Thursday, July 11, 2013

Jobless Claims Rise; Another Top is Near

“First-time claims rose by 16,000 to 360,000 in the week ended July 6 from a revised 344,000, Labor Department figures showed today in Washington…’July claims numbers get totally bounced around by the auto-plant shutdowns,’ said Brian Jones, senior U.S. economist at Societe Generale in New York, who correctly forecast the level of claims. ‘The labor market is showing steady progress. The pace of hiring is good.’”  Story at…

The following chart from Doug Short tells quite a story.  For additional charts and analysis see at…

“Mr. Bernanke said last month, after the most recent meeting of the Fed’s policy-making committee, that the central bank planned to gradually taper its monthly bond purchases starting later this year and ending in the middle of next year, so long as economic growth continues.

But “about half” of the 19 officials who participated in the policy meeting said in an internal survey beforehand “that it likely would be appropriate to end asset purchases late this year,” according to an account of the meeting that the Fed released Wednesday after a standard delay.”  Story at…

Not all 19 are voting members.  Only 12 vote so it is not likely that QE will end until Bernanke decides it will.

MARKET MANIPULATION (Wall Street Journal print edition)
Newedge, a NY brokerage firm, was fined $9.5 million for failing to provide oversight of traders using its trading platform.  This allowed market manipulation by computer driven trading firms.  Newedge is one of the largest futures brokers in the world and is third in customer deposits. (Story from WSJ reports)

This isn’t a fair market; there isn’t much doubt about that.  Using price-volume statistics for the S&P 500, I have compared the 1980’s to the present.  They aren’t the same.  The 80’s were more random.  Today, computers exploit small advantages and that magnifies price movement.  Computers watch social media and blogs and use the sentiment to advantageously drive prices one way or the other.  Can you say “Flash-Crash?”  So why am I still playing? It’s the only game in town.

Thursday, the S&P 500 was up 1.4% to 1675 (rounded), a new high.
VIX was down about 1.4% to 14.01  

Thursday was “statistically significant” so odds favor a down day tomorrow and some retracement.    

The S&P 500 is once again more than 10% above its 200-dMA.  That is an elevated number that is in the range of short-term tops.  I would estimate that the upside is about 2-5%; the downside… 20%.  Given those risk-reward options, I continue to remain out of the market.

DÉJÀ VU: 2011
So far, market action is reminiscent of the summer of 2011.  In 2011 the S&P 500 peaked in the end of April.  It made a preliminary bottom on 24 June (down 4% from the high); rallied to near the prior high in 9-days and collapsed to a final bottom in October.

This time the S&P 500 made a top in Mid-April.  It made a bottom on 24 June (coincidentally the same date as 2011) down 6% and has rallied over the last 12-days to get back to the prior high.  If we follow the 2011 script, the final bottom would be in the Fall, with a low around 1335.  It is not likely that we will follow that script exactly, especially since VIX is lower this time, but only time will tell…

Thursday, the overall NTSM analysis remained HOLD at the close.  (The last BUY signal was 1 February.  That’s a long dry spell without a buy.)

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.