“As I have discussed
in the past [and as shown in the below chart] - economic
strength appears to have peaked in early 2011. Since personal consumption
expenditures makes up a little more than 68% of the current GDP calculation the
weakening trend is retail consumption is the real culprit behind the sluggish
economic growth…
...With real final sales plugging along at 1.9% and the
output gap above 6% the slack in the economy is huge. As a reminder these
numbers are generally levels more associated with recessions and not four years
into a recovery.…
…the fact the economy can run at such subpar growth rates
without technically being in a recession is a function of the 'new normal' of
an economy supported by trillions of dollars of stimulus. This also goes a long
way to support the idea that recent claims that the economy is on the verge of acceleration
in growth are likely based more on 'hope' than 'reality.' The economy will
likely continue to "muddle along" only as long as the Federal Reserve
continues to support it by artificially suppressing interest rates and flooding
the system with liquidity."” – Additional charts and interesting
commentary by Lance Roberts at…
http://stawealth.com/daily-x-change/1848-retail-sales-slow-as-shopping-season-heats-up.html
Chart from StreetTalkLive.com at…
http://stawealth.com/daily-x-change/1848-retail-sales-slow-as-shopping-season-heats-up.html
This sort of information shows a problem with the
economy, but there is no way to know if the problem is now or further down the
road.
TIME FOR THE BEARS TO GET BACK IN THE MARKET?
The issues that have spooked the bears remain. Let’s run some of them down:
1. Corporate Profits are at
record highs and have nowhere to go but down.
2. The
Cyclically Adjusted PE (CAPE/PE10/Shiller PE) remains at extreme high values.
3. The
economy is creeping along at levels normally associated with recession leading
many to suggest the US is already in recession.
4.
Unemployment remains at a high rate.
5. Housing
is not rebounding well and recently, builder sentiment has declined.
6.
Household income and spending is declining and has been for several years.
For me,
the high sentiment values along with steeply climbing (or an aimlessly
drifting) VIX, and volume that can’t seem to consistently move to the buy side
have been technical indicators that prevent buying.
Issues that suggest it is time to increase investment in
the stock market follow:
1. The FED is unlikely to taper
its QE program for significantly longer than was thought just a few weeks ago.
2. While the economy is slowly
growing, the key point is that it is still growing and has defied all
predictions of collapse, so perhaps we should learn to love slow growth.
3. Market internals (that are Short
term indicators) look good.
In the past, my system has
corrected my emotional mistakes by indicating a buy not too long after a
bottom, but during this cycle, signals have not been strong. They still aren’t. I’ll just have to wait and see, so for me, the answer is: Not now.
MARKET REPORT
Wednesday, the S&P finished UP 1.4% to 1722 (rounded) at the close, near the all-time high of 1725.
VIX fell 21% to 14.71...that’s a lot and suggests new
highs are possible.Wednesday, the S&P finished UP 1.4% to 1722 (rounded) at the close, near the all-time high of 1725.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing bounced
back to 50%. (A number below 50% for the 10-day average is generally bad news
for the market.)
New-highs outpaced new-lows Wednesday, leaving the spread
(new-hi minus new-low) at +218 (it was +93 Tuesday). The 10-day moving average of change in the
spread is plus 14.
Market Internals are now positive on the market for this
short term indicator.
NTSM
The overall long-term NTSM analysis remained 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.
