“We spent some time the week before last discussing The Critical Juncture of the Technical Landscape, including how a jump through S&P 1600 (to clear out the shorts) may have been a necessary precursor to the path of maximum frustration (Pop & Drop). As I gingerly sit here on May 6, 2013, however, the price action continues to impress with the S&P hovering around 1615.” - Todd Harrison, founder and CEO of Minyanville Media, Inc.
Full comment at… http://www.minyanville.com/special-features/random-thoughts/articles/A-Surgical-Approach-to-the Stock/5/6/2013/id/49531#ixzz2SWviKUST
POP AND DROP – MY THOUGHTS
Pop and drop? I had the same idea last week. With the continued move to the upside, I must admit, as did Mr. Harrison, this market apparently wants to go higher still. Topping is a process, not a place, i.e. it’s probably a fools game to try and call an exact top since finding a top usually involves several months of slowing momentum and choppy trading. I look back to the correction in 2010 and it took more than three months (19 Jan – 23 April) before the markets really broke to the downside and made a final bottom in July. The time to make a top was even longer in 2011. Just glancing at the S&P 500 chart, it is hard to see any signs of topping action and many have tried to explain why since this has been a very long bull run.
The FED is often given credit for the continued upward
movement of the markets, but the Fed has been pumping the markets with QE since
2008 and there have been several corrections since the 2009 bottom, so the FED can’t by itself do away with corrections.
As we have suggested before, the lack of a meaningful
correction over the past year is likely due to foreign money, including foreign
sovereign banks, buying into US markets.
Since the markets are now making new rules (for fools like me who try to
predict its movement and direction) it is impossible to know when the market
will break down. We can only say that we
have reached and passed a number of triggers that have signaled the start of
corrections in the past.
RECESSION (Hussman)
“The advance estimate for first quarter GDP came in
decidedly below expectations at a 2.5% annual rate, but even that rate belies
the fact that real final sales slowed to just 1.5% growth, from 1.8% last
quarter. The remaining 1% of the
first-quarter growth figure – 40% of the total – represented the accumulation
of unsold inventory. [My emphasis] My view remains that the U.S. is
unlikely to avoid joining the rest of the developed world in a global recession
that is already underway, and may well be already underway in the U.S. once
data revisions are reflected. The year-over-year growth rates of real GDP and
real final sales have declined to just 1.80% and 1.87% respectively, which is
the first time in this economic cycle that both have simultaneously declined
from above 2.0% to below 1.9% - an occurrence that has been a hallmark of every
post-war recession, with remarkably few false signals for such a simple measure.
The Fed’s ability to kick-the-can in increments of a few months at a time may
allow this time to be different, but investors should recognize that they are
relying on that proposition.” John
Hussman, PhD, Hussman Funds, 29 April 2013 weekly Market Comment at…http://www.hussmanfunds.com/wmc/wmc130429.htm
MOHAMED EL-ERIAN (Street Talk Live)
“When it comes to investing the majority of
recommendations to investors is not based on fundamentals but rather stocks are
cheaper than something else. This is potentially very dangerous….What Should
Investors Be Doing? Ride the central bank wave…However, it is also important to
understand that all waves eventually break. The question is whether you crash
or “walk off” the surf board. This wave will crash. When it does it will depend
on how you are positioned that will determine whether you suffer or not. Investors that are overly invested in stocks
will eventually pay a very high price for taking on excessive risk. We are
approaching the end of the journey for this experiment and it will either
result in a return to organic growth or economic disaster. The problem is that
we really don't know which it will be. What we do know is that eventually,
regardless of the outcome of these monetary experiments, the disconnect between
the fundamentals and the markets will revert which will prove painful for
unhedged investors.” Mohamed El-Erian,
PIMCO CEO. Full story at…http://www.streettalklive.com/daily-x-change/1691-mohamed-el-erian-putting-it-all-together.html
My Cmt: I think the comments above by John Hussman and Mohamed El-Erian reflect long-term views on the market. While I expect a correction in the 10-20% range, I am not at all sure this will be the “big-one” anticipated by Hussman and El-Erian.
MARKET RECAP
Monday, the S&P 500 was up 0.2% to 1,618 (rounded), a new high for the S&P 500.
Monday, the S&P 500 was up 0.2% to 1,618 (rounded), a new high for the S&P 500.
VIX fell 1.5% to 12.66.
NTSM
Monday, the NTSM analysis was again HOLD at the close.
SENTIMENT is Sell due to its extreme bullish level of 66%-bulls as of
Friday’s close. (That means that twice
as much money is now bet long vs. short in the Guggenheim/Rydex funds I
track.) The VOLUME indicator (a variant
of on-balance-volume) is positive. PRICE
and VIX are neutral.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500
-1540). My reasoning may be found at…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.
