“Federal Reserve Chairman Ben Bernanke's signal that monetary policy will remain loose gave stocks another lift Wednesday, paving the way for many indexes to advance to new record highs.” Story at…
http://www.cnbc.com/id/100747262
But wait! It didn't turn out that way. Stocks were up after the testimony, but stocks fell on the day. It looked like, "Buy the rumor - sell the news" to me, but the Fed minutes told a different story, at least to investors.
FED MINUTES: A DIFFERENT STORY? (AP VIA CNBC)
"A number of participants" on the U.S. Federal Reserve's Federal Open Markets
Committee this month favored slowing the Fed's efforts to maintain record-low
long-term interest rates as early as summer — if the economy showed strong and
sustained growth….But those officials appeared at odds over what evidence would
demonstrate such gains. “ Story at…http://www.cnbc.com/id/100758771
CYCLICAL STOCKS LEADING THE MARKET HIGHER? – HOGWASH!
In the 1800’s when hogs were transported on-deck at the
stern of a riverboat, the water used to wash off the boat was referred to,
literally, as “hogwash.” Today, there’s some
economic hogwash going on.
Over the last month, the Morgan Stanley Cyclical Index is
ahead of the S&P 500 by only 2%.
Over the last 2-months, the index is underperforming the S&P 500 by
nearly 1%. The statement that cyclicals
are “leading the rally” is hogwash!
Interestingly, Yahoo charts show the cyclicals
outperforming by 4% over the past month.
Sorry…those charts are wrong.
I’ve checked the numbers several ways and, further, Google charts agree
with me.
I remain concerned about the LACK of outperformance by the cyclicals relative to the S&P
500, but since they are still trending up, there is presently no recession
concern by investors.
CHASING THE MARKET, 1998 STYLE
In 1998, the S&P 500 was up about 10% in January and
continued on a tear upward. I didn’t
have a system at the time, but the rise seemed unsustainable so I sold out of
my 401k in February with better than a 10% gain for the year. I came to regret the decision as the market
continued its climb, but I hate chasing a rising market, so I remained out. I stayed out until a correction began in July
when the market peaked out 30% higher than it had been at the start of the
year.
I bought back in near the bottom on 31 August; the
markets fell 20% during the correction.
In the end, I came out even. I tell this story just to suggest to those
who may be out of the market, for whatever reason, it is usually best not to
“chase” the market upward when it appears “frothy”. We will likely get a reasonable chance to buy
back in at a later date.
If the NTSM system came up buy, I’d buy back in tomorrow,
but that is not likely anytime soon. I
have a hard time buying with Sentiment at extreme, bullish-levels and no “buy”
confirmation from the NTSM VIX indicator.
HEDGE FUNDS – WORSE THAN NTSM (ZeroHedge)
“The typical hedge fund generated a YTD return of 5%
through May 10, compared with 15% gains for both the S&P 500 and the
average large-cap core mutual fund…”Story at…
http://www.zerohedge.com/news/2013-05-22/ben-bernanke-crushes-hedge-funds-average-hedgie-underperforming-sp-65-2013
MARKET INTERNALS
Market internals are flattening and “breadth” (I measure
as %-advancing) has been trending down for the last week. Today the 10-dMA of breadth crashed 4% down
to 51%-advancing. I’d say a drop below
50% indicates correction likely, if not underway. We’ve been here before though, so no
guarantee. Falling below 50%-advancing
(10-dMA) near the top (almost the current condition) is a greater concern
than dropping below 50%-advancing at a trough.
Other internals remain neutral so no smoking gun here; I’ll keep an eye
on it and report more tomorrow after the close.
BANKS FINANCING THE STOCK RALLY?
I have seen several commentators suggest that the stock
market is being driven by Banks. The
Banks sell Bonds to the Fed (The Fed can’t buy them directly from the Treasury). The banks aren’t loaning because of lack of
demand, so the Banks buy stocks. If
true, this is just another reason for not allowing “Investment” Banks to be
combined with “Retail” Banks. (They were
allowed to combine under the Clinton administration with strong support by the
Republicans and lots of Bank money greasing the political skids on both sides
of the isle.) That’s when your local
bank started trying to sell you stock market advice.
MARKET RECAP
Wednesday, the S&P 500 closed Down 0.8% to 1655 (rounded).
VIX was up only about 3% to 13.82 so the
Options-boys were not worried by today’s sell off in stocks.Wednesday, the S&P 500 closed Down 0.8% to 1655 (rounded).
NTSM
Wednesday, the overall NTSM analysis was HOLD at the close.
MY INVESTED POSITION
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.)http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
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.
