Chicago PMI Shows Contracting Economy

WEAK CHICAGO PMI
Chicago PMI drops into negative territory in Sept (MARKETWATCH)
“Overall, this report follows the souring tone in other manufacturing sector indicators, which are all consistently pointing to intensifying headwinds facing this once buoyant sector,” said Millan Mulraine, economist at TD Securities…After hitting 64.0 in February, the Chicago PMI has lost momentum over the next seven months…“There are no encouraging signs in this report,” Simons said in a note to clients.”  Full story at http://www.marketwatch.com/story/chicago-pmi-drops-into-negative-territory-in-sept-2012-09-28

“Spanish bank tests offset weak economic data”

NEW YORK (CNNMoney)
“…the Chicago Purchasing Managers Index for September, a key gauge of manufacturing activity, came in far below expectations and showed a contracting economy for the first time since 2009… The report was yet another signal of ongoing weakness in the U.S. The University of Michigan's consumer sentiment index for September also came in below expectations.”  Full story at…
http://money.cnn.com/2012/09/28/investing/stocks-markets/index.html?iid=HP_LN

The article included some good news regarding stress tests on Spanish banks.  That news is irrelevant, though.  In the end, US stocks respond to earnings.  Earnings reflect the economy.  News regarding the US economy doesn’t look good.

WSJ – TROUBLE AHEAD

“Data Suggest Trouble Ahead (Wall Street Journal)
The U.S. economy remains shaky, with threats looming at home and abroad, manufacturers mired in a slump and overall growth tepid.”  Full story at…
http://online.wsj.com/article/SB10000872396390443916104578022081483101410.html

I have been posting excerpts from John Hussman’s weekly commentary (Hussman Funds at http://www.hussmanfunds.com/) for many months.  (John Hussman has kept his fund positioned for a significant downturn in the stock market for nearly a year.)  That’s why I included Hussman’s latest downbeat commentary as a “long-term” view of the market in my blog.  He has said that his data analysis suggests a market downturn in 2-weeks to 18-months.  It’s looking like Hussman’s concerns may soon become the “near-term” view.

MARKET RECAP                                                                               

Friday the S&P 500 finished DOWN 1/2% to 1441 (rounded).  VIX rose 6% to 15.69.

NTSM

The NTSM analysis slipped to HOLD Friday. 

Given today’s PMI it will be interesting to see how the market acts next week.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what many advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk.

GDP Down; Durable Goods Orders Down; “What’s the matter McFly?…Chicken?”

GDP/DURABLE GOODS ORDERS
WASHINGTON – “…The Bureau of Economic Analysis on Thursday revised down the nation’s economic growth in the second quarter to a measly 1.3% annual rate…
On Thursday, the Census Bureau said new orders for longer-lasting durable manufactured goods plunged 13.2% in August, compared with a 3.3% increase in July…Analysts said, “Don’t panic,” as it was largely due to an unusually big drop in airplane orders…excluding aircraft, August (still) marked the third month in a row of declining unfilled orders.” Full story at…
http://www.latimes.com/business/money/lat-fi-mo-economy-gdp-20120927,0,7837913.story

Last year about every analyst commented that growth below 2% was economic “stall speed” that almost always resulted in recession.  Is this time different?  I see no point in trying to answer the question.  (It would just be a guess.)  I don’t think the economists know either.

JOBLESS CLAIMS

From MarketBeat, the WSJ.com
“The one hopeful sign this morning came from jobless claims, which tumbled by 26,000 to 359,000, the lowest level since July. Claims had been creeping higher in recent weeks, so this is a good a sign. But expectations are still pretty downbeat for the next monthly jobs report, due one week from tomorrow.”  Full story at…
http://blogs.wsj.com/marketbeat/2012/09/27/gdp-revision-durable-goods-ouch/?mod=google_news_blog

Employment numbers have gone up right before that last recessions so I am not sure why the financial press makes such a big deal of the employment number.  John Hussman, PhD, (Hussman Funds) has discussed this anomaly at length.

MARKET RECAP                                                                               

Thursday the S&P 500 finished UP 1% to 1447 (rounded).  VIX fell 12% to 14.84.

Yesterday the S&P 500 bounced off the bottom trend line and that’s a positive sign and I suspect is the biggest reason for the bounce today.

NTSM

The NTSM analysis switched to BUY Thursday. 

While I have been hoping to get an opportunity to get more money invested in stocks, there are plenty of reasons not to do it now.  Since NTSM analysis can turn quickly, the buy signal now is certainly not as meaningful as a buy signal at a bottom.  The NTSM Sentiment indicator is also cause for some concern.  (Sentiment is a counter indicator – extreme bullish sentiment is bearish for the markets.)

The NTSM sentiment indicator tracks the amount of money invested in long and short, leveraged Guggenheim (formerly Rydex) Funds.  The %-bulls sentiment indicator is 62% bulls as of yesterday. (Guggenheim posts their Fund data late so my sentiment number is almost always a day late.)  That’s fairly high since the sell signal is now only 67%.  (NTSM sentiment buy/sell points vary with a statistical analysis of market action.)  That’s just one indicator though and the NTSM analysis uses an ensemble approach.  By itself Sentiment won’t trip NTSM to a sell and more importantly, sentiment is not accurate enough to trade.

Sentiment is often late to call a top because extreme values of sentiment frequently occur after the top is in.  That’s because after the top, when the markets fall, the buy-the-dip crowd will move in and push sentiment higher.

In addition to sentiment, there is another technical item of concern; statistical analysis of the price-volume action last month indicated an extreme level of complacency and calm market action.  This can sometimes be the calm before the storm. 

Last, there’s plenty of the disconcerting news.  I can’t bring myself to buy more stocks now.  

“What’s the matter McFly?…Chicken?”  Well, yes.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what many advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk.

The Fed said, QE3 Won’t Work?!

3 LINKS to QE3 STORIES
1^st while Charles Plosser is making headlines today with negative comments about QE3, I am reminded about Ben Bernanke’s comment in June (2^nd) and (3^rd) we have serious doubts on WallStreet about QE3 and Europe.   

1. BloombergBusinessweek

Federal Reserve Bank of Philadelphia President Charles Plosser said new bond buying announced by the Fed this month probably won’t boost growth or hiring and may jeopardize the central bank’s credibility.  Full story at…
http://www.businessweek.com/news/2012-09-25/plosser-says-qe3-risks-fed-credibility-won-t-boost-jobs

2. Investors.com (7 June 2012)

“Federal Reserve Chairman Ben Bernanke said Thursday that more asset buys will be on the table at the central bank's June 19-20 meeting, but acknowledged for the first time they may produce ‘diminishing returns.’”  Full story at…
http://news.investors.com/economy/060712-614167-bernanke-warns-of-diminishing-qe-returns.htm

3. MARKETWATCH blogs, THE TELL

QE3 gets a second look (and it’s a scowl) – (w/more on Europe…it’s baaaack)
“Doubts over the effectiveness of QE3 — the Federal Reserve’s third round of quantitative easing — have turned up a notch in the last day or so, acting as a kind of distracting grumbling in the background to the market’s more pointed worries about Spain, Italy and Greece.”
http://blogs.marketwatch.com/thetell/2012/09/26/qe3-gets-a-second-look-and-its-a-scowl/

MARKET RECAP                                                                               

Wednesday the S&P 500 finished down about 0.57% to 1433 (rounded).  VIX rose another 9% to 16.81.

NTSM

The NTSM analysis remained HOLD Wednesday. 

NTSM analysis could switch to a sell soon…or not.  I’d rather not try to guess what will happen.  I’ll just run the numbers.  All indicators deteriorated some today, but not alarmingly. 

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what many advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk.

Are the Stock Market pros telling us to Sell?

WHAT DO THE PROS KNOW?
My Smart money indicator tracks what the professional traders are doing in the last hour of trading.  The “pros” generally only trade the last hour.  Currently they are selling and have been for the last 2-months.  While the overall S&P 500 has moved up 3%, market-action in the last hour has been down nearly 2%.   So while the market has been moving up, the pros aren’t buying it.  I’m not using this indicator to make decisions now, but the results don’t make me too optimistic, that’s for sure.

CATEPILLAR – from THE STREET

“The company reduced its earnings forecast to $12 to $18 a share in 2015, down from its prior forecast of $15 to $20 a share. Caterpillar attributed the reduction to a greater-than-expected slowdown in economic growth as well as declining commodity prices… The company emphasized its belief that the global economy will not slip back into recession.”  Full story at…
http://www.thestreet.com/story/11718125/1/caterpillar-cuts-2015-earnings-forecast-hot-trends.html

Caterpillar may be the most followed cyclical stock in the NYSE, so this news (along with downbeat forecasts from the transportation companies FED EX, UPS, and Norfolk Southern) is a concern for the future.  The Wall Street journal had an article today that pointed out that the transportation stocks have not participated in the recent rally.  The cornerstone of the Dow Theory is how the transportation stocks are doing so many Dow theorists are calling for a downturn in the major indices.  (The theory is that the transportation stocks predict the future of the economy – if the shippers aren’t shipping, it may portend bad things for the economy in general.)  The Dow transportation index was down 6% last week alone.

My own recession indicator (comparing the Morgan Stanley Cyclical Index to the S&P 500 index) is neutral at this point.  The Morgan Stanley Cyclical Index had been outperforming the S&P 500, but as of today the Cyclical index is down about 1% over the last 10-days so, I’d say the indicator is now neutral.  As recently as last week this indicator was clearly indicating “no-recession.” (This indicator is another one I follow, but I don’t use it for buy/sell calls.  I need to do a lot more back testing before it becomes a part of the NTSM analysis.)

MARKET RECAP                                                                               

Tuesday the S&P 500 finished down about 1% to 1442 (rounded).  VIX rose 9% to 15.43.

NTSM

The NTSM analysis remained HOLD Tuesday. 

Sentiment was surprisingly bullish (actually a bearish indicator since sentiment is a counter indicator) at 59%-bulls as of yesterday.  Currently, the NTSM sell indicator for Sentiment would be 67% bulls, so sentiment has a ways to go before that one indicator goes south.  While the VIX was up 9% today, the NTSM VIX indicator is not threatening sell yet, but that could change if we have a few more days like today.

We were due for a pull back so one day doesn’t mean much.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what many advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk.

The Stock Market: Long Term; Intermediate Term; Short Term

There are three periods for stock market analysis and the health of the market can be judged quite differently depending on your time frame.

LONG TERM VIEW

Long term we have analysis like John Hussman's and an article from Atlantic Magazine I linked after Hussman.  If there’s one word that summarizes the long-term view it might be, “disaster.”

LONG TERM VIEW - JOHN HUSSMAN

“...we continue to infer that the economy has already entered a recession – something that will probably take several more months to be broadly recognized. We’re seeing fresh lows on the most leading economic component that we infer using unobserved components methods...matching weakness that emerged in late 2000 and late 2007. On a slightly positive note, we don’t yet see the near free-fall in these measures that occurred later in 2001 and 2008 as economic weakness rapidly gained momentum.” – John Hussman, PhD, Weekly Market Comment, “Eating the Future” (24 Sep 20120).  Full commentary at...
http://www.hussmanfunds.com/

In his comment on the financial markets, Mr. Hussman suggested that we may not be far off from a point where ALL investors try to find a buyer at higher prices (greater fool?).  Unfortunately, at that point, there are no more buyers and a collapse in price must follow.

LONG TERM VIEW - the ATLANTIC (October 2012 Atlantic Magazine)

The Next Panic, by Peter Boone and Simon Johnson
Europe’s crisis will be followed by a more devastating one, likely beginning in Japan.
“Our financial systems appear to be returning to their inherently unstable nature, which plagued the 19th and early 20th centuries....Increasingly, however, it appears that future generations will not be the only ones harmed by our decisions; we are already feeling the negative impact. In recent decades, financial sectors throughout the rich world grew at historically unprecedented rates; now they are dangerously outsize relative to the rest of the economy. Changing that dynamic in any orderly way looks extraordinarily difficult. Yet history suggests it will change, and soon. The era of large-scale, uncontrolled financial booms and busts—last seen in the 1930s—is back.

Peter Boone is a director at Salute Capital Management and a visiting senior fellow at the London School of Economics. Simon Johnson is a professor at MIT Sloan and senior fellow at the Peterson Institute for International Economics.

Full story at...
http://www.theatlantic.com/magazine/archive/2012/10/the-next-panic/309081/single_page=true

INTERMEDIATE TERM

That is the realm of NTSM analysis where I try to identify buy-and-sell points to avoid those pesky corrections greater than 10%.  If I succeed in that role, I’ll also miss the long-term crashes.  See the NTSM paragraph below for the current NTSM summary.

SHORT TERM...New-Highs/new-lows

I have been watching the 5-day new-high data on the NYSE.  That’s the number of stocks that made new highs over the past 5-days.  As a market internal, it should be a clue regarding the short term market health.  In a healthy, bull-market the number of new-highs should be going up.  It can be especially telling if the major indices, like the S&P 500, are flat, or going down, while the market internals are improving. 

Unfortunately, over the past 2-weeks or so we have seen the opposite; the new-highs are diminishing while the market has been flat.   This leads me to believe that the indices will follow the market internals down, at least in the short term.  That is the reason I have not increased my stock allocation recently.  I want the new-high/new-low internals (and breadth too) to confirm this bull market in the short term.  Until that happens, I’ll remain conservatively invested at 50% stocks.  In the meantime, if the NTSM analysis gives a sell recommendation, I’ll go to no greater than 15 to 30-percent invested in stocks.  Who knows, maybe next time I’ll shoot for zero percent invested.

MARKET RECAP                                                                               

Monday the S&P 500 finished down 1/4% to 1457 (rounded).  VIX rose 1-1/4% to 14.15.

NTSM

The NTSM analysis dropped to HOLD Monday.  Only the price indicator is positive now and it is at an extreme positive level (up-moves have been larger than down-moves) that hasn’t been approached since January 2011, exactly 1-month before the 2011 correction started. 

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

Crisis of the National Debt; but when?

“What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite."
– From This Time Is Different, by Carmen Reinhart and Ken Rogoff

EXCERPT from SEEKING ALPHA – THE TROUBLE WITH PRINTING MONEY by

CHRIS MARTENSON
Chris Martenson points out that QE3 is printing “…more money out of thin air”...

“…it's not possible for you, personally, to forever borrow more than you earn without someday getting into financial difficulty, it is not possible for two or ten or 310 million of you to do so. The math does not change simply because a nation is involved instead of an individual.…

…the Fed is effectively creating the exact same purchasing power as nearly 10 million US households, or 25 million people…And nobody had to do anything except push a key on a computer a couple of times.  While the Fed can wrap this magic act in all sorts of covering language about dual mandates, maximum employment, and price stability, the simple fact remains that money printed out of thin air cannot, has not, and will not ever lead to prosperity. How could it? It arises without any effort at all, no work performed, no goods transformed or lives improved, no land planted and tended well, no services rendered, and no capital formed. It is just conjured into existence.

If it could work, then we should just print every household up a nice $1,000,000 check each year and let everybody stay home, take vacations, and drive nice cars. It's just an absurd notion, and this is why you should keep a journal - you live in absurd times.

Conclusion
How does all this end? Like it has every other time in history, with a final destruction of the currencies involved.”  Full story at…
http://seekingalpha.com/article/876071-the-trouble-with-printing-money

My comment:

I don’t know how or when the end point is either; but I think we’ll see dislocation in the stock markets if there isn’t a concerted effort to deal with the problem within the next several years. 

MARKET RECAP                                                                               

Friday the S&P 500 finished UNCHANGED at 1460 (rounded).  VIX fell 0.64% to 13.98.

NTSM

The NTSM analysis switched from Buy to HOLD Friday.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

Unemployment Unchanged; Global Economy Slowing

WASHINGTON (MarketWatch) — “Slighter fewer Americans applied for unemployment benefits last week, but there appeared to be no improvement in hiring trends across the nation.”  Full story at...
http://www.marketwatch.com/story/us-jobless-claims-show-little-improvement-2012-09-20

FRANKFURT (MarketWatch) — Fears of a rapidly slowing global economy trumped bullish enthusiasm over monetary stimulus on Thursday, after data from China’s manufacturing sector and the euro zone signaled a further contraction in business activity. …“Another night goes by and so it seems we have another slide in the fortunes of major global economies,” wrote Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, in a note to clients.”  Full story at...
http://www.marketwatch.com/story/china-euro-zone-pmi-data-highlight-global-fears-2012-09-20

I can’t remember a time when the markets have climbed a bigger "wall of worry." The S&P 500 is up 14% since 1 June 2012.

MARKET RECAP                                                                               

Thursday the S&P 500 finished DOWN 0.05% to 1460 (rounded).  VIX rose 1.4% to 14.07.

NTSM

The NTSM analysis remained BUY Thursday.

I’m short on time today so maybe I’ll check those internals tomorrow.  I’m still considering adding to my stock positions, but even with an NTMS BUY call, I want to see good market internals and maybe even some chart confirmation before I buy more stocks.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

U.S. stock rally Almost Over – Fund Managers

CNN/MONEY

“The world's top mutual fund managers say the U.S. stock rally is about to come to an end. - More than half, or 58%, of 253 fund managers surveyed by Bank of America Merrill Lynch say stocks are the most overvalued investments in the world. That's up from 51% in an August survey.”

http://buzz.money.cnn.com/2012/09/19/fund-managers-stock-rally/?iid=HP_LN

Hmmmm…That might be a bullish indicator!  My sentiment indicator is 54% bullish.  It looks like the Fund Managers are only 42% bullish at best.  I think the negatism gives this rally more legs.

LAWRENCE MCDONALD - "There is a really deadly hedge fund that is becoming a threat to the world, and that hedge fund is the Federal Reserve."  The risk-reward from the latest Fed’s action is “atrocious.”
http://video.cnbc.com/gallery/?video=3000116448&play=1#

BOB WOODWARD – Bob Woodward has a new book out on the subject of last year's debt negotiations.  He said, “Everyone in this country is in peril because the politicians can’t solve these problems.” 

MARKET RECAP                                                                               

Wednesday the S&P 500 finished UP 0.12% to 1461 (rounded).  VIX fell 2% to 13.88.

VIX has really been falling quite a lot recently.  Perhaps it’s due to VIX expiration today.  I don’t know – I do know I like a falling VIX.  In general it signals a rising S&P 500. 

NTSM

The NTSM analysis remained BUY Wednesday. Price, Volume, and VIX indicators are all positive.  Sentiment is neutral.

Market internals are improving.  Maybe I’ll be able to add some more to my stock portfolio after all.  We’ll see.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

NY State Manufacturing and Hussman – Both Negative

Reuters – New York state manufacturing shrinks...

“Factory activity in New York state contracted for a second month in a row in September, falling to its lowest level in nearly 3-1/2 years as new orders shrank further, a report from the New York Federal Reserve showed on Monday... The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. The sector contracted in August for the first time in 10 months.”    Full story at...
http://in.reuters.com/article/2012/09/17/usa-economy-nyfed-idINL1E8KH4FH20120917

EXCERPT FROM WEEKLY MARKET COMMENT (9/17/12), HUSSMAN FUNDS

“As of Friday, our estimates of prospective return/risk for the S&P 500 have dropped to the single lowest point we’ve observed in a century of data... Emphatically, we are not saying that investors can look at the worst intermediate-term losses in market history, and expect the next one to be worse... Despite the uniformity of negative signals we presently observe, I can’t say with certainty that this particular instance will produce negative market outcomes...In short, saying that our estimates of prospective return/risk are negative does not indicate that the market will or must plunge. Rather, it says that the average outcome has been quite negative, and the likelihood of extreme “tail events” is vastly enriched compared with more typical conditions throughout history.” – John Hussman, PhD.
For the complete Weekly Market Comment see...http://www.hussmanfunds.com/

It doesn’t look like John Hussman’s analysis could get much worse.

MARKET RECAP                                                                               

Tuesday the S&P 500 finished down 0.13% to 1459 (rounded).  VIX fell 2.8% to 14.18.

With the above negatives from the NY Fed and John Hussman’s analysis you’d think the market would be signaling recession too, but that isn’t the case.  The Morgan Stanley Cyclical index has been gaining ground on the S&P 500 (climbing at a faster rate).  That stalled a little today, so we’ll have to see which way the trend moves in the future.  (If the market believed recession was coming, the cyclical stocks would fall relative to the S&P 500.)

NTSM

The NTSM analysis remained BUY Tuesday and the Price, Volume, and VIX indicators are all positive.  Sentiment is neutral.

You’d think I could move ALL-IN based on the NTSM analysis, but I have been watching market internals to get a shorter term view.  I am still not convinced that the market will continue up.  The percentage of stocks making new-highs keeps falling and I don’t think that should happen in a healthy bull market. 

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

Why did the Fed Panic?

There is been a lot of speculation about what tipped the Fed to do QE3.  Here’s good possibility:  the Aruoba-Diebold-Scotti Business Conditions Index, has been quite negative recently and is below levels seen at the start of the last recession.  There is a slight uptick in the most recent data, so perhaps there is hope after all.

Here’s what the Fed has to say about its makeup:

“We construct the ADS Index using the latest data available as of September 14, 2012. This includes

(1) initial jobless claims through the week ending September 8, 2012,

(2) payroll employment through August 2012,

(3) industrial production through August 2012,
(4) real personal income through July 2012,
(5) real manufacturing and trade sales through June 2012, and
(6) real GDP through the second quarter of 2012.
Gray shading indicates NBER-designated recessions. The limits used on the y axis reflect the minimum and maximum values of the index over its entire history.”

CHART FROM…
http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/

MARKET RECAP                                                                               

Monday the S&P 500 finished down 0.31% to 1461 (rounded).  VIX rose 1/2% to 14.59.

NTSM

The NTSM analysis remained BUY Monday.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

Recession? Nah…investors are snapping up Cyclical Stocks

Today was not a happy day for many who were shorting the market (betting it would go down) after the Federal Reserve announcement.  Even Bernanke had previously commented on the “diminishing returns” of QE.  Like many others, I thought the market would react with a “so what” if they announced another QE3, or even sell off on the news, but I didn’t take a position.  

I stopped short-term trading last year; I made money last year, but I actually made more using the NTMS analysis in this blog than I did trading.  The other problem was that I was trading in a non-deferred account and it was an accounting nightmare.  I’m glad I stopped.  As one trader wrote today (regarding his short position), “I will try not to think about the massive losses I have so far.”

What I will do is look for an opportunity to put more into stocks.  Market internals are still mixed so I may have to wait awhile longer.  I am not missing this rally, since I am invested at a reasonable allocation for my age, although 50% in stocks is below my usual.  Regardless, every investor needs to sleep at night.  One well known guide is to subtract your age from 100 and invest that percentage into the stock market.  With bond yields as low as they are (and falling), that may be too conservative.  I expect that even more folks may be forced into the stock market based on the Fed action.  Indeed, that is the Fed's goal.

MARKET RECAP                                                                               

Friday the S&P 500 finished UP 0.4% to 1466 (rounded).  VIX rose 3.3% to 14.51.

NTSM

The NTSM analysis remained BUY Friday.

The VIX indicator is neutral.  It has only signaled buy once this month, on 7 Sept. So while the markets have been showing great exuberance, the longer trends in the options markets have not been as bullish.  That makes me cautious since the VIX indicator is the most reliable in the NTSM system.  

The Morgan Stanley Cyclical Index is going up a lot faster than the S&P 500 which leads us to conclude that the market is not very concerned about recession now.  In other words, investors are betting against recession since they are buying stocks that do poorly in recession and well when the economy is growing.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

QE3…Happy Days Are Here Again!

The market loves the Fed; at least it did today.  It remains to be seen whether that trend continues.  Sell-the-news could still take over, so if you did try to play the Fed by shorting, you might wait a day or two before covering. 

BLOOMBERG (excerpt)

Blink! U.S. Debt Just Grew by $11 Trillion
“Republicans and Democrats spent last summer battling how best to save $2.1 trillion over the next decade. They are spending this summer battling how best to not save $2.1 trillion over the next decade.”


“In the course of that year, the U.S. government’s fiscal gap -- the true measure of the nation’s indebtedness -- rose by $11 trillion....”

“...The answer for the U.S. isn’t pretty. Closing the gap using taxes requires an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the U.S. needs to cut, immediately and permanently, all federal purchases and transfer payments, including Social Security and Medicare benefits, by 40 percent. Or it can mix these terrible fiscal medicines with honey, namely radical fiscal reforms that make the economy much fairer and far stronger. What the government can’t do is pay its bills by spending more and taxing less.”   Full story at…
http://www.bloomberg.com/news/2012-08-08/blink-u-s-debt-just-grew-by-11-trillion.html

As I wrote a while back: Fiscal Bump; not Fiscal Cliff. The amount these fools are arguing over is a pittance when considering the big picture.  The risk to the stock market is that the debt problems may at some point cause some real damage to the economy

 

A 2010 report by economists from the University of Maryland and Harvard (Reinhart and Rogoff) that reviewed 200-years of economic data from 44 nations reached the ominous conclusion that (almost without exception) countries that are as highly indebted as the United States grow at a sub-par rate or incur recession.  According to them, the US was already past critical points of indebtedness in 2010.

MARKET RECAP                                                                               

Thursday the S&P 500 finished UP 1.6% to 1460 (rounded).  VIX fell more than 11% to 14.05. (That’s remains Good news for the bulls.)   

NTSM

The NTSM analysis switched back to BUY on Thursday.

Sentiment is not overly bullish and the %-above the 200-dMA is not extreme.  This indicates that it is possible for the market to continue its general trend up; however it wouldn’t surprise me to see a small pullback at any time.  In fact big-up days (like today) are often followed by a down-day and that’s my guess for Friday.  It's still my guess that the S&P 500 will top out within a month or so, but that is just a guess.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

Recession, Crashes and Bears…Oh My!

RECESSION:

FROM MISH’S GLOBAL ECONOMIC TREND ANALYSIS

Case for US and Global Recession Right Here, Right Now… I think the entire global economy is in recession and said so on July 6, 2012 in “Plunging New Orders Suggest Global Recession Has Arrived”  Read more at...

http://globaleconomicanalysis.blogspot.com/2012/07/case-for-us-recession-and-global.html#GFK8WgxGowlQ2OGt.99

Sometimes there isn't much good news. This seems to be one of those days.

CRASH:

Here is a chart from Kitco that they say predicts crash. They do have a point: A rising wedge pattern isn't encouraging and is frequently followed by declines.

 

 

Chart from

http://www.kitco.com/ind/Maund/20120910.html

 

BEARS:

Plenty of Bears out there today!

 

MARKET RECAP                                                                               

Wednesday the S&P 500 finished UP 0.2% to 1437 (rounded).  VIX fell 3.7% to 15.80. (That’s Good news for the bulls.)   

 

NTSM

The NTSM analysis remained to HOLD Wednesday. 

At this point, I’m neither a bull nor a bear.  Market internals are flat (directionless)  and the NTSM remains HOLD.  Let’s see what happens next.

 

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk. 

 

Leading economic Indicators; Durable Goods Orders – Everyone has an Opinion – and it’s not the same!

LEI AND RECESSION DISCUSSION (Again)
FROM THE LEI WEBPAGE: "The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in July to 95.8 (2004 = 100), following a 0.4 percent decline in June, and a 0.3 percent increase in May....

…The LEI’s six-month growth rate seems to be stabilizing, pointing to a continuing but slow expansion in economic activity for the rest of the year...”

“About The Conference Board Leading Economic Index® (LEI) for the U.S.
The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle.”

“The ten components of The Conference Board Leading Economic Index® for the U.S. include:
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers’ new orders, consumer goods and materials
ISM Index of New Orders
Manufacturers' new orders, nondefense capital goods excluding aircraft orders
Building permits, new private housing units
Stock prices, 500 common stocks
Leading Credit Index™
Interest rate spread, 10-year Treasury bonds less federal funds
Average consumer expectations for business conditions”

For more information, see…
http://www.conference-board.org/data/bcicountry.cfm?cid=1

LEI data, although it is “leading”, is essentially a month behind, because it is based on analysis of July data.  It does give some perspective since many were suggesting a tanking economy in July.  LEI is not calling for a recession.

Some are.  The LEI analysis is opposite that of the Economic Research Cycle Institute (ECRI).  ECRI says the US is already in recession and below is a chart from Contrary Investor.  These folks usually take the opposite side of the trend too so, as expected they present a cautious view at this point.

Chart from…

http://www.contraryinvestor.com/mo.htm

While the above chart looks problematic since the rate of change in growth is falling, the chart of Durable Goods Orders doesn’t look particularly threatening and has actually turned up.  The Fed data was updated 31 August and appears to include additional data not reflected in the Contrary Investor chart.

 

http://research.stlouisfed.org/fred2/series/DGORDER/

I am not an economist and I try not to get too wrapped up in the recession argument.  I’d rather follow the Stock Market.  We can get a clue of the “Market’s” view of recession by comparing the S&P 500 to the Morgan Stanly Cyclical Index.  Since cyclical stocks are gaining on the S&P (after they had leveled out for a week or so) it appears that the market does not think a recession is coming soon.

MARKET RECAP                                                                               

Tuesday the S&P 500 finished UP 0.3% to 1434 (rounded).  VIX rose another 0.8% to 16.41. (The Options Boys remain unconvinced about this rally.)   

NTSM & MARKET ANALYSIS

The NTSM analysis remained to HOLD Tuesday. 

The value of the NTSM VIX indicator is at a point that has marked a stock market top and the start of a correction the last 5-times it has been at these levels; however, the value is not the most important part of the indicator.  The direction of the indicator is critical.  The direction is now essentially flat.  This indicator will switch to sell if VIX climbs fast enough.

Market Internals of new-highs/new-lows and breadth (%-advancing) are giving a neutral reading now.  That’s an improvement from the past week or so, but I want to see them positive before I commit any more money to stocks.

I think we are less than a month away from the start of a correction.  That is guesswork, though; there is nothing in the NTSM analysis that predicts the future.  Remember: Trade what you see; not what you think!

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what most advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk.