PIMCO’s
Bill Gross says recession is inevitable…but at the same time there are some
cracks appearing in the recession argument?
The
Navigate the Stock Market system turned to BUY today. That is a surprise and I don’t at this point
recommend that we act on it.
First,
I am fairly confident that this level on the S&P 500 will be tested again.
Corrections that are this deep don’t end in just a couple of weeks, so we should
have an opportunity to get in later at this level, if this is indeed the bottom.
Further,
if we see some significant down days NTSM could switch back to sell.
Parts
of the NTMS look at market action in such a way that a continuous downtrend
creates a “Buy” signal. As I’ve said
before, sometimes the herd is right so the parts of the system that are now
suggesting a Buy may be wrong or at least premature.
We
can, however, see some clues that make the recent market move look more like a
correction than a Bear market. Volume
has not increased during this downturn when compared to the correction we had
in April 2010. Volumes are up, but not as
much as might be expected for a recession panic. Peak volumes were much higher in April 2010
and the moving averages of volume were much higher too. So that really calls into question whether “the
market” is pricing in a recession as so many (including me) have `been
suggesting for the past month. Volume
wise, we look better (we’re seeing relatively lower volumes) at this point than
during the April 2010 correction when we experienced a 16% correction. (I know – you are thinking, why didn’t he write
this sooner? The answer is; we really
can’t know these things in advance. We
get a sell signal and then we can analyze additional data as it comes in.)
The
reason NTSM switched today was the volume indicator became more bullish.
Still,
in the phase of the correction/bear market, it is possible that we may see a
big drop down and we don’t want to buy into that. A huge drop would probably cause another sell
signal and also convince undecided investors to sell, but that is not the most likely
short term direction.
We
have tested the vicinity of the 1119 low the past 2-days; volumes are down,
internals are improved, so the most likely direction of the market is up for a
while.
Everything
depends on the economy. More bad news
will kill a rally; some good news will feed a rally and may end the
correction/bear trend.
More
forecasts: PIMCO’s Bill Gross said
Friday in an interview with CNN/Money that a recession is inevitable in both
the Eurozone and in the US. “Growth is
limited because of too much debt and because of the lack of policy options
going forward”. We have a “stall speed
economy” it can’t go up so it must come down. – Video at http://money.cnn.com/2011/08/19/markets/markets_newyork/index.htm?iid=HP_LN
On
the other hand I got notes from both Black Rock and T Rowe Price mutual fund
companies that we are not entering a recession.
(A recession creates a mess for the mutual funds so their opinion is not
exactly, ethically pure. PIMCO also gets
more customers in a recession so they have a similar, if opposite, bias.)
Bottom
line…I will keep my “out of the market” position until we get some more
evidence.
On
the other hand, I will close out the short positions in the trading portfolio (at
a good profit) to hedge a bit. No need
to carry too much risk. I’ll watch
market action. If it is dropping, I’ll
hold the shorts.
