unlikely to speed up anytime soon, a survey of executives found. The Institute for Supply Management said its manufacturing index rose to 51.3% last month from 50.8% in April.” Story at…
“U.S. construction spending fell in April by the biggest amount in five years, dragged by declines in housing, commercial construction and spending on government projects. Construction spending dropped 1.8 percent in April after a 1.5 percent gain in March…” Story at…
Most major automakers reported lower sales in May compared to the same month a year ago. General Motors' sales fell 18 percent, Ford's were down 6 percent and Toyota's sales dropped 10 percent. Volkswagen's sales dropped 17 percent. Nissan's fell 1 percent.” Story at…
My cmt: Auto sales are closely watched as an economic indicator. It’s hard to get too worried based on this one report since auto sales are coming off record highs. The worry is that this may be the peak, though, and that may lead to more pain IN manufacturing.
FED BEIGE BOOK (MarketWatch)
“The Federal Reserve’s Beige Book indicated that most districts were seeing the same “modest” or “moderate” growth through the end of May that has been the hallmark of the unspectacular expansion…U.S. central bank’s business contacts were generally optimistic about the future, ‘with firms expecting growth to continue at its current pace or to increase.’” Story at…
“…interest-rate increases during a profits recession usually don’t turn out very well. Since 1971, the Fed has begun tightening during a bona fide profits recession just three other times—in 1976, 1983, and 1986. Two of those three instances saw stocks drop over the next 12 months. Moreover, the BofA [Bank of America] ML Global Investment Strategy team adds, a pause for a quarter or two between the Federal Reserve’s initial hike and subsequent ones generally has been negative for equity returns.” Story at…
- Wednesday, the S&P 500 was up 0.1% 2099.
-VIX rose about .01% to 14.20 at the close.
-The yield on the 10-year Treasury rose to 1.85%.
Summarizing the economic news today we might say that the economy just keeps muddling along, as does the stock market
Wednesday we got another “overbought” signal on the tried and true NYSE Overbought/Oversold Ratio (based on advance decline data) and that is a bearish indication.
The spread between the XLI (Industrial Select Sector ETF, a cyclical basket of Industrials) and the S&P 500 is widening with the XLI underperforming the S&P 500 on many timeframes.  The rate of change is high too, so investors are betting on the S&P 500 rather than the XLI.  This usually indicates investor caution.  They are not yet selling XLI, but if they do, it would indicate some more serious selling may be in the offing.
Overall though, most indicators are slightly bullish.
The short-term Money Trend indicator can be volatile and it turned up, Wednesday, and it’s currently mildly bullish.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only. Those will have to go if the market exceeds my pain-target of 2110 on the S&P 500.
The 10-day moving average of the percentage of stocks advancing (NYSE) climbed to 57.6% Wednesday. It was 54.6% Tuesday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks climbed to 51.8%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) was up slightly and remained positive – a bullish indicator in the short-term.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +109 Wednesday. (It was +103 Tuesday).  
The 10-day moving average of the change in spread remained +3. In other words, over the last 10-days, on average; the spread has increased by 3 each day. Market Internals switched to positive on the market.

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.
Wednesday, the Volume, VIX & Sentiment indicators were all neutral.  The Price indicator (measuring the size of up vs down moves) was positive. 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…