Thursday, September 12, 2013

Jobless Claims Drop a Mistake…The FED Exit Will Cause Problems in the Stock Market

“Jobless claims in the U.S. declined last week to the lowest level since April 2006 as work on computer systems in two states caused those employment agencies to report fewer applications. First-time claims for unemployment insurance fell by 31,000 to 292,000 in the week ended Sept. 7, which also included the Labor Day holiday, according to Labor Department data released today in Washington. The median forecast in a Bloomberg survey called for 330,000 applications.”  Story from Bloomberg at…

This was the big “non-story” story for the day.  The stats were meaningless.

“Stanley Druckenmiller, who boasts one of the hedge-fund industry’s best long-term track records of the past three decades, said it would be a ‘big deal’ for financial markets if the Federal Reserve were to completely end its asset purchases as outlined over the next 12 months.  How in the world does anyone think when the actual exit happens that prices are not going to respond?” Druckenmiller said today on Bloomberg Television’s ‘Market Makers’… ‘if you tell me quantitative easing is going to be removed over nine or 12 months, that is a big deal.’”  Video and story at…

WORLD ECONOMY UPDATE (Advisor Perspectives)
“It does not matter which way you look at it -- the global economy has rebounded into growth territory…We can see this from the percentage of countries posting positive quarter-on-quarter GDP growths....”  Story at, Advisor Perspectives at…

“Lawmakers are tied up in knots over increasing the debt ceiling this fall. But they eventually will. The only question is how messy the process will be.  Why assume they'll raise it? Because they have no real choice if they want to avoid a U.S. default. A default would hurt the economy and markets, and most lawmakers know this. That's why they regularly raise the debt ceiling before it comes to that.”  Story at…

I expect the Markets will worry about the Debt fights when they start to heat up..

“A federal judge in California ruled that Abercrombie & Fitch violated the law in firing a Muslim employee for refusing to take off her religious head scarf at work.”  Story at…

Not really a surprise.  The law says employers must make “reasonable” accommodations for religious beliefs.

Thursday, the S&P finished down 0.34% to 1683 (rounded) at the close.
VIX was up 3% to 14.29.

The 10-day moving average of stocks advancing on the NYSE dropped to 55% at the close Thursday.  (A number above 50% for the 10-day average is generally good news for the market.) 

New-highs outpaced new-lows today, Thursday, leaving the spread (new-hi minus new-low) at +68 (it was +114 Wednesday), with the 10-day moving average of change in spread now falling. 

The Internals are positive on the market.

Sentiment, measured as a 5-dMA of funds bet long vs. funds bet short (Bulls/(Bulls+Bears) in selected Guggenheim/Rydex funds I track, is now at 50%-Bulls.  This is the first time Sentiment has been that low since March of 2012 so it looks like traders are starting to agree that the correction isn’t over yet. (The %-bulls stat is falling because more traders are betting short.)  It was 65%-bulls at the recent top.  The 65%-bull reading is indicative of a top; but there might be another indicator related to sentiment.

Another stat that I keep on Sentiment is: How often are traders right?  In other words if Rydex traders are bullish at the close, is the market up the next day (and vice versa)? Over the last month, traders have been right 50% of the time.  A fair question results: How were traders doing at the top when the market peaked 6-weeks ago?  The day before the top, traders had been right 75% of the time over the prior 20-days – in fact that was the peak.  This is a reflection that in a rising market, everyone goes long and makes money; as the market begins to turn and gets choppy, traders aren’t nearly as successful.  The trend was true at the top in May too.

This might be another indication of topping…or not.  I try not to make conclusions without sufficient back-testing of the assumption.  So the answer to the question, "Another way of calling a top?," is – Maybe; but don’t bet on it.

Thursday, the overall long-term NTSM analysis remains 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.