Tuesday, June 7, 2016

Productivity … Oil Prices Rise … Junk Bonds May Signal a New Bull Market In Stocks … The Great Wall - No New Highs in a Year Means What? … Stock Market Analysis

“U.S. nonfarm productivity fell less sharply than initially thought in the first quarter and labor-related costs surged for a second straight quarter as companies hired more workers to raise output, suggesting profits could remain under pressure. The Labor Department said on Tuesday productivity, which measures hourly output per worker, contracted at an annualized rate of 0.6 percent, instead of the 1.0 percent pace the government reported last month.” Story at…
“Oil prices continued their climb on Tuesday, hitting eight-month highs, as expectations of U.S. crude draws underpinned a market already worried about potential supply shortages from attacks on Nigeria's oil industry.” Story at...
Rising oil prices mean that defaults in the junk bonds are much less likely so overall risks to stocks are down; therefore, stocks are up. Here’s a chart comparing the High Yield Bonds (HYG ETF) in blue to the S&P 500 (GSPC) in red over the past 2-years. If Junk bonds can keep improving, it may signal that the stock market can make new-highs.

Chart from Yahoo Finance
THE GREAT WALL (New highs for the S&P 500) (CNBC)
“…Krinsky noted on CNBC on Thursday that the 52-week high for the S&P 500 around 2,128 was reached on July 20, 2015. In the history of the S&P, dating back to 1928, there have been 20 times that the index has gone at least a year without reaching a 52-week high, but once stocks break above that high they have recorded “massive gains,” in 19 out of those 20 instances for a median average gain of 20% in the following year, Krinsky said.http://www.marketwatch.com/story/what-itll-take-for-the-sp-500-to-scale-the-great-wall-of-2100-2016-06-04
My cmt: This is curious: According to Krinsky,
, “…there have been 20 times that the index has gone at least a year without reaching a 52-week high…” The time frame he considered started in 1928.  Krinsky is saying the S&P 500 has gone a year without making a new-high (on average) every 4.4-years. (2016-1928= 88-years; 88-years/20-times=4.4-years)
This seems way too often to me and I question the numbers. When I looked at a similar stat over the past 30-years, I found a different result. Here’s what I wrote on 23 March 2016.

BEAR MARKET OR BULL? [Published 23 March 2016]
I think the market is still in a Bear Market, but it’s always a good idea to listen to others.  After all, I did get a buy signal at the [February] bottom that I ignored – duh; but my overall view of the market has not changed. The earnings picture looks too bad. Another point to consider is that the S&P 500 has been flat for a very long time.
The S&P 500 has not made a new-high in the last 211-days.  That is a fairly rare occurrence. In the past 30-years, periods when the Index went 211-days without making a new-high started in years: 2007, 2000, 1994, and 1987. Note that all instances were near the start of significant bear Markets except for 1994.  In 1994, the Federal Reserve raised interest rates 6-times from 3% at the beginning of the year to 5.5% at its end. The stock market (and economy) avoided serious repercussions on the strength of the tech-boom that was getting underway.  It is possible that lower oil prices might prevent a full-blown bear-market this time, but given the dire predictions for corporate earnings, it doesn’t seem likely.  Add high valuations to the mix and the Stock Market appears to be headed for more trouble ahead.  We’ll see. As noted by three “correction-over-commentaries” in today’s blog, my opinion is far from universal. – NTSM 3/23/2016
Further cmt: I’ll update this when I get a chance, but over the last 30-years, extending the time frame to one year without a new-high (from 211-days) will only make the stat get worse; I think 1994 will drop out leaving only 3-instances when the Index went a year without a new-high.  I only looked at a 30-year timeframe, so perhaps I’ll check it back further.
-Tuesday, the S&P 500 was up about 0.1% 2112.
-VIX was up about 3% to 14.05 at the close.
-The yield on the 10-year Treasury slipped to 1.71%.
VIX went up and the 10-year yield went down.  Apparently, the options boys and bond ghouls aren’t completely enamored with this rally continuing.
Stocks on the NYSE remain significantly overbought per the tried and true NYSE Overbought/Oversold Ratio (based on advance decline data); RSI (14-day) is now overbought at 81 and both are bearish indications. Closing Tick is almost overbought using a 10-dMA of Tick suggested by Tom McLellan.
My short-term Money Trend indicator can be volatile and it is trending slightly upward, Tuesday, and that’s bullish.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only. I have been saying that they will have to go if the market exceeds my pain-target of 2110 on the S&P 500. Now that it is 2112, I’ll wait a day or so more just to watch short term action. I hate to sell into overbought conditions.
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 63.5% Tuesday. It was 62.2% Monday. 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 rose to 52.2%. 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 high +205 Tuesday. (It was +199 Monday).  Tick is close to signaling “overbought” on a 10-day basis. 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. Generally, new-high/new-low data is nearing a high number that suggests a turn to the downside will occur soon; however for now, 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.
Tuesday, the VIX & Sentiment indicators were neutral.  The Volume (a variant of on-balance volume) and Price indicator (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 another day or so. The S&P 500 did get to 2110, but let’s see if it will hold.  I hate buying into an overbought market, but I am looking at a round-trip – my first sell signal was back at 2063 on the S&P 500 in December 2015 – and I don’t plan to stay out if the market can continue to show strength in Price movement. 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 can stay 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…