NOT WORRIED ABOUT STOCKS?
Yoda: “You will be. You…will…be.”
This has been a slow correction
to develop. I said yesterday that maybe
it was nearly over. I’ve thought about
this further, and that may not be the case at all. The lack of volatility may be the calm before
the storm.
Typically, as the market
moves up, the size of the up-moves drops and reaches a low about a month before
a correction starts. That happened this
time too.
Price-volume also changes
as a bull market matures; the size of the moves decrease and the price-volume curve
gets flat. The curve is nearly flat
before a correction heats up. We’re
there now.
As the market begins to
drop, volume picks up very slowly and increases to extremes as a bit of panic
develops. The panic happens when
investors realize that the shallow correction they expected is going to be
worse than predicted.
So far, volume has been increasing
slowly. Volume was higher every day for
the last 5-trading days on the NYSE. It
was about 10% higher today than it was 5-days ago. So far, there has been no
panic.
Last 24 June when the S&P
500 bottomed down about 7%, the volume was nearly double what it had been at
the top on 29 April. Today the S&P
500 is down about 7%, but the volume is only up 15% over what it was at the
top.
I think this correction
has further to go. I don’t really know
how far, but a guess would be at least another 5% to 10%. No bottom yet. The S&P 500 is now 4% above the 200-dMA.
Of course, I don’t really
know how bad the correction may get. It’s
all about how investors perceive the risk to our economy from slowing around
the world; then there’s also the risk of belt tightening coming from Washington;
or Greece leaving the Euro; or European banks, etc. Plenty of fear out there…
In the end, I think this
summer is going to look a lot like the last 2-years. I’ll cross my fingers that it isn’t worse.
MARKET
The S&P 500 was DOWN 0.44%
Wednesday to 1325. VIX rose 1.4% to 22.27. The S&P 500 is currently 4% above its
200-day moving average.
NTSM
The NTSM analysis remained
to SELL Wednesday.
MY INVESTED POSITION
I reduced my stock
holdings to 30% in the long-term portfolio (0% in stock in the 401k) at S&P
1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM
System” – the link is on the right side of this page).
With 30% remaining in stocks, I will make some money if the sell signal is wrong – although at this point, it doesn’t look wrong. Conversely, even if the market loses half its value, I would only be down 15% of the portfolio.
