“With 7% of the companies in the S&P 500 reporting earnings to date for Q2 2016, 66% have reported earnings above the mean estimate and 51% have reported sales above the mean estimate…
…Earnings Growth: For Q2 2016, the blended earnings decline is -5.5%. [Slightly ahead of last week’s estimate of 5.6% decline.] 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
MARKET REPORT / ANALYSIS
-Monday the S&P 500 rose 0.24% to 2167.
-VIX dropped about 2% to 12.44.
-The yield on the 10-year Treasury was unchanged at 1.59%.
Volume has been 25% below the monthly average for the last 2-trading days so a lot of traders are skeptical that this rally has legs. Late-day selling has been ongoing for 4 of the last 6-days sand that’s more evidence, so the pros are taking a cautious view of the rally – or simply taking profits.
RSI, (SMA-14)
The Relative Strength Index (RSI) measures the size of up-moves vs. all-moves on a 14-day moving average basis and presents the result as a percentile. For example if the RSI is 85, it means that the size of up-moves are in the 85th percentile when compared to all moves over the 14-day period. If ALL moves had been up, RSI would be 100 – a definite short term sell indicator. For my purposes, 30 is oversold (suggesting a turn-around to the upside) and 80 is overbought. If the up-moves and down-moves are equal in size over the 14-day period, RSI would be 50.
Monday’s value of RSI was 91 and that is a very high “overbought” indication. RSI is followed by traders more than the Advance-Decline Ratio so this puts on more pressure on the bulls.
The S&P 500 remains “overbought” when using the old stand-by Advance-Decline ratio.
The upper 2-standard deviation Bollinger Band has been moving up as the Index has climbed so the Bollinger overbought indication remains out of reach. It is now farther away than it was 2-weeks ago when it looked overbought.
New-high new low data is turning down as are other market internals I track. Only Breadth remains positive and it is the slowest to respond.
Most Indicators are turning down and are generally mildly bearish today, suggesting a retreat – I’m guessing in the 4-5% range. I remain Bullish in the intermediate term; bearish short-term - retracement down is due now.
MONEY TREND & SHORT TERM TRADING
My short-term Money Trend indicator can be volatile; Monday it is giving a bearish reading. I will be selling some short positions in SH and QID in my trading portfolio soon depending on market action – I’m waiting for the pullback. I added to short positions today in SDS and QID as a short term trade. I’ll sell the SH positions at a loss (for taxes) while adding other leveraged positions that hopefully will prove profitable. At this point I am trying to cut losses.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) remained 59.3% Monday, but it remains “overbought” using the old overbought/oversold index. It was 59.3% Friday. A number above 50% is usually GOOD news for the markets, but this is too high and suggests a pullback.
On a longer term, the 150-day moving average of advancing stocks climbed to 53.7%. A value above 50% generally indicates an up-trend. The McClellan Oscillator (a Breadth measure) climbed from +33 (percentage calculation method) to +36.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) dipped to +179 Monday. (It was +181 Friday.) The 10-day moving average of the change in spread declined to minus-23. In other words, over the last 10-days, on average; the spread has decreased by 23 each day. Market Internals remain neutral on the market, but they have deteriorated over the last 2-days.
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
Monday, the Price indicator was negative; Sentiment was neutral; and VIX & Volume Indicators were positive. Technically, the long-term indicator is BUY (reflecting the recent rally and trend-following nature of the indicator), but since the short-term indicator is down to neutral now, I am keeping a HOLD on the NTSM indicator; but generally, I think dips should be bought.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATIONOn 12 July I increased my invested position in my retirement account to 25% invested in stocks thru an S&P 500 Index fund (“C”-fund in the TSP).
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. I’m following my system now, especially since the Index has climbed above my initial sell-point of 2100 on the S&P 500 back in November 2015.
