GDP REVISED TO 2.7% (November 2012)

A friend emailed that the GDP had been revised up to 2.7% from 2% and that seemed to counter the “certainty” of John Hussman’s recession call.  I told him I agreed.  Really, John Hussman and the ECRI have been calling for recession for more than a year.  I am ready to throw in the towel and say, “They are wrong.”

Then again…maybe not.  Here’s a note from the WSJ…

3^rd QUARTER GDP GROWTH REVISED UPWARD TO 2.7% (Wall Street Journal)

“The nation's gross domestic product—the broadest measure of goods and services produced in the U.S.—advanced at an annual rate of 2.7% between July through September…But the factors that led to the upward revision—growing inventories, strong federal spending and robust exports—may not persist. Add in other headwinds, and the economy could struggle to grow in the fourth quarter.”  Full story at…
http://online.wsj.com/article/SB10001424127887324205404578148902055614568.html

GDP IMPROVES FOR ALL THE WRONG REASONS (Yahoo Finance)

“…the entire bump higher came from a build in inventories that masked troubling reductions in both consumer and business spending.”  Story at…
http://finance.yahoo.com/blogs/breakout/gdp-improves-wrong-reasons-165129082.html

And then there’s the Economic Cycle Research Institute with their continued recession call…

US IS ALREADY IN RECESSION (ECRI)  (The Daily Ticker from YAHOO Finance)

“The U.S. economy grew 2.7% in the third quarter, up from a previously reported 2% the government reported Thursday. But the guts of the report raised some concern, notably a big increase in inventories and a big downward revision to consumer spending…For Lakshman Achuthan, co-founder of the Economic Cycle Research Institute…"The evidence is starting to mount a recession is already underway, and we're a few months into it," he says, suggesting the downturn began in July. Story and Video at…
http://finance.yahoo.com/blogs/daily-ticker/ignore-gdp-fiscal-cliff-u-already-recession-ecri-174612999.html

THE DATA DOESN’T SUPPORT RECESSION ARGUMENT (dshort) 

“As for the change in private inventories…The increase reported today isn't the pattern we've seen in advance of the two 21st century recessions…during recessions, PCE generally increases as a percent of GDP whereas Private Investment declines. That is not what we're seeing in the current data.”  Analysis at dshort.com, Advisor Perspectives…
http://advisorperspectives.com/dshort/updates/GDP-Components.php

FED STIMULUS LIKELY IN 2013 (front-page headline, WSJ, 29 Nov 2013)

I am not an economist so I don’t have an informed opinion on the subject of recession.  It is not currently anticipated by the Markets, at least not in the numbers I track.  There is one point of concern though – if the economy is slowly and steadily improving, why is the Federal Reserve signaling continued stimulus for 2013 as reported in today’s WSJ?  They say that it’s because of the job market, but perhaps there is more.

All of this is not cause for panic; but it is reason enough for me to be more cautions than usual regarding stock investing.

MARKET RECAP                                                                               

Thursday the S&P 500 was up 0.4 % to 1416 (rounded).  VIX fell about 3% to 15.06.  

VIX has fallen back to 15 again and that has been an area that has sometimes led to some selling since the VIX has not managed to get much below 15.  I expect that the market will turn down again from these levels.

NTSM

The NTSM analysis remained HOLD Thursday.

Our volume indicator in the NTSM system (a modified On-Balance-Volume method) is a trend following indicator, so it is not surprising that the NTSM volume indicator has now turned positive.  Other indicators are in neutral territory so unless we have some surprising developments, I don’t expect the NTSM indicators to switch to buy in the immediate future.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks and I am still holding short positions.   (I have violated about every trading rule there is with my short positions.  I should’ve set some mental stops and bailed long ago.  I may hold the position until the market goes back to test the 1353 level, unless the pain gets too great.)    

HOME SALES DOWN

HOME SALES DOWN
(Reuters) – “New U.S. single-family home sales fell slightly in October and sales for the prior month were revised sharply lower, casting a faint shadow over one of the brighter spots in the U.S. economy.”  Full story at…
http://www.reuters.com/article/2012/11/28/us-usa-homesales-idUSBRE8AR0RP20121128

WHAT, ME WORRY? (Consumers Are Happy)

- US Consumer Confidence at Highest in 4½ Years (ABC News) -
“The Conference Board said Tuesday that its consumer confidence index rose to 73.7 in November from 73.1 in October. Both are the best readings since February 2008.”  Full story at...
http://abcnews.go.com/US/wireStory/us-consumer-confidence-highest-years-17818463

ANOTHER TAKE ON DURABLE GOODS ORDERS (from ZeroHedge)

“…focusing only on real, non-noisy economic strength metrics such as New Capital Goods Orders (technically defined as the year over year change in Non-Defense Capital Goods Excluding Aircraft), a very different and far uglier picture emerges. In fact, the October Y/Y Plunge of -8.1% in this major indicator was the biggest drop since 2009.”  Tyler Durden, ZeroHedge at…http://www.zerohedge.com/
My cmt:  Maybe that’s an indicator, but durable goods ex aircraft and non-defense goods are actually a very small percentage of GDP – less than 2%.

MARKET RECAP                                                                               

Wednesday the S&P 500 was up 0.8 % to 1410 (rounded).  VIX was down 2.6% to 15.51.  

TODAY’S MARKET REVERSAL (from down 0.8% to up 0.8%)

The market reversed about the time Obama and Boehner made positive remarks.  Regarding the politicians: “You've got to ask yourself one question: ‘Do I feel lucky?’ Well, do ya, punk?”  I guess we need Dirty Harry in Washington.

NTSM

The NTSM analysis remained HOLD Wednesday.

The NTSM system is pretty much in the middle of neutral territory and I guess that describes this market.  The market seems to be in a holding pattern while investors sort thru the news waiting for direction.  I expect the market will trend down from here, but who knows?  The internals suggest up, but as Hussman noted in his commentary this week, “…even impressive surges in advances versus declines (as we saw last week) have not mitigated those outcomes.”  The “outcomes” are precipitous declines.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks and I am still holding short positions.   I’ll cover if the market moves up – we are again at the upper trend line or perhaps slightly above it, so I am about at the end of my rope for the trade. 

Stock Market at a Critical Juncture

DURABLE GOODS ORDERS
“New orders for manufactured durable goods in October increased slightly to $216.9 billion, the U.S. Census Bureau announced today. This increase, up five of the last six months, followed a 9.2 percent September increase... Excluding defense, new orders increased 0.1 percent.”  Full Press Release at....
www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
My cmt: There was virtually no growth when defense is excluded.

OECD Slashes Global Growth Estimates (Breakout)

“Three mediocre years after the last recession ended, one of the world's leading economic policy advisers is warning that another may be on the way, as dawdling leaders in Europe and the U.S. fail to deliver the comprehensive solutions needed to restore growth...’After five years of crisis, the global economy is weakening again,’ says OECD's top economist...”   Full story and Video at...
http://finance.yahoo.com/blogs/breakout/five-funk-oecd-slashes-global-growth-estimates-160922498.html
(OECD = Organization for Economic Co-operation and Development)

JOHN HUSSMAN (another reminder)

“...market conditions have moved in a two-step sequence from overvalued, overbought, overbullish, rising yield conditions...to a breakdown in market internals and trend-following measures. Once in place, that sequence has generally produced very negative outcomes, on average. In that context, even impressive surges in advances versus declines (as we saw last week) have not mitigated those outcomes, on average, unless they occur after stocks have declined precipitously from their highs. Our estimates of prospective stock market return/risk, on a blended horizon from 2-weeks to 18-months, remains among the most negative that we’ve observed in a century of market data.” 
John Hussman, PhD, Weekley Market Commentary for 26 Nov 2012.  Full market commentary at...
http://www.hussmanfunds.com/

MARKET RECAP                                                                               

Tuesday the S&P 500 was down 0.5% to 1399 (rounded).  VIX was up 2.7% to 15.92.  

VIX IS THE KEY NOW

The following chart says it all.  With VIX around 15 and the S&P 500 near recent highs the market is at a key juncture; unless VIX falls from here (and the S&P 500 heads up) there is likely to be trouble ahead that will take us down into correction territory or worse. {Revised because I dont' want to overstate this too much.}

Chart from Kimble Charting Solutions on the dshort.com

http://advisorperspectives.com/dshort/guest/Chris-Kimble-121126-Gone-with-the-Wind.php

NTSM

The NTSM analysis remained HOLD Tuesday.

Since the down-trend still remains intact, I didn’t sell my short positions.  I may regret that since market internals continued to turn up.  Sooner or later the market will probably follow. 

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks and I am still holding short positions.   I’ll cover if the market moves up.

 

Aruoba-Diebold-Scotti Business Conditions Index (Update) – Still Trending Down

This is a FED indicator and is available from the Philly Fed.  As previously noted, its value is already below the value associated with the start of the last recession.  The good news is that while the ADS Index is trending down, it is not falling as fast as in previous pre-recession periods. 

Chart from the Philly FED at…
http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/

ATA TONNAGE INDEX

The UCLA-Ceridian Pulse of Commerce Index that tracked trucking gas usage (and had a high correlation to recession prediction) is no longer published.  Here’s another trucking index based on tonnage.  Super-storm “Sandy” hit at the end of October so only minor effects may be shown in the chart; a sharp downturn started before the storm.

Chart from American Trucking Association at...
http://www.truckline.com/pages/article.aspx?id=1073%2F8e1c7279-ed27-4c03-b189-ceeee26bbb12

RECESSION CONCERNS (StreetTalk Live – Lance Roberts)

“This past week the monthly release of the Leading Economic Indicators showed that the leading-to-lagging indicator ratio dropped to 89.5 which matches the lowest level in more than 2 1/2 years.  Historically when the leading-to-lagging ratio has fallen below 91 the economy was either in, or about to be in, a recession.” 
Full story at...
http://www.streettalklive.com/daily-x-change/1342-chart-of-the-day-lei-leading-to-lagging-ratio.html

NTSM RECESSION INDICATOR

The NTSM recession indicator simply compares the Morgan Stanley Cyclical Index (CYC) to the S&P 500 to see which is performing better.  If investors were betting on a recession, the CYC would be falling faster than the S&P 500.  Except for the last 10-days, when the CYC has underperformed the S&P 500, the CYC has been outperforming the S&P 500 so there seems to be little recession fear currently built into the markets.

While recession concerns seem to be rising (at least I am finding more folks blogging about recession), the markets haven’t agreed yet and that’s what counts.

MARKET RECAP                                                                               

Monday the S&P 500 was down 0.2% to 1406 (rounded).  VIX was up 2.4% to 15.50.  

NTSM

The NTSM analysis remained HOLD Friday.

Today’s chart of the S&P 500 shows the down-trend currently remains intact, but just barely.  Some are suggesting that the low on 15 November was a technical bottom and it’s up from here.  When I look at the data for 15 Nov, the volumes looked too high and the new-high/new low data was ugly, so I think the 1353 level will be retested.  In other words, the S&P 500 will drop to the 1353 level again and investors will then decide where to go from there.  Unfortunately, in the meantime the market could go up to test the 1430 or even the 1460 level and that process can be nerve wracking.  

Since it looks like the market internals are starting to turn up, that may be the most likely direction in the short term.  Internals often lead the market.

There’s nothing to do but wait, but I’ll cover shorts tomorrow – those can always be reset if the market tanks from here.  No point in falling on my sword.  I’ll wait for more information before making any other investment moves.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks. 

Hope you had a good Thanksgiving

MARKET RECAP                                                                               
Friday the S&P 500 was up 1.3% to 1409 (rounded).  VIX fell 1.1% to 15.14.  

NTSM

The NTSM analysis remained HOLD Friday.

Volume was light on a shortened day, so as I suggested Wednesday, there isn’t much we can infer from Friday’s action.

Let’s see what happens Monday.  I suspect a down day and I still think the trend is down. 

MY INVESTED POSITION

No change.

Chart Patterns Predict Stock Market Crash?

There are many chart formations that are used to predict the future direction of the stock market.  They often have esoteric names like “head-and-shoulders”, “cup-and-handle”, “double-top” or “triple-top” that refer to a specific chart pattern, each with its market interpretation.  One of the worst is the dreaded “Kitty-Cat” formation (SHOWN ON THE ABOVE CHART) that predicts an imminent market crash of more than 100-percent...OK, it’s a sick joke.  There is no such thing as a “kitty-cat” formation.  Writing a stock market blog is pretty dull stuff and many a poor soul has gone bloopy over the effort. 

The point of this chart (current as of Tuesday’s close) is to show that the market is currently within a downtrend bounded on the top by the upper trend line at the top of the cat’s tale.  I’m going to ignore this holiday week and wait for Monday.  Monday may be a critical day to see if the market will break trend and move,and/or stay,significantly above the trend line.  The key question is simply: Will the kitty’s tail twitch up?

BULL/BEAR HISTORY IN 1-CHART

(From dshort.com - Actionable Advice for Financial Advisors)
In his 1 Nov monthly market commentary, Doug Short asks the question, “Was the 2009-low the end of the secular (long-term) bear market? “  While he doesn’t answer the question definitively (no one can), he presents some fascinating charts and discussion that imply his answer is “NO”. 

The most troubling part of his presentation is the chart below that shows secular bull/bear trends (blue and red respectively), adjusted for inflation with a regression line that divides the data in half.   It shows the market is now well above trend.  If the market follows its past history, a simple reversion to trend would put the market at 1,000.  Since it often overshoots to the downside, another run to 850 or even the prior 677 closing low is not without precedence.  That’s not my prediction…it’s just that we need to keep in mind that market collapses of this magnitude are not only possible, as shown in the chart, they have occurred regularly in the past. 

As I said above, this is not a prediction; we don’t know when, or if such a massive correction will occur, but there is cause for concern.  When we look at current events, potential triggers that have the potential to bring about such a crash are the World-wide Debt Crisis, World-wide recession, or even Middle East War that causes an immediate and dramatic spike in energy prices.  This is one reason I am very conservative now – I would rather err on the side of caution and be out of the market when there is increased risk indicated by an NTSM sell signal.

More charts and discussion from…
http://www.advisorperspectives.com/dshort/updates/Secular-Bull-and-Bear-Markets.php

DON’T WORRY, BE HAPPY

None of this stock market stuff is worth worrying about since the latest information from NASA indicates that the Earth will collide with the planet Nibiru soon….Sorry…I am in a weird mood tonight.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weekly World News at

http://weeklyworldnews.com/aliens/42896/earth-to-collide-with-nibiru-on-november-21-2012/

 

JOBS (CNBC)

”Super storm Sandy drove the number of people seeking unemployment benefits up to a seasonally adjusted 439,000 last week, the highest level in 18 months.”

Story at…

http://www.cnbc.com/id/49836852/Sandy_Spurs_Jump_in_Jobless_Claims_Inflation_Nudges_Up

 

CONSUMER CONFIDENCE (Newsmax)

“The Conference Board’s sentiment index increased to 72.2, the highest since February 2008, from a revised 68.4 in September…”
Full story from Newsmax.com at …

 http://www.newsmax.com/Newsfront/BBGSURV-BGOVALL-BGOVFINAN-BGOVLABOR/2012/11/01/id/462391#ixzz2CuvozLfv

 

MARKET RECAP                                                                               

Wednesday the S&P 500 was up 1/4% to 1391 (rounded).  VIX rose 1.5% to 15.31.  

 

NTSM

The NTSM analysis switched to HOLD Wednesday. 

 

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform well.

 

The End of Earnings Growth … Is the Correction Over? Probably not.

San FRANCISCO (MarketWatch) - "With less than 5% of the S&P 500 Index left to report earnings, the third quarter is looking more and more like the end of the road for nearly three years of earnings growth...Third-quarter earnings represents a turning point in corporate results, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices..."Q3 looks like the start of a decline," Silverblatt said, adding that in a down economy, quarter-over-quarter trends provide a more accurate picture of corporate health than year-over-year figures.
"We're definitely looking at Q4 as the beginning of a continued downturn," he said.
Full story at...
http://www.marketwatch.com/story/multiyear-earnings-win-streak-likely-to-end-2012-11-19

IS THE CORRECTION OVER?
That question can depend on news and technicals.  To identify a correction bottom based on technicals, it is necessary to analyze price, volume and market internals.  On Friday of last week (16 Nov) the market was up 2% on high volume and acted as if the previous day was a technical-bottom.  Given Friday's action, I looked at Thursday. 

Thursday was not a technical bottom; thus the bounce Friday and Monday was news-driven and probably resulted from conciliatory comments made by the Politicos regarding the Fiscal Cliff.  Actually, that seems pretty obvious. 
 
The real question follows: Is the bounce sustainable? i.e., will the markets continue up?  The answer depends on whether all of the causes of the market fall have been resolved by the “good news”.  The answer is, “Probably not.” 

There is still plenty to worry about (world-wide recession; US recession; Middle East war; maybe the Fiscal Cliff won't be resolved easily; maybe the Fiscal Cliff fix will be so small that it will worry the markets; lack of earnings growth.  You get the idea...there's plenty to worry about. 

Bottom line: I am going to wait for some further technical indication (based on number crunching) that this correction is over.  Till then, I remain a Bear. 

MARKET RECAP                                                                               
Tuesday the S&P 500 was basically unchanged, up a point, to 1388 (rounded).  VIX fell 1% to 15.08.  

NTSM

The NTSM analysis remained SELL Tuesday due to Price and Volume indicators.

The market is 45-days past its top.  Last year’s 19% correction only took 50-days top to bottom.  This correction has been slow to develop. 

Sentiment is falling fast and now sits at 43%-bulls.  The buy signal for sentiment is now 33%-bulls.  If sentiment falls that low it would change the sentiment indicator, but it will take more than one indicator to produce a buy for the NTSM system.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform well.

 

Sucker Rally? – Probably. (Just another Manic Monday)

MARKET RECAP                                                                               
Friday the S&P 500 was up a whopping 2% to 1387(rounded).  VIX fell about 7% to 1524.  

MANIC MONDAY (analysis by the Bangles)

Today’s close is on the upper trend line, so it doesn’t change my bearish opinion.  It was also a statistically significant day (based on the price and volume action and my daily statistical-analysis of the market).  Some will say the correction is over, but statistically significant days often occur at reversals and some actually use a strategy of buying after big down-days and selling after big up-days.  (“Big” means statistically significant.) I back tested this theory in the 2008-2009 bear market and found that it beat the market by several hundred percent using a 2X mutual fund.  Unfortunately, the strategy has been “discovered” and may not be valid at this point. (Don't even ask about the risk!)

IT’S NOT ALL ABOUT THE FISCAL CLIFF (from Comstock Partners)

While the fiscal cliff problem has absorbed almost all of the financial media comment since the election, there's a lot more to the stock market decline that has virtually gotten lost in the discussion…With the economy likely to soften at a time when fiscal policy is about to tighten, corporate earnings estimates coming down and Fed policy increasingly ineffectual, the factors that have sparked the stock market in the last few years have come to an end. In our view, this is readily apparent in the change in trend since the peak on September 14^th. We think that date will turn out to be the top for some time to come.
http://www.comstockfunds.com/(X(1)S(4q2vaob1cjcsczv0mqkclkrt))/default.aspx?act=Newsletter.aspx&category=MarketCommentary&newsletterid=1681&menugroup=Home&AspxAutoDetectCookieSupport=1

BAD ECONOMIC NEWS – MAYBE IT’S ABOUT THIS! (from the Philly Fed)

“The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data…the ADS index…(is) updated as data on the index's underlying components are released.”

 

 

Chart and discussion from…
http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/

This index is a primary tool for the Fed to gauge the US economy.  The index is now -0.75 and this is based on data prior to Sandy.  The last time the ADS index was -0.75 and falling was January 2008.  That was the Top before the start of the major bear market that eventually took the S&P 500 down more than 50%.  This could always reverse, but it is certainly cause for concern.

THE CHINA SYNDROME

(from the TR Price investors Report)
“China may be at a critical inflection point, marking…a sharp cyclical downturn…one in which annual growth may drop over time to as low as 5%, says Anh Lu, manager of the New Asia Fund…Lower growth in China has profound and far-flung implications for the world, Already troubled by Europe’s recession and sluggish U.S. growth.”

My cmt: 5% sounds like a GOOD number for growth, but there is a lot of skepticism of the growth numbers reported by China. 

NTSM

The NTSM analysis remained SELL Monday due to Price and Volume indicators.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform well.

REPEATING STRATEGY

As I have noted before, others may choose to keep more invested in stocks without too much damage to their portfolio if the invested % is low.  For example, if one were to keep 30% invested in stocks and the market crashed by 50%, the loss to the portfolio would only be 15%.  If that is your plan, keep the low-beta stocks (those with lower P/E ratios) such as utilities, consumer staples, or value oriented mutual funds.  Sell technology.  Keeping 30% invested in stocks is actually a pretty good strategy since it hedges the bet if the market continues up after selling stocks. 

NTSM Still Sell

GREENSPAN ON THE DEBT (CNN/Money)
"I think if we have to have a moderate recession to solve this huge fiscal problem that's in front of us -- I think that's a very small price to pay," he said. "We're not going to get out of this thing without pain…"If you have to allow a rise in taxes to cut a deal on a major benefit cut, that's a good deal for me," said Greenspan."  Story at…
http://money.cnn.com/2012/11/16/news/economy/greenspan-recession-debt/index.html?iid=HP_LN

MARKET RECAP                                                                               

Friday the S&P 500 was UP 1/2% to 1360 (rounded).  VIX fell about 9% to 16.41.  

NTSM

The NTSM analysis remained SELL Friday.

VIX is switched back to neutral Friday after just barely inching over to a negative value Thursday, so I am not so confident that VIX has confirmed the downturn.

Market internals were mixed today.  Volume was up a lot today (about 30% over the 20-dMA) so a lot of investors may have been buoyed by the conciliatory language after leaders in the House and Senate met with the President.  The market did trend up from there, but sold off later, only to rally at the end of the day.  I am still somewhat skeptical that this correction is only about the election and fiscal cliff.

There was late day buying and that is bullish.  This trend would have to continue before I’d change my bearish position.  It may be that traders didn’t want to hold short positions over the weekend.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform wel

Recession Fears Return

THIRD LARGEST WORLD ECONOMY – IN RECESSION
Japan Plunges Into Deep Recession (Financial Sense)
“Japan’s economy shrank an annualized 3.5 per cent between July and September, the steepest decline since the earthquake-hit first quarter of 2011, as exporters suffered big falls in shipments to key markets such as China and Europe…Japan has extremely serious issues already, it's just that the market is ignoring them for now. If interest rates rise by a mere 2% or so, interest on the national debt will consume 100% of Japanese tax revenue.  Global imbalances are mounting. I suspect within the next couple of years (if not 2013) Japan will resort to the printing press to finance interest on its national debt and the Japanese central bank will start a major currency war with all its trading partners to force down the value of the yen.”
Full story at…
http://www.financialsense.com/contributors/michael-shedlock/japan-plunges-into-deep-recession-gdp

 

…and Europe too…

RETURN OF EUROPE RECESSION IS BAD NEWS FOR U.S. (CBS)

(MoneyWatch) 15 Nov 2012
“The eurozone's return to recession is particularly bad news because it is now hitting once strong economies like Germany. This means the recession will last longer and have a bigger impact on U.S. consumers and companies. .. The relatively small size of the overall contraction doesn't show the full scope of the problem facing Europe. Some nations -- notably France and Germany -- even saw their gross domestic product expand. Howard Archer at IHS Global is one of many analysts who do not expect these expansions to continue.

‘Latest data and survey evidence remain generally weak, and the odds currently strongly favor the eurozone suffering further GDP contraction in the fourth quarter of 2012,’”  Full story at…

http://www.cbsnews.com/8301-505123_162-57550532/return-of-europe-recession-is-bad-news-for-u.s/

MARKET RECAP                                                                               

Thursday the S&P 500 was down 0.16% to 1353 (rounded).  VIX rose 0.4% to 17.99.  

NTSM

The NTSM analysis remained SELL Thursday.

VIX is now confirming the downturn and recession worries won’t help.

I still think it is unlikely that the US will be able to avoid recession, but the timing could be out into the future so there’s no reason to panic.  Still, the news that many of our trading partners are falling into recession is disconcerting.

Breadth was poor today with about twice as many stocks declining as advancing, but the S&P 500 was only down 2-points.  It would seem that there are investors buying the S&P 500 in a flight-to-safety.  Unfortunately, buying the S&P 500 now seems to be a bad move because the large multi-national stocks in the S&P 500 can’t do well if the world is in recession.  Just look at McDonalds.  MCD is down 11% in the last month.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform well.

REPEATING STRATEGY

As I have noted before, others may choose to keep more invested in stocks without too much damage to their portfolio if the invested % is low.  For example, if one were to keep 30% invested in stocks and the market crashed by 50%, the loss to the portfolio would only be 15%.  If that is your plan, keep the low-beta stocks (those with lower P/E ratios) such as utilities, consumer staples, or value oriented mutual funds.  Sell technology.  Keeping 30% invested in stocks is actually a pretty good strategy since it hedges the bet if the market continues up after a sell signal. 

To be clear I am not predicting a crash; but there seems to be a lot of risk now.

 

Correction: How Low Can the Stock Market Go? Crash Prediction (not mine)

CRASH PREDICTION
Marc Faber: Prepare for a Massive Market Meltdown (CNBC)
The markets are going to go into meltdown soon, so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.
 
I don't think markets are going down because of Greece, I don't think markets are going down because of the 'fiscal cliff' - because there won't be a 'fiscal cliff,' " Faber told CNBC's "Squawk Box." "The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view."
 
Regarding budget deficits he said,
"There will be pain and there will be very substantial pain. The question is do we take less pain now through austerity or risk a complete collapse of society in five to 10 years' time?" he said, adding that there was a lack of political will to tackle the U.S. budget.  Full story at…http://www.cnbc.com/id/49802535

As noted, he authors the “Gloom, Boom, and Doom” report so he is a well-known Bear. 

Let me suggest one point regarding the Fiscal Cliff: In the stock market, if everyone thinks the market is going up, it usually goes down.  The herd is always wrong.   Just look at today’s action in Facebook.  All of the pundits said that Facebook was going to crash because employee shares unlocked; instead it was up more than 10%.  My point is simple – everyone thinks a resolution to the Fiscal Cliff will solve the stock market’s problems.  While that seems logical, I wouldn’t bet on it.

CORRECTION? HOW FAR COULD THE MARKET DROP?
John Hussman, PhD ,  has maintained that while the conditions at the recent S&P 500 top of 1466 were the worst in history (measured by data points and his number crunching – see yesterday’s blog), he has noted in several Market Commentaries that this does not mean that this correction will be the worst in history. 

While the NTSM system does not predict an S&P 500 target (and neither did Mr. Hussman), I can make a guess, something I am usually too busy to do when I first get a sell signal.
 
FactSet reported a forward P/E of 12.6 in October.  Since the P/E at major-lows is usually around 10, I think that the correction now underway is not likely to be much greater than 20%, top to bottom (leaning toward a worst-case). That would put the bottom in a range of 1125-1175. 

If a recession ensues (as Hussman and the ECRI predict), all bets are off.  Could it be less than 20%?  Sure.  No one has a crystal ball.  See the October FactSet report at…

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.12.12

MARKET RECAP                                                                               

Monday the S&P 500 down 1.4% to 1355 (rounded).  VIX rose 7.6% to 17.91.  

NTSM

The NTSM analysis remained SELL Wednesday

The VIX indicator is not a sell yet, but it’s close.  Market internals deteriorated again today.
.

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform well.

REPEATING STRATEGY

As I have noted before, others may choose to keep more invested in stocks without too much damage to their portfolio if the invested % is low.  For example, if one were to keep 30% invested in stocks and the market crashed by 50%, the loss to the portfolio would only be 15%.  If that is your plan, keep the low-beta stocks (those with lower P/E ratios) such as utilities, consumer staples, or value oriented mutual funds.  Sell technology.  Keeping 30% invested in stocks is actually a pretty good strategy since it hedges the bet if I am wrong and the market continues up after a sell signal. 

To be clear I am not predicting a crash; but there seems to be a lot of risk now.

Market Commentary from Roadrunner…Hussman & the Stock Market Correction

Regarding the Stock Market, Roadrunner says, “Uh-oh!”

 

HUSSMAN ON THE MARKET

"I want to share my view that the statistical risk of severe market outcomes, given present observable data, has almost never been worse."

“…last week, the stock market experienced some significant damage to internals (breadth, leadership, price/volume measures, etc). As a result, our estimates of prospective return/risk have plunged lower again, to what is now the second most negative figure we’ve observed in a century of data – the September 14, 2012 weekly close of 1465.77 continues to mark the most negative estimate…’

 

“…It’s tempting to assume that last week’s market weakness was nothing more than a post-election letdown for Wall Street, or a transitory focus on the “fiscal cliff.” But that perspective would ignore the months of extreme indicator syndromes that were in place well in advance of the recent weakness. As for immediate catalysts, Germany reported a significant miss in industrial production the day after the election, and the European Union downgraded its expectations for 2013 growth…”

John Hussman, PhD, Weekly Market Commentary for 12 Nov 2012 from Hussman Funds at…http://www.hussmanfunds.com/

 

My CMT: John Hussman, PhD, provides the Strategic view of the market.  I think the NTSM blog presents the Tactical view.  Tactics are the day-to-day actions we must take to win the war, even though small term losses or an occasional skirmish may be lost along the way.  John Hussman's strategy addresses an overall, longer-term view. 
 
As John Hussman has frequently noted, his analysis looks out as long as 18-months into the future and he has been positioned conservatively nearly that long.  As a result, some may have been tempted to discount his views.  Not me.  I have always suggested that he is correct; it is the timing that is hard to call.  Now, I think his timing is aligned with mine and provides some support for the NTSM recent sell signals.  Will we be proven right?  Only time will tell!

 

MARKET RECAP                                                                               

Monday the S&P 500 down 0.4% to 1375 (rounded).  VIX fell 0.2% to 16.65.  

 

The market moved up as the buy-the-dip crowd moved in.  Near the middle of the day, the market was up around 0.4%.  Behind the scenes, the number of stocks declining significantly exceeded those advancing and the number of stocks making new-lows was twice those making new-highs.  Those internals aren’t consistent with a healthy market, and certainly not on a day when the market appeared to be moving up.  The market fell in the afternoon and gave up all gains to make this an ugly day.

 

NTSM

The NTSM analysis remained SELL Tuesday.

 

MY INVESTED POSITION

Based on the SELL signal, 7 November 2012, I moved out of the stock market at 1377 on the S&P 500.  Because of the extreme negativity I have noted from Hussman and others, I am currently invested in a range of near 15% invested in stocks.  I also took short positions on the morning of the 8^th that make me currently net short the S&P 500.  (I am using Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS.  Those are dangerously volatile so I don’t recommend them unless you have a BIG tolerance for risk.  Also, if they are held too long they may not perform well.

 

REPEATING STRATEGY

As I have noted before, others may choose to keep more invested in stocks without too much damage to their portfolio if the invested % is low.  For example, if one were to keep 30% invested in stocks and the market crashed by 50%, the loss to the portfolio would only be 15%.  If that is your plan, keep the low-beta stocks (those with lower P/E ratios) such as utilities, consumer staples, or value oriented mutual funds.  Sell technology.  Keeping 30% invested in stocks is actually a pretty good strategy since it hedges the bet if I am wrong and the market continues up after a sell signal. 

To be clear I am not predicting a crash; but there seems to be a lot of risk now.