For Sunday, September 4, 2016                                Go to Website
	Current Strategy Positions Fibtimer currently has 13 successful strategies   S&P 500 Position -        BEARISH   Nasdaq 100 Position -  BEARISH   SmallCaps Position -    BEARISH   U.S. Dollar Position -    BULLISH   Bond Fund Position -    BULLISH   Gold Fund Position  -    BEARISH These positions were started over previous weeks. You need a paid subscription for real time signals. Sector Funds, ETF and Stock positions are not included above.

S&P 500 Index (SPX) Chart Analysis

Last week:

"Another week of what appears to be topping out for the S&P 500 Index (SPX) as well as the other main stock indexes. During most of August, stocks have traded in a tight range, occasionally trying to break higher but so far, always pulling back. The trading range has been constrained to less than one percent on every day with the exception of this Friday."

This week

Last week we discussed the topping action in the major indexes, particularly the S&P 500 Index (SPX), that has now lasted some seven weeks.

Such sideways trading never lasts of course. And, the direction of the upcoming break will likely tell us the direction of the next trend.

As of this week, the SPX is in a cash position in expectation of weakness just ahead. Whether the index breaks hard to the downside, just languishes, or does another surprise bounce higher as it did in early August cannot be known. But something will soon cause a volatile break in the sideways trading.

Bad news appears to be good news again

August's non-farm payrolls report came in lower than expected (151,000 vs 180,000) and this boosted stocks on Friday, in hopes that a rate increase would not occur in September.

But a rate hike is not the only news event that can affect stocks in coming weeks.

We have the first debate of the U.S. presidential campaign. A Group of 20 (G20) central bank interest rate announcements nearly every other trading day. That's not to mention that September has typically been the worst month for stocks. In fact it is the only month in which the median return for the S&P 500 has been negative going back to the 1920's.

There remains an expectation for higher rates soon. This is why more funds have been flowing into banks, brokers, insurers, and out of stocks that are hurt by rising rates like utilities.

News item: Bill Gross, Janus fund manager, is recommending the Federal Reserve raise interest rates twice by as early as March. The market doesn’t expect that degree of monetary tightening even by the end of 2017.

One of the indicators that is pointing to weakness is MACD. In fact MACD has been falling and has a bearish crossover the entire month of August.

Look at the daily chart of both the SPX and the Nasdaq 100 Index (NDX) below.

Four weeks of declining MACD on both charts while the indexes have gone nowhere. This is not a bullish indicator obviously. It does not guarantee a break to the downside, but it does point to the likelihood of just that.

Following Thursday's report of manufacturing weakness, the Obama administration on Friday released the August employment numbers, showing little improvement from the prior month.

94,391,000 Americans were not in the labor force in August, 58,000 more than July's 94,333,000; and the labor force participation rate was stuck at 62.8 percent, just where it was in July, the Labor Department's Bureau of Labor Statistics reported on Friday.

Not good news. Now what will the stock market decide when most traders return from summer vacation on Tuesday of next week?

Weekly Charts

Last week we also discussed small caps which have been outperforming the major big cap indexes for weeks. While the SPX has moved sideways in August, small caps have posted an almost +3% gain.

Though small caps have been lagging the other indexes for months, and have been seen as a bearish divergence, for the past several weeks they have outperformed.

The Russell 2000 Small Cap Index (RUT) is now only -2.9% from its bull market highs. In February the index was off some -26% from its highs.

If small caps are showing strength, it is usually a bullish indicator.

In August, with institutional traders mostly on vacation, individual traders can have a larger impact on prices of small caps. Next week, when vacations end, will tell us if this small cap advance is for real.

At this point "most" of our ETFs and Sector positions have turned bearish. We could, possibly, be seeing a trend change soon. Only financial sectors and semiconductor/technology sectors remain bullish.

NYSE Advance/Decline Line

The NYSE Advance/Decline line rallied on Friday. Until that day it had been trading sideways for several weeks.

Note the A/D line also has a decling MACD, just as the SPX chart does, since late July. The declining MACD and new high do not fit. They should be both rising or both falling.

The horizontal red line in the middle of the chart is where the prior bull market high ended.

The Nasdaq 100 advance/decline line is still near its highs.

Note the decling MACD in this chart too.

CBOE Volatility Index (VIX).

The CBOE Volatility Index (VIX) dropped quickly on Friday as stocks rallied, closing at 11.98. VIX closed last week at 13.65.

This was a 12.2% decline for the week, almost all of it occurring on Friday.

VIX is considered a contrary indicator. As investors become more bullish, they buy less insurance against declines, and VIX falls. In a decline, investors buy more protection from downside risks and VIX rises.

If this index drops down near 10.0, sentiment could be telling us a reversal is in the cards. VIX came close to 10.0 on Tuesday of this week.

A VIX 10.0 would be a sell signal long term if you are a contrarian.

The 20.0 level tends to be the point where, if broken, stocks end up going lower still.

Market Internals

The number of stocks above their 200-day moving average line in the NYSE, was at 79.87% this week.

Last week 78.67% of NYSE stocks were above their 200-day moving average lines.

Not much of a change. The number of stocks above their 200-day average remains bullish.

This chart is having trouble moving much higher, but then when almost 80% of stocks are above their 200-day line, there is not much room on the upside. There are always a number of stocks that will be doing poorly.

You need a higher percentage of stocks participating to carry a bull market higher.

Sentiment Indicators

These are contrarian indicators. Typically, when advisors are mostly bullish, the markets are near a top.

Note that these numbers are from a week ago. They reflect the preceding week's sentiment.

The number of bulls remains high. Remember that those who are neither bullish nor bearish have bullish positions and really should be considered bullish. Add bulls and those not bearish and you get 79.4% with at least some bullish market positions.

• Investor's Intelligence Bull vs. Bears as of Aug 30, show 55.9% bullish vs. 20.6% bearish. Last week those numbers were 56.7% bullish vs. 20.2% bearish.
  

• Barron's Magazine Consensus Index shows 71% bullish vs. 72% bullish the previous week.
  

• Market Vane's Bullish Consensus shows 63% are bullish vs. 64% bullish the week before.

Fibonacci Support / Resistance Levels

We are now looking at "support levels" from the correction lows. Fib support levels on the daily chart are as follows; the 38.2% retracement support at 2116, the 50% retracement support at 2092 and the critical 61.8% retracement support at 2068.

Market Moving Economic Reports Released this Week:

Consumer spending increased 0.3% last month, matching economist expectations. Consumer spending accounts for more than two-thirds of U.S. economic activity. Personal income increased 0.4%. That also matched estimates.

Americans increased spending by 0.3% in July, buying more new cars and trucks and devoting more money to utilities such as cooling their homes. The increase in July matched Wall Street expectations.

Inflation as measured by the PCE index was unchanged in July, the Commerce Department said Monday. The so-called core rate of inflation that strips out the volatile food and energy categories rose 0.1%. The PCE index, the Federal Reserve’s preferred inflation barometer, increased 0.8% in the 12 months ended in July, a tick lower than in June. The annual rate of core inflation was flat at 1.6%.

Home prices in 20 major U.S. metro areas rose 0.8% in June from the month prior on a non-seasonally-adjusted basis, according to the S&P/Case-Shiller home price index. From the same period a year prior, prices saw a 5.1% increase, below the expectations for a 5.2% rise.

The Conference Board reports its gauge of consumer confidence rose in August with a reading of 101.1 from a revised 96.7 in July. Economists expected the gauge to rise slightly to 97.0.

The payroll processing firm ADP says 177,000 people were added to private sector payrolls in August. The estimate was for 175,000. July payrolls were revised higher by 15,000 to 194,000.

The National Association of Realtors reports contracts to buy previously-owned homes rose 1.3% last month, higher than the 0.6% rise economists expected.

The Institute for Supply Management’s gauge of factory activity in the Midwest region fell to 51.5 in August from 55.8 the month prior. Wall Street expected a smaller decline to a reading of 54.0. Readings above 50 point to expansion, while those below indicate contraction.

Weekly jobless claims rose by 2,000 to 263,000 last week. That came in lower than the estimate for 265,000. The prior week was unchanged at 261,000.

The Institute for Supply Management’s gauge of factory activity fell to 49.4 in August from 52.6 in July. Economists expected a slight decline to 52.0 for the month. Readings above 50 point to expansion, while those below indicate contraction.

The July Trade Deficit narrowed to $39.47 billion. Economists were looking for the deficit to fall to $42.7 billion. June’s deficit was revised higher to $44.66 billion.

** The Labor Department reports the U.S. economy added 151,000 jobs in August, below expectations for 180,000 jobs. The unemployment rate remained at 4.9%. The rate was expected to tick lower to 4.8%. Meanwhile, the labor force participation rate was unchanged at 62.8%.

Orders for goods produced in U.S. factories rose 1.9% in July, the biggest gain since last October, the Commerce Department said Friday. The rise was led by a 4.4% climb in orders for durable goods.

Conclusion:

A rally on Friday pulled the SPX from a slight loss, to a fractional gain for the full week.

The rally was based on a weaker than expected new jobs report on Friday, with traders betting that a short-term rate increase will not occur on September 21st, as many were expecting.

Breadth remains strong and though sentiment is waving a yellow warning flag, it can be overly bullish for some time while stocks continue to advance.

MACD on the daily chart has had a bearish crossover, but has been declining all August, yet still in bullish territory at +4.42. The weekly chart, which is less volatile, has MACD far up in bullish territory at +40.84. Weekly MACD has been moving sideways for the last two weeks.

The SPX portion of this strategy is BEARISH. Aggressive traders should be in CASH (money market funds).

S&P 500 Index (SPX) Daily Chart

S&P 500 Index (SPX), Weekly Chart

A big rally on Tuesday would reverse out bearish position quickly. But after a full month of declining MACD and an inability of the NDX to reach new highs, we are looking at a weak start after the Labor Day holiday weekend.

The NDX managed a small gain up +0.31% for the week, all of it achieved in Friday's news event inspired rally. A lower than expected new jobs report has many betting the Fed will hold off on raising short-term rates in September.

But MACD is the bearish concern here. Not only do we have bearish MACD in the NDX and SPX, but also in the Advance/Decline lines for each of these indexes.

MACD on the daily chart of the NDX has made a bearish crossover, is declining and has been declining since early August, but remains in bullish territory, +27.99.

MACD on the less volatile weekly chart of the NDX has turned higher and is in bullish territory, closing at +108.00.

We have posted Fibonacci retracement "support" levels for the advance from the June lows. Those Fib support levels (daily chart) are; 38.2% at NDX 4589, 50% at NDX 45.12 and 61.8% at NDX 4434.

Conclusion:

The NDX has now traded sideways for four weeks, with new lows (since the sideways pattern started) hit intra-week.

A rally on Friday, based on a news event, pulled the index to a fractional gain for the week.

The NDX advance/decline line is off its highs but still near them. Advancing breadth tends to lead to new highs. At the same time, the A/D MACD line is also declining and has been for several weeks. Not a good sign.

The NDX portion of this strategy is BEARISH. Aggressive traders should be in CASH (money market funds).

Nasdaq 100 Index (NDX), Weekly Chart