Thursday, May 23, 2013

Jobless Claims Down…Flash PMI Down…Stocks Down…How Can you Laugh, When You know I’m Down?

JOBLESS CLAIMS DOWN BY 23,000 TO 340,000 (MarketWatch)
“Initial jobless claims — a close proxy for layoffs — dropped by 23,000 to a seasonally adjusted 340,000 in the week ended May 18, the Labor Department said Thursday.  Economists polled by MarketWatch expected new claims to decline to 343,000 from a revised 363,000 in the prior week…The bigger problem with the labor market is lackluster hiring. The economy has added an average of 196,000 net jobs a month through the first four months of 2013, but that’s far below the pace necessary to rapidly reduce the nation’s still-high 7.5% unemployment rate.” Story at…

“Financial data firm Markit said its ‘flash,’ or preliminary, U.S. Manufacturing Purchasing Managers Index fell to a seven-month low of 51.9 in May from 52.1 the previous month. A reading above 50 indicates expansion…. "Slower growth could be linked to a combination of fiscal drag hurting demand at home while at the same time many export markets…led to a renewed decline in export orders in May," said Chris Williamson, chief economist at Markit.”  Story at …

Hogwash! Don’t be fooled by this silliness.  Ending QE will cause significant problems for the stock market.  For evidence we can look at the market reaction yesterday:  up on Bernanke’s statements that QE will continue; down about 1.5% after Bernanke quibbled by suggesting QE might end if the economy picks up during the Q&A part of his testimony.  Additionally, the Fed minutes from the prior Fed meeting noted that Fed members discussed an early end to QE. 

I did hear a reasonable comment that the Fed would begin to taper QE in March.  The commentator reasoned that the next Fed meeting in September would be too soon to taper QE.  December is too close to Christmas; so that leaves March after elections; seems reasonable to me.  Since the markets anticipate 3-6 months in advance, Markets may begin reacting in earnest in the Fall especially if the Fed telegraphs its moves.  Of course, the Fed minutes and comments from non-voting members are already telegraphing some early information.

“Bernanke: Although near-term fiscal restraint has increased, much less has been done to address the federal government's longer-term fiscal imbalances. Indeed, the CBO projects that, under current policies, the federal deficit and debt as a percentage of GDP will begin rising again in the latter part of this decade and move sharply upward thereafter, in large part reflecting the aging of our society and projected increases in health-care costs, along with mounting debt service payments. To promote economic growth and stability in the longer term, it will be essential for fiscal policymakers to put the federal budget on a sustainable long-run path.

Mish: Note the blatant hypocrisy of Bernanke whining about non-existent cuts and about tax rollbacks the country could not afford [in earlier testimony], while warning Congress that something must be done to put the federal budget on a sustainable long-run path.”  - Excerpt from Global Economic Trend Analysis
For the complete article see…

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago.  Thursday, the 10-dMA of breadth indicated 51% of stocks on the NYSE advancing, the same as Wednesday’s close. (Below 50% for this indicator usually spells trouble.) So there was not a confirmation of a correction here.

New-hi/new-lo data is stretched, but 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 are on the edge.  Further deterioration in internals would foretell more down days ahead for the stock markets, but I’d like to see more data for confirmation.

Thursday, the S&P 500 closed Down 0.3% to 1651 (rounded) after starting out the day with more than 1% losses. 

The buy-the-dip crowd jumped in to save the day for the time being.  How do I know?  71% of money in the Guggenheim/Rydex funds I track was bet long at the close Wednesday in anticipation of an up-day on Thursday.  Values above 70%-bulls tend to occur around the top so if we haven’t hit it yet, we may soon be there. 

VIX was up only about 2% to 14.07 so there was no concern in “option land”, at least at the close. 

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

Wednesday was a statistically significant down day, so some of the buying today might have been based on the belief that the S&P 500 would reverse to the upside as is frequently the case after a big move down.  The 5-dMA of Sentiment climbed to 68%-bulls Wednesday at the close so there are plenty of buyers out there.

It will be interesting to see what happens in the markets tomorrow.  I lean toward it turning down, but in this market, I haven’t got a clue!

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.