Tuesday, June 28, 2016

GDP … Consumer Confidence … Dallas Fed Manufacturing … The Sell-off was Worldwide … Stock Market Analysis

GDP – 3RD ESTIMATE (Reuters)
“U.S. economic growth slowed in the first quarter but not as sharply as previously estimated, and while there are signs of a pickup in the second quarter, analysts worry Britain's vote to leave the European Union could hurt activity later this year. Gross domestic product increased at a 1.1 percent annual rate, rather than the 0.8 percent pace reported last month…” Story at…
My cmt: So this is the “final” estimate from the Commerce Department on GDP.  It’s better than #2 estimate, but a reading of 1.1% is pretty weak, especially when the GDP numbers have a wide range. The average difference between the 3rd estimate and the historical estimate is 1.5%. So it is possible that the economy is already in recession as some claim.  I am not an economist so I won’t hazard a guess. For more on the range of GDP see…
…or Nate Silver’s book, “The Signal and the Noise” on the subject of making predictions.
“U.S. consumer confidence took a step higher in June — at least, it did before Britain’s vote to leave the European Union. The Conference Board said its consumer confidence index rose to 98 from 92.4 in May.” Story at….
“The Federal Reserve Bank of Dallas released the regional Dallas Fed Business Activity reading for May, showing a drop to −20.8 from a less negative −13.9 from April. The Manufacturing Production Index also fell, dropping into the red at −13.1 in May from a reading of 5.8 in April.” Story at…http://247wallst.com/economy/2016/05/31/dallas-fed-manufacturing-indexes-went-negative-in-may/
My cmt: Manufacturing keeps getting worse in almost every region.

THE SELLOFF IS WORLD WIDE (Advisor Perspectives)
For additional charts and commentary see…
"We have a stockpile of cash. We did not jump in. Sure there's opportunity, but I think when you strip away the headlines, the market is still relatively expensive," said Jack Ablin, CIO of BMO Private Bank. Ablin said he will give the market another look next week…” Story at…
-Tuesday the S&P 500 was up about 1.8% to 2036.
-VIX dropped about 21% to 18.75. (The Options Boys are over Brexit!)
-The yield on the 10-year Treasury remained unchanged at 1.46%.
Tuesday we have a real hodge-podge (formed from the verb hocher, meaning "to shake," { French } and pot…So, the word referred to a stew with a whole bunch of different ingredients all "shaken" together in a pot.) of indicators.
The S&P 500 bounced above the 200-day moving average (200-dMA) of 2021 and closed 0.7% above it. That’s a big deal, since the 200-day would have been considered resistance - bullish.
Tick (a summation of the last trades of the day) was +474 and that a positive reversal too and it often indicates an up-day the next day. Actually, since 2/3 of all days are up, that’s usually the better bet anyway - bullish
Both Bollinger Bands and RSI have cleared their oversold indications, but they remain at the lower end of ranges - bullish.

Breadth jumped so much higher today that it is nearly “overbought” on the classic overbought/oversold ratio – mildly bearish.
I compare the XLI ETF (Industrial Select sector SPDR ETF – a basket of cyclical industrials) to the S&P 500 as a recession indicator.  The thesis is that cyclicals will underperform if we are headed into recession.  XLI is still underperforming but not enough for a signal – neutral.
The big move today was not statistically all that large, but a nearly 2% gain is going to generate some profit taking so Wednesday would be expected to be a down day about 60% of the time - bearish on the day.
Back and forth up-down large moves are usually bearish (The S&P 500 has had 6 of these days in the last 3-weeks) – bearish longer term.
My sum of 16-indicators (not necessarily the ones mentioned above) was bullish short-term and bearish longer term.
I thought there might be a bounce Tuesday, but nearly 2%-up was a surprise. Huge down moves usually take a while to settle out, so I’d be surprised if this ends in a few days, but as noted, I have been surprised already.
My short-term Money Trend indicator can be volatile; it turned up Tuesday reversing to a bullish 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) jumped up to 54.9% Tuesday almost an “overbought” condition on the overbought/oversold ratio. It was 49.8% Monday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks was up slightly to 52.1%. 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) jumped from -53 (percentage calculation method) to -13.
In a bullish reversal, New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +151 Tuesday. (It was minus-11 Monday.) The 10-day moving average of the change in spread rose to +14. In other words, over the last 10-days, on average; the spread has increased by 14 each day. Market Internals switched to positive.

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 Sentiment indicator was neutral; the Price (measuring the size of up vs down moves), Volume (a variant of on-balance volume {OBV}) and VIX indicators were negative. VIX was just barely negative though. The long-term NTSM indicator remains to SELL, but the Index is less than 5% below its all-time high so I wouldn’t sell given the big turn-around – I am giving the market a HOLD today.


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 more recent signals due to overbought conditions.  All-in-all, it’s still questionable whether the S&P 500 will make new-highs and now we must wonder whether the correction low of 1829 will be tested.
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…