Tuesday, June 18, 2013

Bounce Continues

Money isn't everything, but it sure keeps the kids in touch.

“The effects of the Federal Reserve's bond-buying program are looking more lackluster and more disruptive to market functioning, according to the latest CNBC Fed survey… Fifty-eight percent of the respondents see the Fed ending the program within 12 months, by June 2014. Five percent expect the Fed to stop the program entirely this year, while about 12 percent see it ending in 2015 or later.”  Story at…

“Headline CPI gained 0.1% in May, marking its second positive reading in at least the past seven months and coming in below expectations which called for a 0.2% print. Over the past 12 months, CPI inflation is up 1.4%, accelerating from April’s 1.1% reading…Tuesday’s reading is but a single data point, yet it does show a move away from the disinflationary tendencies seen in previous reports. The Fed, which favors personal consumption expenditure (PCE) as a measure of inflation, will be working with a 0.2% decline in April, according to the latest data reported.”  Story at… http://www.forbes.com/sites/afontevecchia/2013/06/18/after-two-months-of-deflation-cpi-rises-on-higher-rent-as-bernanke-and-the-taper-loom/

“Be sure your seatbelt is fastened, because nothing has really come to rest. We have entered the New Abnormal, a period in which every market assumption must be questioned and the wise investor is prepared to be surprised.”  And that’s how famed economist Nouriel Roubini and Ian Bremmer, the president of Eurasia Group, launch into an eight-screen Institutional Investor assault on all that’s going wrong with the global economy right now and on how new crises are most certainly headed our way…”

“…a slow exit risks creating a credit and asset bubble as large as the previous one, if not larger. Pursuing real economic stability, it seems, may again lead to financial instability. Thus the exit from the Fed’s QE and zero-interest-rate policies will be treacherous: Exiting too fast will crash the real economy, while exiting too slowly will first create a huge bubble and then crash the financial system.” – Roubini and Bremmer.  Full story at….

Tuesday, the S&P 500 was UP about 0.8% to 1652 (rounded).
VIX was down about 1% to 16.61.

As I suggested Friday (posted on Saturday), the Market Internals indicated a possible reversal Friday and Monday’s action confirmed it for me.  The market has once again bounced from its lower trend line.  The down-trend is now over, at least for the short-term. 

Tuesday…This trend change has now been confirmed in the charts since the upper boundary of the downtrend line has been broken.

I think the market may get back to the recent high around 1670, but that is mostly guesswork.  Internals still look good so unless the Fed upsets the apple cart Wednesday at 2PM, the markets can go higher.  This is a short term bounce though and should not be mistaken for a new secular bull market as the POM-POM boys on CNBC are suggesting.

The S&P 500 is 10% above its 200-day moving average and I don’t think it will get too much higher; 1670 is my high guess.

The 10-day moving average of percent bulls is now up to 51%.  (More than half of the stocks have been advancing over the last 2-weeks.)  That is generally positive for the markets…at least in the short term.  The new-highs outpaced new-lows (spread) by nearly 100 Tuesday, although the spread fell a little from yesterday.

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

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was up again to 70%-bulls (!!!!) in the Guggenheim/Rydex funds I track as of Monday’s close.   That suggests topping in the markets.

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.