Wednesday, October 23, 2013

FED Tapering: Sooner than you think...

Based on hiring numbers in the BLS September Employment report, the pundits/talking heads are predicting “No Taper” of Quantitative Easing (QE) until 2014 (March or June depending on who you listen to).  The Federal Reserve Board has stated simply that if the unemployment rate falls enough, they will normalize interest rates.  The pundits and FED appear to be using different data-sets.

The FED is focused on the unemployment rate, based on their statements; pundits give more weight to new-jobs created.  Pundits may be wrong.

Since the Fed is placing a high value on the unemployment-rate and the rate just dropped from 7.3% to 7.2%, the FED sees the economy slowly improving.  Given that they were on the borderline of taper at the last Fed meeting, they just may surprise the markets with taper much sooner than expected; perhaps at the meeting ending 30 October.  Considering the heat that Wall Street gave the FED last month for NOT tapering, October may be pay-back-time. – Meade Stith

“Caterpillar, the world's largest maker of earth-moving equipment, reported a third-quarter profit of $946 million, or $1.45 a share, down from $1.7 billion, or $2.54 a share, in the year-ago quarter.”
Short revue of data at…

CAT’s quarterly earnings were 43% below year-ago and revenues were off 18%.  That’s a huge miss that indicates worldwide construction and mining are going in the wrong direction in a hurry.  As “King-Cyclical,” Caterpillar is closely watched to indicate the future of the world’s economy.  It is just one point, so no need to panic yet; but this is concerning.   Copper prices have been signaling trouble for the world’s economy for some time, although it has come back from its lows last summer.  Copper is used in so many products that it is often referred to as “Dr. Copper,” because it is said to have a PhD in economics.

Albert Edwards: "Only the brave can react to what they see and leave the markets. The global macro looks an appalling mess and even more importantly, long-term equity investors can find nothing worth buying. For equity investors we are closer to 2007 than 2001 as the vast bulk of the equity market, as represented by the median PE, PB or Price/Sales, is expensive. The US median price/sales ratios is at a record high, indicating that there is practically nothing cheap in the equity market left to buy."  Commentary at ZeroHedge at…

Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria."
-- Sir John Templeton

Wednesday, the S&P was down 0.5% to 1746 (rounded) at the close.
VIX was up another 0.7% to 13.42, but VIX isn’t rising particularly quickly so this isn’t much concern now.

The 10-day moving average of stocks advancing is 64%. (A number above 50% for the 10-day average is generally good news for the market.) 

New-highs outpaced new-lows Wednesday, leaving the spread (new-hi minus new-low) at +135 (it was +404 Tuesday).  The 10-day moving average of change in the spread is plus 19.

Market Internals remain Positive on the market for this short term indicator.



NTSM system is BUY today, but I expect a pullback, though it may not be a big decline.  There are certainly enough issues that could indicate a larger decline; there just isn’t an obvious catalyst. (Duhhhh; it’s never obvious.)

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.