Tuesday, May 28, 2013

Consumer Confidence Rises

“U.S. consumer confidence strengthened in May to the highest level in more than five years, suggesting Americans' attitudes were resilient in the face of belt-tightening in Washington, a private sector report showed on Tuesday.
The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists' expectations for 71. It was the best level since February 2008.”  Story at CNBC…
Care to guess what the S&P 500 was in February 2008?  It was 1,400 and falling from its peak of around 1550 in Oct 2007.   
Chart from dShort.com
For analysis of Consumer Confidence and additional charts see dShort.com at http://advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php
Consumer confidence tends to follow the stock market so it will be interesting to see how Confidence goes if the markets start getting stressed.
"The American Institute of Architects (AIA) publishes a monthly report called the AIA Architecture Billings Index (ABI)...Simply put, it measures whether billings increased, decreased, or stayed the same from one month to the next...In February 2013, the AIA inquiries index also hit a post-2008 high at 64.8. Since February, however, the ABI index has plunged...In March, the ABI dropped to 51.9, and in April (the latest reading) it dropped again, this time into contractionary territory at 48.6." Story at Seeking Alpha at...
I mentioned a few weeks ago that I know engineers who are being laid off here...and locally, we have a good economy! If Architects and Engineers are working less, rest assured that the same will be true for contractors and construction workers 6 to 9-months from now.

"Investors ramped up their borrowing against brokerage accounts in April, taking margin debt to its highest-ever level. Investors borrowed $384.4 billion against their investments in April, a 1.3% gain from the previous month, and a 29% rise from the same month last year, according to the New York Stock Exchange. That exceeds the record high of $381.4 billion in debt held against investments, known as margin debt, from June 2007." Story at...

Margin debt is like sentiment; it can indicate too much complacency and extreme high margin debt usually corresponds to a top.  Speaking of tops…

As I noted Friday night, sentiment was 72% bulls at the close for the day Friday.  I measure sentiment with a 5-day moving average of percent-bulls based on the amount invested in select Guggenheim/Rydex funds and that sentiment value has been elevated (above 60%) or extreme (above 65%) since the end of January of 2012.  
The daily sentiment value also frequently exceeds 70% at a top.  Looking back, the daily value was above 70% on 28 December and about a month ago on 12 April.  In December, extreme bullishness was the correct call since the S&P 500 bounced from its 200-dMA.   After that, sentiment has climbed to unreasonable and unsustainable levels as the market has climbed.  When will the market turn? That remains to be seen; we are in such a bullish market that I don’t care to guess.

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago.  Tuesday, the 10-dMA of percent advancing stocks was 51%, a slight improvement over Friday’s 49%.  (Below 50% for this indicator usually spells trouble.) The trend in the 10-day breadth remains down so we’ll just have to wait (again) to see what happens.  Overall, market internals have flattened some, but they are still trending down.  Still looks like the markets are toping, but we may get back to the prior top along the way.  

Tuesday, the S&P 500 closed up 0.6% to 1660 (rounded).
VIX was UP 3.5% to 14.48 so there was some concern by the options boys, but the rise in VIX is slow that it not something that long invetsors should be too worried about yet.

Tuesday, the overall NTSM analysis was HOLD at the close.

SENTIMENT remains negative at 69%-bulls (5d-MA) as of Friday’s close.  That’s an extremely high value. 

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
The NTSM system 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.