Housing Starts…Commercial Construction…Stock Market Report

HOUSING STARTS UP (MarketWatch)
“Construction started on new U.S. homes sprang up 20.2% in April to a seasonally adjusted annual rate of 1.14 million, hitting the fastest rate since late 2007…The annual pace of permits for new construction, a sign of future demand, sprang up 10.1% in April to 1.14 million…” Story at…
http://www.marketwatch.com/story/us-housing-starts-shoot-up-202-in-april-to-114-million-annual-rate-2015-05-19
My cmt: Housing starts are an important part of the Leading Economic Indicators and some have suggested that it is the most important statistic for predicting recession.  We might also look at non-residential construction including information from the Lighting Controls Association and the American Association of Architects for guidance as follows…
 
2015 NON-RESIDENTIAL CONSTRUCTION GROWTH (Lighting Controls Association, 16 Feb 2015)
“The overall economy continues to improve, with all major economic indicators signaling a trajectory of continuing growth…Economic conditions are supporting growth in demand for construction activity, particularly for nonresidential buildings. The nonresidential construction sector is now looking at double-digit increases in 2015, led by vigorous levels of demand for hotels and office buildings. The AIA’s [American Institute of Architects] semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, projects that nonresidential construction spending increase 7.7% in 2015… The improvement trend is expected to strengthen even further in 2016, with the AIA Consensus Construction Forecast projecting an 8.2% increase in nonresidential construction spending.” Press release at…
http://lightingcontrolsassociation.org/2015-nonresidential-construction-forecast-growth-across-all-markets/
My cmt: This looks dated, but bidding leads actual construction by several months and design leads construction by a year so this is still good information. If the Architects are busy, construction usually follows. It’s not a done deal though; if the economy tanks, owners won’t go through with construction so the 2016 numbers are less reliable. 
 
MARKET REPORT
-Tuesday, the S&P 500 was down about 0.1% to 2128 at the close.
-VIX was up about 1% to 12.85.
-The yield on the 10-year Treasury Note rose to 2.28%. 
 
LOW VOLUME? IT’S NORMAL
When I checked final volume numbers for Monday they were about 13% below the average for the past month and one needs to go back to 1 April to find a lower volume on the NYSE.   I am sure there will be many pundits who will say that this shows a lack of conviction by investors, implying this is an unusual occurrence.  It’s not. It is normal for volume to be low when coming off a bottom, even if, as in this case, the bottom is actually just a long flat period. That flat-line put the index 5% lower than it would have been if it had kept chugging upward.
Bottom line: The S&P 500 is coming off a 5% “sideways-correction” and, in general, the Index will probably continue up from here.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 54% at the close Tuesday.  (A number above 50% is usually GOOD news for the markets. New-highs outpaced New-lows Tuesday. The spread (new-highs minus new-lows) was +80. (It was +81 Monday.)  The 10-day moving average of change in the spread rose to +10.  In other words, over the last 10-days, on average; the spread has increased by 10 each day.
Internals remained positive on the markets.

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.
 
NTSM         
Tuesday, the NTSM analysis remained HOLD. PRICE, VOLUME, VIX and SENTIMENT indicators are neutral, although (as always) sentiment remains extremely high.

MY INVESTED STOCK POSITION

I remain fully invested at 50% invested, mostly in smaller cap-stocks in the long-term portfolio with some international stocks. 50% is conservative, but appropriate for a conservative retired guy. 
 
The Dow Jones US Completion Index (all stocks except the S&P 500 – the “S” fund in the TSP) remains ahead of the S&P 500.  Since 1 February it is 2.4% ahead of the S&P 500. Since 1 March the Euro-Pacific ETF (EFA) (“I”-fund) is 3.2% ahead of the S&P 500.
 
THRIFT SAVINGS PLAN (TSP) MEMBERS
My TSP Allocation: 50%-G; 10%-C; 25%-S; 15%-I.  (50% cash is too high for non-retirees, however, the “G”-fund did return 2.2% over the last 12-months and that is exceptional for risk-free money.)