Monday, June 24, 2013

Buy the Dip Crowd - Wrong Again!

“Make no mistake, last week’s decline was not because of a hawkish Federal Reserve, but in spite of a dovish one…Bernanke indicated that the Fed will not stop adding to it until at least 2014…The fact that we are…seeing broad internal deterioration here is of some concern, because it smacks of something more afoot. It might be the increasing credit strains in China. It may be growing expectations for disappointing earnings preannouncements. It may be economic weakness that finally catches up to the general (though not uniform) deterioration that we’ve seen across leading measures of economic activity … But whatever the reason, investors appear to be shifting from risk-seeking to risk-aversion…

...What concerns me most is that the present market environment is very reminiscent of other cycles in which deterioration of interest-sensitive securities, following overvalued, overbought, overbullish conditions, was then joined by broad deterioration in market internals…There are five instances: 1929, 1987, 2000 and 2007 and today. The prior ones are associated with some of the worst market losses in history.” – John Hussman, PhD, Hussman Funds weekly Market Commentary for 24 June 2013 at

My comment: I’ve taken excerpts from the commentary to get to the essence.  I recommend a full reading of this week’s Hussman commentary. 

“One thing is for sure: virtually everyone (except staunchly bullish stock brokers) realizes that the economic "recovery" is an illusion which only exists because of the Fed's monetary support. And most are prepared to rush for the exits at the hint of that support being reduced or removed. The global economic conditions are only worsening, not improving. And the US will be negatively impacted by what's happening in Japan, China, and Europe. Once this ball starts rolling downhill, it will be difficult to stop.”

My comment: There remains the possibility that the US can avoid the world-wide downturn…unlikely; but it is a possibility.

“Bargain-hunters beware! Wall Street's 2 percent weekly fall may not be the buying opportunity for stocks that it might seem.  The stock market begins the last week of June still rattled by the U.S. Federal Reserve's plans for reducing its stimulus efforts, called quantitative easing, or QE. Next week could bring more big intraday swings and volatility as asset managers reevaluate their portfolios to adjust to the new regime of diminishing support from the Fed.”  Story at…

“St. Louis Federal Reserve Bank President James Bullard on Friday issued a sharp rebuke of his colleagues' decision this week to announce a plan to reduce the central bank's bond buying, calling the move premature and worrying the Fed is risking its credibility as a force for price stability…."President Bullard ... felt that the committee's decision to authorize the chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed," the regional Fed bank said in a statement.” Story at…

Monday, the S&P 500 was down 1.2% to 1573 (rounded).
VIX was up about 6% to 20.11.

Monday was day 23 in the correction counting from the top on 21 May.  The 19% correction in 2011 lasted 108-days. (The crash in 2009 lasted more than 200 days.)  No sign of a turn-around yet. 
Monday, the overall NTSM analysis was again SELL at the close. The first NTSM sell signal was on 16 April at S&P 500 1575.  Today the S&P 500 broke below that level.  

Sentiment, Volume and VIX are all negative.  Add in the “panic-indicator” that flashed sell Thursday (on the huge down day) and NTSM analysis remains firmly in the negative camp.

Internals were horrible today, Monday.  Only 13% of stocks advanced today and over the last 2-weeks only 38% of stocks have advanced.  New-high/new-low data was horrendous too, (I’m running out of stupid adjectives) with 17 new highs compared to 542 new lows. 

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was 67%-bulls in the Guggenheim/Rydex funds I track as of Friday’s close.  That was down only 1% from Thursday. 

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.