“A drop in the number of new unemployment claims suggested continued improvement in the labor market, though volatility around the turn of the year may have skewed the figures.
Initial claims for jobless benefits, a measure of layoffs, decreased by 15,000 to a seasonally adjusted 330,000 in the week ended Jan. 4, the Labor Department said Thursday. That was the lowest level in more than a month. Economists had expected 335,000 new claims for the week.” Story available at WSJ online at…
http://online.wsj.com/news/articles/SB10001424052702304347904579310161312421486
NO RECESSION IN SIGHT (Financial Sense)
“This week the Philly Fed just released its State Leading Index for November which showed that 49 out of the 50 states are expected to…show growth over the next six months…the risk of a coming recession remains remote.” - Chris Puplava. Full commentary available at…
http://www.financialsense.com/contributors/chris-puplava/no-recession-in-sight-economic-expansion
My own analysis of the S&P 500 vs. the Morgan Stanley Cyclical Index confirms Chris Puplava’s assessment. Cyclical stocks are handily outperforming the index. Cyclicals are recession sensitive and if investors feared a recession they would not be performing well.
VALUATIONS EXTREME (Dshort.com)
Market Cap to GDP…[as a metric for valuations]…gained
popularity in recent years thanks to Warren Buffett's remark in a 2001 Fortune Magazine
interview that "it is probably the best single measure of where valuations
stand at any given moment…."…Both the "Buffett Index" and the Wilshire 5000 variant suggest that today's market is at lofty valuations. In fact, the latest quarter in the Wilshire version is the third highest in its history, fractionally topped by two quarters in 2000.” – Doug Short. Full commentary, analysis and charts at Advisor Perspectives (dShort.com) at…
http://advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php
PE for the S&P 500 is now 19.4 and that is 25% above the long term
average PE of 15.5 based on 12-month trailing reported earnings. Source: http://www.multpl.com/. Just perusing the
chart shows that PE’s frequently maxed out at about 22 prior to the dot.com
era. PE’s are generally higher during periods
of low inflation. The PE10 (or Shiller
PE) is now 26.2 versus the average of 16.5.
That is nearly 60% over the average value. Source: http://www.multpl.com/shiller-pe/
STOCK ALLOCATION PHILOSOPHY
Just to show readers that I am not a perma-bear, here’s a blast from the past – this post is from December of 2011, over 2-years ago:
“I bought back into
the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy
signal. I remain 100% long in the long
term portfolio (100% stocks in the 401k.). I am 90% long in the trading
portfolio.
Just a reminder: 100% invested in stocks is way
too much for most rational folks. Don’t
do it unless you have a high tolerance for risk.”
My point is simply that it is wise to vary your stock exposure to
balance risk. Currently, I am setting my
“fully invested” level at 50%-stocks.
After a significant correction I may again increase my stock allocation
above the 50% range. Because of my age
(the over 50 crowd), a balanced 50-50 approach is warranted. Younger investors may want to use the old
rule of thumb: subtract your age
from 100 and put that amount into the stock market. It is conservative, but I feel the times call
for some conservatism. Of course some will take a more aggressive approach and
that is fine too. There is no rule that
fits all.
JOBS
When looking at my 2-year old post, I noted that non-farm payrolls
increased by 120,000 back in December of 2011.
The November jobs report showed the economy creating about 200,000 jobs
now – we’re making progress. All eyes
will be on the BLS release of December’s jobs report tomorrow.MARKET REPORT
Wednesday, the S&P 500 was up 1-point to 1838 (rounded).
VIX was up about 0.2% to 12.89.
The 10-year Treasury Note closed at 2.96% yield. Rates at 3% or above are considered by some traders to be “trouble-for-stocks”.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing fell to 53%
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 Thursday, leaving
the spread (new-hi minus new-low) at +179 (it was +142 Wednesday). The 10-day moving average of change in the
spread rose to minus 8. In other words, over the last 10-days, on average, the
spread has decreased by 8 each day. Only
Breadth remains positive; advancing volume and new-high/new-low data are
negative. Overall, market internals remained
neutral on the market. 
Market Internals are a decent trend-following analysis of
current market action, but in 2013, if I had been buying the positive ratings and
selling negative ratings I would have under-performed a buy-and-hold strategy.
NTSM
The four areas of analysis, Sentiment, Price, Volume and
VIX are currently rated as follows:Sentiment is screaming high at 82%-bulls (5-dMA of selected Rydex/Guggenheim funds) and that’s a negative; Price is positive since up days have been larger than down days over the past month; VIX and Volume remain neutral.
The most recent BUY signal for the NTSM system was 25
October. The “5-10-20 Timer” switched to
BUY from HOLD on 18 December.
MY INVESTED POSITION
I am about 30% invested in stocks as of 20 December
(S&P 500-1540) because I upped my stock holdings by 10% on the 20th
of December. Unless I get a SELL signal in
the NTSM system, I will continue to income-average (a little each month) into
the stocks to get my %-invested up to around 50% (max for me now) unless there
is a correction that would allow me to move in sooner and at a higher
percentage. Since that is my expectation, I have not upped my invested
percentage in one move as I normally would.
