Navigate the Stock Market: March 2012

Saturday, March 31, 2012

EVEN SHILLER DOESN’T LIKE THE SHILLER CYCLICALLY-ADJUSTED-PE (CAPE)?

FRIDAY NEWS OF NOTE:

The Commerce Department reported Friday that spending rose 0.8% in February and income rose 0.2%.

The University of Michigan and Thomson Reuters said consumer sentiment reached its highest value in more than a year in March

Excerpts from “Welcome to the new stock market bubble,” by Cody Willard:

Willard wrote,“I said …we’d know… we were finally hitting bubble phase when social networking and app-related IPOs started hitting the markets and doubling on their first day...” He then cited several recent examples and continued…“To be clear, I don’t think it’s time to panic because bubbles can and usually do grow far beyond what you ever think is possible.” Full blog at…

http://blogs.marketwatch.com/cody/2012/03/29/welcome-to-the-new-stock-market-bubble/

SHILLER CAPE

Now a curious note from the Motley Fool…

“As of Friday's (a week ago) close, the price-to-earnings ratio of the S&P 500 using 10-year inflation-adjusted earnings -- the "Shiller P/E" (or as it is also known, CAPE) -- is 22.3, which is significantly above its historical average (16.4). Nevertheless, Professor Robert Shiller of Yale -- the man who championed this valuation indicator -- told The Associated Press at the beginning of the month that he doesn't believe we are in the middle of a stock market bubble. He went on to say he would choose stocks if given the choice to invest all of his money in stocks or Treasury inflation-protected securities, arguing that "they're highly priced, and they’re risky, but they’ve had a good historic record…” http://www.fool.com/investing/general/2012/03/29/5-signs-irrational-exuberance-is-back-and-2-actio.aspx

THE MARKET

The S&P 500 was up 0.4% Friday to 1408; this time it fell at the opening and recovered all day – that remains encouraging. VIX closed at 15.5 – essentially unchanged.

The S&P 500 is 11% above its 200-dMA.

NTSM

The NTSM analysis fell to HOLD Friday.

The NTSM analysis is an ensemble model that looks at 8-indicators and those indicators don’t always agree. For that reason, the indicators are weighted by their performance over the period from 2005-2010. VIX is our best indicator; VOLUME is second best. They are both neutral today.

MY INVESTED POSITION

Enjoy the weekend.

Thursday, March 29, 2012

Holding Long in the Stock Market

Stocks advance or decline in a sloping, saw-tooth pattern within a channel defined by the tops and bottoms of the points of the teeth. The S&P 500 channel bottom is now about 1385 or roughly 1% below today’s close. We could drop to 1370, or a little below that before I’d get too concerned. A “normal” channel is about 5% (top to bottom) so I am generally unconcerned with a 5% pullback from the top. That assumes the NTSM analysis doesn’t give a sell signal along the way.

Our Sentiment indicator is still only 57% Bulls as of yesterday’s close. That’s getting high, but it’s not extreme and it should allow us to move higher. The rise in the VIX is more concerning since that is suggesting the options boys are placing more bets against the market in the next 30-days, but today the VIX held steady so maybe we’ll see some market improvement tomorrow.

THE MARKET

The S&P 500 dropped 0.2% Thursday to 1403 and again, it recovered in the afternoon – that’s remains encouraging. VIX was unchanged at 15.5 (in round numbers)

NTSM

The NTSM analysis dropped to HOLD Thursday.

MY INVESTED POSITION

Wednesday, March 28, 2012

Will Gas prices disrupt the Bull Market?

So far this year, the S&P 500 is up about 12% on fewer Europe worries and slightly improving economic data in the US. (Much of the world is in trouble with recession in Europe and slowing growth in China.) Today, the US investor has one big question.

Can the stock market continue upward with gas averaging its present price of $3.90 per gallon? That is just 20-cents, or 5%, below the all time record of $4.15 per gallon set back in mid-summer of 2008. In the summer of 2008 the S&P 500 had fallen about 10% from its previous high made late in 2007. The bear market that followed in 2009 cut stock values in half. That bear-market bottom followed just 9-months after the price of gas peaked.

At least one thing is different this time: we don’t have talking heads on CNBC predicting 10-dollar a gallon gas! I know that when I heard those 10-dollar a gallon predictions I pulled back my spending. High gas, a financial crisis and the housing collapse kicked off the Great Recession. So what else is different now?

We still have a housing mess with most mortgages underwater; banks are hanging on, with added earnings from the Federal reserve bond buying program (the Fed buys Treasury-issued bonds from the Banks); unemployment is stubbornly high (The US still has fewer jobs now than in 2000); growth is very slow; year over year GDP growth has been falling since 1979 and the trend is continuing down; our deficit is so high that we will not be able to respond to future crisis without risking a burst of higher interest rates or our very own debt crisis...well...I’m getting dizzy just recounting all that bad news.

Here’s more on the subject from Ben Bernanke via CNBC:

“Although the U.S. economy has shown signs of improvement recently, Federal Reserve Chairman Ben Bernanke cautioned that high gas prices could lead to a "hit on growth" and rising inflation.

"But at this level we don't...think it's going to be anything that's going to stall the recovery," said Bernanke in an ABC News interview on Tuesday.” Full story at: http://www.cnbc.com/id/46871946

Perhaps, but I certainly hope that Chris Cook was right and we will see $2.50 gas this summer. (28 Feb 2012 blog). If gas does continue up, the party will be over.

THE MARKET

The S&P 500 dropped 0.5% Wednesday to 1406, but today it recovered toward the end of the day – that’s somewhat encouraging. VIX fell about 1% to 15.5.

NTSM

The NTSM analysis remained BUY Wednesday..

MY INVESTED POSITION

Tuesday, March 27, 2012

Quick Post

THE MARKET

The S&P 500 dropped 0.3% Tuesday to 1413, mostly at the end of the day – that’s selling by the so-called “smart money.” VIX was up 9% to 15.6.

The S&P 500 was 12% above its 200 day moving average yesterday. That’s up there. Today it fell to 11.7%. I’ve suggested that 15% might be the highest it would go, but there is no hard and fast rule. My guess is that it could go higher, but who knows? There is a lot of negative news out there. I am keeping a close eye on the NTSM analysis.

NTSM

The NTSM analysis remained BUY Tuesday, but most of the indicators fell enough so that it wouldn’t take much to send it back to hold.

MY INVESTED POSITION

Monday, March 26, 2012

News from the Schizophrenic stock market forecaster…

If you read my past blogs, you’ll see a definite schizophrenic pattern. I have agreed with John Hussman and warned that a crash is coming; but I have also predicted 4 or 5% gain followed by a near-term correction and long-term top in the vicinity of 1550. Can we have both?…or all three? Perhaps so, if the economy doesn’t tank before we get to the old 1550 top; but there’s plenty of schizophrenia out there:

Marc Chaikin says we can go up from here:

“Small Pullback Equals Big Opportunity” from seeking Alpha:

“After a brief three-day pullback in stocks and a small rally in bonds, we are still left with the same reality; stocks have now outperformed bonds for almost six months, but investors are just now waking up to that fact…When stocks have outperformed bonds by a wide margin over the past 40 years (> 1,000 basis points) the stock market has continued higher in the next quarter with an average gain of > 4.5% and been up more than 85% of the time.” Full story at: http://seekingalpha.com/article/454401-small-pullback-equals-big-opportunity

John Hussman, PhD, continues to warn of extreme valuations and risk to the economy: In today’s market commentary he wrote,

“As we examine the present evidence relating to both the financial markets and the global economy, the aspect that strikes us most is the extent to which Wall Street continues to emphasize superficially positive data in preference for deeper analysis, to extrapolate short-term distortions as if they were long-term trends, and to misconstrue freshly printed wallpaper and thin supporting ice as if they were solid walls and floors.”

Mr. Hussman suggested that valuations are extreme and characterized the Market Climate as follows: “The Market Climate for stocks remains characterized by an unusually hostile set of indicator syndromes, most notably, an "overvalued, overbought, overbullish, rising-yields" syndrome that has historically been unfavorable for stocks regardless of prevailing Fed policy or trend-following indicators.”

Read his Weekly Market Commentary at http://www.hussmanfunds.com/index.html

THE MARKET

The S&P 500 was up 1.4%% Monday to 1417 and VIX fell 3.8% to 14.3.

NTSM

The NTSM analysis moved to BUY Monday.

MY INVESTED POSITION

Friday, March 23, 2012

The Stock Market Prophets of Doom

Here are the thoughts of the Prophets of Doom from Market Watch.(23 March 2012)

1. Peter Schiff, chief executive of Euro Pacific Capital:

“…the worst investment now is bonds, because it's the one asset that hasn't been crushed. The second-worst option is cash, because the Fed insists that inflation is not a threat…”

2. Harry Dent Jr., who heads research and forecasting firm HS Dent, said the recovery in the economy and markets is…being fueled by quantitative easing measures in the U.S. and Europe…he expects a near-term selloff followed by a summertime rally…After that, Dent sees a market peak in 2013 or 2014 and then another crash.

3. Gary Shilling, Economic consultant, said stocks are vulnerable because the U.S. consumer is worn out, and that puts businesses, and the broader economy, on a weak footing…Shilling recommends a focus on companies that pay a high dividend, particularly in utilities and consumer staples...”

4. Charles Biderman, who heads TrimTabs Investment Research, said he's bullish on stocks given that the Fed's cheap money is levitating prices. But, he added, at some point stocks are going to drop…"If buybacks slow," he said, "that would be the time to start getting out."

5. Robert Prechter, head of market forecasting firm Elliott Wave International and the most bearish of the five strategists, said investors should shun every asset class that's popular now, including stocks, commodities, precious metals and bonds. Prechter maintains there are parallels between today's U.S. economy and the Great Depression…"Hold cash, and keep it safe," Prechter said. "There will be another buying opportunity, probably about four years from now." Full story at:

http://www.marketwatch.com/story/money-moves-5-doomsayers-are-making-now-2012-03-23

If we look at the last Bear market (1966-1982), I think a crash prediction for 2013 is entirely possible, because I think we could get to 1550 by then. In the mean time, I will watch the NTSM analysis for guidance.

THE MARKET

The S&P 500 was up 0.3%% Friday to 1397 and VIX fell 4.5% to 14.9.

Today the lower trend line for the S&P is around 1370 about 2 or 3% below today’s close. Since we didn’t get that low, it looks like there are still plenty of dip-buyers and late-comers who want to buy stock. I am still cautiously optimistic that we can get a little higher. The S&P 500 is now 10.6% above the 200-dMA so I don’t think we can go too much higher (maybe only 4 or 5%) before we track down to the 200-dMA. That doesn’t change my longer term view that we can get back to the previous highs in the 1550 area.

NTSM

The NTSM analysis remained HOLD today.

MY INVESTED POSITION

Thursday, March 22, 2012

A few more worries…

Future fears from a Minyanville article, “4-reasons for Caution,” by Conor Sen: I won’t get into the 4-reasons. In a nutshell:

“Either the economy remains strong and the Fed will have to hike rates sooner than people think, or a post-election Congress means the Bush tax cuts finally expire and 2013 is all about closing the deficit, which will harm growth and hence risk asset prices. Either way, we can't win.” Read more: http://www.minyanville.com/business-news/the-economy/articles/stock-market-trends-equity-risk

premium/3/22/2012/id/40023#ixzz1ptpqvKZ4

WILL THE MARKET BE SURPRISED?

Comment from Art Cashen on CNBC: With all this warm weather, one must wonder whether the seasonal adjustments will hold up for employment when the data is revised down the road.

Remember John Hussman’s comment a while back that employment figures were actually down? The only reason they were reported up were the seasonal adjustments that the Government makes to account for weather. They get revised a month later based on the more accurate numbers. Now that is the way it works, so this isn’t a Government conspiracy; but with all the warm weather – the adjustments could make the data look more optimistic than the reality. Time will tell.

THE MARKET

he S&P 500 was down 0.7% Thursday and VIX rose 3% to 15.6.

NTSM

The NTSM analysis dropped to HOLD today pushed down by volume to the downside and the fall in the VIX.

MY INVESTED POSITION

Wednesday, March 21, 2012

Investor fear? Maybe a bit of concern…

For the week ended 14 March (the latest data available), investors took $2.9-billion out of domestic long-term stock mutual funds. That was about $1.5B more than was removed the previous week. That amount is miniscule in the big picture, but it does show that there is generally some fear in the mom-and-pop investor group. There haven’t been inflows in the US equity funds since mid-February.

The 5-day %-bull ratio I calculate from selected Rydex (now Guggenheim) funds is 49% as of yesterday’s close. That also indicates that traders (at least the amateur traders) have been betting the market will fall.

I think that means we can go higher from here. The S&P 500 is 11% above its 200-dMA. We can at least go up another 4%.

The S&P 500 was down a few points Wednesday to 1403. VIX fell too.

NTSM

The NTSM analysis also agrees. It moved to BUY today. (PRICE, VOLUME, and VIX indicators are all buy. The SENTIMENT indicator is neutral.)

That doesn’t mean it couldn’t quickly switch to a sell; we’ll see.

MY INVESTED POSITION

Tuesday, March 20, 2012

Valuation Highest Since 1880...maybe, maybe not

CYCLICALLY ADJUSTED PRICE EARNINGS RATIO

Excerpts from an article by by Daryl G. Jones, at Hedgeye…

“Late last week I wrote a research note on the valuation of the S&P 500 index...

When looking at the valuation of the S&P 500, we prefer to use CAPE, or cyclically adjusted price to earnings. CAPE is a metric popularized by Yale Professor Robert Shiller that looks at a market P/E that is adjusted for inflation and normalized for cycles. Currently, CAPE is showing that the S&P 500 is trading 21.9 times earnings, which is the highest level since July 2011 and in the top quintile of market valuations going back to 1880 ...” Full article at http://www2.hedgeye.com/

That is the valuation metric that John Hussman uses. It is, however, subject to questions. It is really just a glorified trailing P/E. (Trailing P/E would be the current Price divided by last quarter’s earnings.) The Shiller Cyclically Adjusted PE uses ten-year average earnings divided by today’s price. Since it covers 10-yrs, it is adjusted for inflation.

The trailing earnings average over the past 10-yrs includes two major crashes so we really must question the CAPE approach. Frankly, I haven’t had time to get into Valuation in detail, so I don’t have an informed opinion. Let’s just say I am skeptical about the CAPE approach for P/E.

Here’s some more on the subject from an Oct 2011 Seeking Alpha article by Chuck Carnevale:

“Prof. Shiller's cyclically adjusted PE ratio (CAPE) calculates an average of 10 years of S&P 500 earnings, which is used as the level of earnings with which to divide into the current price of the S&P 500 in order to determine the CAPE PE ratio. This calculation, which theoretically takes into consideration the cyclicality of the S&P 500's earnings, is promoted as being superior to forecasting future earnings. However… the only way that it can be of true value is if its implied forecast is correct in future time. Of course, it should also be recognized that this is no different than any other forecast methodology. The veracity of the assumptions underlying the hypothesis can only be proven if they produce an accurate future level of earnings.”

Basically, he argues that (in October) the P/E was extremely low. Even back then the CAPE was high. He discussed a number of problems with CAPE. Full story at…
http://seekingalpha.com/article/299217-prof-shiller-and-cape-may-be-correct-generally-but-the-market-is-currently-cheap

The S&P 500 went down about 1/3% today, Tuesday, to 1406. VIX was up about 4%.

NTSM ANALYSIS

Today, Monday at the close, the NTSM analysis moved back to BUY, because both Volume and Price action is positive. VIX is now neutral. The rise in VIX is a worry.

MY INVESTED POSITION

Monday, March 19, 2012

Navigate the Stock Market is still holding long...

San Francisco (Marketwatch) …"(Apple) will initiate a quarterly dividend of $2.65 a share in the fourth fiscal quarter of this year, which ends Sept. 31."

http://www.marketwatch.com/story/apple-to-start-quarterly-dividend-buybacks-2012-03-19?dist=afterbell

That was big news. They have been sitting on so much cash for so long that the market had not baked it in (IMO) so we moved up again today.

Sentiment continues to be fairly low with only 43% of traders betting long over the last 5-days. Considering how the market has run-up, it surprises me how low it is. Traders have only bet right 3-times over the past 2-weeks because many have been betting the market will go down.

Since S&P volume data I use is not released until late, I usually use NYSE volume data and estimate S&P 500 volume for the NTSM model each day. The next day, I enter the actual S&P 500 data into the model. It rarely changes anything, but last Friday it did. The S&P 500 volume was high on Friday and it pushed the NTSM analysis to BUY Friday at the close. That is generally positive, but I don’t place too much value in it since the output just missed a sell about 2-weeks ago.

The S&P 500 is 12% above its 200-dMA. In the past year or two, the ceiling (or starting point for a correction) has been 15%. That is interesting, but it isn’t officially in the NTSM analysis because in 2009 that stat made it all the way up to 20%. We probably won’t do that this time because 2009 included the major bear-market, bottom. Bottom line, we can go up further, but not much before we see a correction. We will need a correction or a lot of sideways movement before the market can move significantly higher.

John Hussman, PhD, remains negative and his numbers have gotten even worse than last week. See his weekly Market Commentary: http://www.hussmanfunds.com/weeklyMarketComment.html

The S&P 500 went up nearly ½% today.

NTSM ANALYSIS

Today, Monday at the close, the NTSM analysis moved back to HOLD, mainly because the VIX rose 4% today to 15.

MY INVESTED POSITION

Friday, March 16, 2012

Guinness over Harp...the Glass is half full…of Black or Tan

From the Wall Street Journal: “’The Major improvement in jobless claims seen since mid-September has stalled’, wrote Ted Wieseman, an economist at Morgan Stanley, in a note to investors…” That sort of ties in with the “Crash or Correction” Blog I posted last Tuesday. So will we see the predicted drop in hiring? Time will tell.

In the mean time we continue up. Since it is hard to predict when this will end, let’s assume the glass is half-full.

NTSM ANALYSIS

The NTSM analysis is HOLD at the close Friday.

MY INVESTED POSITION

Thursday, March 15, 2012

Charles VII, King of France, drove out the English…Who says 1403 wasn’t important?

Today the S&P 500 hit 1403

In economic news, U.S. jobless claims fell by 14,000 in the past week to matching a four-year low.

March manufacturing activity in the New York and Philadelphia regions improved, and beat economists estimates

This report from last weekend for those who are bored…

“Moody's declared Greece in default on its debt Friday after Athens carved out a deal with private creditors for a bond exchange that will write off 107 billion euros ($140 billion) of its debt….(and) the exercise of collective action clauses that Athens is applying to its bonds will force the remaining bondholders to participate…."According to Moody's definitions, this exchange represents a 'distressed exchange,' and therefore a debt default."

http://ca.news.yahoo.com/moodys-declares-greece-default-debt-232804003.html

(John Hussman's call was right about that.)

NTSM ANALYSIS

The NTSM analysis remains HOLD at the close Thursday..

MY INVESTED POSITION

Wednesday, March 14, 2012

Stock Market calls by Sly: “I want to take you higher...”

Jeff Macke interviewed Gary B. Smith, the Chartman of Chartman.com, on BREAKOUT regarding Gary’s “3 Signs a Market Sell-Off Is Coming Soon”

They were…

“1. Too many stocks over their 40-day moving averages. Anytime you get above 65% it's a warning sign," says Smith. Consider yourselves warned….
2. Stocks have been going straight up for 3 months….
3. Market darlings are overbought. Exhibit A is naturally Apple (AAPL) and its 40% move year-to-date.” Full interview and transcript at
http://finance.yahoo.com/blogs/breakout/3-signs-market-sell-off-coming-soon-121617680.html

TODAY’S MARKET:

The S&P 500 was down 0.1% to 1394. VIX rose 3 and ½% to 15.3.

NTSM ANALYSIS

The NTSM analysis remains HOLD.

Sentiment has crashed in the past couple of days. At yesterday’s close only 23% of traders in the funds I track were bullish. Just 7-trading days ago, 75% were bullish at the close. The NTSM indicator is a 5-dMA of the daily values and it has fallen all the way to 37%. Since this is a contrary indicator, 37%-bulls indicates that the market can go higher, thus we need to listen to Sly and the Family Stone for today’s market commentary. http://www.youtube.com/watch?v=xfydfBXlByk

MY INVESTED POSITION

Tuesday, March 13, 2012

There may be a stock market crash, or correction, coming soon to a theater near you…

The WSJ had an interesting piece yesterday. It seems that recent employment data has violated an economic principle that is based on more than 125-years of records. Okun’s law (after Yale economist, Arthur Okun) relates change in employment to change in GDP. You may remember that the Obama administration made predictions for unemployment early on in the financial crisis that were far too optimistic. Those predictions were based on Okun’s law that showed, based on declines in GDP; unemployment at its lowest should only have been 8%. Instead, unemployment fell to 10%.

Graph from Wikipedia: http://en.wikipedia.org/wiki/Okun's_law

Now recent employment data is flabbergasting economists again, because it does not agree with observed GDP growth (again according to Okun’s law). Most economists (and stock market prognosticators) start getting more optimistic when hiring exceeds 200,000 per month, but the current pace of hiring is not supported by the low GDP growth the U.S. is experiencing. The most likely reason seems to be that at the beginning of the financial crisis, as the stock market was collapsing, and predictions for gas prices were $10 per gallon, managers reduced manpower drastically – at a pace ahead of what Okun’s Law would predict. Now that the economy is more positive, managers are hiring at a pace far ahead of what would be predicted by GDP growth. They over-shot firing on the way down. Now they are overshooting hiring on the way up. That won’t continue though (sooner or later the employment and GDP data will be aligned), so economists expect a slowdown in hiring based on 125-years of prior data upon which Okun’s Law is based.

On its own, this report may be interesting; but does it tell us anything important? I’d say, “Absolutely!” or even, “Eureka!” Let’s consider some recent blogs here at Navigate the Stock Market.

I reported a few days ago that some economists were calling for a slow-down. We have John Hussman’s, PhD, warning Monday (and for several prior weeks/months) that the economic “canaries-in-the-coal-mines” are keeling over. I reported McDonalds’ Corp. warning of slowdown in Europe and China’s trade deficit as possible foreshadowing economic issues ahead on Tuesday. I reported last week that the market, based on NTSM analysis, is getting stretched and could start a pullback in a few-days, but most likely in a few weeks.

Now we can connect the dots; understand why employment data is overly optimistic, especially with regard to the leading economic indicators; and we can make a prediction regarding the next month or two in the stock market. So my take is this:

John Hussman’s predicted hiring slowdown is going to occur; it is likely to be the fuse that sets off the next explosive downturn in the market. Whether the market will experience a correction (10-15% decline) or another cyclical bear market (>20% decline) remains to be seen. My earlier prediction of a shallow correction and a drop to the 200-dMA will not apply if employment numbers fall significantly. Fear will drive the market below its 200-dMA.

It is interesting that 2010 and 2011 were nearly identical years in the S&P 500 at least with regard to corrections. In both years corrections started in the spring and followed thru in the summer with a final higher low in the fall. Both corrections lasted 17.6 weeks and bottomed out at the mid-point. 2012 could well follow a similar pattern.

WHAT THIS MEANS TO INVESTORS

Since we really can’t predict when this news will be figured out by the market, although we might guess that it will be when the first cracks appear in the employment numbers, I plan to stay fully invested until the NTSM analysis indicates a sell.

TODAY”S MARKET

VIX fell over 5% while the S&P 500 was up 1.8% on good volume..

NTSM ANALYSIS

The NTSM analysis remains HOLD.

MY INVESTED POSITION

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).

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.

Monday, March 12, 2012

China announced its largest trade deficit in more than two decades…

You read it right…it was a trade deficit; and it was big!

NEW YORK (CNNMoney) – “China shocked the world this weekend when it announced its largest trade deficit in more than two decades.

The country has long been an export powerhouse, selling far more goods to foreigners than it buys in the world marketplace. But in February, the world's second largest economy imported $31.5 billion more goods and services than it exported, China's General Administration of Customs reported Saturday.” Full story at: http://money.cnn.com/2012/03/12/news/economy/china_trade_deficit/index.htm?iid=HP_LN

This may be an indication that the rest of the world is slowing rather than problems in China. If you asked John Hussman, PhD, of Hussman Funds, that’s what he’d say. His weekly commentary was typically, gloomy, though I appreciate his commentary for its rigorous basis in economic analysis rather than anecdotal data that is so often presented on the tube. (Gee, we can’t call it the tube anymore. Perhaps, “big-flat screen” would be more accurate.) Mr. Hussman wrote,

“…the Market Climate for stocks remains among the most negative 1.5% of historical instances...With certainty, market conditions will shift in a way that removes the present syndrome of overvalued, overbought, overbullish conditions. We don't know whether that shift will involve a moderate retreat that removes the overbought and overbullish aspects, or a major decline that removes the overvaluation, or just maybe with a further advance that then corrects enough to clear this syndrome at a higher level…”

Weekly Market Commentary March 12, 2012, at:

http://www.hussmanfunds.com/index.html

He went on to make a very easily understood point that he illustrated with a graph of the data. The lagging indicators (such as year-over-year growth in payroll employment) trail the leading indicators (such as year-over-year growth in real consumption) by several months.

The bottom line? Because leading indicators have dropped significantly in the last 3-months, he suggested that we may see employment slowing in March followed by job losses in April. If that is the case we’ll see panic in May! (Probably sooner.)

TODAY'S MARKET

VIX fell over 8% while the S&P 500 finished basically unchanged.

NTSM

The NTSM analysis remains HOLD today.

MY INVESTED POSITION

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.

Saturday, March 10, 2012

The Economy added 227,000 jobs in February

The Labor Department announced today that the economy added 227,000 jobs in February after adding 243,000 jobs in January. That was good news for most, but some economists were suggesting a mild slowdown is underway in the US, though I didn’t hear anyone mention the “R”-word.

VIX fell another 5% to 17.1. In the last 3-trading days it has fallen 19%. That is really good news.

The S&P 500 was up 0.4% today. The S&P 500 has clawed its way back to 1371, just 3-points below its recent high of 1374 made a little more than a week ago. It is now 8.9% above the 200-day moving average (dMA).

As of the close on Friday, Sentiment has fallen back to 49%-bulls. {The NTSM sentiment indicator is a 5-dMA of %-bulls calculated from selected Rydex (now Guggenheim) funds.}

With sentiment back below 50%-bulls, we have room for further advance; but I think we will correct back to the 200-dMA if the S&P manages to get 15% over the 200-dMA. All-in-all, I remain bullish even with a possible correction looming a couple of weeks from now. “Everything is proceeding as I have foreseen…

…Jeez, I'm out of it for a little while, everyone gets delusions of grandeur!”

NTSM

The NTSM analysis remains HOLD today and indicators are improving each day.

MY INVESTED POSITION

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.

Thursday, March 8, 2012

Jobless Claims in U.S. Rose 8,000 Last Week

From Bloomberg: “The number of Americans filing claims for jobless benefits rose to 362,000 last week, a level consistent with an improving labor market. Applications for unemployment insurance payments increased by 8,000 in the week ended March 3…Economists (had) forecast 352,000 claims ….’The level of claims is still quite low,’ said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. ‘I’m still encouraged by what we’ve seen in the labor market in recent months.” Full story at:

http://www.bloomberg.com/news/2012-03-08/initial-unemployment-claims-in-u-s-increase-more-than-forecast-to-362-000.html

(Reuters) - McDonald's Corp on Thursday reported global February sales at established restaurants that missed Wall Street's target, primarily on European weakness, and warned that economic uncertainty could hamper profit growth, sending shares down more than 3 percent. Full story at: http://www.reuters.com/article/2012/03/08/us-mcdonalds-idUSTRE8170YW20120308?type=companyNews

Jobs claims are OK because the increase was so small that most consider it noise in the statistics. McDonalds is a bit more concern because it shows weakness in Europe. You may recall that during the US recession, even at its lowest point, McDonalds did well because people ate more at McDonalds rather than Ruth Chris or Le Maison de Expensive. Since McDonalds is seeing reduced earnings in Europe, it may indicate that the conditions there are worse than is currently thought. The market expectation is for a “shallow” recession in Europe.

The market shrugged off any such concerns Thursday and the S&P 500 was up 1% to 1366. VIX fell 6% to 18.

NTSM

The NTSM analysis remains HOLD today and indicators are improving each day.

Even sentiment has dropped from 67% Bulls on Tuesday down to 60% as of yesterday’s close. (The NTSM sentiment indicator is always a day behind since the data isn’t available until later tonight.)

MY INVESTED POSITION

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.

Wednesday, March 7, 2012

Federal Reserve is considering QE3 – another round of Bond-buying

WASHINGTON (MarketWatch) -- The Federal Reserve is considering a new kind of bond-buying program that would simultaneously try to limit inflation, according to a report in the Wall Street Journal. The Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. Story at:

http://www.marketwatch.com/story/fed-weighs-new-form-of-quantitative-easing-report-2012-03-07?siteid=bigcharts&dist=bigcharts

So did the Market rally today (Wednesday) because of the technicals or the news? I don’t know; but up is good.

The S&P 500 closed up 0.7% to 1353. The VIX dropped 9% to 19.1.

Sentiment at the close Tuesday was just a whisker below a sell call. That high level of sentiment really doesn’t give us too much hope for more straight up gains, so we may yet see a correction, or some sideways action to cool the market down a bit. The most likely course is still the one I wrote about yesterday – more gains and then a correction in a week or several weeks. We’ll see.

NTSM

The NTSM analysis remains HOLD today (again, regardless of the Sentiment indicator). It could still switch to sell tomorrow if the market falls more than about 1.25-1.5% depending on the volume.

MY INVESTED POSITION

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.

Tuesday, March 6, 2012

The Navigate the Stock Market system is almost a sell

SENTIMENT

Over the past 3-weeks sentiment hit extreme levels on 4-days. An extreme day is above 72% bulls. Friday the Sentiment hit 75% bulls. That is the first step in topping for the sentiment indicator – we have a number of individual days weeks ahead of the top that are extreme. Since the NTSM system uses a 5-day moving average of Rydex selected funds to calculate our sentiment indicator, I watch both the individual days, but especially the 5-day moving average (dMA). The 5-dMA of sentiment was 62% yesterday and it may have switched to sell at today’s close depending on whether the buy-the-dip crowd moved in. The problem is the data won’t be published until later tonight.

PRICE

Price has switched toward the negative as the down moves have been bigger than the up moves recently; the indicator is now “hold”. Another indicator in the Price suite of indicators is the “Panic Indicator.” It issued a sell today based on the huge move relative to the quiet market we’ve had for some time. (The front page of the WSJ “Money and Investing” section today was a story about how there had been 45-days without a 100-pt decline; most since 2006 – so much for that stat!)

VOLUME

Volume is neutral, but it is trending down toward a sell.

VIX

The VIX indicator came about as close to a sell as possible today, but it would take another 20% hike in the VIX to tip it to a sell tomorrow.

WHAT’S AHEAD

What often happens at this point is that the “Dip-buyers” move in on the down-day to buy the dip. The market can then move up to new highs for another week or so. After a week, or perhaps as long as 3-weeks, the market hits the top and it follows through with a correction. If we follow that scenario this time, I think we’re in for a small correction down to the 200-dMA. (We are currently about 7% above the 200-dMA.)

The S&P 500 is at the bottom of its trendline (more or less). The trendline goes up as the market goes up; I have it currently pegged at about today’s close. So now, whether I stay invested (or reduce equity exposure from 100% to 30%) depends on the dip-buyers over the next day or two. If they move-in the market will go up; VIX will fall and I’ll be happy.

If not the NTSM system will issue a sell. I just checked futures (it’s 8:30 PM) for tomorrow and the S&P 500 futures are up about ¼ of a percent so we may simply bounce off the lower trend line and go up from here (as we predicted a while back). The Futures give an implied price at the open depending on how they are trading.

The monkey wrench in this up-beat scenario is the fact that the S&P 500 has not managed to get much above the previous high of 1364. (That happened on 29 April 2011.) We made it to 1374 three-days ago, (about ¾ of a percent above the prior high) but we need to go higher. Otherwise, the S&P will fail and make a double-top in the process. (A double top simply means the market couldn’t go appreciably higher than its previous high, so it will go down. How far? I’ll toss out some guesses if that happens.

For the time being, I think we will go up some more.

NTSM

The bottom line of this update is the NTSM analysis remains HOLD today (regardless of the Sentiment indicator) , but it could switch to sell tomorrow if the market tanks.

TSP (the Government’s version of a 401k) requires fund transfers to be made by noon, but NTSM is based on closing data. At this point, I don’t see it being worthwhile to try and make a decision at mid-day based on where I guess the market may go. I have tried before only to get outfoxed by the market. I’ll wait till after tomorrow’s close to update the NTSM.

MY INVESTED POSITION

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.