Still a lot to worry about

There are many issues out there that concern us. The WalMart CEO was on CNBC predicting significant inflation in food and clothes.  Oil is above $100 per barrel.  We know QE2 will end this summer.  Housing remains a mess.  Scientists have found measurable radiation levels (they say not dangerous) in milk in Washington State.

Perhaps we’ll get good news tomorrow on the jobs front that may lift stock prices. 

The Investment Company Institute reported yesterday that Long term US mutual funds experienced $2.5-billion in outflows for the week ending   23 March.  Inflows were positive for January and February of this year, and I think if they turn positive again, that will mark the return of Mom & Pop investor (whoever they are) and push the market higher.   

No significant change to the Navigate the Stock Market analysis.  It is still a HOLD.  A couple of decent up-days may return it to a Buy. 

I am still conservatively positioned with only 30% invested in stocks.

The Wednesday Update of the Navigate the Stock Market System

I have a dilemma at this point regarding whether to get back in the market tomorrow or wait awhile longer. 

Reasons for going in:

1.    The 401k plan I am in allows only 3-changes per month and the last change must be all-out.  So if I were to go in, say on the 4th of April and the market turns down again and I pull out,  I’d have to wait till May to get back in.  That makes a strategic move tomorrow beneficial.  By buying tomorrow I get another move in April.

2.    The NTSM system is almost a BUY.

3.    As I have noted on one of the supporting pages, NTSM system can be late with a BUY call when the correction is shallow and quick – exactly where we may be now.

4.    One of my arcane statistical computations says the correction was over 1-1/2 weeks ago.  (It’s such a weird statistical measure that it makes no sense to me at this point which is why I don’t even have it in the NTMS system yet as a buy indicator.)

5.    Sentiment was not overly bullish at the market high and that, perhaps, would have made a short and shallow correction.

Reasons for Standing Pat (defensively positioned with only 30% in stocks)

1.    Volumes were unusually low in the 2-weeks before the recent high of 1343 on 18 Feb.  Usually in the run up to a high, volumes increase as more people rush to catch the train that they fear will leave them behind.  Volumes didn’t increase as the market fell either (and people panic out).  So this downturn is odd, and it may not be over.

2.    The S&P 500 is still 11.3% above the 200-day moving average.  We started this correction (or whatever it is) when that stat was 15% above the 200-day moving average on the 18^th of February.  So again, the correction (or whatever it is) may not have played itself out.  The correction a year ago started when the S&P was 12.5% above the S&P 500.  

SUMMARY OF NTSM INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator is 49% as of yesterday – a middle of the road value.  (Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.) 

PRICE: Neutral.  The Price analysis indicator improved since last week but it is still in neutral territory.

VOLUME: Buy.  More volume has been going to the upside, and this indicator is the first to switch into the “Buy” camp.

VIX:  Neutral.  Our VIX indicator is Hold.  Just 8-days ago the VIX indicator was Sell.  Now it is in positive territory, but not enough to call a Buy.  A strong up day (say 2%) would probably swing the VIX to Buy and carry the NTMS analysis to an overall Buy rating so we are not far from Buy at this point.

SUMMARY: The overall Navigate the Stock Market analysis is NEUTRAL today, and that makes 8-days with HOLD as our overall outcome.  (See the page How to Use the NTSM System).

Since writing all this down still hasn’t helped me make a decision, I think I’ll follow some very old advice…when in doubt, stay the heck out.  If the market keeps moving up I’ll buy some 2xLong funds in the trading portfolio.

That’s why my online broker has a sell button…

Needless to say, when my expectation for a drop in the S&P today, didn’t pan out, I sold my QID (2xshort) position in the morning for a small gain…enough to take my wife out to Chick-Fil-A for a milkshake.  I am reminded again of my favorite trading advice…trade what you see not what you think.

Consumer confidence down again…terrible housing statistics; wars; natural disaster; food, clothing, & fuel prices rising rapidly; dogs and cats…living together – no problem…..

This market just wants to go up. 

I don’t have much of a rule for how far above the trend line the market should be before the trend is now up.  Some say we would need to be 3% above trend; others say it must close above trend for 2-days.  A combination seems about right.  As they say, “The trend is your friend.”  (Everything I learned about the stock market, I learned in kindergarten…and I seem to have forgotten most of that!)

The NTMS analysis may give us a Buy signal soon.  Otherwise, let’s see what happens tomorrow.

The NTSM analysis is still improving, still neutral, and still a HOLD.

I am still conservatively positioned with only 30% invested in stocks.

When QE2 ends; the market is done for a long time

Wow! What did you guys do when I was gone?  I left work about 2:30 and everything looked good.  I ran some errands and found out later the S&P tanked in the last 15-minutes or so of trading. 

During the trading day, when it didn’t look like the S&P was going to get above the trend line (see my last blog), I went short at around 1315 on the S&P.  I’m using QID (2xshort the Nas100) with about 10% of the trading portfolio.  There was nothing in my analysis that dictated the short play; I just felt that if we couldn’t get above the trend line, the most likely course was down.  Oh, there was one thing about today…the volume was, as one trader called it “pitiful” around lunch time.  We finished with an absolutely anemic 2-1/2 billion shares traded in the S&P 500.  The 20-day moving average is 4.2 billion.

I’ll add more to the shorts tomorrow if I don’t have to chase it down.  We don’t want too low an entry point.  I still think we are likely to successfully test the 16 March 1257 recent low, and bounce back from there, but as I’ve said too often, that is just a guess. 

The fall back to 1256 may be straight down based on previous corrections; but there hasn’t been much in this correction to remind us of previous ones.  We are still 10% above the 200-day moving average, and a 10% drop from here is still a very real possibility.  We could also bounce up and break the down trend – but that is looking unlikely at this point.

Now, here is what today’s blog title refers to …

I ran in to an old friend I hadn’t seen in a while.  He is an investment professional and manages money for a living – I respect his opinion.  He has completely changed his investment style and is now pursuing a conservative strategy for all of his clients. 

He had a sobering prediction.  He said, “When QE2 ends; the market is done for a long time.”  QE2 is the Fed’s policy of buying treasuries to keep interest rates low and force the stock market up.  Yes, Ben Bernanke has stated exactly that.  Part of the Fed model is that the wealth effect in the stock market will aid GDP.  (It does, but only in a very small way – another discussion.) Now I have considered that the end of QE2 may put an end to the uptrend, but it is more persuasive and disconcerting when I hear it from a Pro.  So if traders are expecting QE2 to end this summer, we may be seeing the first rumblings soon…maybe now.  The market looks out about 6-months.

I am not a doomsayer, but I do expect a drop in the range of 25-50% to start before we get out of this bear market.  Based on past history, that drop could be expected to start anytime.  (See the Page comparing the Bear Market of 1966-1982 to this one on this website.)  Maybe we’ll get to the old highs (around 1550) first, but there are no guarantees.

The Navigate the Stock Market analysis is neutral today.  Most indicators improved - but not enough to call a Buy.  Further down moves will not improve the NTSM analysis unless they are very small and the VIX improves.  VIX fell 8-1/2% today – not a good sign.

The NTSM analysis is still HOLD

I am conservatively positioned with only 30% invested in stocks and about 10% of the trading portfolio in a 2xshort position.

Top of the Trend Line

Monday will be a big day. As shown below, The S&P 500 is at the top trend line.  If we can break above the line far enough, the downtrend will be over.  If not, we will head down in a hurry.  I have been expecting that we would retest the recent low, but at this point it is pure guess work.  The recent up-move has been surprising because it has been almost straight up.

If we have a statistically significant day (a big move up in price and volume that exceeds our statistical limits) it will indicate the rally is over, temporarily.

The NTMS system was still all neutral as of Friday's close - still a HOLD.

I am still conservatively positioned with only 30% invested in stocks.

All NTSM indicators are Neutral today

The S&P 500 is up 4% from its recent correction low of 1257 just 6-days ago.  We are now at the upper trend line of the current channel.  If we move too far above trend – the trend is over and we’ll start up.  Will we make it?  I’m skeptical; I still expect us to test the 1257 area.

All NTSM indicators went to Neutral today.

I am still only 30% invested in stocks.  There’s enough bad news to justify caution here so I am fairly comfortable.  I may feel differently if the S&P goes on an upward tear and leaves me with too much cash.  As always…we’ll see.

The Wednesday Update of the Navigate the Stock Market System

SUMMARY OF NTSM INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator is 49% as of yesterday.  This is a middle of the road value for sentiment. (Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.) 

PRICE: Neutral.  The Price analysis indicator improved since last week but it is still in neutral territory.

VOLUME: Sell.  More volume has been going to the downside, but this indicator could switch over to a Buy if we had a strong day or two.

VIX:  Neutral.  Our VIX indicator is neutral.  The indicator has been falling for a week and that is good news for the bulls.  Also, the VIX dropped below 20 today and some think that is an important number.  The 2-corrections in 2010 and this one started when the VIX got above 20.

SUMMARY: The overall Navigate the Stock Market analysis was NEUTRAL today, and that makes 3-days with HOLD as our overall outcome.  (See the page How to Use the NTSM System).

We could see Buy soon…or not….I am expecting a significant down-turn tomorrow based on recent market internals and futures are currently down about ½% 

 

I closed my hedging (short) position because the correction hasn’t shown much strength and I didn’t want to lose on the trade.  I still think we will test the low at 1256, but that is not certain, especially since volume has been low. 

 

I am still conservatively positioned with only 30% invested in stocks.

Maybe this time it really is different

Since early February, volume (number of shares traded) in the S&P 500 stocks declined slightly as the S&P went up.  That’s unusual.  As the market corrected and went down, volume stayed flat.  As I commented a while back, that is unusual too.   When the S&P goes down, we expect selling volume to increase.  This time it didn’t. 

A rather arcane statistic that I keep on volume and price fell today.  That happens well after a correction is over so I don’t even use it as a buy-side indicator.  That’s unusual.

Maybe this time it really is different.

If we just think about what is going on, flat volume means we are sort of directionless.  It may be simply that the traders don’t know which way to go and Mom & Pop investor are waiting on the sidelines.

Looking at NTMS analysis, we can see that recently more volume has been to the down side, but not by much.  A big up day or two would reverse that indicator.   Since we are currently in a Neutral/Hold position, it is possible that it could switch to Buy fairly quickly.

So, based on the uncertain conditions (or at least less certain than usual), I closed out my short position in the trading portfolio today for about a 5% gain.  I can always re-establish the position if things go downhill.   Those 2x funds are brutal if you get caught on the wrong side of the trade.    

NTSM analysis is a HOLD today.

I am still conservatively positioned with only 30% invested in stocks.

The pullback has been negligible

"The pullback has been negligible even relative to the action of the past several months, and is indiscernible in the big picture. As of Friday, the market remained in an overvalued, overbought, overbullish, rising-yields syndrome that has typically been cleared much more sharply than anything we saw last week." – 21 March 2011 Weekly Market Comment, John Hussman, PhD (Used w/ permission of Hussman Funds, www.hussmanfunds.com )

It is always gratifying when someone I respect agrees with me. 

The S&P 500 is still 9-1/2% above its 200-day moving average.  A few years ago that alone would have led to a 10% correction, but we are in a brave new world – once again, it’s different this time. 

Overall the NTSM analysis was a HOLD today.  All of our indicators improved to Neutral, but there are a couple of signals that indicate tomorrow will be down – and possibly down big.  {“Big” (>1%) is mostly a guess; no crystal ball here.}

 I am still conservatively positioned with only 30% invested in stocks with a 50% hedge (2x-short position) in the trading portfolio.

Navigate the Stock Market analysis remains SELL today

We didn’t get any new information today so we’ll see what transpires next week. 

The overall Navigate the Stock Market analysis remains SELL today;

but if you haven’t sold already it is hard to know what to do.  The NTSM system calls tops and bottoms – a later buy or sell signal presents the market conditions, not a recommended action.  We really don’t know how far the market may fall…or even if it will continue to fall. (See the page How to Use the NTSM System).

More downside ahead

So far this looks like a normal correction, even though it was slow to get started and we have multiple world crises underway.  While the S&P moved up, the volume indicator moved down.  Volume was a little low today.  We need to see higher volume on the up moves to show some conviction as an indication that we might be moving in a positive direction.  We can expect more downside ahead.  At this point though, I am sticking with our earlier guess of a 10% correction from the top. 

Tomorrow is options expiration – it may be a wild day.

The overall Navigate the Stock Market analysis was SELL today;

but if you haven’t sold already it is hard to know what to do.  The NTSM system calls tops and bottoms – a later buy or sell signal presents the market conditions, not a recommended action.  We really don’t know how far the market may fall…or even if it will continue to fall. (See the page How to Use the NTSM System).

The Wednesday Update of the Navigate the Stock Market System

The S&P has fallen 6.4% from its high about a month ago and is now 6.5% above its 200-day moving average.

 I have suggested several times (1 Mar and 10 Mar) that we should expect some quick down moves.  It has taken a little longer than expected for that to happen, but here we are.  On the good side, down-moves have looked weaker than during last year’s 16% correction so we may find that our first guess of around 10% {or Mr. Stovall’s prediction of  7-11 correction (14 Mar)} may be the right amount.  As always, we’ll have to wait and see.

Regarding the VIX, I looked quickly in some of my data during recent corrections to see if I could use the VIX to predict the depth of a correction – off hand I could not find any relationship.  My earlier musing about VIX and how far down we might go don’t seem to be supported by the numbers. 

The Navigate the Stock Market analysis (NTSM) called a SELL on the S&P 500 on 22 February 2011.  That was the first change since the 2 July 2010 buy-signal. 

Since then we have bounced between a HOLD and SELL.  No surprise, today we had another SELL signal.

SUMMARY OF NTSM INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator is 44% as of yesterday.  This is a middle of the road value for sentiment.  We may not see a %Bulls low enough to call a buy.  Sentiment is about the only one of our signals that didn’t call the sell on 22 Feb.

(Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.) 

PRICE: Neutral.  The Price analysis indicator has dropped since last week but it is still in neutral territory.

VOLUME: Sell.  More volume has been going to the downside.  No surprise there.

VIX:  Sell.  Our VIX indicator is in negative territory.  It remains in an uptrend and that is not good for the market.  The VIX is rising at a slower pace than it did last year when we had a 16% correction – I think that is good, but, I haven’t checked a lot of data to verify my feelings.  (I want numbers showing a relationship - not feelings.) 

SUMMARY: The overall Navigate the Stock Market analysis was SELL today, but if you haven’t sold already it is hard to know what to do.  The NTSM system calls tops and bottoms – a later buy or sell signal presents the market conditions, not a recommended action.  We really don’t know how far the market may fall…or even if it will continue to fall. (See the page How to Use the NTSM System).

I don’t see much chance for a Buy this week, but we could see a quick reversal so stay tuned.

I am still conservatively positioned with 30% invested in stocks with a 50% hedge (2x-short position) in the trading portfolio.

...quick post on VIX

I edited yesterday’s post on the VIX because I had 15 on the brain.  VIX rose 15% yesterday, but that is not the current VIX.  At present VIX is 25.  A VIX of 25 implies a change in the S&P (up or down) of about 7% in the next 30-days.  That may explain why some pundits are calling for the correction to be 15% (down to the 200-day moving average). 

VIX up 15%; S&P 500 down 1.2%

The VIX was up 15% today and is now in a definite up-trend. 

VIX is quoted in percentage points and translates to an expected movement in the S&P 500 index based on options sales.  Mathematically, the current VIX of 24 relates to an expectation of a 68% likelihood that the S&P will move up or down about 7% over the next 30-days.  (Yes, I think it was invented by a Professor.)  Bottom line is that this is not good for the market.  Even though the theory says the move can be up or down, VIX moving up generally (but not always) correlates to the market moving down.

The decline in the S&P was steep enough to break the bottom trend-line and volumes picked up today so these factors may trigger more selling. 

The S&P 500 is still only 5% down from the top and 8-1/2% above the 200day moving average.

The Navigate the Stock Market analysis was SELL today, but if you haven’t sold already it is hard to know what to do.  The NTSM system calls tops and bottoms – a later buy or sell signal presents the market conditions, not a recommended action.  We really don’t know how far the market may fall…or even if it will continue to fall. (See the page How to Use the NTSM System).

I am still 30% invested in stocks with a 50% hedge (2x-short position) in the trading portfolio.

7-11 Correction

Sam Stovall chief investment strategist for Standard & Poor's Equity Research Services was on CNBC this afternoon and he said he thought the correction would be a 7-11 correction.  In other words, it would be in the range of 7 to 11 % down. 

At the close today we were down 3.5%.  He said that the fact that the market is only down 3.5% after all the bad news is an indication that we are not seeing a major reversal.  He believes we have more upside ahead after we get past this choppy period.

I agree with that view, but of course, we’ll have to see how the correction plays out.

Volume was light today, but not low enough to put an end to the current downtrend. 

NTMS dropped to a SELL today after HOLD yesterday.

I am still 30% invested in stocks with a 50% hedge (2x-short position) in the trading portfolio.

Our thoughts and prayers go out to the Japanese people

Our thoughts and prayers go out to the Japanese people after an almost un-imaginable disaster.  The pictures are inspire awe…in a bad way.  I was struck by a photo of a car sitting on top of a 3-story apartment building, pushed there by the tsunami.  That is about 40ft high.  There is nothing more I can say.

The markets shrugged off a drop in consumer confidence Friday; S&P 500 up 0.7%.

The markets shrugged off a drop in consumer confidence Friday and the S&P 500 was up 0.7%.  It is now 10.6% above the 200-day moving average.  We are currently only down 3% from the high.  It is not unusual to have an up day after a big down day in a correction, so Friday’s up move doesn’t change our impression that we are due for some more down days ahead.

I have been following the volumes and market internals, because I will call the bottom based on them rather than waiting for the Navigate the Stock Market (NTSM) analysis to call a bottom (unless NTSM calls a BUY first).  I am doing this because our sentiment indicator never hit extreme values and that makes me believe that perhaps this will be a short, relatively small correction and we may do better to buy if there is a successful test based on market internals.

The Mutual fund industry reports inflow/outflows weekly.  The latest ICI data for the week ending Wednesday, 2 Mar, showed $3.3B in outflows from US equity Mutual funds.   $ had been flowing into mutual funds since mid-Jan so this is a reversal.

The fact that mutual fund inflows didn’t turn positive until January 2011  tends to make me believe that the market can go up after this correction is over; so I don’t think we are at THE TOP.

NTSM system is presently a HOLD. 

I am still 30% invested in stocks with a 50% hedge (2x-short position) in the trading portfolio.

The Stock Market correction is here...

The Navigate the Stock Market (NTSM) analysis moved to a SELL again today.  Not surprising after the day we had today – down nearly 2%.   

Repeating my comment from 1 March: “I wouldn’t be surprised to see a couple of quick down days soon.  Today should have the “buy-the-dip” crowd worried that this may be more than just a dip.  That may bring out some sellers.”

 

To add to that comment, I’d expect the pace of selling to pick up.  We are still 10% above the 200-day moving average and we may see the S&P 500 drop that far.  That would make this a 15% correction if it were to happen. 

 

There is a lot of uncertainty in the Middle East as well as our own economic worries that continue to overhang the market.  Yesterday on CNBC’s Fast Money, Brian Kelly stated that it has been 2-yrs since the previous low and, according to him, that puts us at risk for another major drop. (I have already commented that we are 4.2 years out from the previous high and that was the point when the S&P collapsed in that last bear market. (See my 23 Feb 2011 comments.)

 

Mr. Kelly went on the talk about Fibonacci numbers and I sort of dozed off.  I have no appreciation of that sort of witchcraft; I shouldn’t criticize, though, because a lot of people really get into that stuff – and presumably, they make money at it.

 

I still think this is a correction that will be in the 10% range and may get down to 15% overall.  That’s just a guess though.  As I have commented ad nauseam, trade what you see not what you think.

 

The NTMS doesn’t predict what will happen from here; it just identifies Buy – Sell points based on sentiment, price, volume, and VIX.  NTSM can turn quickly.  In the last correction it went from Sell to Buy in 2-days. 

 

I am still 30% invested in stocks with a 50% hedge (2x-short position) in the trading portfolio.

Did the current oil crisis cause the stock market choppiness?...The Wednesday Update of the NTSM System

Several friends have suggested that the recent choppiness in the market (I can’t call it a correction anymore since this has not transpired) is oil related.  To that I respond, “It seems so, but perhaps not.” 

The NTMS indicators peaked 14 Jan 2011 when the S&P was 1293 and fell from there.  NTMS indicators deteriorated while oil was falling rapidly in early February and the S&P was still going up.

I conclude that while oil prices may have tipped us over the edge, the market was already showing significant issues relative to market behavior (sentiment, price, volume and VIX) a month earlier.  That is why I am not sanguine that a resolution of the “crisis” will create a sustained upswing in the market.  If the crisis is resolved, we could see a rally, followed by more a correction (or maybe even THE TOP), in relative short order.  Anyway, this is all conjecture – what I think; not what I see – so as always we’ll wait to see how this resolves itself.  What I see follows in our weekly summary of the NTMS indicators.

The Navigate the Stock Market analysis (NTSM) called a SELL on the S&P 500 on 22 February 2011.  That was the first change since the 2 July 2010 buy-signal. 

Since then we have bounced between a HOLD and SELL.  Today we had another HOLD signal.

SUMMARY OF NTSM INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator is now 50%.  This is a middle of the road value for sentiment.  (Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.)

PRICE: Neutral.  Price analysis showed significant improvement since its low a week ago.

VOLUME: Neutral.  More volume has been going to the upside, but not by much.  This indicator improved to neutral yesterday.

VIX:  Neutral.  Our VIX indicator is in neutral territory.  It is only slightly better than last week, but it now looks like it is in an uptrend and that is not good for the market.

The overall status for the Navigate the Stock Market system is HOLD. 

I think a down-trend has started and we’ll need a good move up soon to break out of that trend.  We should find out if I am correct soon - this prolonged foundering (like a shipwreck – not the fish) won’t last much longer.

No change in my invested position.

Whatever-it-is (correction?)

Except for the 2% drop in the S&P on 22 February, there hasn’t been much volume in the last 2-weeks.  Most days have been below the 20-day moving average.  That sort of action, when the market goes down, but the volume goes down too, is not usually found in a correction.  The theory is that if there is increased selling, some fear will creep in and we should see volume increase as the S&P goes down.

 

To further confound us poor fools who try to predict these things, the only 2-days during this whatever-it-is (correction?) when the volume exceeded the 20-day moving average, occurred when the S&P fell to its lowest value (1306). Now the theory there is that at bottoms, the volume should be low – so that metric is going in the wrong direction too.  Now to be fair, a 3% drop isn’t much of a bottom and trying to use that type of technical analysis probably isn’t valid here.

 

So I’ll look the charts and see if we can make any sense of this mess.  I hate charts so this is painful….but, we can see that since this whatever-it-is started, we have a descending line of lower highs.  At the same time we have a floor at 1306 that would seem to be an established low.  Since that low occurred on higher volume. I’m not buying it as a bottom…yet. 

 

We’ll just have to wait and see how the market turns from here.  Either we break the descending line and move higher…maybe tomorrow?...or we drop down to (or below) the 1306 line. 

 

All of the metrics in our Navigate the Stock Market analysis improved today, but unfortunately, that doesn’t really predict where we will go from here – we’ll have to wait for a Buy signal – or it may roll back over and issue a Sell.  Currently, we still have a HOLD, or neutral, reading from the analysis.

 

I’m currently 30% invested and have hedged with a 2x-short position in my trading portfolio.  If the S&P looks like it will close up tomorrow, I’ll close the hedge position. 

Correction?

At mid-day today the S&P 500 went down to 1304, slightly below the recent low of 1306 and then it rebounded to its close of 1310.  The day traders will say that was very important and bullish.  I don’t think it means much for me as I watch the correction/(whatever it is) play out.  It is completely meaningless for longer term investors.  To have a real bottom, we need to close a little below 1306 and have better market internals.  At this point I expect that we have a ways to go before it will be time to get back in the market in a meaningful way.  As of today, we are 11.5% above the 200-day moving average.  We could correct that far (11.5% drop from here)…or not; it’s anyone’s guess.

 

Our Navigate the Stock Market (NTMS) analysis improved a little today and it is now calling a HOLD. That doesn’t mean much since another down-day will push the NTMS back to a SELL signal. 

 

The average time between Buy or Sell signals has been 84-days for 2010 and 2011.  We may not have to wait that long though, because volumes have been low since the initial drop from the high on the 18^th of February.  That probably indicates little strength in selling and a shorter correction.  We’ll have to see if volumes go up because that would convince us we are going to have a real correction.  I am amazed that we have been flopping around with so little movement either way for 2-weeks.

 

I am still only 30% invested with a 50% hedge (2x-short position) in the trading portfolio.

The case for stocks this year…

Mark Hulbert had a good discussion concerning the Presidential cycle recently. 

(Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va.)

When he looked at the Presidential cycle he found that the 3^rd year in office is very positive for the stock market.  He went back to 1896, using Dow data, and reported the following average %-advances.

 

Year of President's term	Average Dow return
(9/30 to 9/30)         1	8.8%
2	0.4%
3	15.5%
4	4.1%

He also found that it didn’t matter whether the previous year had been up or down and made statistical checks for validity of the data. 

 

Mr. Hulbert reminded his readers that this phenomenon has been mentioned by many researchers before, so this is not a new finding.  The theory is that politicians will do anything to stay in office.

 

That is one reason many think this year will be a good one overall. 

 

Since I can’t tell what will happen this year in the market, I follow the Navigate the Stock Market analysis.   That gives me a view of what will happen in the near term.  By avoiding near-term pullbacks, I avoid the problems that may look like small corrections when they start, but become bear markets later.    

 

Regarding our view of the market…

The Navigate the Stock Market analysis (NTSM) called a SELL on the S&P 500 on 22 February 2011.  That was the first change since the 2 July 2010 Buy-signal. 

There is No change today.  The NTSM analysis still says SELL. 

"It’s hard to make predictions, especially about the future.”

As Yogi didn’t say, “It’s hard to make predictions, especially about the future.”  (Markus Ronner, 1918)

The S&P 500 was up 1.7% today.

My best predictions are in hindsight.  It should have been easy to see the potential for a big up-day today since we hit the previous low yesterday, didn’t go lower, and the volume was a little low.  A lot of people decided yesterday was a successful test of the prior low (1306) and the mini-correction is over.  We also had better than expected jobs data; who would bet on any more downside risk?

Well, me for one.   Those who have followed this site for a while know that I have done a lot of statistical analysis regarding big moves in the S&P, up or down.  Huge up or down days that exceed our statistical limits (and today’s move did) often set the upper or lower boundary for the trend. 

In plain English, the big move up today is bearish for the market in the short term. (There’s that pesky prediction thing again.)

A graph of the strength of only the huge up-days shows a declining, downward-sloping line.  That’s because the extreme upside moves have been getting smaller since 7 July 2010.  (Remember 2 July was the bottom last summer.)  Today’s big up-move did nothing to change the trend.

That had not been a problem for the market because the down-side moves had also been getting smaller.  Well, that pattern changed on 28 January 2011 when the downside moves started getting bigger.  As down-moves get bigger, they tend to pull the market down.  Unless this trend changes soon, we’ll see the correction continue – so at this point it still looks like the trend is still down.

The Navigate the Stock Market analysis still has a SELL rating on the S&P.

The Wednesday Update of the Navigate the Stock Market System

The Navigate the Stock Market analysis (NTSM) called a SELL on the S&P 500 on 22 February 2011.  That was the first change since the 2 July 2010 buy-signal. 

Since then we have bounced between a HOLD and SELL.  Today we had another SELL signal.

SUMMARY OF NTSM INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator is now 52%.  This is a middle of the road value for sentiment.  (Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.)

PRICE: Sell. The NTMS has recorded a clear deceleration in upside moves since the end of January and it got worse today…even though the S&P went up 2pts.

VOLUME: Sell.  More volume has been going to the downside…this indicator has been negative since the S&P topped.

VIX:  Neutral.  Our VIX indicator is in neutral territory.  It is not a bad enough number to call a Sell; but it is still on the negative side of the fence since it has been rising overall since the middle of February.

The overall status for the Navigate the Stock Market system is SELL.   (Our indicators are based on closing data so we generally wait until after the market close to update the system.)

RECENT CORRECTION HISTORY: During the 2-corrections over the last year, the time from the high on the S&P 500 to the low varied from 24-days to 62-days.  We had a “fake-out move” in Nov of 2010 that lasted 12 days from high to low, but our system didn’t call a sell in that case and I stayed fully invested.  Unless this is another fake-out, we should have at least a couple more weeks of choppy down moves ahead. 

Since the NTSM analysis could always be wrong, I am watching the volume of shares traded on the NYSE and the Market Internals.  Classical technical analysis says a Bottom will be signaled when the market makes a “successful test” of the previous low.  That happens when the S&P hits a value a little lower than the previous low on “lower volume and improving market internals”.  I may get back in the market based on that analysis rather than waiting for the NTSM system to make the call.  The decision will be based on the status of NTMS indicators at the time of the lower low.    

MY INVESTED POSITION: I moved to an all cash position in retirement funds on 23 February  and that makes my overall stock position about 30%.

Further, I took a 50% position in the Rydex Inverse Nazdaq 100 2x Strategy fund in my trading account.  This fund is a “bear” fund that doubles the inverse of the Nazdaq 100.  That means that it will go up twice as fast as the Naz 100 goes down…and vice versa.  (If I am wrong I’ll lose money twice as fast!)

 This moves me to a conservative position in terms of stock exposure; hedges some investments; and reduces overall risk considerably. 

REPEATING MY COMMENT FROM LAST WEEK: I am a little concerned that it has been about 4.2 years since the previous high on the S&P.  When we look at the 1966-Bear Market, a drop of about 25% in market prices (a 50% retracement) started at about the same 4.2 year point.  The difference is that in the 1966-Bear, the Dow made it back to the old high, so that comparison may not be warranted here.  (See the Page link at the side of this blog page, titled; “Compare 1966 Bear Market to the Current Bear Market.”  The major concern is oil price.  If the oil price remains at the current high level for too long we will likely see a significant drop in the markets.