Friday, July 1, 2016

ISM Index … Construction Spending … Auto Sales … Stock Market Analysis

Have a great Fourth!
“U.S. manufacturers grew in June at the fastest pace in 15 months, signaling a clear if modest uptrend after a bout of extended weakness, a survey of executives found. The Institute for Supply Management said its manufacturing index jumped to 53.2% in June from 51.3% in May.” Story at…
“U.S. construction spending fell for a second month in May, with weakness hitting all areas of building. Construction spending declined 0.8 percent in May following a 2 percent tumble in April, the Commerce Department reported Friday. The April figure had been the biggest monthly setback in five years.” Story at…
“General Motors and Toyota saw sales fall and Ford Motor and Fiat Chrysler Automobiles saw them rise as automakers Friday reported June sales of new cars. Overall, the industry had saw a boost of 2.5%, Autodata reports.”
-Friday the S&P 500 was up about 0.2% to 2103.
-VIX dropped another 6% to 14.77.
-The yield on the 10-year Treasury dipped to 1.46%.
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 oversold. 
Volume was very low today, before the Holiday, so today’s data is suspect at least for developing indicators.  Perhaps next week the picture will be clearer. 
New highs seem possible with improving ISM numbers and most indicators improving. Earnings season is starting and that will decide the near-term fate of the market.
My short-term Money Trend indicator can be volatile; it flattened Friday, and is now neutral.  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) next week and looking for better opportunities later.
The 10-day moving average of the percentage of stocks advancing (NYSE) climbed to 60.6% Friday and remains “overbought” using the old overbought/oversold ratio. It was 60.3% Thur. A number above 50% is usually GOOD news for the markets, but over 60%-advancing is very high, especially if the 20-day value climbs above 55%-advancing. Those numbers have been followed by declines in the past. They were that high before the Brexit fiasco. The numbers are only a whisker below those extremes now.
On a longer term, the 150-day moving average of advancing stocks remained 52.5%. 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) climbed from +43 (percentage calculation method) to +47.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +404 Friday. (It was +379 Thursday.) The 10-day moving average of the change in spread slipped to +30. In other words, over the last 10-days, on average; the spread has increased by 30 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). 
Friday, the Sentiment, Price, Volume and VIX indicators improved to neutral. 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…