“For Q2 2016, the estimated earnings decline is -5.6%. 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…The estimated revenue decline for Q2 2016 is -0.7%. If the index reports a decrease in sales for the quarter, it will mark the first time the index has seen six consecutive quarters of year-over-year declines in sales since FactSet began tracking the data in Q3 2008.” Excerpted from FACSET Earnings Insight.
FACTSET also pointed out that the early estimates tend to be high so a decline of less than 5.6% would be the norm.
ADS BUSINESS CONDITIONS INDEX
“The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high-and low-frequency information and stock and flow data.” – Philadelphia FED.
https://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/My cmt: Note that the ADS Index is above 0.0 for the first time since Q3 2015.
HUSSMAN REMAINS BEARISH (Hussman Funds)
“Ultimately, all that quantitative easing does is to remove higher-quality interest-bearing securities from public hands, replace them with zero-interest cash, and leave a remaining stock of lower-quality speculative assets that then have to compete with that cash. To increase the discomfort of investors, the Bank of Japan and the European Central Bank have also begun charging banks on their reserve balances, which has driven interest rates to negative levels across Japan and Europe.” – John Hussman, PhD. Weekly Market Commentary from Hussman Funds at…
http://www.hussmanfunds.com/wmc/wmc160711.htm
My cmt: Negative rates? This can’t end well.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was up about 0.3% to 2137, 0.3% above the prior high in May 2015.
-VIX rose about 3% to 13.54 so not everyone agrees that happy days are here again.
-The yield on the 10-year Treasury jumped to 1.43%.
ON THE BEAR SIDE: The S&P 500 remains “overbought” when using the old stand-by Overbought/Oversold Index (Advance-Decline ratio). It is not just overbought, it is extremely overbought, exceeding numbers at the 8 June 2016 top before Brexit vote; the 20 April 2016 top; and…wait a minute…no point in listing how many were exceeded. I didn’t have any higher numbers in my current file going all the way back to December of 2009. This again is suggesting a top.
The Index is very close to the upper Bollinger Band also suggesting
a retreat in price is likely soon.
Closing Tick (sum of the last trades of the day) was +316 today and that pushed the 10-dMA of Tick over 300. Tom McClellan has noted at his website that this can be read as an overbought situation too.
So in the short-term it still looks like a pullback is due soon, but as we have seen in the past, overbought conditions can last for weeks. If a pullback does occur, it doesn’t have to be a big pullback; 5% would be the norm; it could be larger of course.
BULLISH
Most indicators are now bullish; the NTSM long-term indicator improved; the 5-10-20 system says buy. We’ve also seen a number of 90% up-volume days recently and that’s very bullish.
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Last week I said that “I plan to hold my nose and increase my long-term stock holdings…”
I’m having a hard time pulling the trigger, but my sell signal was at 2100 last November so it is time for me to move some funds; perhaps tomorrow I’ll go 25%-stocks. (I was in and out again in December, but that’s too much information.) Conservative investors may want to watch for a confirmation of the trend: 2-closes above the old high of 2131 or (2) a close 3% above the prior high of 2131. That would be 2194. These are 2-rules of thumb from traders.
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MONEY TREND & SHORT TERM TRADING
My short-term Money Trend indicator can be volatile; it bounced up Monday, a bullish reading. I continue to hold short positions mostly in SH and some in QID in the trading portfolio only. I imagine I’ll be dumping them (at a loss) and looking for better opportunities later. We’ll see.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) jumped to 63.4% Monday and remains “overbought” using the old overbought/oversold index. It was 58.1% Friday. A number above 50% is usually GOOD news for the markets.
On a longer term, the 150-day moving average of advancing stocks jumped to 53.1%. A value above 50% generally indicates an up-trend. The McClellan Oscillator (a Breadth measure) climbed from +49 (percentage calculation method) to +56.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) climbed to +339 Monday. (It was +315 Friday.) The 10-day moving average of the change in spread improved to +24. In other words, over the last 10-days, on average; the spread has increased by 24 each day. Market Internals slipped 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
Monday, the Sentiment, Price and VIX indicators were neutral. Volume (a variant of on-balance-volume) was positive. The indicator has been positive in the past so I need to follow my system for a change.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATIONOn 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. I remain in cash earning about 2%.
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. All-in-all, it’s still questionable whether the S&P 500 will make new-highs.
The S&P 500 peaked in Mid-May 2015 and has not been able to break higher in the past 13-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
