The more I listen to politicians, the more likely it looks that we may actually have sequestration take place. The cuts don’t look that big when compared to annual budget deficits exceeding 1-trillion dollars. Doug Short looked at Defense spending cuts and produced the following historical chart of defense expenditures versus GDP:
Chart from...
http://advisorperspectives.com/dshort/commentaries/Sequestration-National-Defense-130211.php
Doug Short wrote:
“Discretionary defense budget cuts of this magnitude will have a significant
impact on GDP far beyond the government consumption expenditures and gross
investment subcomponent. The military spending cuts will have a
ripple effect on gross private domestic investment and will trim the personal
income that drives the largest component of GDP, personal consumption
expenditures.
If sequestration indeed happens, as increasingly looks to be the case,
the US economy will be in for an economic struggle that will greatly increase
our risk of a recession.” – Doug Short. Full story at…
http://advisorperspectives.com/dshort/commentaries/Sequestration-National-Defense-130211.php
So it looks like Defense Spending is now about 6% of GDP. The proposed sequestration reduction is
8.3%. So the sequestration cut would
directly reduce GDP by ½ of one percent (6% GDP x 8.3% reduction = 0.5%
GDP). As Doug Short noted, the real
concern will be the ripple effects, since this spending cut will impact
periphery businesses and employment.
IS THE STOCK MARKET REALLY TOPPING? - Dominic Cimino
“I'll be the first to admit - because of a macro-economic backdrop that
has elicited what I believe are three ominous, unprecedented phenomena that
provide for unparalleled uncertainty in regard to the globe's financial future
(e.g. the three are: (1) unprecedented global debt and leverage, (2)
unprecedented central bank liquidity injections into the world economy in an
effort to correct imbalances, and (3) global fiat currency solidarity), I have
looked with skepticism at this cyclical stock market rally…(but)… I believe the
strong uptrends confirmed by current charts suggest it's premature to call a
market top.” - Dominic Cimino, Guest Post at dShort.com, Advisor Perspectives
at...http://advisorperspectives.com/dshort/guest/Dominic-Cimino-130211-Market-Update.php
RE: CALL A TOP
Dominic Cimino may not be calling a top, but I’m almost there. I expect a “correction top” soon say within a
couple of percent higher than today’s close.
If I see a big daily move up, I’ll take an aggressive short position
with tight stops (i.e., if the market keeps going up I’ll limit losses to less
than 2% of the trade value). The market
pattern looks similar to those I have observed before, so a short position is
interesting. If we were to get a
correction start at 1550, I expect it to be about a 5-10% drop. That guess is subject to revision if bad news
picks up or if the market keeps going up.
At this point, I don’t plan on selling long-term investments so I’ll
stay invested until the NTSM system calls a “sell”. Actually, since I think we will get a
relatively small correction, the NTSM analysis might not indicate a sell. On the other hand, implementation of
Sequestration might change investor moods; so again, I’ll rely on NTSM analysis
regarding long-term money.
I don’t plan on discussing the short position much here either. I have found it confusing to discuss
short-term trades and long-term investments simultaneously.
MARKET RECAP
Monday, the
S&P 500 was down 1PT to 1,517 (rounded).
VIX fell about 0.6%, to 12.94.
NTSM
Monday, the NTSM analysis remained HOLD.
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.
