S&P 500 Earnings: Worse … Chicago PMI … Dallas FED Manufacturing Survey … Hussman on the Economy … Stock Market Analysis

This 1^st piece says it all as far as I am concerned.  It’s the reason that a crash, or at last a more serious correction, remains likely.
 
S&P 500 EARNINGS WORSE THAN YOU THINK (MarketWatch)
“…With most calendar-year results now in, FactSet estimates companies in the S&P 500 earned 0.4% more per share in 2015 than the year before. That marks the weakest growth since 2009. But this is based on so-called pro forma figures, results provided by companies that exclude certain items such as restructuring charges or stock-based compensation. Look to results reported under generally accepted accounting principles and S&P earnings per share fell by 12.7%, according to S&P Dow Jones Indices. That is the sharpest decline since the financial crisis year of 2008.” Story at…
http://www.marketwatch.com/story/sp-500-earnings-are-worse-than-you-think-2016-02-24
 
CHICAGO PMI (MarketWatch)
“The Chicago PMI fell 8 points to 47.6, MNI Indicators said Monday. In January, the index had increased 12.7 points to 55.6, the highest reading in a year.” Story at…
http://www.marketwatch.com/story/chicago-pmi-signals-contraction-of-factory-activity-in-february-2016-02-29
A number below 50 indicates contraction.
 
DALLAS FED (Business Insider)
“Manufacturing activity in Texas remained in contraction this month, as the headline index from the Dallas Federal Reserve printed at -31.8…Manufacturing activity in Texas remained in contraction this month, as the headline index from the Dallas Federal Reserve printed at -31.8.” Story at…
http://www.businessinsider.com/dallas-fed-manufacturing-survey-february-2016-2
 
HUSSMAN FUNDS LETTER TO SHAREHOLDERS (Hussman Funds)
The following is a brief excerpt from the letter:
“Prior to U.S. recessions, the earliest indications of an oncoming economic shift are usually observable in the financial markets, particularly in growing deterioration across broad market internals, and widening credit spreads between debt securities of varying creditworthiness. The next indication comes from measures of what I call “order surplus”: new orders, plus backlogs, minus inventories. When orders and backlogs are falling while inventories are rising, a slowdown in production typically follows. If an economic downturn is broad, “coincident” measures of supply and demand, such as industrial production and real retail sales, then slow at about the same time. Real income slows shortly thereafter. The last to move are employment indicators - starting with initial claims for unemployment, next payroll job growth, and finally, the duration of unemployment…. The present syndrome of historically extreme equity valuations, poor market internals, widening credit spreads, and growing evidence of oncoming recession is familiar. The same set of observable conditions prompted my strong concerns in 2000 and 2007, both before steep market retreats and economic weakness.” – John Hussman, PhD. Letter to Shareholders, Hussman Semi-Annual Report.  Available at…
http://www.hussmanfunds.com/pdf/sar1215.pdf
John Hussman has a PhD in Economics from Stanford so he should know something about the economy.  His record on the stock market has been less than stellar in recent years because he has hedged his funds causing them to underperform the markets; this time he may be right.
 
MARKET REPORT / ANALYSIS        
-Monday, the S&P 500 was down 0.8% to 1932 at the close. (This was a bearish move since the Index peaked before noon and dropped for the remainder of the day.  It dropped hard at the close.)
-VIX rose about 4% to 20.55.
-The yield on the 10-year Treasury dipped slightly to 1.74%.
Sentiment is 66%-bulls based on a 5-dMA of funds invested in selected Rydex/Guggenheim bull-bear funds { Bulls/(Bulls + Bears)}. This means that 2 out of every 3 investors are betting long.  This level of bullishness suggests further downside ahead in the markets.
 
The 10-dMA of closing Tick (the difference between stocks going up vs. down at the close) was over 500 for the past 5-days.  That’s a sign of too much bullishness too. For a discussion of this indicator, see…
http://www.mcoscillator.com/learning_center/weekly_chart/closing_tick_as_a_sentiment_tool/
The Overbought/Oversold Ratio remained “Overbought” Monday for the fifth day in a row.  This has been a trouble point for the markets recently.
 
I have been waiting to see if the charts will resolve. The S&P 500 has climbed back to a line of resistance at 1950 where the old bottom of the uptrend channel is climbing from its Dec 2011 low.  1950 is also the upper trend line of the declining short term trend for 2016. This all suggests a break in the making and we may have seen it today.  Unfortunately for the bulls, it appears the break was to the downside. The market pushed up to around 1958, but was unable to hold that level and fell hard.
 
MONEY TREND & SHORT TERM TRADING
I’ve been saying that the short-term Money Trend indicator looks like it is topping; today it rolled over and is suggesting we go down from here. The indicator could be stronger though.  We’ll see what happens tomorrow.
 
I still am holding short positions in SH and QID and I doubled down Monday adding more QID.  Now is a good time to establish a short position.  If the market moves up and breaks Monday’s 1958 intra-day high, it would suggest further upside may be possible and one could sell the short positions with a minimal loss.  On the other hand, it looks like there could be a 5-8% drop from here so the risk is skewed to the bear side.
 
MARKET INTERNALS (NYSE DATA)
(I am getting data from various sites. Some of the numbers are subject to minor revision so the previous day’s numbers may be slightly different than reported yesterday.)
The 10-day moving average of the percentage of stocks advancing (NYSE) is 62.8% Monday vs. 65.5% Friday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks improved to 49.6%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) declined, but remained solidly positive.
 
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +15 Monday. (It was +25 Friday.)   The 10-day moving average of the change in spread slipped to +13. In other words, over the last 10-days, on average; the spread has INCREASED by 13 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         
Monday, Price & Volume were positive; VIX was negative; & the Sentiment indicator was neutral. The long-term NTSM indicator is BUY, but until the charts and VIX indicator are resolved I am going to watch and wait. 
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.
 
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 9-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

Unemployment Claims … Durable Goods … GDP … Spending & Inflation … Stock Market Analysis

UNEMPLOYMENT CLAIMS & DURABLE GOODS ( Washington Post/Reuters)
“The number of Americans filing for unemployment benefits rose last week but remained below levels consistent with a tightening labor market…
…New orders for long-lasting U.S. manufactured goods in January rose by the most in 10 months as demand picked up broadly, offering a ray of hope for the downtrodden manufacturing sector.” Story at…
https://www.washingtonpost.com/business/economy/new-orders-for-durable-goods-increased-in-january-unemployment-claims-rose/2016/02/25/c32355e8-dbfe-11e5-81ae-7491b9b9e7df_story.html
 
GDP BETTER THAN EXPECTED (Reuters)
“Gross domestic product increased at a 1 percent annual rate instead of the previously reported 0.7 percent pace. The economy grew at a rate of 2.0 percent in the third quarter.” Story at….
http://www.reuters.com/article/us-usa-stocks-idUSKCN0VZ1LY
 
CONSUMER SPENDING & INFLATION UP (Reuters)
“U.S. consumer spending rose solidly in January and underlying inflation picked up by the most in four years, keeping Federal Reserve interest rate increases on the table this year. The Commerce Department said on Friday consumer spending increased 0.5 percent as households ramped up purchases of a range of goods and the return to normal winter temperatures boosted demand for heating.” Story at…
http://www.reuters.com/article/us-usa-economy-consumer-idUSKCN0VZ21Q

MARKET REPORT / ANALYSIS
-Friday, the S&P 500 was down 0.2% to 1948 at the close.
-VIX rose about 4% to 19.81.
-The yield on the 10-year Treasury dipped slightly 1.74%.
 
RANDOM THOUGHTS
-The S&P 500 is 0.2% above the 50-day moving average (dMA) and 4% below the 200-dMA. It would be very bullish if the Index can break above its 200-dMA.
-The Overbought/Oversold Ratio remained “Overbought” Friday for the fourth day in a row.  This has been a trouble point for the markets recently. Now it is an extreme value – that last time it was this high was 31 December 2014 and the index promptly fell 100 points.
- I am waiting to see if the charts will resolve. The SP 500 has climbed back to a line of resistance at 1950 where the old bottom of the uptrend channel is climbing from its Dec 2011 low.  1950 is also the upper trend line of the declining short term trend for 2016. So trend wise, this is a junction of buying and selling.  Bullish trends will be signaled if the Index can get significantly higher. Which way will it go?  Both long and short-term indicators have been improving; if that continues, perhaps this downtrend will end.
 
MONEY TREND & SHORT TERM TRADING
I’ve been saying that the short-term Money Trend indicator looks like it is topping, but it hasn’t yet.   It was still headed up as of Friday’s close.  It has reached a level that has been trouble in the past, but I only have about a year of data on this indicator.
 
I still am holding short positions in SH and QID.
 
MARKET INTERNALS (NYSE DATA)
(I am getting data from various sites. Some of the numbers are subject to minor revision so the previous day’s numbers may be slightly different than reported yesterday.)
The 10-day moving average of the percentage of stocks advancing (NYSE) is 65.5% Friday vs. 61.1% Thursday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks improved to 49.5%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved and remained solidly positive.
 
In a bullish reversal, New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +25 Friday. (It was +50 Thursday.)   The 10-day moving average of the change in spread slipped to +70. In other words, over the last 10-days, on average; the spread has INCREASED by 70 each day. Market Internals (based on 10-dMA) are positive on the market, but perhaps too positive - The last time the 10-dMA of the % of stocks advancing was higher than today, Wednesday, was on 31 December 2014.

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         
Friday, Price & Volume were positive; VIX was negative; & the Sentiment indicator was neutral. The long-term NTSM indicator is BUY, but until the charts and VIX indicator are resolved I am going to watch and wait. 
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.
 
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 9-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

Busy Day

I doubt that I will have time to post on Thursday.

Crude Inventories … Manufacturing Slows in Richmond FED Region … Stock Market at Critical Juncture … Stock Market Analysis

CRUDE INVENTORIES RISE AGAIN (Reuters)
“Oil fell below $33 a barrel on Wednesday after Saudi Arabia ruled out production cuts and U.S. crude inventories rose, though a decline in U.S. gasoline stocks limited losses.” Story at…
http://www.reuters.com/article/us-global-oil-idUSKCN0VW03S
 
RICHMOND FED: MANUFACTURING SLOWED (Advisor Perspectives)
“Fifth District manufacturing activity slowed in February, according to the most recent survey by the Federal Reserve Bank of Richmond…Despite the current soft conditions, manufacturers remained upbeat about future business conditions.” – FED Press release. Details, charts and analysis at…
http://www.advisorperspectives.com/dshort/updates/Richmond-Fed-Manufacturing
 
CRITICAL JUNCTURE FOR THE STOCK MARKET (Marketwatch)
“SPX bounced strongly off the 1810 support level. That level extends all the way back to April 2014, and it has now been tested and held four times: April 2014, October 2014, January 2016 and February 2016. If it gives way, the next support is likely to be at 1740, but more importantly, if that support at 1810 gives way, then a larger bear market looms.” Story at…
http://www.marketwatch.com/story/the-sp-finds-itself-at-a-critical-juncture-2016-02-23?siteid=yhoof2
My cmt: This article was a good technical discussion for current support & resistance levels – I recommend it.
 
MARKET REPORT / ANALYSIS        
-Wednesday, the S&P 500 was down 1% in the morning, but rallied back to close up 0.4% to 1930 at the close.
-VIX dipped about 1% to near 20.72.
-The yield on the 10-year Treasury dipped slightly 1.74%.
 
Unlike the piece above regarding the “Critical Juncture”, I look at closing values.  The closing low so far is 1829; that value is likely to be breached lower. My guess is that the S&P 500 will make a preliminary closing low of 1780, but the 1740 level (noted above) makes sense too.  There is support at both levels. Before then, 1829 needs to be retested again – then we’ll have a better idea where the market is going.
 
There is a rally coming that will last 1 or 2-months, most likely it will start after the test of 1829.  There are some good signs now (improving long-term indicators, improving Russell 2000, stock-market, daily statistical-moves are getting smaller, etc.) so it could surprise us sooner. Whether that big rally signals an end to the correction, or fails, is likely to depend on the earnings data for Q1 of 2016.
 
The smart money is still retreating on a 10-day basis. 
 
The Overbought/Oversold Ratio remained “Overbought” Wednesday.  This has been a trouble point for the markets recently.
 
MONEY TREND & SHORT TERM TRADING
The short-term Money Trend indicator looks like it is topping, but it was still up at Wednesday’s close. I still am holding short positions in SH and QID.

MARKET INTERNALS (NYSE DATA)
(I am getting data from various sites. Some of the numbers are subject to minor revision so the previous day’s numbers may be slightly different than reported yesterday.)
The 10-day moving average of the percentage of stocks advancing (NYSE) is 59.1% Wednesday vs. 55.7% Tuesday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks improved to 49.1%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) improved and remained solidly positive.
 
In a bearish reversal, New-lows outpaced New-highs. The spread (new-highs minus new-lows) was minus-27 Wednesday. (It was +15 Tuesday.)   The 10-day moving average of the change in spread slipped to +39. In other words, over the last 10-days, on average; the spread has INCREASED by 39 each day. Market Internals (based on 10-dMA) are positive on the market, but perhaps too positive - The last time the 10-dMA of the % of stocks advancing was higher than today, Wednesday, was on 29 December. The S&P 500 is down about 7% since then.

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, Price & Volume were positive; VIX was negative; & the Sentiment indicator was neutral. The long-term NTSM indicator is HOLD.  The long-term indicator has been improving, but I am watching VIX to see what the Options Boys think.

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.
 
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 9-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

Consumer Confidence … Falling Chinese Demand Hurts Shipping … Analysts Predicting More Earnings Declines … Stock Market Analysis

CONSUMER CONFIDENCE
“A key measure of attitudes on Main Street fell more than expected in February, a survey said Tuesday. The Consumer Confidence Index hit 92.2, in February, from a revised 97.8 in January, The Conference Board said.” Story at…
http://www.cnbc.com/2016/02/23/the-conference-board-reports-february-consumer-confidence.html
 
SHIPS IDLED - DEMAND EBBS (WSJ)
“Idled ships are dotting coastlines world-wide as companies that ship iron ore, coal and other bulk commodities try to weather the industry’s worst downturn in decades. The parked vessels are a stark sign of how crumbling Chinese demand for commodities is pummeling the global shipping industry.” Story at…
http://www.wsj.com/articles/commodity-slump-puts-dry-bulk-shipping-on-hold-1456083063
My cmt: This is just another point that underscores China’s importance to the world’s economy.
 
FACTSET EARNINGS INSIGHT (Factset)
“For Q4 2015, the blended earnings decline is -3.6%. If the index reports a decline in earnings for Q4, it will mark the first time the index has seen three consecutive quarters of year-overyear declines in earnings since Q1 2009 through Q3 2009….Looking at future quarters, analysts do not currently project earnings growth and revenue growth to return until Q3 2016." Story at...
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_2.19.16/view 
My cmt: It is alarming that analysts are now projecting growth to return in Q3. As recently as November, analysts were projecting growth in Q1. One must be concerned that they may be wrong again. Even if they are right, Q3 may be too late to save the stock market.
 
MARKET REPORT / ANALYSIS        
-Tuesday, the S&P 500 was down 1.3% to 1922 at the close.
-VIX rose about 8% to near 21.
-The yield on the 10-year Treasury dipped to 1.75%.
 
The Overbought/Oversold Ratio switched to Overbought Tuesday.  At first, this seems odd, because it was a down day and makes one wonder how the number of stocks advancing over the last 10-days could have improved. On a 10-day basis, they did improve, but only because 11-days ago the breadth was worse than today.  Bottom line, an oversold reading has not been good for the market recently.  Further, the index was near the top of the upper channel Monday so some further retreat is suggested.
 
The smart money is retreating too.  Late day buying is falling sharply and could switch to late-day selling as soon as Wednesday.
 
MONEY TREND & SHORT TERM TRADING
The short-term trend is up, based on my Money Trend indicator, but it has now reached a high level that has been a reversal point recently.  Whether that will be true this time remains to be seen.
 
Technically, there is now a large bearish, “Head and Shoulders” pattern that may be developing on the S&P 500 charts with the left shoulder going back to September.  It will be in play of the Index drops below about 1840.
 
I still am holding short positions in SH and QID.
 
I have been resisting the current rally for several negative reasons:
…No capitulation at the bottom.
…Not enough fear.
…Market internals did not appreciably improve when compared to the prior low.
…TRIN was not elevated.
For more details see 17 Feb 2016 blog at…
http://navigatethestockmarket.blogspot.com/2016/02/producer-price-index-housing-stats.html
 
MARKET INTERNALS (NYSE DATA)
(I am getting data from various sites. Some of the numbers are subject to minor revision so the previous day’s numbers may be slightly different than reported yesterday.)
The 10-day moving average of the percentage of stocks advancing (NYSE) is 55.7% Tuesday vs. 54.4% Monday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 150-day moving average of advancing stocks remained 48.9%. A value below 50% indicates a down trend. The McClellan Oscillator (a Breadth measure) declined substantially, but remained solidly positive.
 
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +14 Tuesday. (It was +41 Monday.)   The 10-day moving average of the change in spread rose to +41. In other words, over the last 10-days, on average; the spread has INCREASED by 41 each day. Market Internals (based on 10-dMA) remain neutral 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).  Of course, few trend-following systems will do well in an extreme low-volatility, nearly straight-up year like 2014.
 
NTSM         
Tuesday, Price & Volume were positive; VIX was negative; & the Sentiment indicator was neutral. The long-term NTSM indicator is HOLD.  The long-term indicator has been improving, but I am watching VIX to see what the Options Boys think.

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.

 
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 9-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