All right…Let’s try this again
with the final numbers…
NTSM
The
NTSM analysis switched to SELL Wednesday driven down by the Volume indicator
that has been trending to the downside for 3-weeks combined with the Price
indicator. The Volume indicator is a
variant of On-Balance-Volume used by many in market timing.
The
Price indicator tracks the size of Price moves (comparing up and down moves)
and the Price indicator has been trending down since it topped out 6-weeks ago.
I should also note that
the panic indicator flashed sell 2-weeks ago at S&P 500 1433. This indicator is a measure of
Price-Volume and it tracks extreme moves (using statistical analysis) that
sometimes warn of the start of a downturn.
As might be expected, the panic indicator was also quite high today,
although not technically a sell value in my system.
The VIX indicator is not
confirming SELL (yet), but that is not unusual – one of the indicators has to
be first, but VIX is drifting toward
sell. I’ll feel more confident if VIX
(the best indicator) switches to sell.
It is currently neutral, but well toward the sell side of neutral.
Sentiment was elevated 5-weeks
ago at 62%-bulls, just 8-days after the most recent top of 1466 so Sentiment
may have been warning me back then. A
sell signal for sentiment was 67% at the time.
All in all, the NTSM
analysis has been warning of trouble for a while and is now an outright SELL.
Looking at a chart of the
S&P 500, the trend is currently down.
That follows a triple-top when the S&P 500 couldn’t get above the
1460 area.
I never know how far the
market may fall from here, assuming the sell call is correct. This could be just a post-election fake out. There is nothing in the NTSM system that
predicts the future. I have certainly
blogged a number of excerpts from crash predictions over the past few months. While I think a crash is coming, I have to
admit this feels more like a correction.
The correction we had last April was awfully shallow and only lasted
2-months so this may be a continuation correction.
Since we can’t know the
future, I prefer to take a cautious path.
If the future brings bad news, as Hussman and others are predicting,
this correction could morph into something much worse. Either way (crash or correction) I am
selling.
As I noted earlier, I
expect an up-day Thursday and the futures are now pointing to a positive day Thursday. Good, I will be happy to sell on a strong
move up.
MY INVESTED POSITION
Based on the SELL signal, today,
7 November 2012, I will move out of the stock market tomorrow. Because of the extreme negativity I have
noted from Hussman and others, I plan to be in a range of near zero to 15%
invested in stocks.
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 I am wrong and the market continues up after a sell signal.
To
be clear I am not predicting a crash; but there seems to be a lot of risk
now. I’ll get back in when the NTSM
system switches to buy sometime in the future.
