Larry Kudlow

Larry Kudlow said on his show tonight (Thursday) that we are in the beginning stages of recession.  There’s another vote for the “R”-word.  We seem to be hearing it more frequently. 

If true, the market could fall 20-30% from here.

Not much change from yesterday.  The NTSM analysis is SELL again.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Are cyclical stocks suggesting recession?

I’ve written a lot about recession here recently because we’ve found many who believe we are nearing a recession or are already in one.  We can do some detective work of our own to see what the market thinks.

There are recession clues in the market that are based on the movement of “smart money”.  For example at, or near, the end of a recession the smart money moves into cyclical stocks anticipating that the upturn in the market will favor the cyclical stocks like Caterpillar, Norfolk Southern, DuPont, etc.  Those are stocks that will do well as the economy picks up.  Conversely, before a recession, the smart money will dump those stocks. 

So if we look at how cyclical stocks are doing in relation to the S&P 500, it will give us an idea of what market participants think.

On the above chart, the green line is the S&P 500 and the blue line is the Morgan Stanley Cyclical Index.  As the chart shows, cyclical stocks are currently significantly underperforming the S&P 500 and have done so since February of 2011.  It looks like the market is suggesting that recession is coming.  We'll have to watch to see if this trend continues.

(Chart from http://finance.yahoo.com/q?s=%5EGSPC)

The Navigate the Stock Market analysis is HOLD again today.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Casey Research - “Is the US Monetary System on the Verge of Collapse?”

Yesterday we reported the recession call by The Economic Cycle Research Institute.

If that weren’t enough bad news, here’s a “doomsday” excerpt from Casey Research’s article titled, “Is the US Monetary System on the Verge of Collapse?” 

“(We)...turn to the work of Carmen Reinhart and Ken Rogoff (former Professors at U of MD and Harvard), who studied the factors contributing to 29 past sovereign defaults. They found that default (or debt restructuring) occurred on average, when external debt reached 73% of gross national product (GNP) and 239% of exports.”

They presented a chart that shows the US external debt is now 750% of exports, over three times higher than the average of countries that defaulted or restructured. 

 
Another chart from the article is not pretty either; we are right there with the “PIGS” (Portugal, Ireland, Greece and Spain) as far as our debt is concerned.

http://www.caseyresearch.com/editorial.php?page=articles/us-monetary-system-verge-collapse&ppref=CRX420ED0911G

I continue to be amazed that so many think that the US Debt is no big deal.  Now I don’t think the US monetary system is about to fail, but it will if we don’t get our act together…and we need to act relatively soon.  Now for some market discussion…

I think we will head back to the 1120 area on the S&P 500.  That’s when we will find out if this correction is just a correction or the start of something much worse.  The timing could be days or weeks away.

The Navigate the Stock Market analysis is HOLD again today.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I sold my 100% long position in the trading portfolio at mid-day today at a better than 10% profit.  The SSO trade I established Monday was up 10% in about 24-hours.

The Economic Cycle Research Institute / Bob Brinker

From various web reports, The Economic Cycle Research Institute’s latest report indicates recession.  This is not the Leading economic Indicators from the Conference Board that I wrote about last week; ECRI is a separate outfit. 

Just last week, Lakshman Achuthan, the ECRI chief economist said on the NPR radio program, “All Things Considered”..."What we're living through and dealing with now has been building for decades. If you look at the data, you see that the pace of expansion has been stair-stepping down ever since the 1970s, on all counts — on production, how much can we produce, how many jobs can we create, how much money do we make how much do we sell? These are all trending down." 

So, Achuthan says “...it is likely that we will see more recessions than anyone is used to for the next five or ten years.”

From: http://www.businesscycle.com/news_events/news_details/3084

I’ve suggested that same thought in prior blogs from looking at data from the 1966-1982 Bear market.  There were three-recessions during that 16-year period.  We may be in for a rough time ahead; but that doesn’t mean we couldn’t go higher now.  Crisis-timing is harder than stock-market timing.

Enough bad news!  Let’s consider some good news.  As reported from several web sites, Bob Brinker called a BUY last week.  I know many followers of this site (me included) think highly of Bob.  His Moneytalk radio program and his “Marketimer” newsletter are quite popular. (See http://www.bobbrinker.com/)

Since Bob Brinker is recommending a Buy (or at least he suggested buying in the vicinity of the prior lows) his long term, timing-model is currently Bullish.

With that as background, there are several reasons to suggest that the S&P low of 1119 might be the final low for this cycle.  (1) As I noted this past Thursday and Friday, Breadth (percent advancers) reached extremely low levels at the 22 September 1129 retest last week.  (2) We hit the S&P 1120’s for the 4^th time last week and the low held.  (3) Advancing and declining issues were somewhat improved from the 8 August low, so a case can be made that the 1119 low was the bottom.  (4) Historically, pre-Presidential election years are up-years.  (The Politicians will do ANYTHING to get re-elected.) 

So those are my guesses why Bob Brinker issued a Buy call last week; that, along with his longer-term model.

Just keep in mind, there is nothing in his model that covers International Debt crisis, World-wide Banking system failure, or Housing Crisis.  That is why Bob Brinker never called a sell in 2008 or 2009.  To his credit, Bob has been good at calling bottoms even in the absence of a sell call so his Buy-recommendation deserves serious consideration. 

My take: I don’t like the economy now.  (See the first paragraph of this Blog.) Valuation is high using the Schiller model (as analyzed by Hussman).  VIX is very high, although it did pullback some today.

We may indeed find that Bob Brinker was correct if the S&P successfully tests the 1119 low.  In the meantime, I would like more confirmation of the bottom and we may get it soon....or not. 

In the near term I am playing this as a bounce and I upped my long position in the trading portfolio this morning to 100% long.

Today, Monday, the Navigate the Stock Market analysis improved and switched to HOLD.  (A few more days like today and the NTSM analysis might even switch to buy.)

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Leading Economic Index® (LEI)

The Conference Board reported that the Leading Economic Index® (LEI) for the U.S. increased 0.3 percent in August.  That followed a 0.6 percent increase in July and a 0.3 percent increase in June.

Ataman Ozyildirim, economist at The Conference Board, said “The August increase in the U.S. LEI was driven by components measuring financial and monetary conditions which offset substantially weaker components measuring expectations. The growth trend in the LEI has moderated and positive and negative contributors to the index have been roughly balanced. The leading indicators point to rising risks and volatility, and increasing concerns about the health of the expansion.”

Full report at: (http://www.conference-board.org/data/bcicountry.cfm?cid=1)

So we have rising concerns, but no smoking gun on a potential recession.  That’s pretty much what the Fed said in their statement.

Nike reported great results yesterday, hardly indicative of recession.  Do people buy tennis shoes in recessions?

Breadth values (advancing issues vs. declining issues) are again as low as they were at the 2009 bottom and at the July 2010 bottom when fewer stocks were advancing.  As a result, I upped my stock holdings in the trading portfolio to about 50%.

Because of breadth, 1120 is looking more like a bottom at this point.  The S&P 500 hasn’t broken below the 1120 area on several tries, and breadth has been so low at the 8 August and 22 September bottom it doesn’t seem like the S&P can go much lower.

As I have mentioned before, I still want to see a successful re-test of the 1120 level.  Perhaps next time the S&P 500 visits 1120 we’ll get a buy signal.

This is all technical analysis. News can trump technicals so if the news is bad – we will move down and probably break well below the 1120 area.

Today, Friday, the Navigate the Stock Market analysis was SELL.  The NTMS analysis probably won’t switch to Buy until the VIX drops significantly.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I am about 50% long in the trading portfolio. 

Anthony Scaramucci: chance of recession is greater than 75%.

Hedge fund manager Anthony Scaramucci said on CNBC that the chance of recession is greater than 75%. 

John Hussman, PhD, commented a while back that he thinks many of the economists who are interviewed by the media just take a guess at the chance of recession. His view: the odds are near 100% that we will have a recession and that is based on his rigorous analysis (http://www.hussmanfunds.com).

FedEx reported slowing shipments today and that isn’t a good sign either.  With recession winds blowing, the long term (over the next 6-months to a year) doesn’t look good.  Readers here aren’t surprised, because we have been talking about the risk of recession for some time.

In the near term, I’m taking a contrary view.  I went long for about 20% of the trading portfolio at the close today.  The two big down days yesterday and today (and both were big enough to meet the NTSM test for “statistically significant”) could lead us to a bounce.  Also “Breadth” (a moving average of the %-of stocks advancing) equaled the low that we had at the low from last July and it even is equivalent to the 2009 panic bottom low. 

The S&P 500 dropped below the 8 August 1119 low on the S&P 500 this afternoon (Thursday) and moved up from there late in the day to close at 1130.  A lot of people may consider that a good sign and buy the market.  I am in that camp too (at least for the short term), but today’s test was on very high volume and that indicates that selling is not over.  In other words, we still need to test the 1119 closing value with low volume to convince us to go back into the market in a big way.

Today, Thursday, the Navigate the Stock Market analysis remained SELL.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I am 20% long in the trading portfolio.  This is a “toe-in-the-water” position, though, and I will dump it quickly if we don’t move up. (The total amount in the trading portfolio is never more than 10% of net worth.  If I lose it all – I’ll survive.)

Fed statement on the economy: “Significant downside risk”

The Federal Reserve statement on the economy included the words “significant downside risk.”  Those 3-words sparked a significant downside loss of 3% in the S&P 500 today, Wednesday.

Europe doesn't look good either.  With Greek debt currently yielding over 100%, the risk of default is a “certainty” according to John Hussman, Phd.  The more I read about the potential impacts of default, the worse it appears for the world economy.  But then, I am not an economist and there isn’t any point in listening to me muse on economic issues.

Today, Wednesday, the Navigate the Stock Market analysis moved to SELL.

The NTSM Volume indicator tanked; VIX has been a sell for over a month; Price action dropped to neutral; Sentiment actually got a little more bullish, but it is still extremely low.  (Sentiment is a reverse indicator – low sentiment is a Buy signal.  But we also recognize that sometimes the crowd is right.  Today, the crowd had a very low %-bull value of about 25%.  That means 3 out of 4 investors in select Rydex funds are betting the market will go down.)  VIX is our best performing indicator and Sentiment is the worst.  As a result, VIX carries more weight in our analysis than Sentiment. 

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I am still waiting to get another chance to short.  I lost 9% on the most recent trade – I simply held it too long…or not long enough perhaps.  I bought and sold at the same level on the S&P, but using the QID gave me a loss because the Nasdaq performed much better than the S&P.  That’s bad trading; don’t do this at home! 

Another quick thought…

We have bumped up against the prior highs around 1120 on increasing volume and not managed to break through that ceiling.  If we can’t move higher, we will move lower.  1120 to 1125 is a key area to watch.

Breadth numbers may be driving the rally

The news seems really terrible.  Greece, US debt, Unemployment, Housing…take your pick.  In spite of all the angst, the market is going up. 

 
One reason may be breadth.  Breadth simply measures advancing vs. declining stocks and is one of the more important market internals. It can be reported as a ratio or even a difference between advancers and decliners. 

I prefer to look at breadth in terms of the %-of stocks advancing on any given day.  To smooth the data I look at moving averages.  When the S&P made the low of 1119 on 8 August, the breadth (or %-advancing stocks) equaled the value when the S&P made its the low last July.  I looked back and checked the breadth in March of 2009 at the 679 closing low.  Surprisingly, by several measures, breadth was lower last month (at the 1119 low) than it was at the crash bottom of 2009.  So we saw real panic in August, as we previously noted; but we also saw Breadth hit drastically low levels.  To many, that is reason to buy.

Bottom line…the bounce we have seen since 8 August is a technically driven rally and in the absence of even worse news (i.e. a Greek outright default) it could continue.

The Navigate the Stock Market analysis is now being held in the Hold (or no-change) mode because the VIX indicator is still quite negative.  If the options folks change their minds, our VIX indicator could move quickly to Buy and that would make the NTSM a Buy overall.  Needless to say, we could just as easily see big declines with more bad news.  In the mean time…

I will stay out of the market with long-term money. 

In the trading portfolio I’ll try to identify a short term top to re-short.

The NTSM analysis is HOLD once again. 

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Delusional jobs strategy?

I try not to do political commentary here.  It is a farce on both sides of the isle, but I thought this was interesting.

In Fortune Magazine, Geoff Colvin, senior Editor at large, suggests that the President’s jobs strategy is “delusional.”  The article says the President’s implied message “…that U.S. manufacturing withered while we bought Chinese products at the mall, is simply wrong. American manufacturing boomed during the expansion. The value of "what we build" increased every year. The problem for the President…is that we did it with fewer workers every year…the more advanced that manufacturing becomes, the fewer people it employs. At a time when the country desperately needs more jobs, manufacturing is obviously not the place to look for them. As the President meets with his Jobs and Competitiveness Council, listen carefully to what he says. A delusional policy for America's No. 1 problem is the last thing we need.”  Full article at http://finance.fortune.cnn.com/2011/09/19/obama-looking-for-jobs-in-all-the-wrong-places/?iid=HP_River

The NTSM analysis is HOLD once again.  I think the long time that we’ve recorded that “no-change” view is due to the general confusion of investors.  I can find articles stating now is the time to buy; for example, Treasury yields are so low that stock yields are the place to be.  On the other hand, why sell?  Greece; US economy; debt…plenty of articles there too.

VIX is pretty firmly telling us to remain out of the market

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Quick Post for Friday...

I will be busy for the next couple of days so I ran the NTSM model today based on intra-day values.  (S&P 500 = 1212; VIX = 31.45)

NTSM is still HOLD. The VIX indicator (the most accurate NTSM indicator) is calling the shots right now and the VIX indicator is not ready to turn around.

The market wants to go higher.  It will be interesting to see if we can get above 1225 since the S&P has failed attempts to get above that level in August.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I closed out short positions in the trading portfolio. 

I think we are headed lower (at least back to test the 1119 low), but there is no point in taking big losses in the trading portfolio when the market is moving against me.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).

Bad news…and the S&P keeps going up!

The economic news keeps coming in flat or declining. Consumer spending was flat in August.

MarketWatch (http://www.marketwatch.com/story/worst-of-both-worlds-high-prices-stagnant-growth-2011-09-15?siteid=yhoof) noted, “The U.S. economy remains perilously close to the cliff’s edge. On Thursday, we were hit with reports showing prices rising more than expected, layoffs rising more than expected, and regional manufacturing surveys in the Northeast deteriorating more than expected.”

That gave us a 1.7% gain on the S&P 500. I wonder what would have happened if we had gotten good news?

The press won’t stop talking about Greece and now they are reporting it as good news, (Europe will bail them out, although it is not certain how), but as John Mauldin states below, Greece’s problems are far worse than most acknowledge.  Here are a few excerpts from John Mauldin’s view on the credit crisis in his “Thoughts from the Frontline” weekly newsletter...

http://www.businessinsider.com/prepare-now-there-is-so-much-that-could-push-us-into-another-2008-crisis-2011-9

“Was anyone surprised that the Greeks announced a state fiscal deficit of €15.5 billion for the first six months of 2011, vs. €12.5 billion during the same period last year? What else would you expect from increased austerity? If you reduce GDP by as much as Greece attempted to do, OF COURSE you get less GDP and thus lower tax revenues. You can’t do it at 5% a year, as I have pointed out time and time again. These are the consequences of allowing debt to get too high. It is the Endgame....they are being asked to further cut their deficit by 4% or so every year for the next 3-4 years. That ...means lower revenues and higher deficits, even at the reduced budget levels, which means they get further away from their goal, no matter how fast they run.

They are now in a debt death spiral.”

My comment: Here in the U.S., Senator Rand Paul is supporting the “Penny Plan” - cut 1 penny (1%) of spending every year to rein in the US spending.  For that he is branded a radical. 

By the way...the title of Mauldin’s column was “Prepare Now, This Could Easily be 2008 All Over Again.”

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

The S&P has “round-tripped” back to the level that I established short positions.  I’ve been a little surprised by the strength of the rally.  Unless tomorrow is a huge up day, I’ll sell those short ETF’s and buy different short ETF’s later when it looks like we’ve topped out.  In that way I can take the tax loss (if I do have a loss) and still be short.  The IRS “wash rule” says that if you sell a stock, you cannot take a loss unless you wait 30-days before you buy it back.

I have not changed my opinion that we will have to retest the 1119 level on the S&P 500.  Greece is only one worry; the other is the US economy.

The Navigate the Stock Market analysis remains HOLD.  (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Ed Yardeni points out that Tax receipts point to slowing profit growth…

Tom Benis blogged in the Wall Street Journal, “The Tell” those are “ugh-ly numbers indeed.”

http://blogs.marketwatch.com/thetell/2011/09/14/tax-receipts-point-to-slowing-profits-growth/?reflink=yhoof

He quoted Ed Yardeni who wrote, “…the growth rate in corporate tax receipts is highly correlated with the (year over year) percentage change in S&P 500 operating earnings…The tax revenue data strongly suggest that profits growth is slowing towards single digits.”

The year over year (comparing this August to last August) growth in corporate profit tax receipts is up 11.7%, but that is much lower than January when year-over-year gains were 60.9%.

The S&P 500 was up 1.4% today, Wednesday.

The Navigate the Stock Market analysis switched back to HOLD today as Modified on-balance volume drifted back to hold.  (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

The VIX indicator remains very bearish position.  Sentiment has been low for a month and the NTSM Sentiment indicator was only 16% bulls today.  That is the kind of low value that may indicate a bottom if it persists.  On the other hand, I am always concerned that sometimes the herd is right.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

The next Leading Economic Index® is important…

The Leading Economic Index® (LEI) is the reason many Bulls argue that the current downturn is just a correction and not the beginning of another major leg down.

The Conference Board (http://www.conference-board.org/data/bcicountry.cfm?cid=1) publishes the LEI. It gives an indication of the future of the business cycle.

An excerpt from the latest U.S. LEI press release follows: “(The LEI)...increased 0.5 percent in July to 115.8 (2004 = 100), following a 0.3 percent increase in June, and a 0.7 percent increase in May. The largest positive contributions came from money supply, the interest rate spread, and average weekly initial claims for unemployment insurance (inverted).”

Ataman Ozyildirim, economist at The Conference Board, said, “The U.S. LEI continued to increase in July. However, with the exception of the money supply and interest rate components, other leading indicators show greater weakness – consistent with increasing concerns about the health of the economic expansion. Despite rising volatility, the leading indicators still suggest economic activity should be slowly expanding through the end of the year.”

Some cautions that I would add are:

(1) The latest LEI is based on July data and was released 18 August, so there is some lag time, even though the LEI is designed to be predictive of future conditions.

(2) Two of the largest contributors (money supply, and interest rate spread) don’t look like strong indicators to me.

(3) We already know that employment has weakened based on the latest Dept of Labor stats that came in after this press release.  The LEI looks at future hiring by tracking data such as want-ads so it will be interesting to see how the next LEI looks regarding employment .

(4) As we noted on 18 August, the Philadelphia Federal Reserve reported drastically slowing manufacturing activity in the Philadelphia area after the LEI press release.  So have future projections also dropped?

I am not an economist, and my interpretation of economic data should always be suspect. Regardless, we’ll have to wait about a week to see the latest LEI numbers. The next LEI will be watched by many.

If the numbers are deteriorating, that may spark some serious downward pressure on stock prices since those who are still Bullish may have to re-think their positions.  

The S&P 500 was up 0.9% today,Tuesday.

The Navigate the Stock Market analysis switched back to SELL today based on the preliminary numbers. 

That really doesn’t mean much.  (See the page “How to Use the NTSM System” – the link is on the right side of this page).  The change was due to the modified on-balance volume component that comprises the Volume part of the NTSM analysis.  It switched to sell and it was enough to sway the overall rating.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

S&P 500 was up almost 3/4 percent Monday; VIX was also up slightly...

S&P 500 was up almost 3/4 percent Monday; VIX was also up slightly. 

It’s not unusual for them to head in the same direction for a day or two.  If it persists, it will be a warning.

S&P 500 got within about 1-1/2 percent of the prior low (1119) during the day Monday and then the front-running buyers could wait no longer and they started buying.   That means to me that time-wise, we are probably not near a bottom.  The market will make a bottom when everyone is fed up with the market and volume dries up.  That is capitulation - the buyers are gone and everyone who wanted to sell is already out.   Today’s volume on the S&P 500 was 108% of the 20-dMA; that’s not low volume.

Of course, many may consider today a test of the bottom and buy without considering volume so we could see some up days ahead.  We still need to SUCCESSFULLY test the 1119 level at some point in the future.  Otherwise, we will break 1119 and head lower.

The Navigate the Stock Market analysis is still HOLD.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).

S&P 500 down 2.7%; VIX up 12%

S&P 500 was down 2.7% Friday.  VIX was up 12% to 38.52.  

VIX is implying a move of 11% over the next 30-days.  I think VIX is signaling that the market is likely to continue falling for at least a couple of weeks more.  If the economy keeps sending bad signals it could be longer than that and we may well eventually see the major declines ahead as we have suggested.

On the other hand, we need to keep in mind that we don’t really know the future of the market and we must be ready to buy if market action indicates a move to the upside.  It’s the old “trade what you see not what you think” approach.

The Market is fast approaching the 1119 area on the S&P 500 and that is the prior low it made on 8 August.  We need to watch the volume since we’ve visited that level 4-times already (1121 on 10 Aug and twice to 1124 on 19 and 20 Aug).  We have never gotten below it.  I don’t think 1119 will be the low, but that’s just my opinion.

I will watch volume and the Navigate the Stock Market analysis carefully as we get around the 1119 level.  If the volume is low enough, we’ll be able to buy with the knowledge that most of the sellers have been washed out.  Higher volume would mean further selling ahead.

Another clue is sentiment.  Sentiment is currently low, but perhaps not low enough to signal a bottom. 

Today’s big move down actually signals a possible move up for a while so this discussion could be premature.

I also need to watch and see how the market looks at the 1119 level.  I may want to take profits on the short positions in the trading portfolio.  A lot of traders will buy the low if the market doesn’t break much below 1119 regardless of the volume; if that is the case, I may not want to hold short positions.   

The Navigate the Stock Market analysis is still HOLD.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).

The European Central Bank sees a slowing economy…

In a press conference Thursday European Central Bank President Jean-Claude Trichet announced that the European Central Bank cut its economic growth forecast for Europe and said there is a risk that growth will slow next year.  When questioned, he declined to predict whether there would be a recession.  The central bank's forecast is now for growth between 0.4% and 2.2% in 2012 with the risk weighted to the downside.

As we heard from PIMCO executives last week, when the economy drops to very slow growth, it may stall.

The AP reported that First-time applications for unemployment benefits here in the US rose last week to 414,000. Economists had expected it to fall to 405,000.

I couldn’t find any good economic news.  I didn’t watch Obama’s job speech but here’ a link to the text from the New York Times: http://www.nytimes.com/2011/09/09/us/politics/09text-obama-jobs-speech.html

Interesting excerpt:   “Right now, Warren Buffet pays a lower tax rate than his secretary – an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake, and everybody pays their fair share.”

The S&P 500 was down about 1% Thursday.

The Navigate the Stock Market analysis is still HOLD.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).

John Mauldin: Higher deficits ahead

Here’s an excerpt from John Mauldin’s newsletter…

“…since 1945, all recessions have been business-cycle recessions. We are now in a deleveraging/balance-sheet/ post-credit-crisis recession for which we have no modern analogs, except maybe Japan. And that hasn’t turned out too well, as in, two decades of going nowhere. Yet we are applying the same methodology (massive debt and deficits along with zero interest rates) that did not work there, and will soon bring Japan to ruin.”

Good point, and frankly, very scary.  It’s just another concern that indicates that our economy is in for an extended period of trouble.  It reinforces the likelihood that this Bear market will continue for 10 more years.  If the Great Depression lasted 25-years; and the “typical” stock market Bear lasts for about 15-years, I’m guessing the current Bear Market will be with us for 20-years.  (This one started with the end of the Dotcom Bubble in 2001.)

Brian Battle, director with Performance Trust Capital Partners said, “The court ruling confirms…(that Germany has the)…ability to help bail out Europe's troubled areas, and that provides a great amount of confidence that we will see some sort of solution in Europe soon enough."

True, but at this point, I think our stock market is focused on our slowing economy more than any other factor.  High volatility produces big up days as well as big down days.  I don’t think that there has been a change in outlook for the market.

S&P 500 was up almost 3% Wednesday.  If anything, today’s market move (3% up) indicates more down days to follow…and soon.

From CNN/Money: http://money.cnn.com/2011/09/07/news/economy/beige_book_federal_reserve/index.htm?iid=HP_LN

“The Federal Reserve Beige Book released Wednesday showed economic activity slowed in the Chicago, Richmond and Philadelphia regions, and continued at a sluggish pace in other districts.” There was a piece of good news since consumer spending was up.

Overall, the Navigate the Stock Market analysis remains HOLD again today.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I am near 100% short in the trading portfolio.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).

Navigate the Stock Market remains negative…

S&P 500 down 0.75% today.

We had some more fallout from the Jobs data last Friday.  We made out pretty well compared to Europe.  Some European exchanges were down about 5% on Monday.  Our markets were closed due to Labor Day.

Today we were down more than 2% at the open, but we clawed back for only a 3/4 percent loss – a moral victory.

Sam Stovall at S&P said on CNBC today that it is important to take a conservative stance regarding the market and invest in dividend paying conservative stocks since “ a rising tide lifts all boats.”  The risks are too high to ignore.

John Hussman, PhD, said today in his weekly market comment that recession is almost certain in the US; so is a Greek default. (http://www.hussmanfunds.com)

The 10-year bond hit an all time low today, showing that many people are buying bonds.  Typically that would indicate a “flight to safety”.  The bond market is sending us a message that the stock market has ignored for quite some time.

Volatility was up almost 10% to 37.  That’s a high number.  Volatility is historically the Navigate the Stock Market’s best indicator.  It turned to sell on 18 July and it has been consistently a sell for the last 6-weeks.  Our VIX indicator remains Sell today. 

Based on preliminary numbers, the NTSM Sentiment indicator is Hold; Price indicator is Hold; the Volume indicator is Buy.  Overall, the Navigate the Stock Market analysis remains HOLD again today.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I upped the short position to near 100% short in the trading portfolio.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).

No Jobs Created in August

S&P 500 was down 2.5% today on the bad employment report. 

If you missed it, the Bureau of Labor Statistics reported that there were no jobs created in August.  Oddly, the press jumped on this and reported that it was the first time that this had happened since 1945.  Now it is not odd that they reported the bad news – and it was very bad since it is another strong indication we are headed into a recession.  The odd thing is the fact that it was zero is simply a numerical coincidence.  Last August we lost 59,000 jobs.  Maybe the press doesn’t understand that -59,000 is worse than zero.

This chart looks a lot like the GDP report I posted a few days ago and that is not a coincidence.  Low GDP numbers and low employment numbers go together.

The Navigate the Stock Market analysis remains HOLD again today.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I upped the short position to near 100% short in the trading portfolio.

 
(See the page “How to Use the NTSM System” – the link is on the right side of this page).

More on Robert Shiller's valuation of stocks...

As I noted a while back, John Hussman uses the Shiller CAPE Ratio in his valuation analysis.  That is simply a PE that is the Price divided by the average earnings over the previous 10-years adjusted for inflation.  Using that metric the current valuation looks very high now.

The publication “FA Knowledge for the Sophisticated Advisor”

(http://www.fa-mag.com/marketeconomic-commentary/8253-is-the-shiller-pe-ratio-too-bearish-today.html) included a discussion about that method of calculating PE from a paper by Kapyrin, and Cordaro.

They wrote, “…in seeking to remove reporting distortions by using an inflation-adjusted ten-year average of earnings, it may be creating a distortion itself by including two of the deepest ever earnings declines in a single ten-year period.”  They went on to suggest that stocks are not currently overvalued based on more traditional valuation techniques such as price-to-book, price-to-sales, or more traditional methods of PE.  They conclude, “…we feel that there is a strong case to be made for owning stocks today…”  Andy Kapyrin, CFA, is director of research and Chris Cordaro, CFA, CFP, is chief investment officer at RegentAtlantic located in Morristown, N.J. 

I am inclined to side with Shiller and Hussman on this subject, but I thought I’d present another view.

The Navigate the Stock Market analysis is HOLD again today.

I sold on the 27 July sell signal at S&P 500 1301 and I am defensively positioned with only a small amount of my portfolio invested in stocks. (Zero stocks in the 401k.)   I remain 75% short in the trading portfolio.

(See the page “How to Use the NTSM System” – the link is on the right side of this page).