Friday, May 31, 2013

Consumer Spending Down…Chicago PMI Up

CONSUMER SPENDING FELL (not drastically) (Reuters)
"U.S. consumer spending fell in April for the first time in almost a year and already low inflation declined further, undercutting arguments for a near-term tapering of the Federal Reserve's bond-buying stimulus...Consumer spending fell 0.2 percent, the weakest reading since May last year, the Commerce Department said. When adjusted for inflation, spending nudged up 0.1 percent." Story at...

"Chicago PMI surged to a reading of 58.7 in May, up from 49.0 in April, according to data released Friday, marking the best reading in over a year, just a month after the worst reading in three-and-a-half years." Story at...

“…(I)t’s important to stress that our defensiveness is a reflection of prevailing, observable evidence and the alignment of our investment views with the average outcome of such evidence across similar instances over the course of history. The consistency of negative outcomes also worsens the expected return/risk ratio presently.  A defensive stance here does not require any particular forecast about recession, profit margins, bubble/crash dynamics, QE, European banking strains, or any of the numerous risks in the economic and financial backdrop…
…My concerns here are not based on a forecast about any particular event in this specific instance. It is based on an ensemble of observable factors that can be tested and validated across numerous independent samples of market history over time…” – John Hussman, PhD, Hussman Funds Weekly Market Commentary for 27 May 2013 at…

"The government said Friday that Medicare's giant hospital trust will not be exhausted until 2026, two years later than projected last year, while the date that Social Security will exhaust its trust fund remained unchanged at 2033." Story at...

“The correction is official, but no one seems to believe it”.  (His comment Tuesday was that a close below 1650 on Friday would confirm the correction.)

Market internals are very negative now and that suggests to me that the correction will continue.  The 10-dMA of breadth fell to 45% today.  Only 15% of stocks on the NYSE finished in positive territory for the day.  In addition, there were 90 stocks that made new highs today, but 2-weeks ago there were more than 500.

Friday, the S&P 500 closed down 1.4% to 1631 (rounded).

VIX rose 12% to 16.30.  Finally, someone woke up the options boys.

The S&P 500 is still 10% above its 200-day moving average, so there is a good possibility that the market may fall about 10% from here.

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

SENTIMENT is extreme negative at 71%-bulls for the 5-day moving-average at Thursday’s close.  (I’m almost always a day late on the Sentiment value since the data is not published until after I finish writing.)  Sentiment was 70% for Thursday.  Both the 1-day and 5-day values are at extreme high values often found around tops.  Other indicators are now leaning negative.

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.