Thursday, May 30, 2013

El-Erian: We need top line growth…

Stephen Weiss of Short Hills Capital said on CNBC that the stock market is on the cusp of a huge bull market.  He had the following comment and question for PIMCO’s CEO: Corporations are strong and profits and fundamentals are great. How can PIMCO advise people to walk away from risk?  El-Erian replied:
“We need top line growth [revenue growth]…we need genuine growth…Europe is slowing; China is also slowing.  Can you get growth to validate the fundamentals; that is the question.”  Transcribed from CNBC

“With over 97% of the companies in the S&P 500 reporting actual results, the number of companies reporting earnings above estimates is in-line with the recent average, while the percentage of companies reporting revenues above estimates is below the recent average.
…The first quarter marked the third time in the last four quarters that the percentage of companies reporting revenues above estimates finished below 50%...
…The blended revenue growth rate for Q1 2013 is -0.3%, down from an estimate of 0.4% at the end of the quarter (March 31). However, only two of the ten sectors are reporting a decline in revenues: Energy and Materials.”

“The U.S. economy expanded less than previously estimated in the first quarter as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010.  Gross domestic product rose at a 2.4 percent annualized rate, the Commerce Department said today in Washington.”  Story at…

“Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 354,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 4,000 more applications received than previously reported…Economists polled by Reuters had expected first-time applications to hold steady at 340,000 last week…Steady improvement in labor market conditions and rising house prices are helping to sustain consumer spending, limiting the impact of the drag from fiscal policy on the economy.”  Full story at…

Breadth continues to indicate that over the last 2-weeks less than half of the stocks on the NYSE are going up.  I measure Breadth as %- of stocks advancing.
The 10-dMA of breadth remained at 47% today, Thursday, a number that probably indicates trouble ahead.

I should caution that the market internals tend to be a very short term indicator.  It is always possible that the internals will reverse upward and change our opinion of the market.

Thursday, the S&P 500 closed UP 0.4% to 1654 (rounded).
VIX fell 2% to 14.53. (The options folks just aren’t concerned.)

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

SENTIMENT is extreme negative at 71%-bulls for the 5-day moving-average and on Wednesday, it was 74% for the day (3 of every 4 traders were betting Thursday would be positive).  Groups of extreme days (greater than 70% on a given day) usually indicate topping.  At the top in April of 2010, there were four individual days exceeding 70%-bulls; this week there have been 2-days greater than 70%.  In April 2010, the 5-dMA never got higher than 63%-bulls.

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.