Tuesday, July 9, 2013

Crash: 2013…2014…2015 (Pick a card...any card.)

“The crucial question to investors seeking to maximize gains and protect their few remaining assets is: will the burst come this year, or is it more likely to be delayed into 2014 or even 2015.

Make no mistake, there will be a crash. Interest rates have been negative in real terms for five years. That has made it attractive to leverage and has caused asset prices to spiral towards infinity. It has also disguised the extent of stock market overvaluation by inflating reported earnings, as the cost of balance sheet debt diminishes below zero in real terms…Overall, I think a crash in late 2014 is most likely, and most beneficial. But a 2013 crash cannot entirely be ruled out.” – Martin Hutchison.  Full commentary at…


“[Mark] Faber (managing director of Marc Faber Limited and the author of the widely read monthly investment newsletter “Gloom, Boom & Doom” report) said it’s a good idea to take money out of the stock market.  ‘I don’t think there is a lot of upside potential, but I think there is considerable downside,’ he said. However, he said that markets are now seeing emerging markets and their currencies go lower, and “It could be that all the money in the world flows in to U.S. stocks and avoids emerging markets.”  Full story at…

Yes.  The rest of the world is buying the US markets and that has changed everything...that’s my story and I’m sticking to it.

If this is the most-hated bull market ever, as has been suggested, maybe there's good reason for it…the biggest gainers share: Low price-to-earnings ratios, zero dividend yields, high short interest and lowest analyst ratings…Jeffrey D. Saut, chief investment strategist at Raymond James, said he is mindful of the old market adage, "When they start running the dogs, it's time to start looking over your shoulder."  Story at…

Alcoa Inc. (AA), the largest U.S. aluminum producer, reported earnings that beat analysts’ estimates following a better-than-expected performance at its unit that supplies components to aerospace and power companies…Sales fell 1.9 percent to $5.85 billion…”
Story at http://www.bloomberg.com/news/2013-07-08/alcoa-earnings-beat-estimates-as-car-sales-boost-aluminum-demand.html

As is often the case in the accounting world, Alcoa actually lost $119-million but the losses were related to one time charges associated with closing non-competitive facilities.

"We've set the expectations bar extremely low, probably the lowest that we've seen in the last eight quarters, for this earnings season," said Art Hogan, managing director at Lazard Capital Markets in New York.
"So if we are going to get some upside surprises here, which I entirely expect that we will, the market may react positively."  Story at…

The real concern here is that the earnings season will be a “buy-the-rumor, sell-the-news” event. 

Tuesday, the S&P 500 was up 0.7% to 1652 (rounded).
VIX was down about 3% to 14.35.       

Tuesday, the overall NTSM analysis is HOLD at the close, but conditions have improved and may turn positive soon. 

VIX is falling; Cyclical Stocks are improving relative to the S&P 500; Market internals are all positive with 10-day and 20-day moving averages of advancing stocks  at 63 and 51% respectively; sentiment has fallen to neutral levels; Volume is positive ; short term measures of the last hour of trading are moving up; there are now few negatives.

The only issue now is too much positive market action, but that is expected after a bottom.  The market is telling us that 24 June was the bottom.  As I said before, the only reason for the bounce that started the 25th was that the lower trend line was touched.  That may not be enough; I still think that level (S&P 500 – 1573) will be retested.  No guarantees though; this market is juiced by the Fed and the rest of the world whose stock markets are not well. 

Looking at the S&P 500, 1669 is the prior high.  If that is broken I will be getting back into the market.  I may move back sooner assuming the up-trend is confirmed.   

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.