Friday, May 24, 2013

Durable Goods Orders Rise; Trucking Falls

Durable goods orders, which range from toasters to aircraft, increased 3.3 percent last month, the Commerce Department said on Friday. The department also revised prior readings for orders to show a smaller decline in March than previously estimated… economists expect the austerity will sap strength from the economy as the year progresses. In April, shipments for capital goods in the defense sector fell 5.6 percent.”  Story from CNB at…

A good bit of the gain was due to aircraft orders as Boeing got orders for 51 aircraft in April vs. 29 in March.

We can always count on ZeroHedge to provide a sobering perspective on economic news and, as usual, Tyler didn’t disappoint.  The following chart from ZeroHedge shows year-over-year change in Durable Goods orders:
Chart from ZeroHedge at…

“The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 0.2% in April after rising 0.9% in March…Year-to-date, compared with the same period in 2012, the tonnage index is up 4%...’The slight drop in tonnage during April fit with trends from other industries that drive a significant amount of truck freight, such as manufacturing and housing,’ ATA Chief Economist Bob Costello said…”
Press release from ATA at…

I dutifully report on the economy in this blog and we all assume that there is a correlation between the economy and the stock market.  It’s a no brainer right?  The economy does well and stocks do well; “Perhaps not”, according to Seeking Alpha. I submit the following from Kane Cotton, contributor to Seeking Alpha:

"Does the change in real GDP in year one predict a change in the S&P 500 in the next year?"
“…So, is it predictive? In a word, "No." We found a very weak correlation of 6.3% and an even lower R-squared of 0.004. What about staggering by two years? The results were slightly better, but we still found virtually no predictive power. Correlation improved to only 8.7% and r-squared remained very low at only 0.007.”

Bottom line, when analyzed mathematically, there was little correlation except over very long periods such as on a decade basis.  A good economy this decade predicted a good stock market next decade.   This seems counterintuitive, but perhaps it does make sense.  The markets usually fall before a recession starts in anticipation and rise before a recession is over and that kills the correlation or predictive power of following the economy to predict stock market outcome. For the full story see…

In the end, even if you believe that the economy predicts the stock market, it may not matter:  “What do you call an economist with a prediction? Wrong.” - Robert Kuttner

“While yesterday saw the mainstream media cock-a-hoop at the fact that we pulled 'off-the-lows' with the phrase "buy the dip mentality" parrotted prayer-like every minute of the afternoon. Overnight shenanigans saw that BTFD mentality come and then quickly go and now the US market is fading fast.”  – ZeroHedge, 10:18 AM, Friday.  Story at…

Actually, the buy-the-dip mentality was alive and well Thursday before the close.  In the Guggenheim/Rydex funds I track for the NTSM sentiment indicator, investors bet on the long side by more than a 2 to 1 margin at Thursday’s close.  The 5-day moving average is similarly “uber”-long with 68%-bulls.  That’s an extreme value that generally portends market declines ahead, but not necessarily immediately.

This was an interesting short article at from contributor Eric Schaefer of American Independence Financial Services.  He said that declining populations in many countries around the world will slow their growth while population growth in the US helps our competitive edge.  He concluded:

“Those who worry that the 21st Century will witness the eclipse of American power should take some comfort from these projections. But, the title is ours to lose if we shortsightedly yank the welcome mat from our borders. It is the countless individuals seeking to immigrate to our shores to become Americans, who will help preserve our global economic lead.” - Eric Schaefer.  Story at…

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago.  Today, Friday, the 10-dMA of breadth fell to 49% of stocks on the NYSE advancing.  (Below 50% for this indicator usually spells trouble.) Decliners outpaced advancing stocks by almost 25%.  The S&P 500 was only down 1-point, so a lot of stocks declined, but they weren’t in the S&P 500 index.

As noted yesterday, new-hi/new-lo data is very negative, but it did not quite reach a level that would give me confidence that a correction is imminent.  Still, the change here was dramatic: Wednesday there were 462 new-highs on the day in the NYSE; Thursday there were 43.

Overall, market internals look like they are calling for continued decline, but there is other data that muddies the water: (1) There was late day buying today the pulled the S&P 500 almost back to positive for the day. Late day buying means the Pros are bullish, but I still haven’t seen much predictive power in this indicator.  (2)  VIX fell on the day so there is not sufficient option-money being bet to the short (put) side of the balance sheet to confirm a correction. (3) NYSE Volume was very low Friday, so it would seem that there is not much selling pressure; still, if there aren’t any buyers, the market will fall and selling will pick up.  In this regard, we’ll watch Tuesday's (Monday's the holiday) volume and price action to see if buyers move in.  If not, this could get ugly fast.

Friday, the S&P 500 closed down a point 1650 (rounded).
VIX was down only about 0.6% to 13.99 so there was little concern by the options boys. Complacency continues!

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

SENTIMENT remains negative at 67%-bulls as of Thursday’s close. 

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.