Tuesday, July 5, 2016

Factory Orders … Bull or Bear … Stock Market Analysis

“New orders for U.S. factory goods fell in May on weak demand for transportation and defense capital goods, but growing order backlogs and lean inventories suggested the worst of the manufacturing downturn was probably over. The Commerce Department said on Tuesday new orders for manufactured goods declined 1.0 percent after two straight months of increases.” Story at…
BULL OR BEAR (Advisor Perspectives)
“Was the March 2009 low the end of a secular bear market and the beginning of a secular bull?...  based on the underlying market valuation, one can make a strong case that the secular bear market hasn't ended.” See Doug Short’s discussion at….
-Tuesday the S&P 500 was down about 0.7% to 2089.
-VIX rose about 5% to 15.58.
-The yield on the 10-year Treasury dropped to 1.37%. (Everyone wants to own the safety trade – US Treasuries.)
The S&P 500 remains “overbought” when using the Overbought/Oversold Ratio, a measure of the advance decline line. Bollinger Bands and RSI are not currently indicating oversold. 
Traders returned from the Holiday in a mood to sell.  Short-term indications are down or perhaps flat at best.  The long-term indicator is HOLD.
My short-term Money Trend indicator can be volatile; it turned sharply down Tuesday, a bearish 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) dropped to 55.6% Tuesday and remains “overbought” using the old overbought/oversold ratio. It was 60.6% Friday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks dipped 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) fell from +47 (percentage calculation method) to +13.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +204 Tuesday. (It was +404 Friday.) The 10-day moving average of the change in spread slipped to +4. In other words, over the last 10-days, on average; the spread has increased by 4 each day. Market Internals switched to 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). 
Tuesday, 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…