Tuesday, April 23, 2013

Don’t Be Hugely Long This Market

“If you are hugely long this market…valuations say you shouldn’t be; margin debt says you shouldn’t be; history says you shouldn’t be...Don’t just do something; sit there!” – Mish Shedlock, 2013 Speaker Presentations, Wine Country Conference benefitting the Les Turner ALS Foundation.  Presentations at…

China PMI Falls (CNBC)
“China's first economic indicator for the second quarter far underperformed expectations on Tuesday, putting the nation's recovery in question as economists recalibrate growth projections lower for the world's second largest economy.
China's flash HSBC PMI fell to a two-month low of 50.5 in April from 51.6 in March…"It's a big miss. Confidence in the outlook for China has really diminished, particularly after first quarter growth data," said Tim Condon, head of research for Asia at ING. "People are now reforming their views on economy. The new view is that growth will be stagnant," he added.”  Full story at…

"With about 20% of the companies in the S&P 500 reporting actual results, the number of companies reporting earnings above estimates is slightly above recent averages, while the percentage of companies reporting revenues above estimates is below recent averages….The blended revenue growth rate for Q1 2013 is -0.2%, down from an estimate of 0.4% at the end of the quarter (March 31)."  Web page at…

"The main risk in the U.S. earnings season is actually about overly optimistic earnings expectations in the second half of this year, so you just have to focus a little further out," she said. "And the reason behind that is that the numbers are still forecasting 10 percent growth in earnings over last year, in the same period as last year, and in the face of weakening economic data, this could give markets a reason to be a little bit shaky going forward." - Gemma Godfrey of Brooks Macdonald Asset Management
Tuesday, the S&P 500 was up 1% to 1579   (rounded). VIX fell about 6% to 13.50.

Tuesday, the NTSM analysis was HOLD at the close.  Only PRICE and SENTIMENT indicators are negative. VOLUME is neutral and VIX has switched to positive based on the sharp drop in VIX recently.

Now the market has climbed slightly ahead of the point where the NTSM system gave a sell signal – 1575.  (I “panicked” out at 1540, about 2% lower.)  I am not worried about a few percent under-performance.  The prior top is 1593.  Perhaps the S&P 500 will get there or even break to the even number (1600).  Many issues remain though.  I think many investors will decide to “sell in May and go away.”

The S&P 500 is 8.5% above its 200-day moving average.  10% is about as high as I think it can go and the market hit that number a week and a half ago.  Maybe it will go higher – maybe not.  (Hey, I’m just hedging my bets!)

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
…but now I have confirmation from the NTSM analysis which sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.