Friday the S&P 500 was up a whopping 2% to 1387(rounded). VIX fell about 7% to 1524.
MANIC MONDAY (analysis by
the Bangles)
Today’s close is on the
upper trend line, so it doesn’t change my bearish opinion. It was also a statistically significant day
(based on the price and volume action and my daily statistical-analysis of the
market). Some will say the correction is
over, but statistically significant days often occur at reversals and some actually
use a strategy of buying after big down-days and selling after big up-days. (“Big” means statistically significant.) I
back tested this theory in the 2008-2009 bear market and found that it beat the
market by several hundred percent using a 2X mutual fund. Unfortunately, the strategy has been “discovered”
and may not be valid at this point. (Don't even ask about the risk!)|
IT’S NOT ALL ABOUT THE FISCAL CLIFF (from Comstock Partners)
|
http://www.comstockfunds.com/(X(1)S(4q2vaob1cjcsczv0mqkclkrt))/default.aspx?act=Newsletter.aspx&category=MarketCommentary&newsletterid=1681&menugroup=Home&AspxAutoDetectCookieSupport=1
BAD ECONOMIC NEWS – MAYBE IT’S
ABOUT THIS! (from the Philly Fed)
“The Aruoba-Diebold-Scotti
business conditions index is designed to track real business conditions at high
frequency. Its underlying (seasonally adjusted) economic indicators (weekly
initial jobless claims; monthly payroll employment, industrial production,
personal income less transfer payments, manufacturing and trade sales; and
quarterly real GDP) blend high- and low-frequency information and stock and
flow data…the ADS index…(is) updated as data on the index's underlying
components are released.”
http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/
This index is a primary
tool for the Fed to gauge the US economy.
The index is now -0.75 and this is based on data prior to Sandy. The last time the ADS index was -0.75 and
falling was January 2008. That was the
Top before the start of the major bear market that eventually took the S&P
500 down more than 50%. This could
always reverse, but it is certainly cause for concern.
THE CHINA SYNDROME
(from the TR Price
investors Report)“China may be at a critical inflection point, marking…a sharp cyclical downturn…one in which annual growth may drop over time to as low as 5%, says Anh Lu, manager of the New Asia Fund…Lower growth in China has profound and far-flung implications for the world, Already troubled by Europe’s recession and sluggish U.S. growth.”
My cmt: 5% sounds
like a GOOD number for growth, but there is a lot of skepticism of the growth
numbers reported by China.
NTSM
The
NTSM analysis remained SELL Monday due to Price and Volume indicators.
MY INVESTED POSITION
Based on the SELL signal,
7 November 2012, I moved out of the stock market at 1377 on the S&P
500. Because of the extreme negativity I
have noted from Hussman and others, I am currently invested in a range of near
15% invested in stocks. I also took
short positions on the morning of the 8th that make me currently net
short the S&P 500. (I am using
Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS. Those are dangerously volatile so I don’t
recommend them unless you have a BIG tolerance for risk. Also, if they are held too long they may not
perform well.
REPEATING STRATEGY
As
I have noted before, others may choose to keep more invested in stocks without
too much damage to their portfolio if the invested % is low. For example, if one were to keep 30% invested
in stocks and the market crashed by 50%, the loss to the portfolio would only
be 15%. If that is your plan, keep the
low-beta stocks (those with lower P/E ratios) such as utilities, consumer
staples, or value oriented mutual funds.
Sell technology. Keeping 30%
invested in stocks is actually a pretty good strategy since it hedges the bet if
the market continues up after selling stocks.
