Friday, June 3, 2016

Payrolls … Factory Orders … ISM Services … More on ISM Manufacturing … Stock Market Analysis

“U.S. companies hired at the slowest pace in more than five years in May, clouding the outlook for Federal Reserve officials as they prepare to debate increasing short-term interest rates at a policy meeting this month. Nonfarm payrolls rose by a seasonally adjusted 38,000 in May, the weakest performance since September 2010…” Story at…
My cmt: The expectation was for 158,000 added jobs.  Headlines tell the story: “Massive Payroll disappointment”; “Mayday! Job growth plummets”; “Payrolls Sputter”; “Shockingly low payrolls gain”. Today’s miss was huge, but downward revisions of prior month’s data are of equal concern. March and April numbers were revised downward by more than 10% for each month. The unemployment rate fell too, but it’s not good news as the participation rate fell. Apparently, many quit looking for work. I read comments that it was only one number and it was an outlier. Sorry, that’s not it at all; the last 2-months were significantly revised downward - this isn't just a one month bad number.
FACTORY ORDERS (Yahoo Finance/Business Insider)
“The latest report from the Census Bureau showed that factory orders increased by 1.9% in April. This was exactly what economists were expecting, according to the Bloomberg consensus.” Story at…;_ylt=A0LEV0xjnlFXXTcAeFRXNyoA;_ylu=X3oDMTByMjB0aG5zBGNvbG8DYmYxBHBvcwMxBHZ0aWQDBHNlYwNzYw--
“This was the weakest reading since February 2014…The Non-Manufacturing Business Activity Index decreased to 55.1, 1.0 points lower than the April reading of 58.8.” Story at…
MORE ON ISM MANUFACTURING (Global Economic Trend Analysis-Thursday)
Mish says, “Shocking downturn.”…“This morning, the New York ISM report was horrendous….’New York City business activity contracted at the fastest pace in seven years, according to the survey taken by the Institute for Supply Management-New York.’” Commentary at…
-Friday, the S&P 500 was down 0.3% 2099.
-VIX fell about 1% to 13.47 at the close.
-The yield on the 10-year Treasury fell to 1.70%.
The S&P 500 fell about ½-% immediately after the Jobs numbers were out.  The Index attempted to recover for the rest of the day, as it had all week. Today, it didn’t get there, but the Index closed at the same level as Friday a week ago. This week it looked like investors were buying the dip.  One wonders whether that makes sense with economic numbers declining.  A Fed rate-hike is likely out of the picture for June, but how long bad-news will be good-news is an unknown.
Stocks on the NYSE remain massively overbought, a bearish indication, per the tried and true NYSE Overbought/Oversold Ratio (based on advance decline data). Other indicators remain headed up, so market internal indicators are a mixed bag now.  Overall, we may have a better indication of where this market is going next week after this Holiday week is over.
My short-term Money Trend indicator can be volatile and it remains up, Friday, and it’s currently mildly bullish.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only. Those will have to go if the market exceeds my pain-target of 2110 on the S&P 500.
The 10-day moving average of the percentage of stocks advancing (NYSE) climbed to 63.2% Friday. It was 60.7% Thursday. A number above 50% is usually GOOD news for the markets; now, the value is too good suggesting a pullback is overdue.
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.  The McClellan Oscillator (a Breadth measure) was up and remained positive – a bullish indicator in the short-term.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was a whopping +233 Friday. (It was +127 Thursday).  Tick is close to signaling “overbought” on a 10-day basis. The 10-day moving average of the change in spread increased to +25. In other words, over the last 10-days, on average; the spread has increased by 25 each day. Market Internals remained positive 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.
Friday, the VIX & Sentiment indicators were neutral.  The Volume (a variant of on-balance-volume) & Price indicators (measuring the size of up vs down moves) were positive. The long-term NTSM indicator switched to BUY.  I ignored Buy signals back in April and that was a mistake; still, I’ll wait for further data. Also, I feel that the S&P 500 must get at least to 2110 before I even consider adding to my stock allocation. Steve Grasso, trader and CNBC contributor, recommends waiting for new highs before moving back in and there is wisdom in that advice.

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. If the S&P 500 index closes above 2110, I plan to add to my stock allocation.
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…