Wednesday, July 24, 2013

Earnings Stink…Government Shutdown…China Economy Worse

“It is rare when I come down on the same side as the black helicopter crowd. Assertions that unemployment data are falsified or that America’s gold reserves are a fiction make me roll my eyes every time.  However, it’s hard not to agree with some of the doubters on one important issue lately: corporate earnings.  Earnings stink, plain and simple… and the current trajectory of 1% sales decline on average would mark the first negative growth for revenue since third quarter 2009.”  
Story from MarketWatch at…

“If the president has decided he won’t enforce his law as it is written, then Congress should not fund any further implementation of it at all,” he [Senator Mike Lee] added, referring to the administration’s decision to “exempt businesses from the onerous burdens of his law, while forcing American families and individuals into ObamaCare’s unsound and unstable system…
…a dozen Senate Republicans…are willing to block a continuing resolution to fund the government beyond September 1, which of course, includes funding for Obamacare.” Story at…

That may worry the markets…Why? I’m not sure.

CHINA WORSE (MarketWatch)
“China's manufacturing-sector activity is slowing further in July, with new factory orders deteriorating at a faster pace, according to preliminary data out Wednesday from HSBC and Markit. The so-called "flash" version of HSBC's Chinese manufacturing Purchasing Managers' Index dropped to 47.7, an 11-month low and down from a final result of 48.2 for June, with any reading below 50 indicating contraction.”  Story at…

Wednesday, the S&P 500 was down 0.4% to 1686 (rounded). 
VIX was  up 4% to 13.18. 

I’ve been following the market internals for an indication of a possible downturn in the markets.  Breadth has turned down over the last 3-sessions.  New-hi/new-low data has also turned down over the last 4-sessions.  Internals are more informative when they diverge from the market so this isn’t a great confirmation. (The markets were down too for 2 of the days.)  Still, the trend is down and it shouldn’t take long to see if the internals will get more negative.  In short, internals have turned down, but not steeply

VIX is not confirming a down-turn.  Options players aren’t very concerned.

Here’s a curious note on volume.  At the recent new-high (2-days ago) the volume on the NYSE was down 15% from its 20-dMA.  For each of the 2 days before the recent new-high, volume was at the 20-day average.  For the last 2-days, volume was at the 20-day average.  Do the pros know that 1696, 2-days ago, really was the top?  Perhaps they do; the volume suggests that many others were cautious at that level, but looking at past tops I didn’t see too much history to support the theory that low-volume is associated with a top.  (I only have the data going back 2-years on this and I don’t have the energy to track it down at this point.)

Also 2-days ago, the daily sentiment was 50%. In other words, half the traders were betting long and half were betting short in the Guggenheim/Rydex funds I track.  Today, after 2-down days, sentiment popped up to 69%.  More than twice as many traders are betting long at the close Wednesday.  That means the dip-buyers are moving in.  That is quite typical of topping action.  Bullish-sentiment usually gets more extreme after the top.

In the end, none of this means that we topped-out and returned to the correction 2-days ago.  It’s boring and repetitive…but we’ll just have to wait and see.

Wednesday, the overall NTSM analysis switched to HOLD at the close. 

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.