Saturday, June 30, 2012

No Real EU Solution


There are often true experts posting on trader boards.  Here is a post by "Prudent1" on a trader discussion board I frequent…I don’t know if Prudent 1 is an expert, but his post is very interesting and thorough  He wrote:.

“The expectations going into the June 28-29 EU summit were extremely low. There was a sense up until late in the evening on the 28th that the entire summit could collapse in acrimony. Up until the evening of the 28th the Italian and Spanish heads of state were essentially playing a game of blackmail, threatening to scuttle the entire summit unless short-term measures were enacted to lower their nations' borrowing costs through collectively financed purchases of their nations' sovereign bonds.

Thus, in this context, the fact that EU leaders agreed on anything is being experienced as a major relief by global financial markets participants.
However, when one examines the details of the agreement - and especially the lack of details thereof - there is little to get excited about. First, there was absolutely nothing new in this agreement that should have surprised anybody given that everything agreed to had already been publicly pre-approved by Germany. Second, the steps approved at the EU summit had been universally perceived as insufficient by market participants prior to the meeting.
Far from serving as a source of optimism, everything about this agreement merely serves to highlight the fact that a major economic crisis in Europe is virtually inevitable.

THE FUTILITY OF THE EU AGREEMENT  
The full text of the EU summit agreement can be read here:

It must clearly rank as one of the most non-committal "agreements" in the history of international summitry. Let's review the key points:
1. The most important aspect of the agreement was opening the "possibility" of the ESM (European Stability Mechanism) providing bailout funds directly to banks rather than through loans to sovereigns (which would then recapitalize the banks). The advantage of this is that the resulting debt will not appear directly on the balance sheet of the home countries of the banks being bailed out. However:
A) Direct ECB financing of the banks is a mere "possibility" that is being conditioned on a whole slew of prerequisites. ..B) The ESM has an upward limit of $500B of funds that it could eventually deploy. These funds are purely theoretical at this point because they have not even been raised yet. For the sake of argument, let us suppose that the funds are raised successfully by the ESM. Let us also assume that the currently projected $100B is used for Spain's bank bail-out. Ireland, Greece, Portugal and banks from other European countries will also want bailout funds for their own banks. (Ireland's Prime Minister has been loudly saying that they want in and the text of the agreement suggests that this request will be granted). Thus, realistically AT LEAST $200B of the $500B will be devoted to bank recapitalization. That leaves a theoretical $300B to purchase sovereign debt. That is peanuts; it does not constitute a credible vehicle to control the sovereign debt crisis. Most analysts agree that a minimum of 2 trillion euros would be needed to constitute a credible sovereign bond backstop….

CONCLUSION
In sum, the summit produced an "agreement," and an agreement is better than a collapsed summit. But there are no real solutions here.

The most important thing to keep in mind is that the Spanish and Italian economies are in the midst of a serious collapse in investment and consumption and this collapse will not be halted by this agreement. The consequence of the economic collapse is that neither Italy nor Spain will be able to meet any of the conditions that are required to receive funding. This brings us back to square one. Unless something is done to halt the collapse of the Spanish and Italian economies these agreements are utterly futile.


Thus, within a matter of days or weeks, global financial markets should resume their downward descent. I reaffirm my target of 950-1,020 for the S&P 500.”


MARKET
Friday, the S&P 500 was UP a stunning 2.5% to 1362.  The VIX fell 13% to 17.08. 

Breadth has been improving since 1 June when the S&P made its low of 1278.  Breadth is the number of stocks advancing vs. declining in any given day.  I track it as %-advancing, but many track the spread between advancers and decliners or even a ratio.  It is clear that there has been a stealth recovery ongoing.  Thursday was down, but the breadth was positive (significantly more advancers than decliners).  In other words many stocks are advancing, but they are not the ones in the index.  Frankly, this is an indication that the correction may be over.

Friday, volume on the NYSE was 33% above its average over the last month so there was some conviction in today’s move, too.  Even so, the NTSM analysis did not switch to a buy today so I am still leery that this may be a fake out. 

If there is a buy signal, I would probably not go “all in” as I normally do.  I think there is a lot of risk now so I’d be inclined to keep a smaller percentage invested in stocks.  Only time will tell…

NTSM
The NTSM analysis is HOLD again Friday, but indicators improved significantly. 

MY INVESTED POSITION
I remain out of the market…
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.


Thursday, June 28, 2012

Durable Goods Orders Better Than Expected; but Not all is Rosy

DURABLE GOODS ORDERS
Orders for Durable Goods Rise, but Global Concerns Lurk (by Reuters –as reported in the NY Times) Published: June 27, 2012
“Orders for durable goods rose 1.1 percent last month on strong demand for transportation equipment, the Commerce Department said Wednesday. Economists had expected orders to rise just 0.4 percent.”  Full story at…

This was widely reported as good news and the markets reacted as such, Wednesday; but the rise was only due to stronger than expected transportation orders.  Taking out transportation, orders have declined (year-over-year) since early 2010 when they were rising at a rate above 20%.  Of course back in 2010, the orders were compared to the prior year when the US was exiting recession so this news isn’t terrible.  It just isn’t cause for celebration. 

US BORROWING RATES
From YAHOO Finance, BREAKOUT:  “On August 5th of last year ratings agency Standard & Poor's downgraded the credit rating of the U.S. Federal Government from AAA to AA+. Though widely telegraphed the news sent stocks tumbling with the benchmark S&P 500 index dropping 6%.

Despite vows at the time to change their profligate ways, the U.S. has, if anything, gotten even more fiscally reckless in the nearly 11 months since the downgrade, raising the questions as to whether or not the existing AA+ rating is at risk. Robert Prechter of Elliott Wave International says such another downgrade is "pretty likely, eventually" but regards ratings changes as the least of America's problems.” Interview at…

The risk here is that US Borrowing rates will go up creating more problems that Prechter called a “debt implosion”.  Prechter said, “We’re headed into another period of pessimism.  People will be afraid of debt.”  Period of pessimism?  That may be a euphemism for market crash.
  
Today's Health Care ruling (it's Constitutional) won't help the debt problems since the CBO (in its most recent analysis) said that the law "would amount to a net increase in federal deficits of $226 billion" by the end of 2019.

MARKET
Thursday, today, the S&P 500 was down 0.2 % to 1329.  The VIX rose 1.3% to 19.71. 

Stocks had been down a lot more, but recovered from 2:30 until the close.  The only reason I found was speculation based on the news that Chancellor Merkel (Germany) canceled a press conference in the afternoon and there were rumors of a deal to fix Europe…again.

NTSM
The NTSM analysis is HOLD again today, Thursday. 

Our last important signal was on 9 May 2012 when the NTSM analysis signaled sell.  Currently the market is about 5% lower than when I reduced stock holdings on 10 May.

MY INVESTED POSITION
I remain out of the market…
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.


Wednesday, June 27, 2012

Market Internals Aren’t Telling Much

Breadth, the number of advancing stocks versus declining stocks continues to improve since the 1278 low on 1 June.  Volume hasn’t given any indication that there is a correction underway. The percentage of New-highs vs. new-lows (the number of stocks making a new high divided by new-highs+new-lows) is declining over the longer term.  In other words there seem to be fewer new highs on a percentage basis. In short, market internals are a mixed bag without much trend.  As I have speculated before, the market seems to be in a holding pattern until the news gets a little clearer.

MARKET
Wednesday, today, the S&P 500 was up nearly 1% to 1332.  The VIX fell 1.4% to 19.45. 

NTSM
The NTSM analysis is HOLD again today, Wednesday. 

MY INVESTED POSITION
I remain out of the market…
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Tuesday, June 26, 2012

COULD THIS CORRECTION END SOON?


NOT EVERYONE AGREES ABOUT A CRASH (Nenner and Worth)
BREAKOUT from Yahoo Finance: “Charles Nenner, of the Charles Nenner Research Center (http://charlesnenner.com/), is looking to start getting long again this week. Focused on cycles and momentum Nenner sees a cyclical low coming in the next few days. He's a buyer anywhere from 1,280 to 1,230 on the S&P 500 but cautions those who are looking for a chance to buy and hold profitably."

"People looking for major moves are going to be disappointed," he says. Timing and trading are key as he thinks stocks are going to be locked into a 5-10% range for an extended period.” Full story at…

NOTE:  Mr. Nenner is predicting the low of 1278 will hold and be a successful test of the low.  I have mentioned in several blogs that 1278 is the number to watch or a number in that general area.

CARTER WORTH ON CNBC
Carter Worth, chief market technician and a managing director at Oppenheimer & Co., said yesterday on CNBC that the VIX would not rise to match old highs because it was too soon for it to peak in the 35-40 range, at least from a technical perspective.  Since a peak high in the VIX would correspond to an extreme bear market, this suggests that the current downtrend is just a correction and not a return to previous lows, based on his technical analysis of VIX.  I am not a complete believer in “charting”, I usually compare it to Professor Trelawney’s abilities in divining the future; but even she was right twice, per to JK Rowling.

MARKET
Tuesday, today, the S&P 500 was UP 1/2% to 1320.  The VIX fell 3% to 19.72. 

NTSM
The NTSM analysis remained HOLD today, Tuesday. 

To answer the blog title: Yes, it is possible this correction could end soon, but predicting the future is not my game.  It is certainly not a done deal that the market is going to tank down.  We will have to wait until the market retests the 1278 area.  A note: Sentiment seems oddly high (bullish) now.  We’re 3-months into this correction and 5-day Sentiment was 53%-bullish as of yesterday’s close.  Sentiment is a counter indicator.  Bullish sentiment is actually bearish for the market.  Only time will tell…

MY INVESTED POSITION
I remain out of the market…
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.


Monday, June 25, 2012

Hussman Repeats Recession Warning & Stock Market Crash Prediction

Here are some quotes from this week’s Market Comment by John Hussman, PhD.

HUSSMAN ON RECESSION:
“The joint evidence suggests that the U.S. economy has entered a recession that will later be marked as having started here and now…”

HUSSMAN ON EUROPE:  “The markets are gradually figuring out that the near-daily "agreements" to solve the crisis there represent nothing but words, as Germany is unwilling to provide endless transfers to peripheral European countries.”

HUSSMAN ON FED ACTION: “It's true that in 2010 and 2011, one or two quarters of support for GDP growth was enough to push off emerging economic weakness for a while. At present, the economic headwinds are much more serious, particularly given European strains. So aside from the hope for transitory speculative benefits, it's not at all clear that further quantitative easing would be effective in halting a U.S. recession that, by our estimates, has already begun…”

HUSSMAN’S ESTIMATE OF STOCK MARKET VALUATION: “…our own estimates of "fair value" are in the 850-950 range for the S&P 500…”

The above quotes are from the Weekly Market Comment (25 June 2012), by John Hussman, Phd, from Hussman Funds at

I usually don’t quote this much from Mr. Hussman, but this is an extraordinary market and an excellent commentary from Hussman Funds.  Check out his commentary at the above link for additional analysis along with charts and graphs.  (Regarding today’s blog title, John Hussman didn’t use the term "crash" in his commentary; but I think most would see a 35% decline from today's S&P 500 level as a crash.)

BLOOMBERG: GREENSPAN ON EUROPEAN DEBT
Greenspan, in a television interview on Bloomberg Surveillance with Tom Keene…said he sees “global slack” in the economy… In Europe, Greenspan said one of the central issues is that rather than working toward solutions to close the fiscal deficit, world leaders are working on funding it.  “Until we shut off the deficits themselves, debt by definition continues to rise,” he said. “The general focus of policy” is “taking the easy way out with very long-term negative consequences.”

MARKET

Monday, today, the S&P 500 was down 1.6% to 1314.  The VIX rose 13% to 20.38. 

NTSM
The NTSM analysis remained HOLD today, Monday.  VIX is again negative.  All other indicators are neutral.

MY INVESTED POSITION
I remain out of the market…
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.


Friday, June 22, 2012

Can Oil Predict Market Direction?


What Does Oil Know That Stocks Don't? | ZeroHedge
“With West Texas Intermediate crude oil trading…near two year lows, while stocks remain within a few percent of their four-year highs, one has to question just what it is that stocks believe about our bright new future of growth and demand that the all-important energy markets do not…Between Europe's recession, last night's dismal China PMI, and a significantly trending rise in US unemployment claims, it seems more likely that the global demand picture painted by the oil market is a better reflection of reality than the earnings/multiple picture painted by the nominal price of US equities.” Additional chart at:

I am not a believer in the stock market right now.  This market still seems to be waiting for more news so I am very cautious.          

MARKET
Friday, today, the S&P 500 was up 0.72% to 1335.  The VIX fell 9% to 18.21.  So we continue a trend of wild swings in the VIX.  The options boys can’t decide whether a crash is around the corner; or, perhaps the market will just slowly go up.

NTSM
The NTSM analysis remained HOLD today.  I wrote yesterday all the indicators were neutral.  That wasn’t quite right. VIX was negative yesterday, but today it improved.  Today, all indicators really are neutral.

MY INVESTED POSITION
I remain out of the market…
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.


Thursday, June 21, 2012

PHILADELPHIA FEDERAL RESERVE – ECONOMY CONTRACTS FOR 2nd MONTH


PHILLY FED NEWS
(Reuters) – “Factory activity in the U.S. mid-Atlantic region contracted for a second month in a row in June to its lowest level in 10 months as new orders tumbled, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index dropped to minus 16.6 from minus 5.8 in May, far below economists' expectations for a reading of zero, according to a Reuters poll.”  A negative number indicates contraction. 
Full story at…

Contracting economic activity?  That’s recession; but the widely accepted definition for recession is 2-consectutive quarters of contraction.   This is certainly the type of news that might coroborate John Hussman’s analysis that the US is now in recession.  Of course this is far different than what Ben Bernanke just stated in his Congressional testimony, so maybe we shouldn’t put TOO much emphasis on one data point in the mid-Atlantic region.  Still, this news combined with today’s market action seems to strongly suggest that the correction will continue.  

“BREAKOUT” (Stock Analysis)  - JIM ROGERS TAKE ON EUROPE
Regarding Europe problems “…investing legend Jim Rogers says there's still a way to avoid the worst case scenario. ‘My solution would be to let the people who have failed, go bankrupt—declare bankruptcy," Rogers explains. "The banks lose money, but then you start over; that's the way capitalism is supposed to work…Avoiding short-term pain through activities like propping up "zombie" companies to avoid the pain of failure has one drawback: it has never worked in the history of economics. Japan has been doing it for decades, and the Nikkei remains 80% off highs made in the '80s…If you wait two years from now, five years from now, when no government has any credibility and nobody will give you any more money, then it's finished... you better get yourself a rifle and a bunker and head to Asia.’"

Jim Rogers talked about the worst case scenario being conflict (war) in Europe as various countries in the EU begin to argue amongst themselves.  He compared it to the start of WWII.  The EU may split up, but I don’t expect shooting between countries.  Turmoil? Rioting in the streets? Possibly, but not war. 

MARKET
Thursday, today, the S&P 500 fell hard, down 2.2% to 1326.  The VIX rose 16% to 20.  As I have suggested several times, I think the market will re-test the 1278 level.  When it does, we will have some further information that will help me decide whether it is time to get back in the market.

NTSM
The NTSM analysis remained HOLD today however, indicators deteriorated significantly and all are now neutral.

MY INVESTED POSITION
I remain out of the market…

I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.


Wednesday, June 20, 2012

Fed Lowers Growth Estimate & Extends the Twist


FED EXTENDS THE TWIST (CNN/Money)
“The Fed announced plans to extend Operation Twist, the policy of swapping short-term Treasuries in the central bank's portfolio for bonds with a longer duration. The program, which was due to expire June 30, will continue through the end of 2012. The Fed expects to buy $267 billion worth of bonds….Meanwhile, the Fed lowered its outlook (see below) for economic growth this year and raised its forecast for the unemployment rate…The cloudy economic outlook had raised speculation that the Fed would take more aggressive steps to stimulate growth, such as intervening directly in the bond market. But Wednesday's move falls short of the full-blown quantitative easing that many investors have been calling for.”

FED LOWERS GROWTH ESTIMATE (CNN/Money)
“The Fed also sees broader weakness ahead, predicting the economy will grow between 1.9% and 2.4% this year. When the Fed met back in April, it had forecasted that the economy would grow as much as 2.9%.”

I thought this might be a “sell the news” day.  You know the old stock market saying, “Buy the rumor – sell the news”.   There had been rumors on the web that the Fed was going to do a QE3.  There wasn’t much selling when they didn’t, so that’s good news for the bulls.

I am still very suspicious that this correction isn’t over.  I probably could make a pretty good argument either way.  I am not seeing any strong signals (the smoking gun); however, there has been slow steady improvement in NTSM indicators.  Given that info, and the current position of the NTSM analysis I am inclined to wait a few more days for some better direction.  The market should give us that guidance soon.

MARKET
The S&P 500 finished down a couple points to 1355. VIX fell 6% to 17.24 today, Wednesday. 

The falling VIX is quite bullish, but I still don’t have a buy in the NTSM system since only the Volume indicator is positive.  All others are neutral.  It is close to a buy – but so far, on cigar.

NTSM
The NTSM remained HOLD Wednesday, but it is very close to a buy. 

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Tuesday, June 19, 2012

The “Aiden Forecast” predicts stock market Crash


Here’s another “crash forecast”.  Unfortunately, if you browse past NTSM blogs, there have been way too many crash forecasts in recent months.

Aiden Forecast newsletter (last Thursday):
 “Increasingly, the similarities to 2008 are becoming almost eerie. We may be wrong, but the markets are poised for this and while we don’t know what the trigger will be, it could be almost anything…The popularity of derivatives has skyrocketed within the financial industry. In the past 12 years, derivatives have grown 10 times faster than world GDP to the tune of $200 trillion for U.S. banks, which is three times the world’s GDP! This is a reckless accident waiting to happen and J.P. Morgan’s $2 billion loss this month may have been the tip of the iceberg.”   The Aiden sister’s newsletter is highly regarded.  NOTE: This prediction is somewhat open ended since they are not necessarily saying it will happen now, but rather some time in 2012 or 2013. 

Warren Buffet has warned about derivatives too.

As of May, Fed Ex shipping is down 9% for international cargo through Memphis. This data doesn’t predict a crash, but it certainly is more evidence of the slow-down that is underway. 

MARKET
The S&P 500 finished UP 1% to 1358. VIX rose 1/3% to 18.38 today, Tuesday.

I am still keeping a cautious approach to the S&P 500 now.  Technically, I want to see the VIX improve more.  VIX is based on Options trading and it reflects what the Options traders think will happen in the future.  The Options boys remain cautious. 

I now have a round trip.  I sold at 1358 and the market has climbed back to 1358.  Even if I had a buy now in the NTSM system (we don’t) I think that I’d only put ½ of my normal stock allocation back I the market.  It’s one thing for the market to climb a wall of worry – we seem to be climbing a melting ice-wall with toothpick pitons.  In other words, risk seems very high right now.  While I don’t like being sideways to the market (out when it is going up, or in when it is going down) I am not yet ready to get back in.

NTSM
The NTSM remained HOLD Tuesday 

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Monday, June 18, 2012

Last week - Retail Sales stalled; Jobless Claims rose; Industrial Production Fell, but the Market went up


BAD NEWS LAST WEEK
Wall Street Journal (print version) and repeated at WSJ.com
15 Jun 2012 “Recovery Slows as Global Risks Rise”
“The U.S. economy is continuing to lose momentum just as global events that could derail the recovery gather steam….On Wednesday; the Commerce Department said that retail sales growth stalled in May and that April's gains were smaller than initially believed. On Thursday, the Labor Department said first-time claims for jobless benefits rose last week and the less volatile four-week moving average hit its highest level since early April. On Friday, the Federal Reserve said industrial production fell in May for the second time in three months, and a separate measure of manufacturing activity in the New York region dropped sharply.”  Full story at:

The article points out that economists, on the whole, are still predicting a lackluster 2% (or so) recovery and no recession.  My opinion: Economists do not have a very good track record regarding recession predictions.

As a check of the recession sentiment, I look at the Morgan Stanly Cyclical Index compared to the S&P 500.  Over the last 3-months the Cyclical Index has underperformed the S&P 500 by about 8%.  That tells me that many investors have changed their strategy due to their perceived risk of recession, i.e., the market thinks a recession has a high probability.  (As a group, cyclical stocks should perform worse than the S&P 500 in a recession; conversely, they should out-perform at beginning of a recovery after recession.) 

On a shorter term basis, the Morgan Stanly Cyclical Index is only down about 1/2% over the past 2-weeks (compared to the S&P 500), so the market is now waiting for more news before it moves appreciably up or down. 

When the market goes up on bad news, that’s usually a good sign.  I’m NOT a believer, yet, so we won’t be taking any stock market advice from the Monkeys.  I’ll just have to continue waiting.

MARKET
The S&P 500 finished essentially unchanged to 1345. VIX fell 13% to 18.3 today, Monday.  That’s a big move for the VIX and suggests the correction may be over, at least as far as the options market goes.

The S&P 500 is 1% above its upper trend line.  That’s not enough for me to suggest we’re now in an up-trend, but if it continues up, I’ll have to.  I’d also expect the NTSM analysis to switch to buy.  We’re not there yet.

NTSM
The NTSM remained HOLD Monday. 

The VIX has been dropping, but not fast enough when compared to recent correction recoveries.  The NTSM Volume indicator remains buy.  There just aren’t any other indicators that are confirming the buy…yet.  If the VIX continues down, NTSM will switch to buy soon.



MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ. 

Friday, June 15, 2012

Greece Doesn't Matter?


Fortune – “Not too long ago investors were running scared from any investment that seemed remotely tied to Europe. Now, on the eve of a Greek vote that could throw the continent's finances into question again, U.S. investors are blowing off the idea that Europe's a major risk…the presumption running the market right now (is that) since we have known about Greece and the European debt crisis for at least a year now, and really much longer than that, (the financial industry has) surely acted to protect themselves. But have they?”

That’s an interesting question.  I wouldn’t bet on it at this point.  Part of what JP Morgan Chase was doing with their hedges was to backstop bad mortgage debt they have been buying recently in Europe.  At this point with Europe in recession, they are losing money on the hedge (since they suggest it wasn't well structured) and they have the potential to lose on the outright bet since more mortgage losses may be coming.  If the recession in Europe is worse than expected, they’ll lose on the basic bet in addition to their hedging.  Now I’m not suggesting JPM Chase is in trouble, I am merely pointing out that even the smart guys seem to be making mistakes in Europe.  To assume that a Greece default won’t have any effect on US stocks may be overly optimistic…

…and we still have some very real recession risks out there.  I think the PCS chart I published in my blog titled “There must be good news somewhere..."   
( http://navigatethestockmarket.blogspot.com/search?updated-max=2012-06-06T17:15:00-04:00&max-results=7 ) is very troubling since this metric has been a reliable recession indicator, especially when notable economists are also saying the US is in now recession.

MARKET
That’s what I think.  Now lets’ talk about what I see.  (Remember my favorite investment philosophy is trade what you see; not what you think.)  What I see is a steadily improving stock market that is up 4.5% since the 1278 double-bottom on 4 June.  Even though the market internals did not meet my metrics (that would show that 1278 was the correction bottom), the market may not agree with my assessment.  Further, internals have continued to improve since then.   Internals that I value are new-highs, new-lows and advance decline data along with volume.

Volume has hardly moved during this entire downturn.  At one point volume did pick up, but it never made the leap into correction territory where a big volume jump is normal as selling accelerates.  

Friday, today, the S&P 500 was up another 1% to 1343.  The VIX fell 2.6% to 21.1.

So let’s consider the NTSM analysis because that is the only thing that will get me back in this market, unless the S&P tests 1278 again.

NTSM
The NTSM analysis remained HOLD today however, indicators have improved there too.  VIX has been falling significantly and the Volume indicator is now a buy.  Volume is our second best indicator.  VIX is number 1.  So I’ll see what happens Monday and crunch the numbers after the close.

I am comfortable being out of the market now, but I don’t want to see the market run-away (up) and leave me behind.  Since today was options expiration day, it is possible that today’s action is not representative of true market opinion.  We’ll see.

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Thursday, June 14, 2012

Oh, it's you Europe!

Short Blog today; it’s a busy one.

MARKET
The S&P 500 finished UP 1% to 1329. VIX fell 11% to 21.7 today, Thursday and that put us back where we were 2-days ago.  

The market keeps bouncing back and forth.  Employment numbers were slightly worse today, but all eyes were on Europe.  Sooner or later the market may start worrying about recession.  Is Hussman right?  I don’t know.  I’m just following the numbers in the NTSM analysis.

NTSM
The NTSM remained HOLD Thursday. 

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Wednesday, June 13, 2012

Europe worse…Borrowing costs up…

WALL STREET JOURNAL (WSJ)
Today’s headline in the print version of the WSJ: “Threat Spreads Across Europe”:

“Borrowing costs for Italy and Spain continued to surge on Tuesday, escalating calls for bigger steps from euro-zone leaders amid a new warning that the crisis is dragging down even the world's resilient emerging economies.”

“Spain's 10-year borrowing costs touched 6.80% before settling at a euro-era closing high of 6.72%, the second straight jump in the two trading days since European officials announced a bank bailout of as much as €100 billion ($126 billion) that was intended to calm markets. That fueled fears that the government itself could need its own rescue from the rest of Europe… Italy's borrowing costs also climbed, with its 10-year yield hitting 6.26%, the highest level of the year… In a further ominous sign, bond yields were higher all across the currency union—even in havens such as Germany, the Netherlands and Finland.”
This news is quite bad.  It really makes one wonder why the markets were up yesterday.  I can only guess that many see the US as a haven from contagion.

THE TELEGRAPH
“Bank for International Settlements (BIS) warned that International lending is contracting at the fastest pace since the onset of the financial crisis in 2008 as Europe's banks scramble to meet tougher rules.”

US GOVERNMENT DEBT – Just a reminder…
Greece, Italy, Ireland, Portugal and Japan are the only countries in the world with higher government Debt to GDP ratios than the US.  Note to Keynesians: Japan has a deficit of 200% of GDP.  Their stock market made its high 22-yrs ago; it is now less than ¼ of where it was at the top.  Their deficit spending has not helped their economy.  Their economy is still a mess; and now they’re broke.  Should we follow their lead and try to spend our way out of this mess?

MARKET
The S&P 500 finished DOWN 0.7% to 1315. VIX rose 10% to 24.27 today, Wednesday.   That’s a big rise in VIX, again, and it doesn’t look good for the near term.

NTSM
The NTSM remained HOLD Wednesday.  The VIX indicator switched to negative today.  The latest sentiment data I have is as of the close yesterday.  It actually got more bullish, up to 39% bulls.   That’s on the low end of neutral.

I still think the S&P 500 is going to retest the 1278 area again.  What happens at 1278 will give us some insight regarding the future of the market.

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Tuesday, June 12, 2012

Net Worth Crushed since 2007 – No Surprise there…


NET WORTH PLUMMETS NEARLY 40%
NEW YORK (CNNMoney) -- The average American family's net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve…The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families.
http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth/index.htm?iid=HP_Highlight

Fortunately the NTMS system has done better than that.  NTSM is up about 75% over the same period. Our results are shown in the Page linked at the right side of this page: Performance of the Navigate the Stock Market system at http://navigatethestockmarket.blogspot.com/p/back-testing-navigate-stock-market.html

MARKET
The S&P 500 finished UP 1.2% to 1324. VIX fell 6% to 22.09 today, Tuesday.   Seems like Wall Street can’t decide what to do with this market.  The S&P 500 is still below the upper trend line so the trend is still down.

The S&P 500 is now about 2.5% above the 200-dMA.  It fell ½% below the 200-dMA at its lowest point.  My guess at the beginning of this correction was that it might fall to the 200-dMA.  That was before a lot of the Europe news came out.  I can never really tell how far the market will fall.  Collectively, the market is not always rational.

Sentiment is down to 38% bulls.  That’s getting fairly negative.  Since Sentiment is a contrary indicator, low bullish-sentiment is a buy signal if it’s low enough.  The buy signal for Sentiment (not the entire NTSM analysis) is currently 30%.  So this indicator may not be too far from a buy signal.

It has been 49-days since the top.  In 2010 the 16% correction ended after 48-days.  In 2011 it took 108-days to get from top to bottom in the 19% correction.

NTSM
The NTSM remained HOLD Tuesday.  Indicators improved today; all of the indicators are currently neutral.  The analysis could switch to buy soon, but I never try to predict it. It could just as likely turn down.

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Monday, June 11, 2012

John Hussman – Recession, NOW!

JOHN HUSSMAN
“By our analysis, the U.S. economy is presently entering a recession. Not next year; not later this year; but now. We expect this to become increasingly evident in the coming months, but through a constant process of denial in which every deterioration is dismissed as transitory, and every positive outlier is celebrated as a resumption of growth... As of last week, we continue to estimate a prospective return/risk profile for stocks that is among the most negative 0.5% of historical instances. The primary window here is about 2 weeks to 6 months, but extends as far as 18 months.” -John Hussman, Phd, 11 June 2012 Weekly Market Comment,
http://www.hussmanfunds.com/index.html

MARKET
The S&P 500 finished DOWN 1.3% to 1309.  VIX rose 11% to 23.56 today, Monday.  The extreme rise in the VIX shows a lot of concern in the market. 

NTSM
The NTSM remained HOLD Monday.

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Friday, June 8, 2012

Is the Correction Over?

I looked again at the data for 4 June 2012 when the S&P 500 was 1278.  That was a test of the prior low of 1278 the day before.  Market internals improved on the test; but not enough, in my opinion.  It’s a close call, but it still (on further consideration) looks like a failed test to me and, assuming I am right, that means the S&P 500 is likely to re-test the 1278 area again.  Not everyone agrees because the S&P 500 is up 3% since then.  If I am right, this rally will fail, but it is important to keep emotions out of these decisions. 

There has been so much negative news we must always remember that we don’t have all the news and also, our interpretation of the news is going to be less than perfect.  In other words, just because things look bad doesn’t mean the market will continue to go down.

The most success I have had (timing the market) is when I have used an analytical system.  My current system, for lack of a more interesting title is called simply, the NTSM system (short for Navigate the Stock Market).  If I am wrong about the 4 June test of the prior low, I am counting on the NTSM system to give a buy signal to correct the miss.   So far, the market is not reacting positively enough to generate a buy . Given all the bad news, there is nothing wrong with maintaining a conservative position with regard to the stock market.

MARKET
The S&P 500 finished UP 0.8% at 1326.  VIX fell 2.3% to 21.23 today, Friday.

NTSM
The NTSM remained HOLD Friday.  

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.

Thursday, June 7, 2012

Bernanke – Diminishing Returns for QE


THE FED
Bernanke Says More QE May Boost Growth; Sees Diminished Returns
(Bloomberg Business Week)
June 7 (Bloomberg) – “Federal Reserve Chairman Ben S.
Bernanke told lawmakers that further rounds of stimulus could
boost the economy, yet may have ‘diminishing returns.’”

THE FED
Stocks soar at the open then drop when Chairman Bernanke speaks (CNBC)
“Stocks retreated from their highs Thursday after Fed Reserve Chairman Ben Bernanke did not provide explicit commitment to additional policy, disappointing investors who had been looking for clues about the prospect for a third round of quantitative easing.”

But not all Fed Governors agree…
THE FED
(Federal Reserve Board Vice-Chair) Yellen Argues for More Fed Easing, Cites Europe Risk
"There are a number of significant downside risks to the economic outlook, and hence it may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest," she said in a speech prepared for delivery at an event organized by the Boston Federal Reserve Bank."

That doesn’t sound encouraging!

JOBS
WASHINGTON (MarketWatch) — “The number of initial applicants filing for unemployment benefits declined last week, the government reported Thursday, but jobless claims remained at a level consistent with mediocre hiring trends....First-time claims fell by 12,000 to a seasonally adjusted 377,000 in the week ended June 2, the Labor Department said. Claims from two weeks ago were revised up to 389,000 from an original reading of 383,000, based on more complete data collected at the state level.”  Full story at:

MARKET
The S&P 500 finished unchanged at 1315.  VIX fell 2% to 21.72 today, Thursday.  The market gave up its gains in the last hour so perhaps the smart money isn’t willing to bet on a rally.  There was apparently much disappointment that the Fed is not going to step in with more QE.

The market bounced from the 1278 low as I suggested that it might.  In such cases there is always the thought that maybe that was THE bottom and I am wrong sitting on the sidelines.  If that level doesn’t get retested, I will rely on the NTSM system to signal a buy.  That has not happened yet. 

NTSM
The NTSM remained HOLD Thursday.  

MY INVESTED POSITION
I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.