TODAY’S HEADLINES
Today’s Wall Street
Journal headline was “Economic Reports Fan Fears, Dimmer Jobs Picture and
Sluggish Home Sales Cast Doubt on Recovery’s Footing”. That news may not be new, however, since many
economists predicted that the jobs data over the winter was overly
optimistic. As you may recall jobless
claims were increasing in real numbers, but the adjustments for the winter
actually showed decreases after the adjustments were applied. While this might appear to be a Government
conspiracy, it isn’t; the data is always seasonally adjusted. This year the warm winter may have skewed
the data.
Earnings numbers continue
to look good. The railroads have reported good earnings with some growth from
additional freight so it doesn’t look like the economy is slipping based on
earnings or transportation. It continues
in very slow growth.
We’ve had good earnings in
individual stocks that were followed by down days in the respective stocks, so
this appears to be a case where the market got a little ahead of itself; in
other words, stocks got a little overpriced in the euphoria since the bottom
last October and the down patch we have seen so far is correcting prices. This simply means that I don’t expect a
correction to get much below the 200-dMA of the S&P 500 (about 8% below
today’s close), although (as noted before) if the employment numbers keep
coming in worse than expected, the market may get rattled.
In the end stock prices
are all about earnings and investor’s expectation for earnings one to two
quarters down the road.
MORGAN STANLEY CYCLICAL
INDEX
I am experimenting with an
indicator that compares the spread between the S&P 500 index and Morgan
Stanley Cyclical index. The theory is
that sophisticated investors will sell the cyclical stocks faster than others
if there is a recession coming, so it should give an advance warning of
recession, or at least investor’s perception of recession and that is all that
counts. So far the indicator does not
indicate a recession is in the works. I
need to do a lot of back-testing before this becomes part of the NTSM analysis,
but it is interesting to keep an eye on this piece of data.
CRASH PREDICTIONS
I like to write about
crash predictions because I think it’s important to keep in mind that the
world’s economy is very fragile; worldwide debt issues remain; and we have
gridlock in Congress. A crash is
possible, though not likely in the near term.
Only about 1/3 of investors in the US are confident that there won’t be
a crash in the next 6-months. That means
that there is actually very little chance of a crash since this is a contrary
indicator. The last crash (2008-2009) started
only after the Crash Confidence Index (from the Yale School of Management) hit
60%.
AN OPTIMISTIC PREDICTION
Baring some bad news over
the weekend, I think we will go up from here; so next week should be more fun
than the past several weeks.
THE MARKET
The S&P 500 was UP 0.1%
Friday to 1379. VIX was DOWN 5% to 17.4.
NTSM
The NTSM analysis remains
HOLD as of the close Friday.
MY INVESTED POSITION
I bought back into the
stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy
signal. I remain 100% long in the
long-term portfolio (100% stocks in the 401k.). (See the page “How to Use the
NTSM System” – the link is on the right side of this page).
