Wednesday, May 1, 2013

PMI Down; Construction Spending Down; Stock Market Crash Prediction

“The pace of U.S. manufacturing growth slowed in April as the sector expanded only modestly, an industry report showed on Wednesday...The Institute for Supply Management (ISM) said its index of national factory activity fell to 50.7 from 51.3 in March, coming in below expectations for 50.9. A reading above 50 indicates expansion…
…[in a separate report] The Commerce Department says construction spending fell 1.7 percent in March, compared with February. It marked the second decline in the past three months. January activity plunged a record 4 percent, which represented a downward revision from a previous estimate of a 2.1 percent decline.”  Story at…

The construction slowdown was blamed on sequester – I’m not sure about that.  It’s too soon for sequester to have much impact.  Most Federal construction contracts are awarded in late summer – that’s just the way the funding works.

There is an issue that sequester may be impacting now: I have friends in the Architect/Engineer community.  One of them got laid off recently and he said there were others.  If the Engineers aren’t designing the future projects, there will be a bigger slowdown in construction ahead. 

On a positive note, the PMI report showed future orders were expected to improve, but it showed weak employment so we take the good with the bad.

“Chart patterns suggest a big stock market selloff could be around the corner, technician Carter Worth of Oppenheimer Asset Management said Tuesday…this May is in many ways worse in terms of bifurcation than we've had at any point since the March '09 lows." [Bifurcation is a difference in the direction of various segments of the stock market.]

Worth added that the pattern could be foreshadowing a selloff…[AND]…maybe it'll be worse than just a normal correction.” – Carter Worth, Chief technician at Oppenheimer.  Full story/video at…

“About the only certainty in the stock market is that, over the long haul, over performance turns into under performance and vice versa…at the beginning of March 2013, [the S&P 500] is 57% above trend, up from 56% at the end of the previous month. In sharp contrast, the major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be around the 991 level. If the index should decline over the next few years to a level comparable to previous major bottoms, it would fall to the 450-500 range.” – Doug Short, Advisor Perspectives,  Analysis, charts and discussion at…

Jeepers! We’re just full of good news today.

Wednesday, the S&P 500 was down 0.9% to 1,583 (rounded).

VIX was up 7% to 14.49      

Today was a “statistically significant” day based on my analysis of price and volume action.   This usually results in a reversal the next day and the odds favor an up day for Thursday by almost 2 to 1 - no guarantees of course.  Wednesday’s drop  may trigger strong enough buying to give me a statistically-significant UP-day Thursday and that would be a top-signal I have been expecting.  Of course, we must keep in mind that I have called a top several times…and this market just keeps going up.  Buy in May and buy again the next day! Aaarrgghhh!

Speaking of buying…

“The bank will increase its stock holdings to as much as 6 percent of foreign-exchange reserves, or about $4.5 billion, from 3 percent at the end of 2012, according to Yossi Saadon, a Bank of Israel spokesman. Investments in shares rose to about 4.5 percent of assets in the first four months of 2013 as the institution made a “small allocation” to European equities in addition to its U.S. funds, he said.”

It wasn’t long ago that I mentioned in this blog that foreign sovereign banks were buying equities.  ZeroHedge reported that Israel invested heavily in Apple!  …So much for any comfort that the foreigners know what they are doing.  What they ARE doing… I think…is driving up the US markets. 
Bloomberg story at…

Wednesday, the NTSM analysis was again HOLD at the close. 

Sentiment is again at extreme levels at 64%-bulls so that indicator is suggesting sell; other indicators are neutral.

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…

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.