It
will be a while before we get more earnings information from companies so the
direction of the stock market depends on economic data and whether the economy
is slipping into recession. I note that
fact because today, we got another piece of bad economic news.
CNN/Money reported that productivity of U.S. workers fell 0.3% during the second quarter, after dropping 0.6% the prior quarter. Labor costs rose by 2.2%. (http://money.cnn.com/2011/08/09/markets/premarkets/)
Productivity is a measure of work performed by each
employee. If productivity is falling it
may mean that there are too many workers to perform required tasks. That happens when orders fall and may predict
higher unemployment ahead. But, I should
be clear; I am not an economist and predicting the future of our economy is
beyond me. According to NPR today, it is
also beyond most economists.
MohMED El-Erian, CEO of the PIMCO, said on CNBC Sunday night
that the economy was at stall speed implying recession is coming and he noted
that the Bond market is much more concerned about recession than the stock
market. Treasury yields dropped to
record lows today and the Fed said that the economy is “considerably slower”
than expected.
The NTSM system doesn’t care whether we are moving into
recession or just a correction. Our work
will be the same – identify the next buying opportunity.
NTSM
moved to Hold today because the Sentiment indicator fell to 35% bulls. As of the close today, 4 out of 5 investors
are betting that the market will be down tomorrow, at least in the Rydex
leveraged funds we track. When everyone
thinks the market is going down, it usually goes up, so it will be interesting
to see what happens tomorrow.
If
this is a correction, I doubt that we will see a buying opportunity for a month
to 6-weeks. If it is the start of a bear
market, I suspect it may be longer.
I sold last week on the 27 July sell signal and I am defensively
positioned with only a small amount of my portfolio invested in stocks. (Zero
stocks in the 401k.)
