Monday, September 16, 2013

Summers Out…Taper In…Manufacturing Improves

Summers withdrew from consideration because it became apparent that he could not be confirmed by the Senate.  Apparently, there were few who liked Larry Summers as a potential FED Chairman.  He was seen as a “Hawk” who would reverse QE faster than others.  Therefore, the Banks and many on Wall Street were worried about him, and given that the Banks control the politicians through campaign donations, he was receiving a lot of criticism.  Since there is little truth in Politics, opponents (and the press) focused on his personality and, ironically, that he was too close to Wall Street as reasons that he was unacceptable.   Now that he has taken his name out of the running, Wall Street parties. 

“Strategists have said markets are now pricing in a decision by the Federal Reserve to start scaling back its bond purchases when it concludes a two-day policy meeting Wednesday…Doug Coté, chief market strategist at ING U.S. Investment Management, said he expects the central bank to announce a “full taper” on Wednesday. That means a reduction of about $20 billion in the Fed’s monthly bond buys, he said. Each month, the central bank has been purchasing $85 billion worth of Treasurys and mortgage-backed securities…Such a move would be “a very positive message to the market, and I think it would be ‘buy on the news,’” Full story at…

Historically, the markets tend to react after 3-changes in FED policy.  So it could take several more “taperings” to see much effect on the markets…or not.  Since QE is a new animal, it is guesswork to predict if the taper means anything.  Most, however, are guessing taper is bad for the markets, so with history as a guide, we’ll watch for a market reaction: if not now, then after 2-more QE reductions.

“…"Growth in the manufacturing sector is picking up and will run faster over the balance of the year than has been the case in recent months," said John Ryding, chief economist at RDQ Economics in New York.  Industrial output increased 0.4 percent last month after being flat in July, the Federal Reserve said.. .In a separate report, the New York Federal Reserve said its Empire State general business conditions index slipped to 6.29 from 8.24 in August. A reading above zero indicates expansion.”  Story at…

In the big picture, the growth was very small so it is difficult to get too excited.  Looks like more of the same to me – very slow growth.  Expect the FED to reduce bond buying, but not by much.

Monday, the S&P finished up 0.6% to 1698 (rounded) at the close.
VIX rose 1.6% to 14.38 so the options boys aren’t quite so confident about this rally.

The S&P 500 is about 1% below its all-time high and nearly 8% above its 200-dMA. 10% above the 200-dMA has been a trouble point for the S&P 500 and the index has not been more than 13% above its 200-dMA in all of 2013.

The 10-day moving average of stocks advancing on the NYSE climbed to 59% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) 

New-highs far outpaced new-lows today, Monday, leaving the spread (new-hi minus new-low) at +206 (it was +33 Friday), with the 10-day moving average of change in spread positive 24, i.e., for the last 10-days the average, daily change in spread has been +24.  That’s a very healthy number. 

The Internals are positive on the market in the short term.

Monday, 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.