Friday, July 8, 2016

Payrolls (Job Growth)… Hourly Earnings … Stock Market Analysis

“Employers added 287,000 jobs in June as the labor market bounced back resoundingly from a spring slump and eased concerns about a longer-term slowdown in payroll growth.” Story at…
My cmt: Numbers were surprisingly good, but oddly they are not supported by the Household Survey, also performed by BLS… 
“Although the establishment survey rebounded sharply, for the third month the household survey was weak. The three month change in household survey employment is -223,000. Which numbers are more believable?” – Mish Shedlock
For a discussion of the data see Mish Talk at…
The best way to track employment is to use consistent numbers so all-in-all, today’s report was pretty good – except that it raises the odds of a September rate hike.
“June average hourly earnings were up 0.1% ( consensus 0.2%) after being up 0.2% in May. Over the last 12 months, average hourly earnings have risen 2.6%.” Details at…
-Friday the S&P 500 was up about 1.5% to 2130, 1-point below the prior high in May 2015.
-VIX dropped about 11% to 13.20.
-The yield on the 10-year Treasury slipped 1.37%.
The S&P 500 remains “overbought” when using the old stand-by Overbought/Oversold Ratio, a measure of the advance decline line. The big move up may bring a down-day Monday. The Index is close to the upper Bollinger Band suggesting a retreat in price is likely soon. 
My Money Trend indicator is based on an Advance-Decline line of market internals as they relate to the S&P 500.  It is making lower-lows and lower-highs in relation to the S&P 500 and broke into negative territory Friday.  This, along with Bollinger Bands and overbought reading, suggest a pullback. It doesn’t have to be a big pullback; 5% would be the norm, but it could be larger of course. 
There are other bullish indications: Smart Money shows late day buying recently.
Except for the Brexit Fiasco, long-term indicators have been generally bullish or neutral since February. The percentage of new—highs was 10.5% at Friday’s interim high.
The percentage of new-highs at major tops has averaged 6% going back to 1929. It was 2.3% at the top of 2131 in May 2015 and also in 1929. 10.5% of issues on the NYSE made new-highs Friday. That’s a solid improvement, but there has been 1-top since 1929 that had a higher value of new-highs than Friday’s (that was 1976) so this stat is not an all-clear signal. It does show significant improvement since last May, however, and that’s a good sign for the bulls.
Friday was another 90% up-volume day. That is the third one in a week and a half. Days when volume is strongly skewed up or down (90% one way or the other) can be good indicators for turning points in sentiment and the overall trend ahead. I track 90% volume-days and subtract 90% down-volume days from the up-days over a 120-day moving period; the current result is interesting. As of Friday, the up-volume days have outpaced the down-volume days by +5 over the last 6-months.  Going all the way back to June of 2008 that has happened only once…  during one period starting in August of 2010. That was about a month before the Index bottomed at 1048, about 5% lower. It remained at +5 or higher all the way thru Feb 2011. Even a reading of +4 is unusual and a +4 reading has occurred generally after significant bottoms. We might expect further upside now, but given the short-term negatives above, I expect a short-term drop followed by further upward movement in the S&P 500.
Daily moves are mostly guess-work, so I plan to hold my nose and add to my stock holdings Monday or possibly later next week to bring them up to 30% invested.  By the end of the month, I may even get to 50% invested. I’ll try and post a decision before 11:30 Monday.
My short-term Money Trend indicator can be volatile; it remained trending down Friday, a mildly 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) improved to 58.1% Friday and remains “overbought” using the old overbought/oversold ratio. It was 57.6% Thursday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks jumped to 52.7%. 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 +18 (percentage calculation method) to +49.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) climbed to +315 Friday. (It was +152 Thursday.) The 10-day moving average of the change in spread improved to +12. In other words, over the last 10-days, on average; the spread has increased by 12 each day. Market Internals improved to 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). 
Friday, the Sentiment, Price and VIX indicators were neutral. Volume (a variant of on-balance-volume) was negative.
The long-term indicator is BUY based on a Buy signal from the 5-10-20 Timer system and a positive reading from my Market Internals indicator. CAUTION: Short term, it is time for some retracement down so it may be best to wait a few days before buying. Further, it is still possible that we could still see some significant selling – this could still just be a bear-market rally.

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…