Wednesday, June 22, 2016

Home Sales … Crude Inventories … Global Bear Market … Shadow Rates say SELL … Brexit NO … Bollinger Bands Breakout? … Stock Market Analysis

HOME SALES (Marketwatch)
“Sales of previously owned homes increased in May to the highest level in nearly a decade, another sign of durable demand in the housing market despite ongoing headwinds. Existing-home sales rose 1.8% to a seasonally adjusted annual rate of 5.53 million…” Story at…
CRUDE INVENTORIES (24/7 Wall Street)
“U.S. commercial crude inventories decreased by 900,000 barrels last week, maintaining a total U.S. commercial crude inventory of 530.6 million barrels. The commercial crude inventory remains at historically high levels for this time of year, according to the EIA.” Story at…
GLOBAL BEAR MARKET (Financial Sense)
“When looking at the performance of all major stock market indices around the globe, “we are in a bear market now,” Robin Griffiths [ECU Group's Chief Technical Strategist] told listeners Saturday…Currently, Griffiths thinks the stock market is overvalued and vulnerable to a correction in the near-term, but suggested investors consider earning their return from dividends rather than strong growth or capital appreciation.” Commentary at…
“While a run toward all-time highs is possible leading up to the next Fed hike, the risk/reward tradeoff remains to the downside and our Global Alpha Sector Strategy service cautions investors not to chase equities higher from currently extended valuation levels.” Commentary at…
There was a British banker on CNBC (sorry I didn’t catch his name) who said the bookies are between 3 to 1 and 2 to 1 odds for Britain to stay in the EU.  So what’s the big deal? The money bet on “Remain” predicts “Remain” is the highly likely outcome and that means that all this c#%p on CNBC is simply a load of “let’s make money for the traders.”
Brexit voting ends 10PM British time (5PM EDT) Thursday, but results won’t be available until Thursday night due to a lack of exit polls.
“[This] Technical tool indicates the stock market is as quiet as it has been since 1994, just before a monster rally. The stock market appears poised to break out in a big way. Although the charts don’t specify in which direction the breakout will occur, history suggests investors could start preparing to party like it’s 1995.” Story at…
My cmt: Not only is the headline misleading, the math is wrong.  John Bollinger said that the indicator for narrow band width should be calculated by dividing the width (top band – bottom band) by a 20-dSMA of the security being examined, in this case the S&P 500. This gives the band width on a percentage basis. I noted the narrow Bollinger bands Wednesday, but the Marketwatch story is too superficial.
One needn’t go back to 1994 to find Bollinger Bands as narrow as they are now (on a percentage basis). Bollinger Bands were closer together for 3-days in May 2015, just 12-trading-days before the all-time high on the S&P 500 of 2131 on 21 May. 3-months later there was a pretty healthy correction that ended in August 2015 after a 12% drop. This just reinforces Bollinger’s thesis about narrow bands – they suggest a breakout, but not the direction of that breakout. Incidentally, Bollinger Bands gave another Breakout indication 2-months ago that was followed by a 1% rise then a 3% drop in the S&P 500, so it’s hardly time to party or panic. Narrow Bollinger Bands can be a useful tool, but even John Bollinger said this indicator must be used with others to determine the direction of Breakout. (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.)
See Market Analysis below for more on the subject.  My own standard-deviation indicator predicts a drop, not an upward breakout.
-Wednesday the S&P 500 was down about 0.2% 2085.
-VIX rose about 15% to 21.17 at the close. (Perhaps traders were buying Brexit protection assuming markets will fall Friday.)
-The yield on the 10-year Treasury slipped to 1.69%.
My calm-before-the-storm indicator is based on standard deviation (SD) analysis of day-to-day moves in price-volume. When volatility disappears the SD drops and it warns of a top soon.  Bollinger Bands measure the same thing with a different methodology. Bollinger Bands are hitting a 13.5-month low for spread indicating a breakout on the way. Since my indicator is a top-indicator, I suggest that something wicked this way comes; but to avoid hyperbole, my indicator warns that a top may be coming within the next 20-trading days. Further, it is not a crash indicator and the drop might only be in the 5% or so; but it could always be a crash.
Brexit should give us a relief rally when “remain” wins.
My short-term Money Trend indicator can be volatile; it remains slightly down suggesting a slightly bearish position.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only – an obvious mistake in hindsight.
My 10-day sum of 16 indicator continues down, another bearish sign.
The 10-day moving average of the percentage of stocks advancing (NYSE) slipped to 46.2% Wednesday. It was 48.7% Tuesday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks dipped to 52.3%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) dropped to -11 (percentage calculation method).
New-highs outpaced New-lows. The spread (new-highs minus new-lows) remained  +104 Wednesday. (It was +104 Tuesday.) The 10-day moving average of the change in spread fell to minus-16. In other words, over the last 10-days, on average; the spread has decreased by 16 each day. Market Internals switched to negative 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 & 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…