Wednesday, June 29, 2016

Personal Spending … Crude Inventories … Q2 Earnings … Global Trade Collapse … Brexit Sore Losers … Fear Index vs. VIX … Stock Market Analysis

“Both U.S. consumer spending core PCE prices rose in line with market expectations in May, official data showed on Wednesday. In a report, the Commerce Department said that personal spending increased by a seasonally adjusted 0.4% last month…” Story at…,-core-pce-prices-up-0.2-411320
My cmt: Inflation remained tame and in-line with expectations.
“The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 4.1 million barrels last week, maintaining a total U.S. commercial crude inventory of 526.6 million barrels… at historically high levels for this time of year...” Story at…
“For Q2 2016, the estimated earnings decline is -5.2%. If the index reports a decline in earnings for Q2, it will mark the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009.” – Factset Earnings Insight
GLOBAL TRADE COLLAPSE (Mish Talk – Global Economic trend Analysis)
“Thanks to the stubborn stupidity of nannycrats, now led by Queen Merkel to the rousing applause of fools who don’t understand trade, there is a very real risk of a global depression.” - Mike “Mish” Shedlock
“Ask anyone who opposes Trump what he or she thinks of his supporters. Their response is very likely to sound a lot like what the sore loser Brexit Remainers are saying about the Leave voters right now. But think about it: does demonizing Trump's supporters as being a bunch of ignorant racists sound like a winning strategy to you? Couldn't it simply backfire and embolden his supporters even more? And might that kind of attitude about the people who don't think like you be something that served as the cause for his campaign in the first place?” Commentary at…
My cmt: Interesting comparison of the Brexit vote and the upcoming election.
…when the past 20 years of data are examined, one finds that never before has the S&P been down in a two-day period in which the VIX has fallen 20 percent or more…"All the hedging that was done prior to this" is being "taken off," which is driving down options prices and hence implied volatility measures, Dennis Davitt of Harvest Volatility Management explained in a Tuesday email to CNBC.” Story at…
-Wednesday the S&P 500 was up about 1.7% to 2071.
-VIX dropped about 11% to 16.64. (The Options Boys are over Brexit!)
-The yield on the 10-year Treasury rose slightly to 1.48%.
At this point it is clear that the S&P 500 is not in a waterfall down move.  That leaves 2-obvious possibilities: (1) The index is undergoing an upward retracement that would be in the area of 61.8% {a Fibonacci number for believers} to be followed by a turn down {FYI – Wednesday at the close, the retracement was 62.3%}; (2) Investors now believe that the selloff was all wrong and this looks like a great time to buy; thus, new-highs are just around the corner. 
Option 2 seems nuts.  Why would there be a 2-day massive, world-wide sell-off, the largest in history based on dollars, only to be followed by an immediate reversal back to the prior high? I can think of only one reason.  Hint – think Flash Crash. If the answer is “2” then it is likely that this is the most manipulated move in history and the market can no longer be trusted. If computers can cause a Flash Crash, they can make the market move as they please. I’d rather not believe in a totally manipulated market, so for the time being, I will assume this is a retracement (Option 1) and the market will turn down soon.
On the subject of market manipulation, it should be clear to all that the market is now driven by computer trading and computer analysis. I don’t think it is coincidence that the Index finished a whisker away from the Fibonacci number.
One more thought, it may be that we are seeing an unwinding of short-positions that were taken ahead of Brexit and that is driving the market higher in the very short-term. I suppose that thesis fits either option.
The S&P 500 is now “overbought” when using the Overbought/Oversold Ratio, a measure of the advance decline line. Bollinger Bands and RSI have cleared their oversold readings from 2-days ago.  It is shocking, dumbfounding and unfathomable to see “oversold” one day followed by “overbought” 2-days later even if the values are not from the same indicators.
To make matters even more confounding, the NYSE experienced an extreme down volume-day 3-days ago followed by 2-days of extreme up-volume that meets additional bullish tests closing near the daily high each day. This is very bullish and might be a clear buy signal except for my comments above and the overbought condition.
One more bearish thought: The Bond market hasn’t bought into the idea that Brexit is a non-issue.
The upward bounce may be over, that’s my guess; I think we go down from here, but who knows!
My short-term Money Trend indicator can be volatile; it remains up Wednesday, 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 57.3% Wednesday and is now “overbought” using the old overbought/oversold ratio. It was 54.9% Tuesday. 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 to 52.3%. 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 -13 (percentage calculation method) to +20.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +289 Wednesday. (It was +151 Tuesday.) The 10-day moving average of the change in spread rose to +20. In other words, over the last 10-days, on average; the spread has increased by 20 each day. Market Internals remained positive along with most of my Indicators.

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). 
Wednesday, the Sentiment, Price and VIX indicators were neutral. Volume (a variant of on-balance volume {OBV}) was negative. The long-term 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%. 
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…