Wednesday, June 26, 2013

Bonds Will Crash the Stock Market; GDP Revised Down

1st Quarter GDP has been revised down to 1.8%.  It had been previously reported at 2.4% and that was the number expected by most economists.  This is a big downward revision and is cause for concern.
Read the Reuters story at

From CNBC: “Make no mistake about it: this is really grim…The biggest source of the downward revision came from consumer spending. Government economists had estimated that consumer services consumption (excluding housing and utilities) would grow by 2.5 percent, instead it grew at just 0.7 percent.” – CNBC at…

“[It is] the collapse in investment grade bond demand that is dramatic (and worse than Lehman). [Lehman Brothers declared bankruptcy in 2008.]  It's not like we couldn't see it coming at some point (here) and as we warned here, What Happens Next?  Simply put, stocks cannot rally in a world of surging debt finance costs.” Story at…

“The St. Louis Fed's Financial Stress Index has shot upward in the past few months… The last three times that we've seen spikes like this were during the U.S. financial crisis of 2008, during the acceleration of the Greek crisis in May 2010 and in August 2011, when the U.S. credit rating was downgraded by S&P.”  Story at…

“Consumer confidence is at a five-year high. It has risen three straight months, reaching 81.4 in June on a 100-point scale set in 1985. The median forecast of economists in a Bloomberg survey was that the number would be 75, up from 74.3 last month, highest confidence reading since before the recession.”
Story at…

This looks like Consumer Confidence is correlating to the high sentiment readings.

“…the last times we saw mortgage rates surge like they just have, that marked the peak in consumer confidence and the market followed shortly after.”  Story at…

GOLDMAN SACHS NOTE (nf  national forex)
“The stronger the correction, the sooner it is likely to end. From an economic standpoint, investing in equities is likely to prove worthwhile again only towards the end of the third quarter of 2013,” the bank said in a research note on Friday.

“But as the exact timing is impossible to predict and expected returns are disproportionately high one year ahead, investors who wish to purchase equities should react sooner rather than later. As interest rates remain low, the hunt for yield continues and the growing demand for equities means that corrections are likely to be frequent but short-lived.” - By’s Matt Clinch.

Wednesday, the S&P 500 was up 1% to 1603 (rounded).
VIX was down about 7% to 17.21.

The overall NTSM analysis was HOLD at the close.

Sentiment, Price, Volume and VIX are all neutral. (Without getting into the boring details some buy and sell signals hold over for a week or so.  For example, the "new-high/new-low reversal” occurs on 1-day only, but the buy signal for that specific indicator remains positive for another week.  Sentiment too is carried forward.  This just makes the NTSM system work better.  I see no point in listing each separate indicator.)

Here is a good chart analysis site.  David does analysis on a number of chart timing methods and posts results regularly.  I usually just scan the 1st page and count the buy/sell signals.  Currently, the 1st page is running 13-Sell signals to 1-Buy signal.  I can’t remember seeing it that negative in the several years I have checked in on the site.  Find the “DK Report” at…

Internals improved today, as expected on the up day.  The 10d-MA of breadth is 50.5%; above 50% represents a positive market, but I’d also like to see the 20d-MA above 50%.  It is currently 45%.

New-highs/new-lows were about even today with new-highs slightly outpacing new-lows.

I commented yesterday (Tuesday) about the spread reversal in new-high/new-lows (from -525 to -95) and how that it might represent a bottom in this correction.  The volume Tuesday was average for the month so there wasn’t a consensus among traders that the correction is over.  Given the issues with the bond market, it seems too soon for an end.  Further, it has only been 25-trading-days since the top and that is about half the recent average for correction duration measure from top to bottom.

The reversal looks more like a bounce because the S&P 500 was close to its lower trend line.  These things are never written in stone though, so watch and wait.  My record of calling bottoms has not been good on short corrections.

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  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.