“U.S. productivity grew at an annual rate of 0.7 percent
in the first three months of this year, a weak reading but a slight improvement
from the previous quarter.” Story at…
JOBLESS CLAIMS (MarketWatch)
“One week after falling to the lowest level since 1969,
initial U.S. jobless claims rebounded but only slightly. Claims rose by 2,000
to 211,000 in the seven days ended April 28…” Story at…
FACTORY ORDERS (Business Insider)
“New orders for U.S.-made goods rose more than expected
in March, boosted by strong demand for transportation equipment and a range of
other products, but there are signs that business spending on equipment is
slowing.” Story at…
ISM SERVICES (BloombergQuint)
“Non-manufacturing index fell to 56.8 (est. 58), third
consecutive drop, from 58.8; readings above 50 indicate expansion…Even with the
drop in the main index, orders and growth remain solid for service industries,
which account for about 90 percent of the economy…” Story at…
YIELD SPREAD
The Yield Spread is the difference between long and
short-term Bond yields. Yields on longer term bonds should be higher than
short-term bonds. Investors demand a higher yield for the longer-term bonds due
to the risk of unknown economic conditions in the future. If the near-term
economic conditions are slipping toward recession, short-term Bond yields climb
and eventually they may invert relative to long-term rates, i.e. short-term bond
yields are actually higher than long term yields. Many believe (with good
reason) that an inverted Yield Curve forecasts recession.
To calculate the Yield Spread, I subtracted the 5-year
bond rate from the 30-year bond rate. I plotted the resultant in Red in the
following chart. The S&P 500 is plotted in Black. During the dot.com Bubble
the Yield Curve inverted (dropped below zero) in February of 2000 about
4-months before the S&P 500 topped.
Currently, the spread is +0.3% and the Red horizontal
line marks the current value. It was 0.3% in Oct 2007 at the top of the market
before the Financial Crash, but as the chart shows, the spread first hit +0.3%
in August of 2005 more than 2-years earlier.
The irony of the Trump tax cuts is that they may actually
cause a recession. Seems odd, but here
is a comment that discusses the scenario of supply side tax cuts and their
possible harm to interest rates.
"The risk in all this is a scenario where economic
growth doesn't pick up as the supply-siders expect it to but interest rates
move higher as a result of the larger federal deficits and the perception that
Trump's fiscal stimulus might boost inflation." - Ed Yardeni, Yardeni
Research.
The Yield curve has not dropped below zero yet and even
if it did, recessions generally don’t follow for 20-months (on average). Bottome
line: The current Yield Spread is not suggesting a market crash.
NEW HIGHS COMING THIS YEAR (CNBC)
“Market bull Jonathan Golub said stocks will make another
record run this year just as the Dow sank back into correction
territory…"It's really strange. We're seeing the best earnings season
maybe ever. Twenty-five percent year-over-year growth in the ninth year of a
recovery, and companies are beating by 8 percent," Golub said Wednesday on
CNBC's "Trading
Nation." Story at…
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 dropped about 0.2% to 2630.
-VIX slopped about 0.4% to 15.90.
-The yield on the 10-year Treasury was unchanged at 2.949%.
We had 2 closes below the trendline in the wedge pattern
we have been watching. That would
indicate the trend is down in the near term. Actually, we had somewhat of a
moral victory today. The S&P 500 was
down about 1.5% at in the morning before it recovered to a 0.2% loss on the
day. At the low, the Index was below its 200-day moving average (200-dMA) and
was testing the prior correction-low so the bounce was good news for the bulls
and was somewhat bullish. We need to see a test at the close to have a better
idea of what is going on. So far, my guess remains that we have seen the low in
this correction, but we have not had a confirmation yet.
Negative signs from the indicators continue. My daily sum
of 17 Indicators remained -8 (these numbers sometimes change since volume data
is updated after the blog is posted); the 10-day smoothed version dropped from
-40 to -45. With all of the negative
indicators and a chart breakdown, it looks like the S&P 500 is going to
retest its prior low in the 2581 region.
My plan ahead remains: If the S&P 500 drops to its
prior low of 2581 and there is an unsuccessful retest, I will probably cut
stock holdings again. If we see a successful test I’ll be adding to stocks.
MOMENTUM ANALYSIS IS STILL QUESTIONABLE. As one can see
below in both momentum charts, there are still a lot of issues in negative
territory, i.e., they have weak upward momentum. That’s just an indication that
the market is in correction mode and most stocks have been headed down.
Momentum has gotten worse in the last week or so.
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
The top ranked ETF receives 100%. The rest are then
ranked based on their momentum relative to the leading ETF. While momentum isn’t stock performance per
se, momentum is closely related to stock performance. For example, over the 4-months
from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed
the S&P 500 by nearly 20%. In 2017 Technology (XLK) was ranked in the top 3
Momentum Plays for 52% of all trading days in 2017 (if I counted correctly.)
XLK was up 35% on the year while the S&P 500 was up 18%.
*For additional background on the ETF ranking system see
NTSM Page at…
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
The top ranked stock receives 100%. The rest are then
ranked based on their momentum relative to the leading stock. (On 5 Apr 2018 I
corrected a coding/graphing error that has consistently shown Nike
incorrectly.)
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
THURSDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
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).
18 Apr 2018 I
increased stock investments from 35% to 50% based on the Intermediate/Long-Term
Indicator that turned positive on the 17th. For me, fully invested is a
balanced 50% stock portfolio. This is not the time to take extra risk, so
you may want to have less invested in stocks than normal. 50% is my minimum
unless I am in full defense mode.
INTERMEDIATE / LONG-TERM INDICATOR
Intermediate/Long-Term
Indicator: Thursday, the Volume, VIX, Price and Sentiment indicators were
neutral. Overall this is a NEUTRAL indication.
