Wednesday, August 7, 2013

Jobs Stable…QE Taper in September Possible

“A monthly gauge of U.S. employment held steady in the latest week, underscoring little movement in overall hiring yet registering a "significant decline" in federal government jobs, Gallup reported on Wednesday…The data is largely consistent with last month's non-farm payrolls report, which disappointed most economists by showing about 162,000 jobs were created…"The U.S. jobs market looks fairly flat on the surface," Gallup said. "However, this masks significant changes in hiring within the federal government [and]… job growth on the East Coast has slowed...”  Story at…


My comment: The above headline says it all and it has been blamed for the poor market action this week.

“The stock market isn't being ascribed the correct valuation, ConvergEx Group Chief Market Strategist Nicholas Colas said Tuesday.”

[My comment: When valuing the S&P 500, analysts estimate future earnings for all of the 500 stocks in the index.  So if the estimated earnings are $110 and the PE is 16, then it can be said that the Index is fairly valued at 1760 ($110 x 16 (P/E) = 1760).]

"We all hear $110 a share, and that seems like a very comfortable target, multiplied by 15, 16, 17, hit a price target, that's cool," he said. "However, what was that number 18 months ago? It was $118. What was it a year ago? It was $115. What was it the beginning of the year? It was $112.

"So, the answer is not $110. We know it's going to be $108, maybe $107. And I'm pretty uncomfortable paying 16, 17 times earnings for numbers that are coming down. I want to pay for numbers that are going up. That's not happening here."
Full story and video at…

My comment: If the earnings are $107 and P/E is 15, then the S&P 500 index would be fully valued at 1605 (107 x 15 = 1605).  The scary thing is that the P/E at bear market bottoms is usually in the neighborhood of 10.  That would imply an S&P 500 of about 1070 if we assume earnings hold up at $107.  That would represent a 37% drop from the recent high of 1710 just a few days ago.  Coincidentally, 38% is the “average” bear market retracement in a secular (long-term) bear market like the one in which we are presently mired.  That is why I am so cautious now.

EUROPE BACK FROM THE DEAD? EMERGING MARKETS FALLING (Reuters) – “Western European economies are spluttering to life again at last just as emerging markets cool down…
…rarely has a contrast in economic momentum been as obvious as in this week's global business surveys, which painted a stark picture of diverging trends between the developed world and emerging markets.

Private sector businesses in the long-dormant euro zone, for example, grew in July for the first time in 18 months while firms across the emerging world indicated a contraction for the first time in four years.”  Story at…

Wednesday, the S&P was down 0.4% to 1691 (rounded).

VIX was up 2% to 12.98.  The options boys don’t think this is a correction.  Hmmm. Does that mean it is?

The 10-day moving average of stocks advancing on the NYSE is 45%.  Usually a value below 50% signals additional trouble for the markets. 30% of stocks on the NYSE were advancing today. 

New-highs are going down; new-lows are going up. Today’s “spread” (the difference between new-highs and new-lows) was -111.  4-days ago it was +306.

Overall, “Internals” remain negative (and suggest further downside),

Wednesday, the overall NTSM analysis was 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.

I am committed to this course of action for some time.  Now; I think I just need to be committed!