“The U.S. added 161,000 new jobs in October and the
unemployment rate fell below 5% again, reflecting a tight labor market that’s
forced firms scrambling to fill open positions to boost pay at the fastest pace
in seven years…“[This] …strengthens the argument of Fed hawks…,” said Tony
Bedikian, managing director of global markets at Citizens Bank….hourly wages
have climbed 2.8% over the past year, the fastest 12-month increase since June
2009…” Story at…
Briefing.com noted: “Granted nonfarm payroll and private
sector payroll growth were both below expectations in October, yet that headline
disappointment was offset by the upward revisions for September and the
recognition that Hurricane Matthew affected parts of the East Coast during the
reference period.” – Commentary and charts at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 was down 0.2% to 2085 on the day.
(It was ugly though because the Index had been up 0.5% at mid-day.)
-VIX rose about 2% to 22.51 at the close.
-The yield on the 10-year Treasury dropped to 1.78%.
I discussed short-term indicators in yesterday’s Market
Analysis, but I will repeat the note covering an important bullish sign: There
has only been one winning day in the last 10-days. (That was also true for Wednesday and again
on Thursday.) This has only happened 3-times since Jan 2010: (1) at the bottom
of the 12%-downturn of Jun 2010; (2) at the bottom of the 19%-downturn of
August 2011; (3) Thursday, Friday and today. Today’s price-action did not
instill much confidence. Monday is likely to be down again. From there, we’ll see.
To end this pullback, we’ll probably need to see a big
drop, greater than 1% and possibly over several days. Conversely, it’s possible
(but less likely) that we could see a successful test on Monday or Tuesday next
week.
It looks like there is more downside ahead. Longer-term
there are issues developing.
“FANG” (Facebook, Amazon, Netflix, and Google) have
supported this market on their own during 2015. The four averaged returns of
83% in 2015. Amazon stumbled on earnings this quarter. Facebook gave a poor
outlook for the future Wednesday and Facebook was down 7% after hours Wednesday.
Further, only 45% of NYSE stocks are trading above their 200-dMA (as of Thursday)
and it may be time to worry about the market as a whole. Friday the S&P 500
closed 0.1% above the 200-dMA. Leadership appears to be failing.
About 7% of issues on the NYSE made new-highs on 15
August 2016 when the S&P 500 peaked at 2190. The average of stocks making
new-highs at 15-major tops going all the way back to 3 Sept 1929 has been
6%. While the comparison is not apples
to apples, it is close enough to warrant concern. (The reason it is not
apples-to-apples is that many issues now trade on the NYSE that are not operating
companies and that was not true in the past.) It means simply that while
breadth has improved, it has not improved enough to signal an all-clear i.e.,
the recent top could still be a Major Top. A sign of impending trouble is
sentiment.
SENTIMENT
I measure Sentiment as %-Bulls {Bulls/(Bulls+Bears)}
based on the amounts invested in selected Rydex/Guggenheim long/short funds.
We now have a bearish sentiment-signal based on
overly bullish indications in Rydex Bull/Bear funds. 78% of traders in those funds are
now invested on the bullish, long-side.
The most recent time the reading has exceeded the multiple of standard
deviations I use to signal a major top was on 1 July 2015, about a month after
the all-time high (then) of 2131. Bullishness tends to peak after a top as investors
move in the buy the dip.
VIX is also signaling trouble and my Volume indicator (a
variant of on-balance-volume) is also now bearish.
Long-term, I’m fully invested at 50% in stocks (a
conservative-retiree allocation) – I remain “hold-my-nose” bullish, but that
could change soon.
TRADING PORTFOLIO
FRIDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks
advancing (NYSE): 39.3 %. (39.3% yesterday.) A number below 50% is usually
BEARISH for the markets short-term.
-150-day moving average of advancing stocks: improved to 52.7%.
(A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: improved from -223 to -183
(percentage calculation method adjusted to fit McClellan’s values). -150 is an
area where bottoms form.
-New-highs minus new-lows: -45 (It was -86 yesterday.)
-10-day moving average of the change in spread: -9. In
other words, over the last 10-days, on average, the spread has decreased by 9 each
day.
Market Internals improved
to 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).
LONG TERM INDICATOR
Thursday the VIX, Volume and Sentiment indicators are
negative. The Price indicator was neutral. Overall the long-term indicator
remained HOLD, but only because short-term indicators may be turning up and so
far this downturn has been less than 5%.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased stock allocation to 50% stocks in
the S&P 500 Index fund (C-Fund) Friday, 23 Sep 2016 in my long-term
accounts.
Remainder is 50% G-Fund. This is a conservative retiree allocation.
