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.
