Thursday, August 22, 2013

Tapering on the Way…Recession on the Way…Growth on the Way?

FOMC – BROAD SUPPORT FOR TAPERING TIMELINE (Bloomberg)
“Federal Reserve policy makers were ‘broadly comfortable’ with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves…’A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases,’ the minutes show. ‘Almost all participants confirmed that they were broadly comfortable” with the committee moderating ‘the pace of its securities purchases later this year.’”  Story from Bloomberg at…
http://www.bloomberg.com/news/2013-08-21/fomc-minutes-show-broad-support-for-bernanke-tapering-timeline.html

REVERSE REPO PLAN (HOW TO PULLBACK CASH FROM THE BANKS) (Reuters)
“The Federal Reserve is considering a new tool to help drain cash from the banking system and keep short-term interest rates on target when it shifts from its current cheap-money policy, minutes of the Fed's July policy meeting showed on Wednesday…creating a fixed-rate facility for overnight reverse repurchase agreements, or reverse repos…’They are setting the stage for an eventual policy tightening by sometime in 2015,’ said Mary Beth Fisher, head of U.S. interest rates strategy at SG Corporate & Investment Banking in New York.”  Full story at…
http://www.reuters.com/article/2013/08/21/us-usa-fed-minutes-repo-idUSBRE97K0ZN20130821?feedType=RSS&feedName=businessNews

IS THE US HEADED TOWARDS RECESSION? (dShort.com)
“A country experiences an economic slowdown when it's industrial production lags, its jobs market shows a dismal performance, corporate profits deteriorate, and the general standard of living declines.  Sad to say, this is exactly what the U.S. economy is experiencing right now…Learn from history—the "Tech Boom" of the late 1990s and the credit crisis of the mid-2000s are only two examples of how things can go terribly wrong so very quickly. And that's why I expect this next recession to blindside politicians and the mainstream media.”  Story from Advisor Perspectives at…
http://advisorperspectives.com/dshort/guest/Michael-Lombardi-130821-Recession-Risk.php

RECESSION?
Perhaps, but I track the relative performance of the Morgan Stanley Cyclical Index versus the S&P 500 Index as a proxy for the market’s expectation of recession (since the cyclicals are more recession sensitive). Currently, there is NO expectation of recession by market participants.

INITIAL CLAIMS RISE BUT NEAR 6-YEAR LOWS (CNBC)
“Initial claims for state unemployment benefits climbed 13,000 to 336,000, just above the level expected by economists in a Reuters poll, Labor Department data showed on Thursday…The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid rose 29,000 to about 3 million in the week ended Aug 10.”  Story at…
http://www.cnbc.com/id/100980548

LEADING INDICATORS SIGNAL GROWTH (24/7 Wall St.)
“The Conference Board has released its index of leading economic indicators (LEI). While the name sounds like…a preview, it is a July number and we would caution that many of the components inside the total tally are already known and visible before this was released. July’s leading indicators were up by 0.6%, and Bloomberg was calling for a consensus reading of 0.5%...The improvement in the LEI, and pick up in the six-month growth rate, suggest better economic and job growth in the second half of 2013. However, the biggest uncertainties remain the pace of business spending and the impact of slower global growth on U.S. exports.”  Story at…
http://247wallst.com/economy/2013/08/22/leading-indicators-signal-more-growth-for-rest-of-2013/

MARKET REPORT
Thursday, the S&P was Up 0.9% to 1657 (rounded) at the close.
VIX was down 7% to 14.76.           

The S&P 500 is sitting at the 50-dMA.  Statistically, there has been little increase in price-volume action that would indicate a correction is underway so this market may turn up again anytime...or not.  It’s not clear at this point so I am watching the clues.  One set of clues is the Market Internals.  

MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE was 43% at the close and it is still trending down.  Usually a value below 50% signals additional trouble for the markets.    

New-highs slightly outpaced new-lows today leaving the spread at +3 with the 10-day change in spread still trending slightly down. 

Today’s reading of Internals is negative on the market, but not as strong a signal as it has been.    

NTSM
Thursday, the overall NTSM analysis was HOLD at the close.

MY INVESTED POSITION
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.