Monday, April 15, 2013

“Down, down, down, and the flames got higher…”

Stock market commentary from Johnny Cash.

“The New York Fed's "Empire State" general business conditions index dropped to 6.56 from 20.21 in March, far below economists' expectations for 18.00. It was the lowest level since last November...

..."Manufacturing was decidedly a negative surprise," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. If manufacturing slows down, that will certainly be a headwind to the economy.’”  Full story at...

You may remember that we cautioned about the price of copper not long ago. Copper is often referred to as Dr. Copper, PhD in economics; because the price of copper is thought to reliably predict economic conditions.

Copper has broken below critical support levels per the following piece from Chris Kimble at  This predicts a weakening if you wanted more confirmation.

“‘Michael McCarthy, Chief Market Strategist at CMC Markets, [says that] conflicting macro flows in the U.S. could lead to markets faltering. He...sees gold falling to $1,000 per ounce over the next 12 months.’…
…Gold prices broke below $1,400 on Monday [today], as investors dumped shares of gold miners on worries over their profitability as the yellow metal hit its lowest level since March 2011.

‘We've traded gold for nearly four decades and we've never… ever… ever… seen anything like what we've witnessed in the past two trading sessions,’ Dennis Gartman, the editor of The Gartman Letter said in a note on Monday.“ - CNBC
Full story with video at

My comment: Gold was down 5% Friday; 9% today; and is down about 30% from its recent high in Oct 2012.  It seems to me that when you have panic in the markets - and it looks like a panic in gold – the stock market is likely to be rattled too.  There will be some who take the other side of the argument and suggest that the money coming out of gold will go into stocks.

Gold has lost 14% in 2-days.  Stocks can crash the same way if panic grips the stock market.   Protect yourself by asset allocation.  Limit your exposure to the stock market to an amount that allows you to sleep at night   Perhaps this warning is a little late; I thought it was pretty smart when I jotted this down before the open Monday morning and gold had already dropped huge in foreign markets.

Interestingly, the odds favor an up day tomorrow after the “statistically significant” down-day today (Monday).

Monday, the S&P 500 finished down 2.3% to 1552 (rounded).

{I don’t think the tragic events in Boston had anything to do with the market’s reaction today.  The bombing occurred late in the trading day.  It was painful to watch news reports.  My prayers are with the victims, families and friends.}

VIX rose over 43% to 17.27; that’s not a typo – 43% in one day.

Monday, the NTSM analysis Switched to SELL at the close. 

All of the NTSM indicators took a big hit today.  VIX and PRICE were both solidly on the sell side and SENTIMENT almost joined the sell party too when the buy-the-dip crowd moved in at the close. 

The PRICE indicator that tripped to the negative is one that tracks statistical moves in the market compared to recent market activity.  The theory (and it’s based on observation of prior panic days) is that a big down day like today usually leads to more selling.  I call it the “Panic Indicator.”  The most recent panic indicator tripped on 19 Oct 2012, 2-days after the top of 1461, although that was a relatively shallow mini-correction.

Speaking of panic…I couldn’t find a day that had a bigger panic (on a statistical basis when compared to recent market action) than today and that was going all the way back to 2009.

Since VIX is the best indicator in the NTSM system it is more heavily weighted and needs only one more sell indicator to send the entire NTSM system to sell.  VIX and PRICE alone were sufficient to call the sell Monday. 

Of the long/short Guggenheim Funds I track for the sentiment indicator, fully 75% of the bets were placed in long funds at the close Friday and 66% of all money was bet long today at the close.   (That’s courage or stupidity – we’ll find out soon.)  The 5-day moving average of sentiment was 62%-bulls Monday.  My sell point for this one indicator is 63%-bulls. So sentiment is still very high even at today’s close.

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
…and now I have confirmation from the NTSM analysis.

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.