Wednesday, April 17, 2013

Problems Around the World

“Europe's 'Dow', the EuroStoxx 50, has suffered the biggest 4-day rout in 10 months as the broad Bloomberg 500 index plunged by the most in five months today amid terrible consumer, car registration, and economic collapse on the continent.”  Story at...

“The falling yen coupled with a fall-off in Chinese investment inflows "increasingly resembles" the run-up to the 1997 currency crisis, said Albert Edwards, Societe Generale's ultra-bearish strategist..."It seems investors may have forgotten that yen weakness was one of the immediate causes of the 1997 Asian currency crisis and Asia's subsequent economic collapse," Edwards wrote in a global strategy note on Wednesday.”  Story at...

In March of 2008, it was clear that a major crash was imminent: (1) the S&P 500 couldn’t get appreciably past its 2000 high; (2) Bear Sterns (the investment bank) failed; (3) the S&P 500 had fallen 18% from its prior high in what was thought to be a correction.  The market rallied 10% upward before continuing down to eventually lose more than half its value. 

So here we are again: (1) the S&P 500 couldn’t get appreciably past its 2007 high; (2) ??? ; (3) ??? 
…What is happening now (market disruption) is a world-wide event, involving precious metals, commodity prices, currencies and stock markets; it may well be more than just a run-of-the-mill correction, but it’s probably too early to say the market will undergo a major crash.  

Wednesday, the S&P 500 was down 1.4% to 1552 (rounded). VIX rose 18% to 16.51.

Today (Wednesday) was another “statistically significant” day – this time it was down.  So repeating the mantra…that means the odds favor Thursday being an up-day.  We’ll see. 

Tuesday, the NTSM analysis was HOLD at the close, but I might as well have called it a sell.  Sentiment was 62.6%-bulls.  My sell for the sentiment indicator is now 63%-bulls.

Today, Wednesday, the NTSM analysis is SELL at the close due to sell signals from the VIX and PRICE indicators.  I suspect Sentiment will switch to sell today too.

Wednesday, the S&P 500 hit the 1552 level for the seventh time in the last month.  Wednesday’s visit to 1552 was on lower volume with slightly improved breadth compared to the prior visit. (Stop me if you’ve heard this before.)  Like the last time (8 April 2013), the volume actually was 89% of the previous low (2-days before) and breadth improved slightly. 

Many would consider those technicals to be signaling, “correction-over, time-to-buy” even though, in my opinion, the volume isn’t low-enough, nor have internals improved enough.

Still, for traders, this may signal another move up.  I am much less certain this time around because there is a negative, head-and-shoulders, chart-pattern looming that has a lot of traders worried.

Bottom line: The traders buy-signal makes no difference to my long-term positions and I don’t want to move any long-term money back into stocks since the NTSM analysis is currently SELL.  I’d need a lot more evidence before I get back in the stock market.  (If the market goes down tomorrow, we can forget about this discussion; a down-day will mean traders didn't consider today's market action a buying-opportunity.)                                           

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.

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.