Crude Inventories … Stock Market Analysis

CRUDE INVENTORIES
“Oil dropped to the lowest in more than six years as investors discounted a decline in U.S. crude inventories. Crude supplies fell 3.57 million barrels last week, the U.S. Energy Information Administration reported Wednesday.” Story at…
http://www.bloomberg.com/news/articles/2015-12-09/oil-halts-decline-near-six-year-low-before-u-s-stockpile-data
 
MARKET REPORT / ANALYSIS        
-Wednesday, the S&P 500 fell about 0.8% to 2048 at the close.
-VIX rose about 11% to 19.6. (The Options Boys woke up.)                  
-The yield on the 10-year Treasury dipped to 2.21.
 
The Advance/Decline ratio is now signaling oversold.  RSI is not yet oversold nor is the Smart Money Index. We could see a bounce, but the trend remains down.
 
The S&P 500 is now 0.8% below its 200-dMA and the slope of the 200-dMA remains DOWN as of Wednesday; the trend is down, whether it will be long-term remains to be seen. The S&P 500 dropped 0.2% below the 50-dMA.  That’s another support level under stress.
 
A 50% down retracement would put the market at about 1990. From the S&P 500 chart it looks like an important level is around 1930-1980. Those levels will be watched for a possible buy signal. A retest of the 25 Aug low is still possible.
 
I have 2 indicators that have been very reliable recently, one based on breadth (but not the overbought/oversold ratio) and one based on smart-money; both are still suggesting further downside ahead.   
 
There was some late day buying Wednesday afternoon, but earlier the major indices failed to hold their gains and that’s a bearish sign; still, a bounce would not be a surprise due to an oversold reading on the A/D ratio.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 42.1% Wednesday vs. 44.1% Tuesday.  (A number below 50% is usually BAD news for the markets.  On a longer term, the 150-day moving average of advancing stocks slipped to 49.0%. A value below 50% indicates a down trend.
 
The McClellan Oscillator (a Breadth measure) remained negative Wednesday and has been dropping for more than a week.
 
New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was minus-129. (It was -304 Tuesday.)   The 10-day moving average of the change in spread was -11 Wednesday.  In other words, over the last 10-days, on average; the spread has decreased by 11 each day.

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         
Wednesday, the NTSM long term indicator was HOLD. The Price indicator is positive.  Sentiment, VIX & Volume are neutral. I remain skeptical that this is a good time to get in.  My prior blog posts explain the reasoning. The market needs to break out higher before I will be convinced.

MY INVESTED STOCK POSITION:

TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
All cash: G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 100%
I made a rather impulsive sell decision. For my reasons (or lack of reason) see “My Invested Stock Position” in my prior blog at...
http://navigatethestockmarket.blogspot.com/2015/11/factset-earnings-cass-freight-index.html
There have been enough major top indicators recently to warrant more caution than usual.
 
One needn’t be “all-out” to be well protected if there is a bear market. In fact, I don’t recommend it.  For example: With 30% invested in the stock market, one would only lose 15% of the portfolio if the market were to be cut in half; one would have plenty to invest at the bottom and 30% in stocks hedges the bet if the markets go up.