Get out your checkbooks – Europe asks the US to solve their crisis

“ASUNCION (Reuters) - Spain and Portugal said on Saturday the euro zone's debt crisis is a global problem, calling on the United States and other G20 powers to help contain the fallout.

Spanish Prime Minister Jose Luis Rodriguez Zapatero urged the G20 countries least affected by the crisis to provide "urgent stimulus plans" to shield the global economy.”  Full article: http://news.yahoo.com/trichet-says-crisis-not-over-hard-ahead-report-135901379.html

Gee… didn’t the Europeans solve the Debt crisis?

The Market can’t keep going up at the rate that we have seen since the 3 October. My guess is that there will be some consolidation and a slower climb-rate for the remainder of the year as late-comers keep the rally going.

Price, VIX, and volume are all buy.  Sentiment is hold.

The NTSM VIX indicator is still not confirming this big move up.  It is “Buy”, and that is good, but the indicator is not nearly as strong as following past bottoms.  Frankly, I don’t know what that really means.  Perhaps it just reflects overall market confusion. 

The NTMS looks good unless we have a few more days like today.

Overall, the NTSM analysis remains BUY today. 

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

Who is MF Global?

The S&P 500 ended unchanged today, Friday, at 1285. 

Technically, we took a pause today from the extended climb after the major 1099 bottom on 3 October.  I think we continue to go up, but at a slower pace.  The S&P is finally back to its 200-dMA.

Answering the NTMS trivia question: MF Global Holdings Ltd., is a commodities and derivatives broker that delivers “hedging solutions” as a broker dealer.  They trade on the NYSE.  As I write, they are looking for solutions to their own problems.

From CNN Money…

On Tuesday, MF Global reported an adjusted loss of $17.9 million. Analysts had been expecting a profit.

But what really spooked investors was the company's disclosure that it had $6.3 billion in exposure to short-term European soverign debt. Rating agency Moody's noted that was equal to about five times the company's tangible common equity.

Shares of MF Global lost nearly half their value Tuesday and are down 62% for the week. The stock briefly fell below $1 a share Friday morning before recovering a bit.

Full article at:

http://money.cnn.com/2011/10/28/news/companies/mf_global/index.htm?iid=HP_LN

So Europe may not be as “resolved” as we might hope, or should I say, the resolution may include some pain here in the states. 

NTSM remains BUY today. 

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

GDP Grew 2.5 Percent in Third Quarter

Today, Thursday, the S&P 500 closed up nearly 3.5% to 1285.

From ABC News at http://abcnews.go.com/Business/gdp-grew-25-percent-boosted-consumer-spending-double/story?id=14821833

The GDP Grew 2.5 Percent in Third Quarter and the strongest element of Thursday's GDP report was personal consumption.  That news is better than news of the Greek “resolution.”

The first 2-quarters this year the US economy grew at a 0.9% rate.  Today's announced 2.5%-growth rate not as high as it should be in a normal economy, but the improvement is impressive.  Most importantly, it is above the 2% stall speed that usually leads to recession.

"Clearly today's GDP report is indicative of an economy that is extracting itself from a temporary soft patch, and not one that is rolling into another recession," Phil Orlando, chief equity strategist with Federated Investors, said.

From TR Price, in a note to investors, T. Rowe Price Chief Economist Alan Levenson wrote that many of the major problems that led to the 2007-2009 recession are beginning to resolve themselves.  He expects that “…markets will stabilize over the next six months and allow the underlying positive aspects of the U.S. economy to gain some traction.”

So here we are.  Greece is solved…again.  (Just a reminder: this is the 14^th meeting of Europe’s leaders to “solve” the crisis.)  Is it solved now?  Only time will tell.

The following is from the NTSM 12 October blog-post: "Liz Ann Sonders (Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.) said today that there could be an explosive upturn if we get good news, because there’s a lot of money on the sidelines."  After today's move I'd say that's why she get's the big bucks.

Price, Volume and VIX indicators in the NTSM analysis are all buy.  The only missing indicator is Sentiment and sentiment has switched to Hold as investors have gotten more bullish so NTMS is about as bullish as it could be at this point in the recovery.

On the year…NTSM system is up 14%.  (The NTSM computer analysis is up 19%, but in order to limit risk, I didn’t follow all of its advice.) The S&P 500 is up 2%.

The NTSM market analysis switched to back to BUY today. 

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

The 21st Century may be American…

Enough bad news…Here are some excerpts from an article in the London’s “The Telegraph” from 23 October.

“Assumptions that the Great Republic must inevitably spiral into economic and strategic decline - so like the chatter of the late 1980s, when Japan was in vogue - will seem wildly off the mark…

"The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d)," said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.

The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.

"Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

"A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.  Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.  

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total.

Volkswagen is investing $4bn in America, led by its Chattanooga Passat plant. Korea's Samsung has begun a $20bn US investment blitz. Meanwhile, Intel, GM, and Caterpillar and other US firms are opting to stay at home rather than invest abroad.

Europe's EMU soap opera has shown why it matters that America is a genuine nation, forged by shared language and the ancestral chords of memory over two centuries, with institutions that ultimately work and a real central bank able to back-stop the system.

The 21st Century may be American after all, just like the last.  Read more at…

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8844646/World-power-swings-back-to-America.html

S&P 500 was up 1% to 1242.  The NTSM indicators for VIX & Volume both improved.   

The NTSM market analysis remains HOLD today. 

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

Another US Debt Downgrade Is Coming In Just A Few Weeks

Here’s some bad news from “Business Insider” (I’m full of it today).  Bank of America said “We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan…Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.” -
http://www.businessinsider.com/huge-prediction-from-bofa-another-us-debt-downgrade-is-coming-in-just-a-few-weeks-2011-10

Speaking of Bank of America, regarding yesterday’s post…the amount of derivatives that Bank of America moved into FDIC insured subsidiaries was 75-trillion (yes that’s trillion with a “T”).  The entire GDP of the US is about 15-trillion.  The only good news is that the actual potential loss from the derivatives would be a mere fraction of that number; but we don’t know the amount of the potential losses. The issue is that they are doing it to get around capital requirements “at the request of counterparties” (i.e., the counterparties are worried - so let’s stick the taxpayer.)

The NTSM analysis switched to HOLD today.  Our VIX indicator is elevated and it hasn’t been coming down fast enough.  It is reflecting the general market confusion over the European crisis.

Only the Volume indicator is positive, but it tracks down on down-days and up on up-days so a few more days like today combined with a rising VIX could bump us back to sell.  As always, I’m not making a prediction – because we don’t know which way this will go.  A drop to the 1200 area would be expected and not cause for alarm – but then if NTMS were to signal a sell, I will exit the market.

The NTSM market analysis remains BUY today. 

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

Bank of America moved Investment Banking derivatives into a bank subsidiary

Over the weekend I noticed the following: As reported by Bloomberg (http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html)

“Bank of America, hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.  The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties…”

A blog I read pointed out that this could signal that Bank of America was near collapse.  I don’t know the background of the Blog (and I didn’t keep the link), but this issue was egregious enough to draw the interest of John Hussman, PhD, of Hussman Funds in his weekly comment today.

Mr. Hussman said in his weekly Market Commentary this was “outrageous” and implied that B of A was transferring bad debt to its Bank subsidiary in order to get Taxpayers to pick up the tab if the derivatives go south.  He also said it was illegal under the Federal Reserve Act, but that has not stopped the Fed in the past since “…the Fed can make an exemption whether the FDIC likes it or not . And that's what we've come to - government of the banks, by the banks, and for the banks…”   - from John Hussman, PhD, Weekly Market Comment (24 Oct 2011)  http://www.hussman.net/wmc/wmc111024.htm

For its part the bank said, “The moves by Bank of America are part of “the normal course of dealings that we’ve had with counterparties since Merrill Lynch and BofA came together."   That’s exactly why I have never been a fan of combining the assets of Banks (where we regular people keep our money) and Investment Banks.  This combination was a big cause of the last banking crisis.  This report is very troubling.

Regarding this market, I am beginning to get the feeling that Greece may be a “Buy-the-rumor; sell-the-news” story.  It is not likely that the US economy will get out of the Greek/Euro-crisis without impacts.  The rumors and market expectation seems to be that all will be OK since Europe will “fix” Greece.  When/if they do, we will have already priced it into the market and there will be no where for the market to go but down.  (Good news is powering us up; but when the news is over, there is no more good news to keep the market moving up.)  If we get any bad news at all, the market reaction may be down fast.

That’s what I think; what I am seeing is far more optimistic.

The NTSM market analysis remains BUY today. 

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

Chairman Bernanke says Euro crisis will hit American economy

“Federal Reserve Chairman Ben Bernanke told a group of U.S. senators Thursday that the debt crisis in Greece and Europe is having an impact on the U.S. economy, according Senator Richard Durbin.

Durbin, who attended the closed-door meeting that Senate Democrats had with Bernanke, told reporters that the U.S. central bank chief described the situation as worrisome. Durbin said Bernanke told the group it ``impacts our economy.'' (Reporting From Fox Business at http://www.foxbusiness.com/markets/2011/10/20/bernanke-meets-senate-democrats-aide/#ixzz1bN5ikp00)

Regarding Bernanke's statement...we'll see.

We had a good move down on the VIX today.  Volume continues more to the buy side.  The NTMS Price indicator has been moving up and is almost positive.   NTMS is looking good at this point.

The NTSM analysis went back up to BUY today. 

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

Yahoo Finance: Yingst, “Margins have nowhere to go but down…”

Clark Yingst, the chief market analyst at Joseph Gunnar, warned in a Yahoo interview that we could see back to back earnings declines.

S&P 500 earnings growth rates have fallen from +30% in Q4 of 2010 to +11% in Q2 of 2011 (from FactSet).

Q3 2011 is predicted to grow 12% so we may actually reverse the downward trend, but Yingst said, "I think it is entirely possible that we have an earnings recession.”  He pointed out that analysts tend to underestimate earnings when they are trending up and also when they are trending down. - http://finance.yahoo.com/blogs/breakout/other-recession-getting-priced-market-185315818.html

Falling earnings growth is not a good sign, but this isn’t something that we need to worry about for long.  We will find out soon enough if Apple and IBM (both gave earnings reports that disappointed the market) represent a trend or are outliers.

On a CNBC interview today on the floor of the stock exchange one of the pros pointed out that the news has been really bad but the market isn’t going down much.  The conclusion – this market wants to go up.

Only Volume is bullish in the Navigate the Stock Market system.  (More volume has been going to the up side.)  Sentiment, Price, and VIX are all neutral and NTMS moved to HOLD.  That’s not terribly important since only a sell signal would change our current bullish position in the market; but it does show some deterioration of the NTMS indicators.

The NTSM analysis fell to HOLD today. 

I am 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

The trading portfolio is all cash until we get a better idea of market direction.

A Nobel Prize winner opposes stimulus…

The Nobel prize for economics was awarded to Thomas Sargent, for his work in rational expectations...Regarding the 2009 fiscal stimulus package, he [Mr. Sargent] observed "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the past 60 years of macroeconomic research...I recall it being said that there was widespread agreement of a big fiscal stimulus among the vast majority of informed economists. [The President's] advisers surely knew that this was not an accurate description of the full range of professional opinion."   - from John Hussman, PhD, Weekly Market Comment (17 Oct 2011)  http://www.hussmanfunds.com/

I thought a little reminder that there are experts, highly regarded in economics, who don’t agree that Government stimulus of the economy is helpful.

At mid-day, the VIX was up 2% and the S&P was basically flat.  That sort of market action is often a harbinger of a down-day so I went to all cash in the trading portfolio and took profits.  I use the QLD and the Rydex RYVYX fund for trading.  Both are 2x funds that double the gains (or losses) of the Nasdaq.  They are high risk funds so there is reason to be cautious, even though I am very long in the long-term portfolio.

The NTSM analysis is still a BUY, but the VIX indicator is now a hold and it is not falling fast enough to convince me this rally will continue.  Option expiration on Friday may be affecting the markets.  Europe is still weighing on the markets.  We are news driven so the NTMS technical indicators will be reactive. 

Sentiment is positive/neutral.  Price action is neutral. Volume is positive.  VIX is neutral.  NTMS could switch to “Sell” in a few days if the negative action continues.

NTMS is BUY today.

I am 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I cut the trading portfolio position in the morning to 0% stocks at a good profit.

Due for a Pullback

S&P 500 was up 2% to 1225 today, Tuesday.

I continue to be bullish as does the Navigate the Stock Market system. 

To keep us from getting too carried away, here are some comments from John Hussman, PhD, written yesterday.

“At present, the S&P 500 is again just 10% below the high it set before the recent market downturn began. In my view, the likelihood is very thin that the economy will avoid a recession, that Greece will avoid default, or that Europe will deal seamlessly with the financial strains of a banking system that is more than twice as leveraged as the U.S. banking system was before the 2008-2009 crisis...”

Mr. Hussman continues with some cautionary comments regarding the markets:

“As of last week, the Market Climate in stocks remains negative, but has deteriorated significantly from the more benign negative levels that we've seen in recent weeks. Generally speaking, the worst market plunges tend to feature three things - overvaluation, negative market action, and a short-term overbought condition. You rarely see the three together, because establishing that sort of condition requires a strong rally against both overvaluation and negative internals. That's about where we are, though we can't rule out a modest extension for a bit…” - John Hussman, PhD, Weekly Market Comment (17 Oct 2011)  http://www.hussmanfunds.com/

NTSM is still BUY.

I bought back into the stock market at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.

After a significant bottom, the market often climbs relentlessly on relatively low volume as many investors sit on the sidelines waiting for a pullback.  So far, that is exactly what we have seen.  Even the big pullback yesterday fits the pattern, especially since the S&P bounced upward again as those who feel they are missing the boat jumped aboard, even after Apple missed its revenue expectations.  We are due for a pullback in the 3-5% range.

I am 100% long in the long term portfolio (100% stocks in the 401k.) and 50% long in the trading portfolio.  (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Since this may just be a bounce, we must be somewhat wary, especially with both IBM and Apple disappointing the market. 

I cut the trading portfolio position in the morning to 50% because it looked like we were headed for a down day.  (That would not have fit the pattern of up moves and taking profit (and cutting risk) seemed like a good idea.)  

Monday – S&P 500 down 2% - VIX up 20%

The S&P 500 dropped 2% today, Monday, back to 1201.  VIX was up nearly 20% - ouch!  Still, we were due for a pullback, so today’s action is mostly meaningless.  The pundits on CNBC said it was caused by European bank issues that were not resolved.  I doubt that anyone really thought the issues would be resolved over the weekend. 

We may go back and re-visit the 1099 area.  I think that is less likely than some down days followed by a slow, un-even, upward movement thru the end the year.  Some have even suggested a big rally.

The argument for a re-test would be that we never had the low-volume, re-test in the 1100 area of the S&P 500.  This is less likely, as I have suggested in recent posts. 

Some Wall St pros have suggested that we need a higher-low on the S&P to signal an all clear.  In that scenario, we drop some and then move up.  The lowest point in that drop is the higher-low, as long as it is higher than 1099.

The real information will be gleaned from the earnings reports as we go through earnings season.  IBM earnings were mostly in-line today, but revenues were just a touch low and Big Blue was punished, down almost 4% in after-hours trading.  That could lead to more selling tomorrow.

NTSM is still BUY, but too many days like today will put an end to our positive outlook.

I bought back into the stock market at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.

I am 100% long in the long term portfolio (100% stocks in the 401k.) and 100% long in the trading portfolio.  (See the page “How to Use the NTSM System” – the link is on the right side of this page).

The market should continue to surprise to the upside - October 14

10-yr bond yields are rising again after bottoming at depression levels.   Breadth hit extreme low limits last week. Sentiment hit extreme low limits recently.  The market is up 7-days out of 9-days since we made the 1099 low.   VIX has fallen more than 40% after the recent-low of 1099.  The market was up more than 1.75%, 3-days in a row after the low.  Today, Friday, the S&P 500 broke the old recent-high of 1219 on 31 August and that gets the S&P out of its trading range.  All of these are indicators that 1099 was a major low.   Bottom line: the market should continue to surprise to the upside. 

While we may still have a recession, and some think we are already in one (or we never got out of the last one), it appears that the market now is convinced that the risks to earnings were overstated and that the end of the world won’t be this week, or even this quarter.

Now here is a thought for Government employees who are invested in the TSP (the Government employee 401k).  After a significant bottom, especially due to recession or economic slowdown, small-cap stocks will typically outperform large caps on the way up.  The following chart compares the TR Price Extended Equity fund (it is basically the S-fund) vs. the S&P 500 for the past year.  So a strategy is to invest in the S-fund until the spread between the S-fund and the C-fund maxes out and begins to get smaller; then switch to the C-fund.

The Navigate the Stock Market analysis is BUY again today.

I bought back into the stock market at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.

I am 100% long in the long term portfolio (100% stocks in the 401k.) and 100% long 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 BUY

The S&P 500 was down 0.3% Thursday.  

VIX is still pretty high.  VIX has been above 30 since 3 August.  It would be good to see S&P VIX come down so we can be more convinced that we have put the worst of this correction behind us. 

The S&P still looks good.  I would expect more profit taking, so some down days are not a concern.

The Navigate the Stock Market analysis is BUY again today.

I bought back into the stock market at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.

I am 100% long in the long term portfolio (100% stocks in the 401k.) and 100% long in the trading portfolio.  (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Famous Stock Market Quotes: “What's really going to bake your noodle later on …”

The Navigate the Stock Market BUY call on 6 October is working out so far.  S&P 500 was up another 1% today, Wednesday.

As of today’s close of 1207, the S&P 500 is down -4% this year.  Using the NTSM model, I am up 7.4% so NTMS is beating the market by 11.4%.  If we can do that for just 6 and ½-years NTMS will double the S&P 500 returns on a compounded basis.

Now what really bakes my noodle is the NTMS computer model is actually beating the market by 17% because NTMS had a buy signal on 22 August.  You may remember I ignored it over the concern that NTMS doesn’t always handle quick market turnarounds and I was concerned NTMS wouldn’t give a timely Sell signal. 

NTSM did give a sell signal on 13 September so I gave up 6% by not following the computer guidance.  Well, it was still the right call since I figured, correctly, that the market would return and test the prior low.  No need to take too many risks when staring at a sure thing.  

The S&P 500 is up 7-days in the last 10; and 6-days out of the last 7.  That’s a little more confirmation that S&P made a significant bottom 7-days ago.

Yesterday’s NTMS was HOLD because VIX switched all the way to Sell.  (I wrote it wrong yesterday.)  No matter…

Today, Wednesday, NTSM is BUY because the VIX moved up to Hold.  Still, if VIX would fall faster, I’d feel more comfortable.

I bought back into the stock market at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.

I am 100% long in the long term portfolio (100% stocks in the 401k.) and 100% long in the trading portfolio.  (See the page “How to Use the NTSM System” – the link is on the right side of this page).

Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co

I wrote a while back that the Morgan Stanley Cyclical Index was underperforming the S&P 500 and that was predictive of recession.  Here’s a chart of today’s (Tuesday's) Cyclical stocks vs. the S&P 500.

The pattern shows the cyclical stocks (in Blue) outperforming the S&P (in Green).  That was true for today and also for the last 5-days.  This development is clearly bullish.

Most of the talk (not all; and that’s good) is bullish.  Liz Ann Sonders (Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.) said today that there could be an explosive upturn if we get good news, because there’s a lot of money on the sidelines.

VIX is coming down, but not as fast as I’d like so the VIX indicator is “hold” and that’s why the Navigate the Stock Market analysis slipped back to HOLD today.

I bought back into stocks at S&P 500 1155 on 7 Oct after the 6 Oct NTSM buy signal.

I am 100% long in the long term portfolio (100% stocks in the 401k.) and 100% long 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 UP over 3-percent...No need to add much…

Today’s move put the S&P 500 firmly in an uptrend (so much for the questionable charts that I mentioned yesterday).  The next hurdle is to get past the 1220 area on the S&P 500 since that represents the previous highs during the correction.  After today’s big run-up I expect some profit taking and a breather.

This bounce is for real, but there are a lot of people who don’t believe it.  Sentiment remains low.  Volume was low, but today was a holiday for many and volumes are usually low at a bottom because a lot of traders don’t believe it really is the bottom.  In other words, we can’t make any conclusions from today’s volume.

I’d like to see the VIX keep falling. That would be some good news and provide some evidence that the rally is sustainable.

I don’t know how long this will last.  Europe still has a long way to go.  The US economy is still questionable with extremely slow growth.  In the mean time…I’ll take it and keep a wary eye on the markets and the NTSM analysis.

The NTSM analysis is BUY again today. 

I sold on the 27 July sell signal at S&P 500 1301 and I bought back in at S&P 500 1155 on 7 Oct

I went 100% long in the long term portfolio at S&P 1155 (100% stocks in the 401k.) on Friday 7 Oct after Thursday's BUY signal . (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I am 100% long in the trading portfolio.  (Initial position established 4 Oct at 1124.) 

Navigate the Stock Market Remains BUY

I went back into stocks in the 401k (TSP) 100% Friday, I must admit, with considerable trepidation.  There appears to be a recession coming and the charts don’t look very good either.  See the S&P 500 chart below. 

We need to break the upper trend line before we can feel comfortable.

I always look for a low volume test to end a correction.  That would be a lower low (or close to a lower low) on low volume and improving market internals.  We didn’t get a low volume successful test last week.  Looking at volume data, I can see no reason why the market took off Tuesday at the end of the day.  As the chart below shows, the S&P 500 went up roughly 4% in about ½-hour.

I checked hourly volume data on the possibility that the big boys (with their big computers) predicted a low volume successful test of the 1099 low and moved in before the close.  That theory didn’t hold water though, volumes were high all day.

The published “historical” Yahoo data for the S&P 500 for Tuesday was quite low, but the NYSE data was very high so I conclude the Yahoo numbers are wrong.  The same is true for Wednesday.  NYSE volumes were too high.

Volume has been strong in the afternoons; that is when the institutional boys move and that is also considered smart money.  I think the NTSM system is right; I just can’t find a technical reason.  Perhaps it was news and it may have been a European statement about backstopping the European Banks, but I never saw anything specific.

It is hard to believe that we will get out of this mess so easily.  Some recession stocks show that the recession panic has crushed some stocks.  Manitowoc makes construction cranes.  Their stock is down to 1/3 of what it was when this correction started.  Perhaps the big money thinks that the market has already gone down too far.  I suppose I won’t have an answer. 

That’s why I like the NTSM analysis because it looks at indicators in Sentiment, Price, Volume and VIX in the S&P 500 rather than trying to guess about the economy and outside influences.

VIX has been coming down and more volume has been flowing to the buy side and that combined with low sentiment kicked the NTSM system to a BUY. 

NTSM was BUY again on Friday. 

The bottom line of my rambling tonight is that I will stay alert because, we may get a quick turnaround and a Sell signal if the market deteriorates over the next week or two. 

The market may move back to the 1099 level too for a test and that will not feel too good since I am now very long, but I doubt that a move to 1099 will give a sell signal.

I sold on the 27 July sell signal at S&P 500 1301 and I bought back in at S&P 500 1155 on 7 Oct

I am 100% long in the long term portfolio (100% stocks in the 401k.) (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I went 50% long in the trading portfolio on 3 Oct and 100% long on 7 Oct.  If there is a hint of decline, I may take profits and go short for another run at that pesky 1100 level in the Trading Portfolio.

NTSM says - It's Time to BUY

The NTSM analysis switched to BUY today.  The VIX, Volume, and Sentiment indicators are all positive today.  VIX and Volume are the two most reliable indicators and they just turned positive.  Sentiment has been a Buy since mid-August.

I went 100% long in the trading portfolio today in the early-afternoon.  It’s hard not to chase this rally and re-enter the stock market with long-term (401k) money in the morning, but it is possible that we might make a few percent by waiting and buying on a pullback. 

At the end (bottom) of the last correction (July of last year) there were 8-days that were up or flat and the market moved up 7% before there was even one down day.  We have only had 3-days up so far from the 1099 low, but we are already up 6% so we have conflicting information.    

My inclination is to just buy back in.  If Europe is going to backstop the European Banks who have loaned Greece money (as reported today), the US Banks have less risk and the S&P may climb for a few more days in this relief rally.  Cooler heads may layout and wait for a pullback before buying back in.

The Yahoo S&P 500 volumes were reported to be about 1/2 of the 20d-MA on Tuesday and Wednesday; that’s very low.  I didn’t believe the data because the NYSE volumes were twice their 20-dMA.  That’s’ a huge discrepancy.  If the Yahoo data is right, it would mean that there was a low volume test that I would interpret as a Buy and we may not retest that level.

One cautionary note: if market conditions deteriorate due to bad news, the NTSM system will switch back to sell.  I suppose that is rather obvious, but the markets look tenuous now – but then, they usually do near a bottom.

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 100% long in the trading portfolio.

Since the NTSM system generated a BUY today, Thursday, I plan to go 100% long in the long-term (401k) portfolio tomorrow (baring some huge event tomorrow - the jobs data due out tomorrow morning?)

Navigate the Stock Market - BUY

NTSM turned to BUY today.  More later tonight...

Robert Reich - Behind Europe's Debt Crisis Lurks Another Giant Bailout of Wall Street.

While the market is looking better, there are still real worries related to Europe.  Robert Reich (former Sec of Labor and currently a professor at the University of California at Berkley)  wrote in his blog that Behind Europe's Debt Crisis Lurks Another Giant Bailout of Wall Street.

“A Greek (or Irish or Spanish or Italian or Portuguese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.- Financial chaos.

The Street has lent only about $7 billion to Greece, as of the end of last year, according to the Bank for International Settlements. That’s no big deal.

But a default by Greece or any other of Europe’s debt-burdened nations could easily pummel German and French banks, which have lent Greece (and the other wobbly European countries) far more.

That’s where Wall Street comes in. Big Wall Street banks have lent German and French banks a bundle.

The Street’s total exposure to the euro zone totals about $2.7 trillion. Its exposure to to France and Germany accounts for nearly half the total.

And it’s not just Wall Street’s loans to German and French banks that are worrisome. Wall Street has also insured or bet on all sorts of derivatives emanating from Europe – on energy, currency, interest rates, and foreign exchange swaps. If a German or French bank goes down, the ripple effects are incalculable.” http://robertreich.org/post/11033625495#ixzz1ZuBr3jvC

Recession is even more likely and the Federal Reserve statement by Chairman Bernanke was pretty clear for Fed-speak: “"Recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead…the  economy is "close to faltering,"

Even so…the Stock market is moving up on the news on the hope that the recession will be shallow or the hope there won’t be a recession.  Conditions are bad now (unemployment, housing prices, etc), so it is believed that a recession from these levels will have less impact to the markets.  It is hard not to rush out and buy back into the market since it is going up now, but as I noted yesterday…patience. 

A thought to keep us grounded (patient): here’s a comment from a trader whose handle is “smoothshot” on a discussion-board I visit, Subject: dcb (dead cat bounce)...“there's not a chance in the world we don't retest the lows again…Bulls have the odds firmly stacked against them here. Bounce? ok but then it's back to business.”  

There were reports on the web that we have seen a lot of short covering yesterday and today. 

The Navigate the Stock Market analysis is HOLD today.  The VIX indicator slipped back to negative but the Volume indicator went neutral so we are flirting with a “Buy” signal and it could come as early tomorrow depending on market action.  It could also turn negative again so I don’t want to guess market direction (and the NTMS model) too much.

If it does give a Buy signal, I’ll have a decision based on two alternatives: (1) I follow the NTMS guidance strictly and move back into the market as soon as NTMS says buy (2) wait for the S&P 500 to retest the recent 1099 low.  While a test is likely; it is not guaranteed.

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 went 50% long in the trading portfolio yesterday based on the improvement in the NTSM model and Monday’s big down day.

Navigate the Stock Market switces to HOLD - a positive development

Today, Tuesday, the S&P 500 finished up 2.3%. 

The VIX indicator in the Navigate the Stock Market computer analysis switched to “buy” today so the NTSM analysis is now HOLD overall.

That is a significant development and a bit of a surprise that can’t be ignored.  VIX is the most reliable indicator for NTSM based on back testing over 5-years of data. 

I have been watching the VIX rise and the VIX indicator has been negative since last July.  The reversal is caused by a slowing rate of climb of the VIX (identified by the computer) and that predicts a potential reversal of the NTMS system overall.  There are also other indicators that seem to show we could be near a bottom.

The NTSM model is not currently a buy, but it just means I need to change my attitude.  I have been very negative and caught up in the hype of CNBC, recession forecasts, and the like.

A couple of points: 

(1)  The previous high on 29 April was 1364.  That is 19% above yesterday’s close.  The shallowest drop in a bear market was around 19% in the 70’s.  In 1932-1934 the decline was 23%, but it only took 6-months to get there.  We are now in the sixth month since we saw the previous high.  So historically, we are within the range of previous bottoms, but just barely.  Most are longer and deeper.

(2)  Breadth (%-advancing) is near recent historic lows.

(3)  Sentiment has been very low (%-Bulls) since early August and hit some numbers associated with bottoms last week.

I still want more confirmation.  Either a “buy” from NTSM or a low volume successful test; but, it is important to change one’s thinking in the face of analytical evidence - in spite of the herd mentality that has been calling for Armageddon (even from me).

As an excellent trader (DK) said, “Pioneers take all the arrows, so sit back and let the institutional investors sort this out. It's a party worth being late to.” (DK Report at http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2287993.)

Conclusion: I’ll be on alert for a potential reversal to a Buy, but “patience” is the word – I wish I had more...patience 

Keep in mind all of this optimism is based on guessing what may happen.  We could also see more down days ahead without a buy-signal...OR...a buy-signal here might only be temporary. 

Today’s data is all screwed up due to the wild finish when everyone decided to buy starting at around 3:15 this afternoon.  The S&P 500 was up almost 4% in the last 45-minutes of trading…amazing!  Because of the missing data, I could only infer some numbers in the NTMS model so I may have to wait till tomorrow to update, but I doubt that it will switch to buy, even with the right numbers.

For now the NTSM model is HOLD, but we could see a buy in a few days depending on market action.

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 went 50% long in the trading portfolio based on the improvement in the NTSM model and yesterday’s big down day.