Wednesday, July 6, 2016

Trade Balance … ISM Services … FOMC Minutes … China Syndrome … The Case for Gary Johnson … Stock Market Analysis

“The Commerce Department said the trade deficit rose to $41.1bn (£31.7bn) in May compared with $37.4bn in April…"Appreciation of the US dollar is weighing on the trade balance, making imports relatively inexpensive, while lowering the competitiveness of exports," said Emily Mandel of Moody's Analytics.” Story at…
ISM SERVICES (Marketwatch)
“The Institute for Supply Management’s service sector index jumped to 56.5% in June, a much stronger reading than expected and a sign the economy may have pushed past the rough patch it hit in May.” Story at…
“Fed officials generally agreed at their June 14-15 meeting that it was “prudent to wait” for additional data before considering another rate rise, according to minutes of the session released Wednesday. They wanted more time to see if the economy would keep improving and that new threats wouldn’t emerge after the June 23 Brexit vote.” Story at…
‘China’s trajectory…resembles the one that led to the Great Depression, when the expansion of credit, loose monetary policy and a widespread belief that asset prices would never fall contributed to rampant speculation that ended with a crippling market crash. – Andy Xie
“The unwavering faith that the Chinese will somehow be able to successfully avoid anything more severe than a moderate economic slowdown by continuing to rely on the perpetual expansion of credit reminds us of the belief in 2006 that U.S. home prices would never decline…” – Kyle Bass, Hayman Capital Management.’ Story at…
“…almost everyone I know and talk to repeatedly says things like “I wish there was a candidate who is fiscally conservative but socially liberal.” Like the Jacob Javitz Republicans of old. Well maybe this is the guy.” – Josh Brown
-Wednesday the S&P 500 was up about 0.5% to 2100.
-VIX dropped about 4% to 14.96.
-The yield on the 10-year Treasury rose to 1.39%.
The S&P 500 remains “overbought” when using the old stand-by Overbought/Oversold Ratio, a measure of the advance decline line. Bollinger Bands and RSI are not currently indicating oversold. 
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 some stock purchases may be necessary soon.
My short-term Money Trend indicator can be volatile; it turned sharply down Tuesday, but flattened out Wednesday, 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 56.4% Wednesday and remains “overbought” using the old overbought/oversold ratio. It was 55.6% Tuesday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks increased to 52.4%. 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) was up from +13 (percentage calculation method) to +21.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) remained +204 Wednesday. (It was +204 Tuesday.) The 10-day moving average of the change in spread improved to +10. In other words, over the last 10-days, on average; the spread has increased by 10 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). 
Wednesday, 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…