Personal Spending … Crude Inventories … Q2 Earnings … Global Trade Collapse … Brexit Sore Losers … Fear Index vs. VIX … Stock Market Analysis

PERSONAL SPENDING (Investing.com)
“Both U.S. consumer spending core PCE prices rose in line with market expectations in May, official data showed on Wednesday. In a report, the Commerce Department said that personal spending increased by a seasonally adjusted 0.4% last month…” Story at…
http://www.investing.com/news/economic-indicators/u.s.-personal-spending-rises-0.4-in-may,-core-pce-prices-up-0.2-411320
My cmt: Inflation remained tame and in-line with expectations.
 
CRUDE INVENTORIES (24/7 Wall St.)
“The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 4.1 million barrels last week, maintaining a total U.S. commercial crude inventory of 526.6 million barrels… at historically high levels for this time of year...” Story at…http://247wallst.com/energy-economy/2016/06/29/crude-oil-price-jumps-on-inventory-drawdown/
 
Q2 EARNINGS (FactSet)
“For Q2 2016, the estimated earnings decline is -5.2%. If the index reports a decline in earnings for Q2, it will mark the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009.” – Factset Earnings Insight
 
GLOBAL TRADE COLLAPSE (Mish Talk – Global Economic trend Analysis)
“Thanks to the stubborn stupidity of nannycrats, now led by Queen Merkel to the rousing applause of fools who don’t understand trade, there is a very real risk of a global depression.” - Mike “Mish” Shedlock
https://mishtalk.com/2016/06/28/no-cherry-picking-says-merkel-risk-of-trade-collapse-says-mish/
 
BREXIT SORE LOSERS & NEVER TRUMPERS (CNBC)
“Ask anyone who opposes Trump what he or she thinks of his supporters. Their response is very likely to sound a lot like what the sore loser Brexit Remainers are saying about the Leave voters right now. But think about it: does demonizing Trump's supporters as being a bunch of ignorant racists sound like a winning strategy to you? Couldn't it simply backfire and embolden his supporters even more? And might that kind of attitude about the people who don't think like you be something that served as the cause for his campaign in the first place?” Commentary at…
http://www.cnbc.com/2016/06/28/brexit-sore-losers-and-nevertrumps-have-a-lot-in-common-commentary.html
My cmt: Interesting comparison of the Brexit vote and the upcoming election.
 
THE FEAR INDEX VS. VIX (CNBC)
…when the past 20 years of data are examined, one finds that never before has the S&P been down in a two-day period in which the VIX has fallen 20 percent or more…"All the hedging that was done prior to this" is being "taken off," which is driving down options prices and hence implied volatility measures, Dennis Davitt of Harvest Volatility Management explained in a Tuesday email to CNBC.” Story at…
http://www.cnbc.com/2016/06/28/the-fear-index-is-sinking-even-as-stocks-jitter-heres-why.html
 
MARKET REPORT / ANALYSIS        
-Wednesday the S&P 500 was up about 1.7% to 2071.
-VIX dropped about 11% to 16.64. (The Options Boys are over Brexit!)
-The yield on the 10-year Treasury rose slightly to 1.48%.
 
At this point it is clear that the S&P 500 is not in a waterfall down move.  That leaves 2-obvious possibilities: (1) The index is undergoing an upward retracement that would be in the area of 61.8% {a Fibonacci number for believers} to be followed by a turn down {FYI – Wednesday at the close, the retracement was 62.3%}; (2) Investors now believe that the selloff was all wrong and this looks like a great time to buy; thus, new-highs are just around the corner. 
 
Option 2 seems nuts.  Why would there be a 2-day massive, world-wide sell-off, the largest in history based on dollars, only to be followed by an immediate reversal back to the prior high? I can think of only one reason.  Hint – think Flash Crash. If the answer is “2” then it is likely that this is the most manipulated move in history and the market can no longer be trusted. If computers can cause a Flash Crash, they can make the market move as they please. I’d rather not believe in a totally manipulated market, so for the time being, I will assume this is a retracement (Option 1) and the market will turn down soon.
 
On the subject of market manipulation, it should be clear to all that the market is now driven by computer trading and computer analysis. I don’t think it is coincidence that the Index finished a whisker away from the Fibonacci number.
 
One more thought, it may be that we are seeing an unwinding of short-positions that were taken ahead of Brexit and that is driving the market higher in the very short-term. I suppose that thesis fits either option.
 
The S&P 500 is now “overbought” when using the Overbought/Oversold Ratio, a measure of the advance decline line. Bollinger Bands and RSI have cleared their oversold readings from 2-days ago.  It is shocking, dumbfounding and unfathomable to see “oversold” one day followed by “overbought” 2-days later even if the values are not from the same indicators.
 
To make matters even more confounding, the NYSE experienced an extreme down volume-day 3-days ago followed by 2-days of extreme up-volume that meets additional bullish tests closing near the daily high each day. This is very bullish and might be a clear buy signal except for my comments above and the overbought condition.
 
One more bearish thought: The Bond market hasn’t bought into the idea that Brexit is a non-issue.
 
The upward bounce may be over, that’s my guess; I think we go down from here, but who knows!
 
MONEY TREND & SHORT TERM TRADING
My short-term Money Trend indicator can be volatile; it remains up Wednesday, a bullish position.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) jumped up to 57.3% Wednesday and is now “overbought” using the old overbought/oversold ratio. It was 54.9% Tuesday. A number above 50% is usually GOOD news for the markets.
 
On a longer term, the 150-day moving average of advancing stocks was up 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) jumped from -13 (percentage calculation method) to +20.
 
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +289 Wednesday. (It was +151 Tuesday.) The 10-day moving average of the change in spread rose to +20. In other words, over the last 10-days, on average; the spread has increased by 20 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). 

 
LONG TERM INDICATOR
Wednesday, the Sentiment, Price and VIX indicators were neutral. Volume (a variant of on-balance volume {OBV}) was negative. The long-term indicator remained HOLD.
 

MY INVESTED STOCK POSITION:

TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
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…
http://navigatethestockmarket.blogspot.com/2015/12/stocks-are-topping-time-to-sell-hussman.html

GDP … Consumer Confidence … Dallas Fed Manufacturing … The Sell-off was Worldwide … Stock Market Analysis

GDP – 3RD ESTIMATE (Reuters)
“U.S. economic growth slowed in the first quarter but not as sharply as previously estimated, and while there are signs of a pickup in the second quarter, analysts worry Britain's vote to leave the European Union could hurt activity later this year. Gross domestic product increased at a 1.1 percent annual rate, rather than the 0.8 percent pace reported last month…” Story at…
http://www.reuters.com/article/us-usa-economy-gdp-idUSKCN0ZE1F7
My cmt: So this is the “final” estimate from the Commerce Department on GDP.  It’s better than #2 estimate, but a reading of 1.1% is pretty weak, especially when the GDP numbers have a wide range. The average difference between the 3^rd estimate and the historical estimate is 1.5%. So it is possible that the economy is already in recession as some claim.  I am not an economist so I won’t hazard a guess. For more on the range of GDP see…
http://fivethirtyeight.com/datalab/the-messy-truth-behind-gdp-data/
…or Nate Silver’s book, “The Signal and the Noise” on the subject of making predictions.
 
CONSUMER CONFIDENCE (Marketwatch)
“U.S. consumer confidence took a step higher in June — at least, it did before Britain’s vote to leave the European Union. The Conference Board said its consumer confidence index rose to 98 from 92.4 in May.” Story at….
http://www.marketwatch.com/story/us-consumer-confidence-rises-in-june-before-brexit-vote-2016-06-28
 
DALLAS FED MANUFACTURING INDEX (24/7 Wall St)
“The Federal Reserve Bank of Dallas released the regional Dallas Fed Business Activity reading for May, showing a drop to −20.8 from a less negative −13.9 from April. The Manufacturing Production Index also fell, dropping into the red at −13.1 in May from a reading of 5.8 in April.” Story at…http://247wallst.com/economy/2016/05/31/dallas-fed-manufacturing-indexes-went-negative-in-may/
My cmt: Manufacturing keeps getting worse in almost every region.

THE SELLOFF IS WORLD WIDE (Advisor Perspectives)
For additional charts and commentary see…
http://www.advisorperspectives.com/dshort/updates/World-Market-Snapshot
 
TIME TO BUY? – MAYBE NOT (CNBC)
"We have a stockpile of cash. We did not jump in. Sure there's opportunity, but I think when you strip away the headlines, the market is still relatively expensive," said Jack Ablin, CIO of BMO Private Bank. Ablin said he will give the market another look next week…” Story at…
http://www.cnbc.com/2016/06/28/stock-market-dont-get-too-happy-about-this-rally.html
 
MARKET REPORT / ANALYSIS / BUY – SELL OR HOLD
-Tuesday the S&P 500 was up about 1.8% to 2036.
-VIX dropped about 21% to 18.75. (The Options Boys are over Brexit!)
-The yield on the 10-year Treasury remained unchanged at 1.46%.
 
Tuesday we have a real hodge-podge (formed from the verb hocher, meaning "to shake," { French } and pot…So, the word referred to a stew with a whole bunch of different ingredients all "shaken" together in a pot.) of indicators.
 
The S&P 500 bounced above the 200-day moving average (200-dMA) of 2021 and closed 0.7% above it. That’s a big deal, since the 200-day would have been considered resistance - bullish.
 
Tick (a summation of the last trades of the day) was +474 and that a positive reversal too and it often indicates an up-day the next day. Actually, since 2/3 of all days are up, that’s usually the better bet anyway - bullish
 
Both Bollinger Bands and RSI have cleared their oversold indications, but they remain at the lower end of ranges - bullish.

Breadth jumped so much higher today that it is nearly “overbought” on the classic overbought/oversold ratio – mildly bearish.

 
I compare the XLI ETF (Industrial Select sector SPDR ETF – a basket of cyclical industrials) to the S&P 500 as a recession indicator.  The thesis is that cyclicals will underperform if we are headed into recession.  XLI is still underperforming but not enough for a signal – neutral.
 
The big move today was not statistically all that large, but a nearly 2% gain is going to generate some profit taking so Wednesday would be expected to be a down day about 60% of the time - bearish on the day.
 
Back and forth up-down large moves are usually bearish (The S&P 500 has had 6 of these days in the last 3-weeks) – bearish longer term.
 
My sum of 16-indicators (not necessarily the ones mentioned above) was bullish short-term and bearish longer term.
 
I thought there might be a bounce Tuesday, but nearly 2%-up was a surprise. Huge down moves usually take a while to settle out, so I’d be surprised if this ends in a few days, but as noted, I have been surprised already.
 
MONEY TREND & SHORT TERM TRADING
My short-term Money Trend indicator can be volatile; it turned up Tuesday reversing to a bullish position.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) jumped up to 54.9% Tuesday almost an “overbought” condition on the overbought/oversold ratio. It was 49.8% Monday. A number above 50% is usually GOOD news for the markets.
 
On a longer term, the 150-day moving average of advancing stocks was up slightly to 52.1%. 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 -53 (percentage calculation method) to -13.
 
In a bullish reversal, New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +151 Tuesday. (It was minus-11 Monday.) The 10-day moving average of the change in spread rose to +14. In other words, over the last 10-days, on average; the spread has increased by 14 each day. Market Internals switched to positive.

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).  Of course, few trend-following systems will do well in an extreme low-volatility, nearly straight-up year like 2014.

 
LONG TERM INDICATOR
Tuesday, the Sentiment indicator was neutral; the Price (measuring the size of up vs down moves), Volume (a variant of on-balance volume {OBV}) and VIX indicators were negative. VIX was just barely negative though. The long-term NTSM indicator remains to SELL, but the Index is less than 5% below its all-time high so I wouldn’t sell given the big turn-around – I am giving the market a HOLD today.

MY INVESTED STOCK POSITION:

TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION

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…
http://navigatethestockmarket.blogspot.com/2015/12/stocks-are-topping-time-to-sell-hussman.html