Friday, June 24, 2016

Durable Goods Orders … ATA Truck Tonnage … Britain Votes to Leave the EU … Michigan Sentiment – Final # … Stock Market Analysis

“Orders to U.S. factories for long-lasting manufactured goods dropped in May, reversing two months of gains and delivering more bad news for American manufacturers. The Commerce Department said Friday that demand for durable goods slid 2.2 percent last month…” Story at…
“Trucking serves as a barometer of the U.S. economy, representing 68.8% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.” - ATA
“American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.7% in May, following a revised 1.7% drop during April…Year-to-date, compared with the same period in 2015, tonnage was up 4%...“Following two consecutive decreases totaling 6 percent, May was a nice increase in truck tonnage,” said ATA Chief Economist Bob Costello. “Better consumer spending in April and May certainly helped, but economic growth remains mixed and I’d expect the recent choppy pattern in tonnage to continue for the next quarter or two.” Press release at…
My cmt: Trucking is a bright spot, but the CASS Freight Index is down a lot year-over-year. It is a broader view and may be more valid than just trucking. See…
The Baltimore Orioles faced Don Drysdale and Sandy Koufax, both hall of fame pitchers with the world champion Los Angeles Dodgers in the 1966 World Series.  The Orioles were considered to have weak pitching and they were not predicted to win a game.  As it turned out, the Orioles didn’t lose a game; the Dodgers only scored 2-runs in the entire series; the Orioles swept the Dodgers in 4-straight. That’s one of the few outcomes that I can think of that was as unexpected as Brexit.
There was a CNBC piece that covered how the bookies in London missed it.  Essentially, there was more money bet on Remain, but most of it was big money from few bettors. Many more small bettors bet to Leave. So…dollars said stay; the numbers of bettors said go.  It is odd that reporters didn’t mention that before the vote. Perhaps there was an agenda?
(PS: My new book, “How to Make Money in the Stock Market”, will explain this in more detail.  Basically it works like this: feed an unsuspecting reporter for a major news organization some poorly thought out analysis and then bet the other way.)
"This is the worst period, I recall since I've been in public service. There's nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away."-Alan Greenspan, speaking on CNBC about the Brexit vote
…‘There's a certain amount that monetary policy can do, but our problem is fundamentally fiscal…developed countries are all aging very rapidly,’ which is leading to a higher ratio of government spending in the form of entitlements…”
“A key measure of consumers' attitudes was lower than expected this month, showing that consumers had a slightly dimmer view of the economy even prior to Friday's stock market rout. The Index of Consumer Sentiment hit 93.5 in June…” Story at…
-Friday the S&P 500 was down about 3.6% 2037.
-VIX jumped about 49% to 25.76 at the close.
-The yield on the 10-year Treasury dropped to 1.58%.
Forget statistics.  It doesn’t take a mathematician to guess that today’s big down move is likely to followed by an up-day Monday on some profit taking (at least 60% of the time). This time may be different though, since investors may ponder the situation over the weekend and sell Monday.
Just to recap how bad the day was, volume was twice normal volume for the month. Only 8% of volume was up and only 16% of stocks advanced today. As I wrote previously, my “calm-before-the-storm” indicator was low Wednesday & Thursday (indicating a sell-off coming); with the huge drop in the S&P 500 today, it became the “Panic Indicator.”  The reversal was about 10-20 times larger than any that I have seen going back thru all of 2010. Usually, the panic indicator forewarns of more selling ahead. I don’t think the size of the warning is suggesting a huge drop.  It just means the markets were surprised. The last time this indicator flashed at a top was in June 2015 before a 9% correction. (The panic indicator also flashes at bottoms when investors panic out of holdings.  The trick is to know whether one is at a top or bottom.  This time it’s clear – the Index is near a top.)
The S&P 500 is oversold on the basis of Bollinger Bands; and RSI is nearly giving an oversold indication. Both of those indicators are based on Price. I wouldn’t pay much attention until breadth is oversold on the Overbought/Oversold ratio (advance/decline ratio). By then we may be in correction mode and there are other tools for calling a bottom.
TRIN (Traders index) was 2.1.  Bottoms are normally in the range of 2.5 to 3 and more to the point, it is going to take some time to shake out the sellers and settle the markets. The 200-dMA is 2021, about 0.8% lower than Friday’s close and that will need to be tested.
The likely course is down from here.   I doubt this will end easily, but we’ll see.
My short-term Money Trend indicator can be volatile; it turned mildly down suggesting a slightly bearish position.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only.
The 10-day moving average of the percentage of stocks advancing (NYSE) dipped to 50.4% Friday. It was 50.7% Thursday. A number above 50% is usually GOOD news for the markets. This was a small move for such a nasty day, but it’s because this indicator is based on a 10-dMA.  The data dropped from the calculation (11-days ago) was also associated with a big down day.  The result is not much movement in breadth since the data Friday is only slightly worse than it was 11-days past.
On a longer term, the 150-day moving average of advancing stocks dipped to 52.2%. A value above 50% generally indicates an up-trend, but realistically the trend has been flat for some time.  The McClellan Oscillator (a Breadth measure) crashed from +20 (percentage calculation method) to -20.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +102 Friday. (It was +196 Thursday.) The 10-day moving average of the change in spread rose to minus-2. In other words, over the last 10-days, on average; the spread has decreased by 2 each day. Market Internals remained neutral.

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 Sentiment indicator was neutral; the Price (measuring the size of up vs down moves), VIX and Volume (a variant of OBV) indicators were negative. The long-term NTSM indicator switched to SELL.
This indicator was too quick on the trigger during the QE period so I put a limiter on it that said unless the Index has dropped 5%, don’t sell. The S&P 500 is now 4.4% below its all-time high. Since QE is gone and the index is only 0.6% from the 5% target, I think it’s time to sell.  In my case, I sold last December on a prior sell signal.

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. I remain in cash earning about 2%. 
The NTSM system indicated Buy at the 11 Feb bottom; and again 2-days after the bottom on high up-volume; and from 22 Feb thru 25 April. I ignored the early signals convinced that it was a bear market bounce; I ignored recent signals due to overbought conditions.  All-in-all, it’s still questionable whether the S&P 500 will make new-highs.
The S&P 500 peaked in Mid-May 2015 and has not been able to break higher in the past 13-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…