“U.S. wholesale businesses left their inventories unchanged as their sales fell in July. The Commerce Department said Friday that wholesalers held the line on stockpiles after increasing them 0.3 percent in June. Their sales fell 0.4 percent in July…It was the biggest sales drop since January's 1.9 percent decline.” Story at…
http://www.nytimes.com/aponline/2016/09/09/us/politics/ap-us-wholesale-inventories.html?_r=0
STOCK MARKET MILESTONE (CNBC)
“The S&P 500 just set a mild milestone [until today, Friday, that is]. Over the 40 days through Wednesday, the S&P 500's highest and lowest closes have been just 1.75 percent apart. It's the first time that has ever happened in the history of S&P data, which goes back to 1928, according to Paul Hickey, co-founder of Bespoke Investment Group…Hickey warns that "eventually that period of calm will end, and it will be followed by a short-term sell-off…” Story at…
http://www.cnbc.com/2016/09/09/the-market-is-doing-something-its-never-done-before.html
My cmt: In the interview Mr. Hickey said that the sell-off would be followed by a spike higher, but he gave no indication of the length of selloff or the timing of a spike higher.
HIGH P/E (Advisor Perspectives)
Chart and commentary at…http://www.advisorperspectives.com/dshort/updates/Market-Valuation-Overview
MARKET REPORT / ANALYSIS
-Friday the S&P 500 was down about 2.5% to 2123 at the close.
-VIX was up about 40% to 17.50 at the close.
-The yield on the 10-year Treasury jumped to 1.67%. (No flight to safety in bonds today. Investors must be worried about higher interest rates.)
It’s hard to say if today’s move was related to the North Korean A-Bomb test; FED speak; 9/11 on Sunday; or just a technical breakdown from the long quiet period. Bob Pisani suggested it was due to rising interest rates from the ECB failure to expand their QE program. Whatever; the down-move I have expected for some time was comparatively large for day-one of the downturn.
It was a statistically-significant move down and that means that price-volume exceeded my statistical parameters and, in about 60% of the time, that leads to an up-day the next day (Monday). This time though, that’s not clear at all. I’d expect investors to worry over the weekend and wake up selling on Monday. We’ll have to watch closely to see how the S&P 500 acts Monday especially as it approaches the 2100 level. That’s a key point for me and also 2128, the 200-dMA.
I doubt that the selling is over. Huge breaks after a long low volatility period often mark the beginnings of a downturn, but not always.
For the truly paranoid, I note that the all-time high of 11240 on the NYSE Composite Index from last 21 May 2015 was never exceeded and the prior high of 2131 on the S&P 500 was only exceeded by 2.7%. Bottom line, by some rules, the stock market is still in a downtrend and what we have experienced for many months is simply a Bear-Market-Bounce. I’m not buying that argument yet. I’m currently neutral/bullish until we get some more info.
As one might expect, there are a number of bearish signals Friday:
-The S&P 500 closed at its low so selling continued right into the close.
-Friday was a high volume down-day and that is bearish (almost all volume was down). A failure to reverse this with a high-volume, up-day in the next week or 2 will be even more bearish and would signal this won’t end quickly.
-Overall volume was high (about 30% above the monthly average) so the down day wasn’t a fluke. There was a lot of conviction.
-TRIN was elevated, but not enough to suggest an end to selling.
-My sum of 16-indicators went from +3 to -7 and that’s bearish.
-The S&P 500 broke the 50-dMA and closed nearly 2% below it. The 200-dMA is now at 2128 another, 3.4% lower than Friday’s close. 2128 will be an important level to hold.
-My basket of Market Internals went from full-bullish to full-bearish in one day.
-The 5-10-20 Timer System switched to sell. (The 5&10-day EMA’s of the S&P 500 both closed below the 20-day EMA.)
-We may see investors consider the day’s action over the weekend and come back with continued selling on Monday. A huge move like Friday is often the start of something worse.
There were a couple of Bullish signs:
-Bollinger Bands and RSI both made oversold readings today, but they are probably just casualties of the low volatility. Because the moves have been so small, it only took one big day to send these indicators to “oversold”. Basically, I discount both “oversold” readings.
VXX Trade. The “calm-before-the-storm” indicator (low standard of deviation in recent market moves) blasted off today and I’ll be watching Monday for any turn-around (up move in the S&P 500) that might signal a need to sell VXX. In spite of the fact that the trade went positive today, I remain disappointed. In the last 25-days VIX is up 54% while VXX is up 2%. I never expected to hold VXX for such a long time. The breakdown took too long, so it isn’t clear whether this trade will work out on a positive note when it is time to sell.
SHORT TRADE
I am still holding short positions in SH and QID.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) crashed to 49.8% Friday. It was 54.8% Thursday. A number below 50% is usually BEARISH news for the markets.
On a longer term, the 150-day moving average of advancing stocks slipped to 54.8%. A value above 50% generally indicates an up-trend. The McClellan Oscillator declined from +1 to -48 (percentage calculation method).
New-highs outpaced New-lows, but the spread (new-highs minus new-lows) crashed to +6 Friday. (It was +174 Thursday.) The 10-day moving average of the change in spread was -10. In other words, over the last 10-days, on average, the spread has decreased by 10 each day. Market Internals switched to negative 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).
LONG TERM INDICATOR
Friday the VIX indicator was negative; Sentiment, Price and & Volume indicators were neutral. The long-term indicator remains HOLD.
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). I added to that position Thursday 21 July bringing my invested total up to 40% in stocks. I expect to add more stocks should we get the anticipated pullback.
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.
