Thursday, August 15, 2013

Philly Fed, Jobless Claims…and Stock Market Correction Commentary

“Manufacturing in the Philadelphia region expanded in August for the third straight month, the latest sign of an improving outlook for the industry after a slowdown earlier this year.  The Federal Reserve Bank of Philadelphia’s general economic index fell to 9.3 this month from a reading of 19.8 in July that was the highest since March 2011. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware…“The manufacturing sector is healthy, it’s chugging along,” Josh Dennerlein, an economist with Bank of America Corp. in New York, said before the report. “It’s not super-strong growth, but it’s not contracting. It’s modest.”  Full story at…

JOBLESS CLAIMS FALL (Wall Street Journal – online)
“The number of U.S. workers seeking first-time unemployment benefits fell to its lowest level since before the recession, underscoring steady gains in the labor market.  Initial jobless claims, a proxy for layoffs, decreased by 15,000 to a seasonally adjusted 320,000 in the week ended Aug. 10, the Labor Department said Thursday. The was the lowest level since October 2007, a time of financial turmoil but about two months before the formal onset of the recession…"This latest downward move provides increasingly convincing evidence that layoffs have taken another step down in recent weeks," Royal Bank of Scotland economists said in a note to clients.”  Full story from at…

If all the news is good, why is the market falling.  See below for some ideas:

“Doug Kass, president of Seabreeze Partners Management:
'… we're at the upper range for price-to-earnings multiples, we have political issues that are profoundly important, and we have some deterioration in the technicals,' and Kass believes he has all the reason in the world to be short the market right now.”
  “Reason one: Multiples will contract…
   Reason two: Politics will spook the market…
   Reason three: History says the rally can't last…”
“…And undergirding this thesis, again, is Kass' ursine view of the global economy. "If we look at the longest bull streaks, obviously they didn't face the structural economic headwinds," he said. Any way you cut it, then, Kass believes that this market should be sold.”  Story and video at…

“…Jack Bouroudjian, CEO of financial services holding company Bull and Bear Partners, told CNBC's Asia Squawk Box on Tuesday he was the most bearish he has ever been on the U.S. stock market...‘The market is overvalued and we've hit an inflection point. Unless we see some real strong growth numbers coming out of the economy, I'm looking at a 10 percent correction between now and October. It's time to be very defensive.’"   Story and video at…

Thursday, the S&P was down 1.4% to 1661 (rounded).
VIX was UP 13% to 14.73.

The Index is 0.3% above the 50-dMA (now at 1657) at Thursday’s close.  As I look over today’s stats (volume, breadth, new-hi/new-low) I see no indication that the market will turn to the upside, although a short-term bounce is always possible.  Thursday was statistically significant in price-volume action and that usually portends an up-day tomorrow, but I am less likely to put much faith in that methodology in a correction.  The market could just as likely go into a waterfall drop at this point although I don’t have any stats to say that outcome is any more likely than an up-day.

The S&P 500 is close to the lower trend line and the 50-day moving average so it may well bounce tomorrow.  If it does, I don’t expect it to be a durable bounce.

The 10-day moving average of stocks advancing on the NYSE fell to 41% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 18% of stocks advanced.  (I am a little unsure here because I am using Yahoo data tonight rather than, my usual source due to problems at

New-lows of 375 outpaced the new-highs of 49 today leaving the spread at -326 with the 10-day change in spread heading down. It is reasonable to ask whether the spread might be indicating a bottom.  The spread was about -1000 at the 1099 Oct 2011 bottom.  Spread was -45 at the 1023 July 2010 bottom. In other words, spread is not a good bottom indicator.

Today’s reading of Internals is negative on the market and suggests the market is likely to continue its downward trend.

Thursday, the overall NTSM analysis was HOLD at the close, but it moved a lot closer to a sell. 

That’s rather meaningless now since the 1st sell of this cycle was back at 1575 on 16 April and the most recent sell was 23 July at 1692. 

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.