Monday, June 27, 2016

International Trade … More on Brexit … Bear Market – May Be the Worst … Stock Market Buy/Sell/ or Hold

“May's trade gap of $60.6 billion slightly exceeded analysts' roughly $59 billion expectation. America's position in the global marketplace has been complicated in recent months by the country's slumping manufacturing sector, unfavorable exchange rates given the relatively strong dollar and an overall sense of economic uncertainty plaguing many of America's most significant trade partners.” Story at…
BREXIT (Hussman Funds)
“Given that Britain has its own currency, part of the support behind the Brexit vote relates to the relatively free migration of workers under the Common Market...[BUT]…Any country that shares the euro as a common currency would have a more difficult exit course, because currency uncertainties would suddenly be introduced, disrupting a wide range of securities and private contracts. That’s not to say that Brexit will be easy, but the main risk of Brexit is actually the risk of a domino effect that might encourage defection of other EU members, particularly those that share the euro. Also, some EU members, particularly Germany, look at the unrestrained behavior of the European Central Bank with increasing dismay. If Europe experiences another round of economic weakness, there may be increasing strains on this passive acceptance by Germany, which is currently required to preserve the euro.” – John Hussman, PhD, Weekly Market Commentary
My cmt: The above clearly states the real fear behind Brexit. Hussman went on to say that Brexit is not affecting his thesis that the markets are due for a fall.
BEAR MARKET (Yahoo Finance)
“This is going to be worse than any bear market you’ve seen in your lifetime,” he [Jim Rogers] said on Yahoo Finance’s “Market Movers” program Monday. “2008 was bad because of debt. The debt all over the world is much, much higher now.” - Jim Rogers, Rogers Holdings.” Story and video at…
My cmt: He went on to suggest the EU and Euro will not survive.
-Monday the S&P 500 was down about 1.8% to (cue Also sprach Zarathustra)2001.
-VIX dropped about 7% to 23.85.
-The yield on the 10-year Treasury dropped to an amazing low of 1.46%. (It was above 2% at the start of the year.)
The S&P 500 broke thru the 200-day moving average (200-dMA) of 2021 and closed 1.5% below it. That was an important level of support that has been broken and that’s bearish.
VIX was down; apparently the options boys are taking profits after Brexit and market turmoil – perhaps the options boys think this selloff is overdone? I don’t know which.
Tick (a summation of the last trades of the day) was -368 and that often indicates more selling the next day.
The S&P 500 is oversold on the basis of Bollinger Bands; and RSI is now 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) and that has a ways to go.
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 usually underperforms when the market is in turmoil, but rarely enough to give a sell signal. I’ve only gotten a couple of sell signals in the past 5-years. Monday, there was a sell signal.  The last time there was a sell signal was in December of 2015 and the market fell 10% after the signal occurred.
Turning Tuesday? Markets rarely bottom on Mondays…
Markets rarely bottom on a Friday. Nope, they tend to give participants time over the weekend to brood about their losses…and consequently return…in “sell mode.” That sequence typically leads to the phrase “Turning Tuesday” implying the market bottoms either late in Monday’s trading session, or early the next day {Commentary from Jeffery Saut some months ago]. Perhaps, but the dramatic downturn also looks like a waterfall panic mode where markets are in free fall for 5-days or so. We don’t know which way we’ll go yet, but I’m betting there will be more selling.  Even if there is a bounce, I doubt that it would be long lived.
My short-term Money Trend indicator can be volatile; it turned sharply down suggesting a 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) fell to 49.8% Monday. It was 50.4% Friday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks slipped to 51.9%. 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) fell from -20 (percentage calculation method) to -53.
In a bearish reversal, New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-11 Monday. (It was +102 Friday.) The 10-day moving average of the change in spread dropped to minus-9. In other words, over the last 10-days, on average; the spread has decreased by 9 each day. Market Internals remained neutral mostly because my Internals volume number is the actual up-volume not a percentage. On huge down days like yesterday and today, up volume can sometimes outpace up volume on up days and that skews the data toward positive. On a percentage basis most of the volume has been down for the last 20-days.

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.
Monday, 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. The long-term NTSM indicator remains to SELL.

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…