Friday, June 17, 2016

Housing … Stock Market Analysis

“Housing starts dipped in May but held near recent highs, a sign residential construction may have settled into a groove after post-recession fits and starts. Starts fell 0.3% to a seasonally adjusted annual pace of 1.16 million…” Story at….
-Friday the S&P 500 was down about 0.3% 2071.
-VIX dipped about 0.5% to 19.46 at the close.
-The yield on the 10-year Treasury bounced up to 1.62%.
One of the more unusual items I track measures daily moves in price-volume and converts the data into a measure of standard deviation (SD) on a daily basis.  When deviations in daily moves get small, I usually refer to it as the calm before the storm, i.e., if SD is low, statistics on the S&P 500 suggests a top now or within the next couple of weeks.  The market has been uniform over the last month and this suggests a top now!? Considering the angst the market has been undergoing recently, I am surprised. The last time there was a calm-before-the-storm warning, the market fell 11%. One caution: this indicator is too loose to use for stock market timing since a drop could start now or in a month, or not at all – no indicator is perfect. Another surprise – while it seems that the market has been falling a lot recently, over the past month, half the days have been up and half down.  There does not seem to be a future up or down bias based on price action over the past month.
All in all, it appears that the S&P 500 can drop further, but not too much further, before an oversold reading is triggered.
My short-term Money Trend indicator can be volatile; it’s headed down, though not steeply; that’s slightly bearish.  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) rose to 48.6% Friday. It was 48.0% Thursday. 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%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) improved to -28 (percentage calculation method), but it remained solidly in negative territory.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +102 Friday. (It was +62 Thursday.).  The 10-day moving average of the change in spread dipped to minus-13. In other words, over the last 10-days, on average; the spread has decreased by 13 each day. Market Internals slipped to Neutral on the market; advancing volume is now headed up on a smoothed 10-day basis.

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 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 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…