Thursday, July 7, 2016

ADP Employment … Jobless Claims … Crude Inventories …. Markit PMI … Stock Market Analysis

“Private-sector employment picked up a bit in June, suggesting the weak May nonfarm-payroll report may be an anomaly, Automatic Data Processing Inc. reported Thursday. ADP reported that 172,000 private-sector jobs were added in June…” Story at…
“Filings for U.S. unemployment benefits unexpectedly declined last week to the lowest level since mid-April, signaling labor market stability amid a shaky global economy. Jobless claims dropped by 16,000 to 254,000 in the week ended July 2…” Story at…
“Oil prices fell nearly 3 percent on Thursday, reversing early gains after the U.S. government reported a weekly crude draw that was within analysts' forecasts, disappointing market bulls who had expected larger declines. The Energy Information Administration (EIA) said crude stockpiles fell 2.2 million barrels for the week ended July 1…” Story at…
“The divergence between the ISM non-manufacturing report and the PMI services report widened considerably today. The non-manufacturing ISM index rose from 52.9 to 56.5 but the PMI services index rose from 51.3 to 51.4. At least one of these measures portrays a considerably wrong picture…
…“Rebound, what rebound? The final PMI numbers confirm the earlier flash PMI signal that the pace of US economic growth remained subdued in the second quarter.” - Chris Williamson, Chief Economist at Markit
-Thursday the S&P 500 was down about 0.1% to 2098.
-VIX dropped about 1% to 14.76.
-The yield on the 10-year Treasury remained 1.39%.
The S&P 500 remains “overbought” when using the old stand-by Overbought/Oversold Ratio, a measure of the advance decline line. Neither Bollinger Bands nor RSI are currently oversold. 

As I noted yesterday, if there wasn’t an oversold indication I’d add some stocks to the long-term portfolio.  I sold in late December at 2063 so the S&P 500 is up about 2% higher now.  I haven’t had much discipline in my trading portfolio recently so I’d better show some in the long-term portfolio. That means adding stocks when the index climbs above my prior sell point.
There’s not much direction to the market right now.  It’s waiting for earnings, I imagine, and following oil prices.
I back-tested the Money Trend Indicator and added another rule related to long-term breadth.  RULES WERE: (1) Trade the slope of the 5-day smoothed value of the 10-dMA of Money Trend Indicator: Long for a positive slope and Short for a negative slope …AND… (2) Value of the 150-dMA of advancing stocks (Breadth): Long if Breadth is >50%; Short if 150-dMA of breadth is <50%. If (1) and (2) disagree, stay out. This plan would have been a net gainer of 8.8% for 2016 so far beating the buy & hold value of 2.6%.  In 2015 the rules underperformed the buy and hold value by 5.9%.
My short-term Money Trend indicator can be volatile; it turned marginally down Thursday, a neutral reading.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only. I imagine I’ll be dumping them (at a loss) and looking for better opportunities later. We’ll see.
The 10-day moving average of the percentage of stocks advancing (NYSE) improved to 57.6% Thursday and remains “overbought” using the old overbought/oversold ratio. It was 56.4% Wednesday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks slipped 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) dipped from +21 (percentage calculation method) to +18.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) dropped to +152 Thursday. (It was +204 Tuesday.) The 10-day moving average of the change in spread declined to +5. In other words, over the last 10-days, on average; the spread has increased by 5 each day. Market Internals remained neutral.

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). 
Thursday, the Sentiment, Price and VIX indicators were neutral. Volume (a variant of on-balance-volume) 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.
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…