Tuesday, June 21, 2016

Freight Volumes … Brexit … Stock Market Analysis

CASS FREIGHT INDEX (CASS Information Services)
“The May [North American] freight shipments index rose 1.3 percent from April. This represents the high point so far for 2016, but it was still 5.8 percent below May 2015 and 7.0 percent lower than May 2014. This year we have failed to see the robust growth in shipments that we expect to see this time of year…"Most economists think the economy has picked up in the second quarter from the dismal 0.8 percent growth in the first quarter, but so far railroads aren't seeing much of it … Railroads are focusing on what they can control—providing safe, reliable service—while looking forward to the forces they can't control turning their way.” - John T. Gray, AAR Chief Senior Vice President of Policy and Economics. Full report available at…
My cmt: Shipments nearly 6% below 2015 levels (year-over-year) suggest more than a weak economy to me, but there is no recession…there i snor ecession… the reis nor ecession…repeat after me…
“Strange market nervousness [Monday] over something that will not take effect for years at the best.” - Jumanji880, trader
From the BBC: “The minimum period after a vote to leave would be two years. During that time Britain would continue to abide by EU treaties and laws, but not take part in any decision-making, as it negotiated a withdrawal agreement and the terms of its relationship with the now 27 nation bloc. In practice it may take longer than two years, depending on how the negotiations go…The withdrawal agreement would also have to be ratified by Parliament - the House of Lords and/or the Commons could vote against ratification, according to a House of Commons library report.” - Frequently asked questions, BBC.com at…
My cmt: As the market has continued to run-up in advance of the Brexit vote, one wonders where it can go after the vote. Perhaps not much higher...The Brexit vote might be a “sell-the-news” event – we’ll find out in the futures Thursday night. Britain is 5-hours ahead of the east coast (EDT).
-Tuesday the S&P 500 was up about 0.3% 2089.
-VIX rose about 1% to 18.48 at the close.
-The yield on the 10-year Treasury rose to 1.7%.
Up-volume was impressive Monday, but it was only 61% Tuesday so no buy-signal. The sum of 16-indicators I track is minus-2 (+1 bullish / -1 bearish for each indicator), but the 10-day sum is -22. Considering it was +31 only 5-days ago, it has been a quick turn down.  Additionally, over those 5-days the market is down less than 1% so there is some bearish negative divergence underway.  Still, markets are so unsettled over Brexit, a big move either way wouldn’t be a huge surprise after the vote on Thursday. 
My short-term Money Trend indicator can be volatile; it remains flat suggesting a neutral position.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only – an obvious mistake in hindsight.
The 10-day moving average of the percentage of stocks advancing (NYSE) slipped to 48.7% Tuesday. It was 49.3% Monday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks rose to 52.5%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) improved to +2 from -1 yesterday (percentage calculation method).
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +104 Tuesday. (It was +169 Monday.) The 10-day moving average of the change in spread fell to minus-10. In other words, over the last 10-days, on average; the spread has decreased by 10 each day. Market Internals remained Neutral on the market; advancing volume is now headed up, but just barely, on a smoothed 10-day basis. Otherwise Internals would have been negative.

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.
Tuesday, the Volume & Sentiment indicators were neutral; the Price indicator (measuring the size of up vs down moves) was positive; the VIX indicator remained negative. The long-term NTSM indicator remained 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. I remain in cash earning about 2%.  Short-term bonds would give a similar result.
The NTSM system indicated Buy at the 11 Feb bottom; 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 12-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…