Thursday, February 28, 2013

Another Stock Market Crash Prediction

CRASH PREDICTION (Chris Martenson)
“Chris Martenson is issuing an official warning of a major stock market correction within the next few months. He's only done this once before (in 2008). He's seeing a convergence of both technical and fundamental data that are flashing oversized risks to the downside for asset prices, despite the Federal Reserve's money printing mania (which is showing signs of hitting diminishing returns).”  Full story, guest posted at ZeroHedge at…
http://www.zerohedge.com/news/2013-02-28/guest-post-diminishing-qe-returns-and-coming-40-correction

REAL FAMILY INCOME (Mish Shedlock)
“From 2009 to 2011, average real income per family grew modestly by 1.7% but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery.

I propose that to find a cure, one needs to understand the problem and what caused it. In that regard, it's crucial to understand that inflation benefits accrue to those with first access to cheap money, the banks and the already wealthy.

Consider the housing boom and bust. By the time easy credit was universally available (with sensible income and down payment requirements flying out the window), the party was nearly over.

The root cause of boom-bust cycles (and the associated income inequality distortions) is the Fed's inflationary and reflationary policies. Simply put, the Fed has sponsored bubbles and busts of increasing amplitude over time, and those with first access to cheap money have come out ahead at the expense of everyone else.

It's even worse than that. The Fed's policy of "too big to fail" encourages rampant speculation if not outright manipulation in both directions.” – Mish Shedlock, Global Economic Analysis
http://globaleconomicanalysis.blogspot.com/2013/02/top-1-received-121-of-income-gains.html

MUSINGS
Even if the S&P 500 hasn’t already topped out at 1531, I think the highest it will go is 1545. 

A correction should clear the air for another try to exceed the all-time highs by a meaningful amount later on.  Of course, a correction could morph into a more significant event. 

It would take a positive change in the market internals to make me change my opinion.  Currently, the 10-day moving average of the percentage of stocks advancing is 52% - not a very bullish number, but the key point is that this stat has been trending down and that trend is continuing. The new-hi/new-low stats are trending down too.

A fall to the 200-dMA would put the S&P 500 down about 7% from today’s close.  That’s the basis for the pundits on CNBC who are predicting a small pullback.   My guess, and it’s only a guess, is that a correction could be worse – perhaps in the 15-20% range.  Who knows?  The market internals are suggesting a correction, but the market needs to have some further breakdown before the NTSM numbers indicate a Sell signal for long-term investments.  Needless to say, I think it is wise to be defensively invested, as I am.  

MARKET RECAP
The markets peaked up about 0.6% around 2PM and tanked after that.  The pros sold the rally hard.  Thursday, the S&P 500 finished down about 1Pt to 1515 (rounded).  VIX was up 5%, to 15.51. 

NTSM
Thursday, the NTSM analysis remained HOLD at the close.

MY INVESTED POSITION
I took a hedging, short-position Wednesday afternoon with a very tight stop.  I’ll bail on that if the market moves up much.  With longer term funds, my investments remain the same. 

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks, but I may not hang around too much longer regardless of the NTSM numbers.

Wednesday, February 27, 2013

Durable Goods; Correction & Correction & Correction Creeps in this Petty Pace

 DURABLE GOODS ORDERS (dShort Advisor Perspectives)
"The latest new orders number at -5.2 percent was well below the Briefing.com consensus of -3.5 percent. Year-over-year new orders are down 3.0 percent....However, if we exclude both transportation and defense, "core" durable goods were up an astonishing 10.2 percent. Year-over-year core goods are up 4.5 percent.”  - Doug Short. 


Full story, analysis and more charts at...
http://advisorperspectives.com/dshort/updates/Durable-Goods-Orders.php

Reuters reported the above news as exceptionally good based on the “core” data.  Given the correlation in the above chart (falling Consumer Durable Goods orders coincident with falling S&P 500) the news didn’t look that good to me.  It looks like durable goods orders are slowly falling now.  That will lead to recession worries in the market.  So how are the markets addressing this issue? 

RECESSION FEARS
Over the last month the Morgan Stanley cyclical index is underperforming the S&P 500, but not by that much.   This is just another “almost” confirmation of a correction underway. At the same time, there was some better news related to housing.

PENDING HOME SALES SOAR (CNBC)
“Contracts to buy existing homes in January rose a strong 4.5 percent from the previous month, according to the National Association of Realtors, which also revised December's numbers down. That beats expectations of a 1.8 percent gain. Volume is now 9.5 percent above January 2012 and is the highest reading since April 2010.”   Full story at...
http://www.cnbc.com/id/100501214

CONSDER THE REASONS TO SELL EVERYTHING AND MOVE TO BOLIVIA (Ok…so that may be a little extreme; still there seem to be many reasons to get completely out of the stock-market. 
 
In fact, my neighbor, Dennis Gartman, author of the “Gartman Letter”, (not really my neighbor, but he does live not far from here) announced on CNBC Tuesday that he is completely out of the market. Other than Dennis, let’s cover a few more reasons:

(1) The charts don’t look good.  The S&P 500 is near a double top and a resolution of a rising wedge pattern. See… http://navigatethestockmarket.blogspot.com/2013/01/rising-wedge-rising-concerns.html
(2) Breadth (number of stocks advancing) has been dropping as the Markets have been rising.  See…
http://navigatethestockmarket.blogspot.com/2013/02/the-stock-market-correction.html
(3) The new-highs/new-lows market internal has turned down
(4) The movement of price-volume became quite low (low volatility, but not VIX) about 3-weeks ago.  That is a very reliable warning of a top within a month after that condition is observed.
(5) The current high moves in price-volume are indicative of a market top. These are easily seen by the back and forth, big daily swings in price.
(6) Sentiment is very high and that is a counter indicator suggesting a pullback.
(7) On the economic front we have falling employment (see the “I can handle the Truth…” discussion at…
http://navigatethestockmarket.blogspot.com/2013/02/stock-market-crash-prediction.html);
less than 2% growth for a year; less than 0% growth last quarter (although no-one believed that); today’s Durable Goods Orders; recession in Europe; debt issues all over the world; dis-functional Government, just to name a few.

Although none of these issues are signaling an imminent move to Bolivia, taken together I am concerned.

PERSPECTIVE!
I am exaggerating.  This still looks like a correction and not a crisis; but we can never really know how a correction will play out, if it occurs at all.

CHARTING THE CHANNEL
The S&P 500 is still tracking in an up channel, but I could make an argument that the recent 1531 high and today’s level of 1516 establish the top line of a new downtrend channel – that conjecture remains to be seen.  It would be disproven if the market moves higher from here.

MARKET RECAP
Wednesday, the S&P 500 finished up 1.3% to 1,515 (rounded).  VIX was down 13%, to 14.73. 

NTSM
Wednesday, the NTSM analysis remained HOLD at the close.

MY INVESTED POSITION
I took a hedging, short-position Wednesday afternoon with a very tight stop.  I’ll bail on that if the market moves up much.  With longer term funds, my investments remain the same.

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks, but I may not hang around too much longer regardless of the NTSM numbers.

Tuesday, February 26, 2013

Consumer Confidence Up; But Down

CONSUMER CONFIDENCE (dShort.com)
“The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through February 14. The 69.6 reading was well above the consensus estimate of 62.0 ... But in context of this indicator's history, the consumer remains in a recessionary mindset." - Doug Short, Advisor Perspectives


Full story at...
http://advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php

CONSUMERS ON CRASH COURSE (CNBC)
Consumers are clipping coupons at a rate not seen since before the 2007 recession, and that's a troubling sign, according to Coupons.com CEO Steven Boal... This pattern is almost identical to the one that played out right before the last major economic downturn...
"The index tends to run in a range," he explained. "In September, October, November in 2007, it popped out of its range for the first time... And, for the first time since then, we are seeing a tripping out of the range," said Boal, a former Wall Street executive."  Full story at...
http://www.cnbc.com/id/100485313
 
FAST MONEY TEAM SAYS BUY (CNBC)
With the markets dipping in the last several trading sessions, the "Fast Money" team was in agreement that strong fundamentals and healthy market dynamics will push the market higher, urging investors to look at pullbacks as buying opportunities.
http://www.cnbc.com/id/100492196
 
I almost started tracking a "Fast Money" index because when the regular hosts are ALL bullish; it's usually time to sell.

MARKET RECAP and CORRECTION THOUGHTS
Tuesday, the S&P 500 finished up 0.6% to 1,497 (rounded).  VIX was down 11%, to 16.87. 

Market internals are leaning toward the correction scenario, so it looks like correction to me.  On the other hand, another indicator hints the S&P 500 will move up a bit higher before turning down...we’ll see.

NTSM
Tuesday, the NTSM analysis remained HOLD at the close.

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

 

Monday, February 25, 2013

US Debt Crisis; Stock Market Correction

US DEBT CRISIS (Wall St. CheatSheet)
A paper written by David Greenlaw, James Hamilton, Peter Hooper, and Frederic Mishkin for the U.S. Monetary Policy Forum in New York last Friday focused on this metric, and tried to identify a tipping point. The logic is that countries with too much debt enter a destructive negative feedback loop, and that instead of a slow descent there is a more well-defined debt-to-GDP level that is sort of the event horizon, beyond which recovery becomes tremendously more difficult…
Through this perspective, it looks like America is beyond that tipping point…
The paper concludes that “countries with debt above 80% of GDP and persistent account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics.” What’s more, “such feedback is left out of current long-term U.S. budget projections and could make it much more difficult for the U.S. to maintain a sustainable budget course. A potential fiscal crunch also puts fundamental limits on what monetary policy is able to achieve.”  Full story at…
http://wallstcheatsheet.com/stocks/tipping-point-economics-suggests-u-s-is-at-risk-of-debt-crisis.html/

SOUNDS LIKE REINHART AND ROGOFF  
This above news is very similar to Reinhart and Rogoff who have made similar comments in the past.  In their book, “This Time is Different: Eight Centuries of Financial Folly”, they point out that debt is a natural result of a financial crisis and the debt is primarily caused by reduced tax receipts associated with economic slowdown.  In most cases, nations have decided to inflate their currencies rather than deal fully with paying down the debt.  From cutting the silver content in the Middle Ages to printing more paper money during the American revolution – it’s always the same.

AMERICAN TRUCKING ASSOCIATION
ATA Truck Tonnage Index Posts Best Ever January
"Arlington, Va. - The American Trucking Associations' advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.9% in January after jumping 2.4% in December...Tonnage has surged at least 2.4% every month since November, gaining a total of 9.1% over that period...Compared with January 2012, the SA index was up a robust 6.5%, the best year-over-year result since December 2011." Full press release at...
http://www.truckline.com/pages/article.aspx?id=1089%2F8e1c7279-ed27-4c03-b189-ceeee26bbb12
 
The ATA report certainly doesn't look like the economy is backsliding, but as always, I am not an economist so that’s an uninformed opinion. 

MARKET RECAP and CORRECTION THOUGHTS
Monday, the S&P 500 finished down 1.8% to 1,488 (rounded).  There was a hard sell-off late in the day so the Pros were spooked. 

VIX was up a whopping 34%, to 18.99.  VIX is up 63% in 3-trading sessions.

NTSM
Monday, the NTSM analysis remained HOLD at the close.

Even the huge climb in VIX hasn’t sent the VIX indicator to sell yet.

Both Volume and Sentiment are close to a sell.  Price is on the negative side of neutral.

The S&P 500 is near its lower trend line, but it would have to close below 1475 for 2-consectuvie days before an end to the up-trend can be reasonably assured by chart analysis (at least the way I look at the world).  Other indicators are stretched though and I think the NTSM analysis will switch to sell if the market falls much further.

In spite of the fear in the air Monday, the market internals haven’t completely collapsed yet, but they are stretched.  Breadth says down; new-hi/new-lows are neutral.

It looks like the correction is under way and I am not going to get a nice clean top I wrote about a few blogs ago.  In other words, it looks like the top was 4-days ago at 1531. 

MY INVESTED POSITION
I’m going to wait and watch my indicators.  I don’t plan to cut my stock position until the NTSM system is a sell.  I think the correction has started; but I will wait for some more numbers to confirm it.  Another strong down day would probably give us a sell signal, perhaps as soon as tomorrow; however, my guess is that Tuesday will be an up day…we’ll see.

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

Friday, February 22, 2013

The Stock Market Correction

Once again it seems like all of the financial pundits are talking about a correction as if it is certain that it has already started.  This time, they may be right. 

Examining breadth on the NYSE – and I measure this market internal as the percentage of stocks advancing – we can see that it is deteriorating.  The 10-day moving average of the percentage of stocks advancing (Green line) has been falling since late November even as the S&P 500 (black line) has been moving up.  When breadth moves below 50% (less than half the stocks are advancing) the S&P 500 is likely to fall.  As of Friday, the 10, 20 and 50-day moving averages of the percentage of stocks advancing are all above 50% so we may still have some upside left, but perhaps not much.

 Chart from Navigate the Stock Market

The percentage of stocks making new highs has been falling since early February and the percentage of new-highs vs. new lows is now flat and trending slightly down. Market internals are sending warning signals.

Market action is warning us as well.  An extreme calm before the storm was observed 10-days ago warning that we may have already seen the top or one may occur in less than 10-days from now (on average).

Over the last month the Morgan Stanley cyclical index has underperformed the S&P 500 by about 2%.  The cyclicals are usually more sensitive to downturns so this may be an early warning too.

Sentiment is quite stretched as I have written on many occasions recently.

To summarize, we’re either in-correction or one is coming soon.

I’d still like to see the S&P 500 move another 2% higher and have a strong move up (say around 1%); at that point I’d feel more comfortable calling a top, but the markets may not oblige, especially if the top was actually 4-days ago.   

MARKET RECAP
Friday, the S&P 500 finished up almost 1% to 1,516 (rounded). 

VIX was down 7%, to 14.17

NTSM
Friday, the NTSM analysis remained HOLD at the close.  

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

Thursday, February 21, 2013

Philadelphia Federal Reserve Report – Surprises to the Downside

WEAKENING NEW ORDERS IN PHILLY MANUFACTURING (MarketWatch)
“The Federal Reserve Bank of Philadelphia’s barometer of regional manufacturing activity dropped further into negative territory this month, far below analysts’ expectations, on declines in overall activity and new orders…Negative readings indicate that a larger percentage of respondents said there was a decrease in the level of general business activity than the percentage who said there was an increase…Analysts warned against reading too much into the Philly Fed report, which is regional, and has been weaker than national data.”  Full story…
http://www.marketwatch.com/story/us-manufacturing-growth-slows-down-2013-02-21

STRIKE THREE! THE AMERICAN CONSUMER IS OUT (CNBC)
"We see there's three meaningful headwinds on the lower-income consumer this year that are taking place right now and in order of importance, I'd put it first on the delay in tax refunds," said Peter Keith, a senior research analyst at Piper Jaffray. "Secondly, I'd put it on the payroll tax cut expiration that was mentioned earlier. And lastly, we're starting to see gas prices go up." Full story at…
http://www.cnbc.com/id/100481196

ECONOMIC INDICATOR SHOWS SLOWDOWN DEAD-AHEAD (ZeroHedge)
The GLI is rotating from expansion to slowdown rapidly... the drivers of the weakness are the Baltic Dry Index, Global PMIs, Global New Orders Less Inventories, and Goldman's Aussie and Canadian Dollar TWI.
Full story at…
http://www.zerohedge.com/news/2013-02-21/global-leading-indicator-shows-slowdown-dead-ahead

The Philadelphia Federal Reserve report was a surprise today and that may have impacted the markets.  The looming sequester is an issue, but most economists seem to rate it a 1% drag on the economy.  That’s a pretty big number, but not anywhere near the worry of the Fiscal Cliff.  Most seem to think the sequester will be short lived since the cuts are so poorly conceived. (See yesterday’s blog.)

It seems to me that we are seeing more negative reports regarding the economy.  Still, I don’t think we have seen a top in the Markets yet.

Market internals reversed down today; if they drop much faster I’d say it would confirm a correction.  As it stands now, the Jury is still out.

MARKET RECAP
Thursday, the S&P 500 finished down 0.6% to 1,502 (rounded). 
There was some late day buying so that was good to see.

VIX was up 4% to 15.22.

NTSM
Thursday, the NTSM analysis remained HOLD at the.   All indicators are neutral. 

Only Sentiment is on the verge of a sell signal, but the NTSM analysis won't switch to sell unless more indicators are negative.

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

Wednesday, February 20, 2013

Federal Reserve Worries the Markets; Sequestration Too

FEDERAL RESERVE (MarketWatch)
“Minutes of the Federal Reserve’s January meeting released Wednesday reveal that many Fed officials are worried about the costs and risks arising from the $85 billion–per–month asset-purchase program. And they all seem to have their own ideas on how to proceed…Several Fed officials said the central bank should be prepared to vary the pace of the asset-purchase plan depending on the outlook or how the program was working. One wanted to vary it on a meeting-by-meeting basis…‘The minutes show a committee that is far less unified than at any other time in the past few years,’ said Millan Mulraine, senior economist at TD Securities.”  Full story at…
http://www.marketwatch.com/story/fed-plans-debate-on-bond-buys-minutes-show-2013-02-20

The Markets hate surprises and the previous story looks like a surprise may be in the future.

SEQUESTRATION
One of the really amazing things about the incompetence of Congress, and the President too, is that this sequestration (that Congress passed and Obama signed into law) applies to “Programs, Projects and Activities within Accounts”.  This means that the reductions are directed by Congress at each piece of the budget – not at large programs.  For example if you directed DOD to spend 10% less money, I think the impacts would be small since unneeded programs could be cut or delayed; but rather than direct agencies to prioritize and make cuts, the sequester requires across the board cuts to all items down to an activity level.  So waste isn’t eliminated, it is just cut a little like the rest of the budget. 

What’s really ironic is that Congress doesn’t even know itself what the law says, as exemplified by the next Article:

LAWMAKERS TRY TO PROTECT HOME TURF
“…(Senator Roger) Wicker warned that cuts to the Mississippi River and Tributaries Project, which manages inland waterways and flood risks, would harm the local economy and pose a safety threat…He pressed Jo-Ellen Darcy, assistant secretary of the Army for Civil Works, about whether she could send a request “upstream in the bureaucracy” for more flexibility in carrying out cuts to the Army Corps…Darcy’s response: It would be nice, but the law is the law.” 
Full story at…
http://www.politico.com/story/2013/02/lawmakers-protect-home-turf-from sequester-87794_Page2.html

In other words, the clowns in Washington set up the law in an incompetent fashion; the Assistant Secretary of the Army can’t change it – only the Congress and President can.

Even the Senate Minority leader doesn’t understand this. He made comments that Obama should prioritize the cuts to avoid layoffs at TSA that will cause airport delays.  The President can’t – even he doesn’t have the authority under the law.  He can only exempt the military.

MARKET RECAP
Wednesday, the S&P 500 fell slowly throughout the day (down about 0.5% at mid-day), but rapidly pulled back after the Fed minutes were released at 2PM to finish down 1.2% to 1,512 (rounded). 

VIX was up 19%, to 14.68 as someone woke up the Options boys.

NTSM
Wednesday, the NTSM analysis switched to HOLD at the close as all indicators significantly declined.   None of the indicators moved to sell though.

NTSM sentiment was 62%-Bulls as of Tuesday’s close – close to the 67% negative level.   That’s just one indicator…I think it would still take a couple more days for the entire NTSM system to issue a sell signal, if indeed this hiccup turns into more sustained selling.  I don’t expect that though.  It is likely that the buy-the-dip crowd will move in and we’ll make another new high before the party ends.  We’ll have to wait and see on that guess, though.  

The Fed news may really rattle the markets.  The Pros sold in the last hour today, but not at a rate that was alarming.

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

 

Tuesday, February 19, 2013

World in Recession; Warnings of a Stock Market Crash

WORLD PLUNGES INTO RECESSION IN Q4 2012
"With the disappointing initial GDP releases for Q42012 from Europe out, the "world" as defined by 41 OECD countries across the globe, has plunged into recession. We define "recession" through two alternative definitions for our comparison, either the presence of a single negative quarter-on-quarter growth or the more traditional two consecutive negative quarterly growths.

Whichever way you look at it, the number of counties in expansion plunged dramatically between 3Q2013 and 4Q2012" - Dwaine Van Vuuren
Posted as a “Guest” on dshort.com, Advisor Perspectives. Doug has a link to the original article on his website at…

http://advisorperspectives.com/dshort/guest/Dwaine-van-Vuuren-130215-World-Recession.php

WARNING FROM A STOCK TRADER BOARD
“Weekly sentiment as reported by Barrons is about as extremely bullish as at any time in the past.  In the past (and of course history never repeats itself) this has led to bear markets, or at the very least, a correction within 3 months which drops the markets below where they were when the extreme readings happen.

So buying now, unless you are a short term trader makes no sense. Obviously, price action says higher highs ahead, and I am sure we get at least one more rally to new highs after the next 5 to7% correction, but long term investors should be selling, not buying now.”


HUSSMAN – “GREAT LEAPING LIZARDS! HOLY COW, BATMAN! GREAT CEASAR’S GHOST!”
No, John Hussman didn’t say any of those things, but I think it is implied in his commentary this week.  I’ve excerpted some comments below (with permission):

“In recent weeks, market conditions have established an overvalued, overbought, overbullish, rising-yield syndrome in a mature bull market; conditions that uniquely marked the peaks of advances in 1929, 1972, 1987, 2000, 2007, and 2011...

...Given the extent and maturity of the recent advance, it’s very odd that analysts are now beginning to toss around the idea that stocks have entered a secular bull market...Unfortunately, secular bull markets do not begin simply because stocks have gone nowhere for a long while or because the market breaches some trendline. They begin at the point that valuations become so depressed - again, about 7 on the Shiller P/E - that strong and sustained long-term returns are baked in the cake.”

My Comment – Clearly Bull markets begin with extreme low valuation.  Further, from the chart below, also taken from Hussman Funds at http://www.hussmanfunds.com/, the PE is now at extreme highs (by several measures) not bear-market lows.
  
 
PICKING UP JOHN HUSSMAN’S COMMENTARY...
“...As a side note, we’re quite aware of the seemingly “reasonable” valuation of the market, on the basis of the forward operating earnings estimates of Wall Street analysts, at least on the basis of simplistic “price/forward earnings” multiples. Unfortunately, these estimates reflect profit margins that remain about 70% above historical norms, and are primarily driven by unusually large budget deficits and depressed private savings.” – John Hussman, Phd, 18 Feb 2013 Weekly Market Comment from Hussman Funds at...
http://www.hussmanfunds.com/

John Hussman, PhD, (Stanford, Economics) presents a lot more information and supporting charts (as well as covering other points) in his weekly market commentary.  See the link above for Hussman Funds to get the full picture.

SEQUESTRATION WARNINGS MAY BE OVERBLOWN (Reuters)
“While the measures do indeed threaten jobs and the economic recovery, experts say government agencies are overplaying the effect of the $85 billion ‘sequestration’ cuts to jolt lawmakers into halting them... ‘Somehow, the idea that if we go back to 2007 military funding levels we're going to be a second-rate power, well that's overdoing it,’ said Lawrence Korb, a senior fellow with the Center for American Progress and a former U.S. assistant defense secretary.

"’If you kept this cut, you're back to $500 billion a year. I find it hard to get that worried about it,’ Korb said, noting that this was still vastly more than any other country spends on its military.”  -The Huffington Post. Full story at…

http://www.huffingtonpost.com/2013/02/14/sequestration_n_2690860.html

MARKET RECAP
Tuesday, the S&P 500 was up 0.7% to 1,531 (rounded).  VIX was down 1.2%, to 12.31. 

NTSM
Tuesday, the NTSM analysis switched to BUY at the close. 

That doesn’t mean this is a great time to buy (I think we are near a short-term top); but it’s an indication that the market trend is strongly up.

NTSM sentiment is 64%-Bulls as of Friday’s close.

If we get a big move up, say in the range of 1%, I’ll take a big short position.  Otherwise, it’s watch and wait.
 
MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

Friday, February 15, 2013

Walmart Blues and Sequestration Threats

The market was drifting along within a point or two of its opening (reminding us of every day this week) when suddenly it fell 1/2% around 2PM. The culprit was WALMART whose internal emails were released suggesting low sales for the month. It was big news as the pundits said this was evidence for the end of retail.  Cooler heads suggested that it would mostly affect the low-end retailers and was probably due to reinstatement of the 2% payroll deduction that has cut paychecks.  For many on the lower end of the income ladder, a 2% hit took all of their discretionary income.

WALMART (from ZeroHedge)
“Wal-Mart shares are plunging as the firm reports a 'total disaster' in its February sales. Bloomberg obtained internal emails that note:

"In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal-Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company....”  Full story at…
http://www.zerohedge.com/news/2013-02-15/wal-mart-stock-drops-after-it-says-february-sales-total-disaster-worst-montly-start-

SPENDING CUTS LOOM AS THE NUMBER 1 THREAT TO MARKET (CNBC)
“…Art Hogan, managing partner at Lazard Capital Markets, said investors' lack of concern over sequestration comes from three factors: A belief that Congress will find a last-second compromise, a la the cliff; less concern about the spending cuts than the tax increases; and ‘a lack of understanding over what this really means in terms of how much of a drag this is on GDP’… Most economists pin the impact short of 1 percentage point, compared to the full cliff's potential impact of upwards of 4.5 percent.” Story at...
http://www.cnbc.com/id/100464350

MARKET RECAP
Friday, the S&P 500 was up down 2pts to 1,520 (rounded).  VIX was down about 2%, to 12.46. 

As I’ve said before, the falling VIX remains good news, but the rate of decline isn’t much, so the VIX indicator remains hold.  In fact all indicators are neutral at this point except for Price action and that is only marginally positive.

Volume was high today, 25% above the monthly average.  I think the Walmart news spooked some investors and retail stocks dropped across the board.  Overall the market recovered and it was generally up in the final hour, so the pros were not concerned. (The last hour is considered the smart money because that’s when the professional do most of their trading.)
 
Market internals are not giving any clue regarding future market direction so we'll have to see what the future brings. 
 
Markets will be closed Monday for President's Day so the next blog installment will be the evening of Tuesday, 19 Feb 2013. 

NTSM
Friday, the NTSM analysis remained HOLD at the close. 

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

 

Thursday, February 14, 2013

Valentine’s Day – Blankfein loves Stocks; Europe Recession & Unemployment

ON THE THRESHOLD OF A BULL
“This Could Be Threshold of a Bull Market: Lloyd Blankfein (CNBC)
The Goldman executive listed extremely low interest rates, a "terrific" energy situation which can drive manufacturing and create jobs, and an ongoing turnaround in housing as reasons to be bullish. But he cautioned that the U.S. needs good policies to make sure it can benefit from those advantages.

"A million things can go wrong but what people under-assess is things could go right," Blankfein said. With the U.S. stock market flirting with all-time highs, he added, "The equity market could very well have it right."

…The U.S. has also made significant progress on dealing with its debt and deficits, Blankfein said, but there is more work to be done. He noted that with sequestration, tax increases and other measures, politicians have cut nearly $2.6 trillion — still far below the roughly $4 trillion some say is needed.” 
Full story at ...
http://www.cnbc.com/id/100453712

That forecast goes against history that suggests the US markets are due for a major downturn. I don’t agree with Mr. Blankfein.  I suspect we are in for a rough time ahead; but since I can’t predict exactly when that may occur, I follow the NTSM analysis for my long-term investment decisions.

UNEMPLOYMENT CLAIMS
“Today, we just got an initial claims print of 341K, far below expectations of a 360K number, and even more below last week's upward (of course) revised number of 368K. On the surface- great. Until one reads the actual release: "Jobless claims for Connecticut and Illinois were estimated by the Labor Department, a spokesman said as the figures were being released." Because apparently, the "blizzard upset the application process."…Since the number is now nothing but noise, there is no point to even comment on it.” – ZeroHedge…Full story at…
http://www.zerohedge.com/news/2013-02-14/initial-unemployment-claims-plunge department-labor-estimates-claims-illinois-connec

EUROPE RECESSION
“As expected in this quarter (but not by economists) Eurozone economies contracted at the sharpest rates in four years with Germany, France, and Italy falling short of consensus estimates.”  Full story at…
http://globaleconomicanalysis.blogspot.com/2013/02/eurozone-economy-contracts-6-in-4th.html

This continues to be a major threat to US earnings and, therefore, continued stock market advances.

MARKET RECAP
Thursday, the S&P 500 was up 1pt to 1,521 (rounded).  VIX was down about 2.5%, to 12.66. 

The falling VIX remains good news, but the rate of decline slowed a little today so the VIX indicator switched to hold.

The markets continue a slow melt-up.  This must be painful to those holding short positions (betting that stocks will go down).  When they throw in the towel and cover their shorts, we may see the 1% up-move that signals the end of this rally. 

NTSM
Thursday, the NTSM analysis switched to HOLD at the close. 

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.

Wednesday, February 13, 2013

SENTIMENT – When it’s hot; you’re not

EXTREME BULLISH SENTIMENT – Bank of America/Merrill Lynch
“According to BofAML's new Bull & Bear Index, investor sentiment toward risk assets is at a more bullish level today than 99% of all readings since 2002. The current reading of 9.6 (out of 10) is close to max bullish and thus triggers a contrarian "sell" signal for risk assets. In their view, the relative risk-reward of owning equities is unfavorable at this juncture. Since 2002 a "sell" signal of 8.0+ was on average followed by a 12% peak-to-trough correction in global equities within three months.” – Full story with charts and analysis from ZeroHedge at
http://www.zerohedge.com/news/2013-02-12/sentiment-more-bullish-99-all-prior-readings

BUSINESS SENTIMENT
“Small Business Sentiment: Up Fractionally, But Still One of the Lowest Readings in Survey History - Doug Short, February 12, 2013  See dshort.com for the story…
http://advisorperspectives.com/dshort/updates/NFIB-Small-Business-Optimism-Index.php

NTSM SENTIMENT
The NTSM sentiment value as of today’s close was 64%-bulls.  That’s a 5-day moving average of Bulls/(Bulls+Bears) where the value used is the amount of dollars bet in selected Bull and Bear Guggenheim funds.  The current sell signal is 67% for this indicator, so the markets are getting very stretched by many measures.  As more and more investors think the market will go up; the less likely it is that they will be right.

MARKET RECAP
Wednesday, the S&P 500 was up 1pt to 1,520 (rounded).  VIX was up about 2.7%, to 12.98.

I measure Breadth via the percentage of stocks advancing (ignoring unchanged stocks).  The percentage of stocks advancing for the S&P 500 is above 55% for the 10, 20, and 50-day moving averages.  Those are positive values for the markets.  Today 59% of stocks on the NYSE were advancing.

There were 323 new-highs on the NYSE with only 6 new-lows for a spread of 317. Ignoring January, that’s the highest value since mid-September. 

Given that the market internals were quite positive today and the market went nowhere, I think tomorrow (Thursday) should be an up day.   

NTSM
Wednesday, the NTSM analysis remained BUY at the close. 

That doesn’t mean this is a great time to buy (I think we are near a short-term top); but it’s an indication that the market trend is strongly up. 

Yesterday was only the second “BUY” signal by the VIX indicator in the last month.  VIX is the best indicator in the NTSM analysis as back-tested to 2005 and it is nice to see a buy signal from the options boys.  VIX was Buy again today, although the value was up for the day, the longer term trend has been down.

I am waiting for a significant up move, perhaps 1% in any given day.  If I see it, I will heavily short the market as a short term trade with tight stops.  A 1% move up might be the signal for a tradable 5-10% pullback (assuming Congress doesn’t allow the sequestration cuts).  This is for short-term money.

For my long term investments, I will watch the NTSM indicators.  Right now the longer term indicators are BUY with a HOLD very possible in a day or two.  

If Congress allows the 8% budget cuts to go through (sequestration or others), I expect a downturn in stocks.  With significant cuts in Government spending, it is anybody’s guess whether investors will decide that this is a major top, or if it will be a minor pullback. 

MY INVESTED POSITION
Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.