Thursday, June 2, 2016

Updated Headline: ADP Payroll Report … Unemployment Claims … Crude Inventories … NYSE Margin Debt … Obamacare – Punishing the Middle Class … Stock market Analysis

“The private sector added 173,000 jobs in May, payroll processor ADP said Thursday, possibly signaling that a government report will reveal tepid employment growth for a second straight month…Labor's total, however, is expected to be suppressed by the now-settled Verizon strike, which idled about 40,000 employees.  As a result, a 160,000 advance Friday would be a solid showing -- equivalent to 200,000 in a normal month.” Story at…
“The number of Americans applying for unemployment benefits unexpectedly fell last week, pointing to a tightening labor market. Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 267,000 for the week ended May 28…” Story at…
“U.S. commercial crude inventories decreased by 1.4 million barrels last week, maintaining a total U.S. commercial crude inventory of 535.7 million barrels. The commercial crude inventory remains at historically high levels for this time of year, according to the EIA.” Story at…
MARGIN DEBT (Advisor Perspectives)
Chart and analysis at…
My cmt: Many have pointed to the peak in Margin debt as an important Bear-market signal.
“At the heart of the matter is a redistribution scheme that punishes the middle class the most, and the wealthy the least, for the benefit of the poor….Thanks to Obamacare, it is better for the average childless couple in California to make $63,000 than $72,000. Things are really horrendous if someone makes $64,000.  Taking Obamacare, federal, and state taxes into consideration, a couple that makes $63,000 annually takes home $48,770. A couple that makes $64,000 takes home $42,360!” Details and commentary at…
-Thursday, the S&P 500 was up 0.3% 2105.
-VIX fell about 4% to 13.63 at the close.
-The yield on the 10-year Treasury rose to 1.90%.
Thursday 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. It is not just high, the numbers are extreme. The % of issues advancing over the last 10-days is over 60% on a 10-day basis and over 55% on a 20-day basis.  Those numbers occur after significant bottoms, when investors are heavily buying, and clustered around tops, although not necessarily major tops. We saw similar numbers when the S&P 500 last made 2102 about 6-weeks ago. The index was unable to hold its near-term high then and this stat suggests it won’t hold it now. 
We can also see that the percentage of new-highs on the NYSE was 4.4% Thursday at 2105 on the S&P 500.  6-weeks ago when the Index was at the recent high of 2102, 4.3% of issues on the NYSE were making new highs.  That is not enough improvement to instill much confidence that conditions are materially better now.
Overall though, most indicators remain bullish. I am going to look hard at the 2110 number I have mentioned previously; if the S&P 500 makes it there it may be time to increase my stock holdings. Steve Grasso, trader and CNBC contributor, recommends waiting for new highs before moving back in and there is wisdom in that advice too.
The short-term Money Trend indicator can be volatile and it remains up, Thursday, 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 60.7% Thursday. It was 57.6% Wednesday. 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 52.1%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) was up and remained positive – a bullish indicator in the short-term.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +127 Thursday. (It was +109 Wednesday).  
The 10-day moving average of the change in spread increased to +8. In other words, over the last 10-days, on average; the spread has increased by 8 each day. Market Internals remained 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.
Thursday, 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, but it is only a whisker from a Buy signal.  I ignored Buy signals recently, I may not ignore them again.

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…