Purchasing Manager’s Index (PMI)…A Downturn in Stocks Coming Soon to a Theater Near You

CHICAGO PMI CLIMBS TO 55.6% (MarketWatch)
“The Chicago purchasing managers index rose to 55.6% in January, to mark the best performance in nine months. Economists surveyed by MarketWatch had expected the Chicago PMI to edge up to 49.8%. Any reading above 50 indicates expansion. Details of the report were also strong. New orders posted the biggest increase in 10 months, advancing to 58.2% from 50.4% in December.”  Full story at…
http://www.marketwatch.com/story/chicago-pmi-climbs-to-556-in-january-2013-01-31-9915813?link=MW_latest_news

While the doomsdayers suggest the end may be near, today’s Purchasing Manager’s Index suggests that it isn’t now.  On the other hand, Wave Theory says it’s sooner than later. 

WAVE PATTERNS SUGGESTS 3^RD AND FINAL WAVE UNDERWAY

“..in the midst of all the bull celebrations, let's not forget that the 2000 top was 1553 SPX, and the 2007 top was 1576 -- and these were major market tops. If you draw a trend line connecting the two, you come up with a figure just north of 1590.”
Discussion at...
http://www.minyanville.com/business-news/markets/articles/Bulls-Still-Have-the-Ball-bearish/1/28/2013/id/47641#ixzz2JHfXkQ96

COMMENT FROM A TRADER: “The way the market has been exuberantly bullish, I've been just waiting for that high volume blowoff top to mark an end to it all...but it never comes. I have to keep reminding myself the fed is simply pumping too much for this to end. I can't remember how long it's been since we've seen a futures down 400 point day, but I can tell you this, I do recall a time when if you would have seen an unexpected negative GDP announcement, you certainly would have seen a major selloff. Nothing seems to matter any more which is why I refuse to sell until it's TIME to sell.”

COMMENT FROM A BIGGER TRADER – BILL GROSS, PIMCO, MANAGING DIRECTOR

“Investors should be prepared to accept "lower returns on bonds, stocks, real estate and derivative strategies," Gross wrote in his monthly letter entitled "Credit Supernova!"…Championing something of a bunker mentality, Gross told investors to buy Treasuries with shorter durations and buy gold or other investments that "you can sink your teeth into."… "the end of the global monetary system is not nigh," but says we're approaching a time where "investable assets pose too much risk for too little return." Story at…
http://buzz.money.cnn.com/2013/01/31/bill-gross-markets/?iid=Lead

MARKET RECAP

Thursday, the S&P 500 fell 0.3% to 1,498 (rounded).  VIX fell 0.3%, to 14.28.

Volume has been declining for almost a year and is down about 10% from year-ago levels.  That trend looks like it may be breaking, at least is has been increasing in January, and that would lend some credence to the theory that the markets can go higher.  Most seem to think the markets can go higher, but maybe not too much higher.

There has been late day selling recently suggesting the pros are lightening up on stocks.

NTSM

The NTSM analysis remained HOLD Thursday. 

Of the indicators that actually signal buy, sell, or hold in the NTSM analysis, only Price is positive and it has been is falling fast over the last 3-days.  All other indicators are neutral.

I keep daily stats that track the size of moves in terms of price and volume.  When the market is getting complacent there is very little volatility and one of my statistical alarms goes off.  This alarm is an advance warning of a top.  One flashed today.  Looking at this signal, over the past 3-years this signal has flashed 6-times before a top.  (Over those 3-years, it has never missed a top; it has never given a false warning of a top.) The most advance warning was 34-trading days; the least was 4.  The average was 17-days.  So this signal says, on average, we have about 3-weeks to a top.   The tops have preceded corrections that have run from 7% to 19% declines with an average of 13%.

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

GDP Growth – A Shocking Minus 0.1% in Q4; Unemployment; Trucking Index; Durable Goods Orders; Recession?

GDP 4TH QUARTER GROWTH “Mind–numbing”; “shocking”; “stunning” (all quotes from news reports)   I saw a report today that said only 20% of economists thought there was a chance of recession in the near future.  Today’s GDP numbers indicate there may be a recession underway now!  These are preliminary numbers – so perhaps revisions will be to the good?  Also, as noted below, the “behind-the-scenes” numbers didn’t paint a bleak picture – so say the economists – but I am not sure about that.   GDP SHOWS SURPRISE DROP (CNBC) “The U.S. economy posted a stunning drop of 0.1 percent in the fourth quarter, defying expectations for slow growth ....The economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles....That's a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.”  Full story at... http://www.cnbc.com/id/100419252   Wow! A contraction in GDP should change some minds about the ECRI Recession call.  Overall though, economists pretty much agreed, “No big deal.”    But before we hear from the economists, let’s review the definition of an economist:   ECONOMIST:  “One who, starting from a position of over-educated and under-informed logical supposition, commences making erroneous and devastating judgments about the functioning of the world, and then formally codifies their misunderstanding in dogmatic and arrogant absurdity.” From... http://www.urbandictionary.com/define.php?term=economist   Here are typical views of the economists:   ECONOMISTS REACT TO THE GDP “Stripping out defense and inventories, GDP growth accelerated to 2.6%, from 1.8%. Admittedly, if you strip out enough of the falling components, then obviously what’s left went up. But in this case these are one-offs. If this really was the start of a new recession, like the ones in 2001 and 2008, then we would expect to see GDP excluding defense and inventories falling too. Instead, the growth rate is accelerating. –Paul Ashworth, Capital Economics   … The economy is not exactly robust, but it is certainly not contracting as today’s data would otherwise suggest.”  --Michelle Meyer, Bank of America Merrill Lynch Global Research Full story at... http://blogs.wsj.com/economics/2013/01/30/economists-react-best-looking-contraction-in-gdp/   MY PERSPECTIVE BEA reported that GDP contracted 1.3% due to reduced Government expenditures.  While economists are suggesting this is a one-time event, I am quite skeptical.  If I were managing a Government program, I’d be making cuts now to prepare for possible sequestration.  In fact a number of cost reducing policies are already in place within DOD.  I think that is why Government expenditures are down and I don’t expect them to fully recover since sequestration (or other cuts in Government spending) look likely.  There’s more to the wall of worry.   The export component of GDP fell by 0.81%.  Most economists suggest this is due to the drought and reduced grain exports.  Perhaps, but FactSet noted below that companies are reporting reduced earnings due to recession in Europe.  So reduced exports could be a symptom of issues with the economy rather than the weather.   As always, I’ll just say that I am not an Economist, so my opinions must be considered un-informed.  For now, I am very concerned.   FACTSET “Europe is reporting a decline in economic growth relative to last year. According to FactSet Economics, the European Union recorded a decrease in GDP of 0.4% in Q3 2012, compared to growth of 1.4% in Q3 2011. Companies have continued to see weakness in Europe, based on comments made in their earnings releases and conference calls.”  Full report at... http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_1.25.13   TRUCKING VS GDP Then there is trucking.  Overall GDP growth is now estimated at 2.1% for 2012.  The American Trucking Association (ATA) reported their trucking index increased 2.3% in 2012, pretty much in line with GDP.  They did note that the index was down 2.3% year over year for December.  Whether this reduction is indicating impacts of Hurricane Sandy, or real systemic reductions in 4th quarter GDP is anybody’s guess.  It is a concern though. ATA news release at... http://www.truckline.com/pages/article.aspx?id=1084%2F8e1c7279-ed27-4c03-b189-ceeee26bbb12   DURABLE GOODS ORDERS (from Doug Short Advisor Perspectives) “The latest new orders number at 4.6 percent was dramatically above the Briefing.com consensus of 1.6 percent. Year-over-year new orders are up 5.3 percent.  However, If we exclude both transportation and defense, "core" durable goods orders declined 3.9 percent. Year-over-year core goods are down a depressing 9.8 percent... In theory the durable goods orders series should be one of the more important indicators of the economy's health. But its susceptibility to major revisions of the previous monthly data suggests caution in taking the data for any particular month too seriously.”  Full story at...

http://advisorperspectives.com/dshort/updates/Durable-Goods-Orders.php

COMING RECESSION?

I look at the Morgan Stanley Cyclical Index compared to the S&P 500 as a gage of investor belief in recession.  The spread is an indication of recession concerns.  Over the last 10-days the spread has reversed and the Cyclical Index has slightly underperformed the S&P 500.  This may be an early warning or simply an indication that investors want to own large-cap stocks more than the cyclicals.   The cyclicals have fallen a bit recently, but I won’t worry until the cyclical stocks drop more.

MARKET RECAP

Wednesday, the S&P 500 fell 0.4% to 1,502 (rounded).  VIX rose 7.6%, to 14.32.

Market internals have flattened some, but have not turned down yet; so it’s just one more item to watch. 

NTSM
The NTSM analysis remained HOLD Wednesday. 

Everyone’s a Bull now.  How else can we explain a horrible GDP report that was ignored by investors, economists and pundits?

Most of my indicators are neutral, but there is plenty to worry about: price action hit extreme levels yesterday and that is a negative (up moves have been much bigger than down moves).  The fact that mutual funds are seeing inflows is another negative.  The charts look bad.  (see http://navigatethestockmarket.blogspot.com/2013/01/rising-wedge-rising-concerns.html) 
As of yesterday, there were 9 out of 10-days that were up on the S&P 500.  That’s an indicator of too much bullishness, but not all news is bad.

VIX is neutral and leaning toward the positive so, the options crowd is apparently not concerned about today’s GDP number.  I’m wary, but still long.  I’ll be on alert for clues about where we go from here.

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

 

Sequestration: The Fiscal Half-Cliff

POLITICAL COMMENTARY FROM JAGGER/RICHARDS
“Please allow me to introduce myself
I'm a man of wealth and taste
I've been around for a long, long year
Stole many a man’s soul and faith”
...Sympathy for the Congress?

SHOCK TO THE ECONOMY - SEQUESTRATION (Financial Times)

“The $1.2 trillion in automatic spending cuts that Barack Obama once promised to avert are looking increasingly likely to occur because of entrenched politics in Washington, threatening a shock to confidence in the US economy...

…"I think the sequester is going to happen," said Paul Ryan, the influential Republican congressman on NBC's "Meet the Press". While he and other Republicans are expressing regret that defence (sic) will take the brunt of the hit, a fact that the Obama administration has warned threatens national security, he and other Republicans say the reduction in spending is paramount....

…"While I would prefer to see the specific spending cuts configured differently...I'm not convinced that we'll be able to agree with the president and the Democrats in the Senate on how those shifts should occur," Pat Toomey, the Republican senator from Pennsylvania, told the FT.”  Full story at...

http://www.cnbc.com/id/100410660

SEQUESTRATION IMPACTS

Expect a pull-back if sequestration occurs.  CNBC and the fear-mongers will work to convince investors that it will be a disaster for the economy so the shorts can make their money.  The $1.2-trillion cut is over 10-years, so the effect in any one year is around $120-billion.  That is also about the amount of money taken out of the economy by ending the 2% payroll tax deduction and that was part of the agreement to avoid the Fiscal Cliff (just check your paycheck).  If the sequestration cuts by the Government were translated to cuts in spending by taxpayers, it would be about $1,200 per taxpayer or $100 per month.  So if each taxpayer cut their spending by $100 a month what would it mean?  While this is not insignificant, I don’t see that the effects on the economy will be worth all the handwringing and whining we’ll hear in the media.  I am not an economist so take that as an uninformed opinion from a non-believer.  Economists are not so sanguine.

Goldman Sachs estimates sequestration may cut GDP growth by 1%.  Some estimates place the impacts of the payroll tax reinstatement as high as 1%.  So together, the reductions in GDP growth could push the economy close to recession, if not in recession; the US GDP is estimated to have averaged around 2% growth in 2012. (Final numbers aren't in yet.) Here’s some background information from ZeroHedge:

http://www.zerohedge.com/news/2013-01-16/here-comes-sequester-and-another-1-cut-2013-gdp

MARKET RECAP

Tuesday, the S&P 500 was Up 0.5% to 1508 (rounded).  VIX was down about 2% to   13.31.

NTSM

The NTSM analysis remained HOLD Tuesday. 

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

The Bull Market Can Keep Going

LAST PHASE OF THE BULL MARKET (CNN/Money)
“Laszlo Birinyi, a renowned market analyst…calls this (period of the bull market) the "exuberance" period, saying that's when the "fireworks" happen.
In fact, both the first and last stages historically serve up the best returns.

‘This is when all the people who have been reluctant and hesitant to invest in the stock market start realizing…There's not going to be another train coming so they better get on board.’

In previous bull markets, the last stage has yielded an average increase of 40% for the S&P 500…the bull market could last another year, or even two, depending on investor sentiment.”

http://money.cnn.com/2013/01/25/investing/bull-market-stocks/index.html

WHAT MIGHT BRING THE END OF THE BULL?

“Boston University Economics Professor Laurence Kotlikoff is worried about America’s dire financial situation. Dr. Kotlikoff says, “The situation is getting worse and worse and worse. We are running a massive six decade Ponzi scheme, and it’s coming to a real threatening point.” Dr. Kotlikoff calculates the real government deficit is enormous and it’s growing exponentially. “It’s $222 trillion. Last year it was $211 trillion. We grew the deficit by $11 trillion in one year,” charges Dr. Kotlikoff. He also says, “We are actually in worse shape than any developed country. . . We are using accounting that would make Bernie Madoff blush.” Kotlikoff thinks the Federal Reserve could easily lose complete control of inflation and warns, ‘Ben Bernanke is playing with fire here because we could have a tripling of the price level.’”
Story with link to video interview at…
http://usawatchdog.com/bernanke-playing-with-fire-laurence-kotlikoff/

BERNANKE ON THE DEFICIT (cnsnews.com, June 2010)

In testimony before congress…“There are various ways you could address this – you can restructure entitlement programs [or] you can cut other things – but at some point you need to address the overall budgetary situation. If you don’t, you’ll get a picture like this one [pointing to a graph showing a steep rise in interest rates and debt] where interest rates are rising and debt outstanding is growing exponentially.’

‘At that point, things will come apart,’ he said. ‘This [rise in debt] will stop, but it might stop in a very unpleasant way in terms of sharp cuts, a financial crisis, high interest rates that stop growth, [or] continued borrowing from abroad.’

‘...Maintaining a strong recovery and keeping interest rates low would be assisted by a commitment by Congress to bring the deficit to a sustainable level and the debt to a relatively flat level [compared] to GDP over the medium term,’ he said.”

Story at...
http://cnsnews.com/news/article/bernanke-things-will-come-apart-if-entitlements-are-not-reformed-and-spending

CATERPILLAR (from MarketWatch)

Heavy equipment maker Caterpillar said ... its fourth-quarter net income exceeded analysts' expectations, after adjusting for the cost of a soured deal to buy a Chinese maker of roofing supports for mines...Caterpillar also announced guidance for 2013 that was consistent with Wall Street's expectations.
http://www.marketwatch.com/story/us-stocks-gain-on-caterpillar-profit-2013-01-28?siteid=yhoof2

MARKET RECAP

Monday, the S&P 500 was down 0.2% to 1500 (rounded).  VIX was up 5%, to 13.57.

NTSM

The NTSM analysis remained HOLD Monday. 

I think the market can go up from here.  Everyone’s a Bull now.  I’ll be watching the S&P 500 vs. the 200-day moving average as a clue. 

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

RECESSION? Investors say, “Not a Chance!”

CYCLICAL STOCKS RECESSION INDICATOR
Cyclical stocks, as tracked by the Morgan Stanley Cyclical Index, have been handily moving up relative to the S&P 500; investors think there is no chance of recession anytime soon.  Sorry ECRI; no one believes you right now.  Speaking of cyclical stocks, Caterpillar (the single most watched cyclical stock) reports earnings Monday and that company may influence the market next week.

FROM A TRADER BOARD

I saw some comments at a trader board stating that the rally since Nov 16th is now 54 trading days long. Going back to 1991, there have only been 11 rallies longer without a 5% or greater correction (we only got 3% last month). The Relative Strength Indicator, a technical indicator tracking price movement, has only been higher 4 times in the past 12 years.  If the S&P 500 makes it to 1520 next week, it would be a level that has only been reached 3 other times in the past 12 years.  In other words, we’re due for a pullback.

The author noted that parabolic upward runs fall even faster.  From my perspective, this run up has been awfully fast and has the look of a top.  Technically though, Sentiment is not overly bullish.  By my indicator, Sentiment was slightly below 50%-bulls as of yesterdays close and that is solidly in neutral territory.  I don’t see a parabolic move either – the S&P 500 is hugging the upper trend line and that is straight. 

MARKET INTERNALS

The 10-day moving average of the number of stocks advancing is dropping slightly; new-high vs. new-lows are flattening out, based on several moving averages of different lengths. 

Looking at the last 10-trading days there have only been 2-days that were down.  I certainly wouldn’t be surprised to see a 5% move back to the lower trend line, but there is nothing to panic about at this point.

ICI MUTUAL FUND INFLOWS – IS THERE A CORRECTION COMING?

Long-term domestic Mutual funds have reported inflows recently for the weeks of 9 January and 16 January.  Believe it or not, there have only been about 15-weeks of inflows in these funds over the last 2-years.  Every time there have been inflows, the market has topped out within 2 to 6-months and a correction has followed.  We can find a lot of evidence of a topping process underway.  Whether this foretells a correction or something more is anybody’s guess.

MARKET RECAP

Friday, the S&P 500 was up 0.5% to 1503 (rounded).  VIX rose about 1.6%, to 12.89.

NTSM

The NTSM analysis remained HOLD Friday.  (All indicators are neutral.)

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

 

Unemployment Claims Better than Expected

UNEMPLOYMENT CLAIMS (CNN/Money)
“First-time claims for unemployment benefits fell by 5,000 last week to 330,000, down from 335,000 the previous week. That's the lowest level since January 2008.

It's unclear why claims have fallen so dramatically recently, but economists point to seasonal distortions in the data, which seem to happen every January. Over the last two weeks, initial claims have plummeted by 45,000…‘Weekly data are noisy, particularly at this time of year, so keep that in mind,’ said Jennifer Lee, senior economist at BMO Capital Markets,"

Full story at...

http://money.cnn.com/2013/01/24/news/economy/unemployment-benefits

US MACRO INDEX TURNED NEGATIVE (ZeroHedge, 22 Jan 2013)

"Today, for the first time in almost five months (thanks to misses on existing homes and the Richmond Fed) the US Macro Index turned negative. In the past this has marked the start of the market's realization that things are not just dipping but are cycling lower.”  Full discussion at …

http://www.zerohedge.com/news/2013-01-22/us-macro-turns-negative-worst-almost-5-months

 Chart from …
http://www.zerohedge.com/news/2013-01-22/us-macro-turns-negative-worst-almost-5-months

ONE BIG MISS – APPLE (ZeroHedge)

“The most anticipated earnings release of the quarter has come and it has been a dud, at least judging by the market's expectations and its response. Because while EPS beats just barely (a far cry from the epic EPS beats of Steve Jobs days) coming at $13.81 on expectations of a $13.53 print, revenue outright missed, coming at $54.5 billion on expectations of a $54.9 billion Q1 2013 result.” – Tyler Durden, ZeroHedge
http://www.zerohedge.com/news/2013-01-23/aapl-meets-eps-misses-revenues-fails-impress-line-iphone-sales-total-cash-grows-1371

After hours Wednesday apple fell 10%, all the way down to 462.  Thursday is fell another 12% and was around 450 the last time I looked.  Less than 6-months ago it was a 700-dollar stock - so much for leadership.  Apple’s problem, if there is one, is that their monopoly on smart phones and tablets is gone since the other guys are starting to catch up with them.  Today’s WSJ noted that the 4^th quarter was a week shorter and their numbers were not as bad as they appeared.  Apple’s PE was reported at 10 by Yahoo finance – S&P 500 PE was reported at 13.  It’s hard to believe that Apple is trading at a significant discount to the S&P 500.

MARKET RECAP

Thursday, the S&P 500 was unchanged at 1495 (rounded).  VIX rose about 2%, to 12.69.

NTSM

The NTSM analysis remained HOLD Thursday.

As it has been for several days, only one indicator, Price, is positive.  Volume is very nearly positive.  Sentiment and VIX are neutral, but VIX too is closer to positive than negative.

More of the same: Breadth is positive with advancing stocks outpacing decliners over the longer term.  New-Highs vs. new-lows are slowing their advance and may be starting to top out; that would be a short term negative if it happens.

Late day action (the so-called smart money) was up today, but it has been trending down for the past week or so, but not enough to be of concern. 

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

Rising Wedge – Rising Concerns

RISING WEDGE (no, it's not a golf club) BEARISH CHART PATTERN
"The Rising Wedge is a bearish (chart) pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. In contrast to symmetrical triangles, which have no definitive slope and no bullish or bearish bias, rising wedges definitely slope up and have a bearish bias...As a reversal pattern, the rising wedge will slope up and with the prevailing trend. Regardless of the type (reversal or continuation), rising wedges are bearish."  More discussion at...
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:rising_wedge
 
When the trend is up, a rising wedge indicates the trend is going to fail; and fail it does....about 70% of the time according to Thomas Bulkowski at
http://www.thepatternsite.com/risewedge.html
 
There is more confidence in the pattern playing out to the down side if volume is falling as the wedge is rising. The falling volume indicates lack of confidence in the up-trend.  Volume picks up after the trend is broken, but that is always true when the market is falling quickly.  As this rally has proceeded, volume has fallen.  It is now 30% below where it was near the bottom in September of 2011 (based on 20-dMA of S&P 500 volume).  More recently, volume is about 20% below where it was at the beginning of June 2012 when the market bottomed.
 
The apex (where the two trend lines meet) is the resolution point and if the trend doesn't fail before the apex is reached, the result is often a strong move down. 
 
The Apex for the S&P 500 looks like it's around the old high - 1560.  Coincidence? I don't know.
 
The pattern indicates we're in for some market disruption, either a correction or at least some sort of pullback in the not too distant future (or now).  Whether it is large or small probably depends on the news at the time.
 

Chart from dshort.com although the wedge overlay is my analysis.

EMPLOYMENT - WHAT ME WORRY?
"Perhaps we downloaded the wrong pdf file from the Bureau of Labor Statistics (BLS) website. The report we reviewed and studied made us want to have a few stiff drinks and not partake in a celebratory mood. We hardly call a 155,000 increase in non-farm payrolls strong and steady growth. Month-over-month, payroll growth is a scant 0.12%. Year-over-year, growth at 1.39% is hardly more encouraging. Rather, December's report (and, October's and November's) suggest the labor market is at stall speed. What employment growth there is, is barely sufficient to offset civilian labor force growth. If it were not for the long-term unemployed giving up and exiting the labor force, the unemployment rate would be higher than the 7.8% reported for December." -  Eric Schaefer of American Independence Financial Services posted at dshort.com Advisor Perspectives.  Full story at...
http://advisorperspectives.com/dshort/guest/AI-130122-What-Me-Worry.php
 
MARKET RECAP
Wednesday, the S&P 500 was up 0.2% to 1495 (rounded).  VIX rose 0.2%, to 12.46.

NTSM

The NTSM analysis remained HOLD Wednesday.

As it has been for several days, only one indicator, Price, is positive.  Volume is very nearly positive.  Sentiment and VIX are neutral, but VIX too is closer to positive than negative.

Breadth is positive with advancing stocks outpacing decliners over the longer term.  New-Highs vs. new-lows are slowing their advance and may be starting to top out; that would be a short term negative if it happens.

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

John Hussman, PhD - Cyclical Bear Warning

 

JOHN HUSSMAN - CYCLICAL BEAR WARNING (what’s new?)

"Last week, the S&P 500 advanced the extra 1% required to re-establish virtually every “overvalued, overbought, overbullish, rising-yields” syndrome that we define – syndromes that have appeared at or close to the beginning of what investors can easily recall as the singularly worst set of market instances in history, including the 1973-74, 1987, 2000-2002, and 2007-2009 plunges. With some minor imputation (estimating bullish and bearish sentiment as a function of the extent and volatility of prior market movement), we can verify that these syndromes also emerged just prior to the 1929-1932 collapse.“ - John P. Hussman, Ph.D., 22 January 2013 Weekley Market Commentary, Hussman Funds.  Full commentary at..http://www.hussmanfunds.com/

John Hussman noted that there have been some instances where this syndrome did not result in downturns, most notably in 1997 several years before the top.  He cautioned, however, that fully 5-years after the 1997 syndrome was established the S&P 500 was unchanged and went on to underperform Treasuries for more than a decade.   

We can also note that this warning is similar to those John Hussman issued nearly a year ago and the markets have advanced about 5% since then.  Whether 5% gain is worth the risk of 20-50% loss is really a decision that each investor must make.  I don’t mean to overstate the negatives here, but this is a major part of the reason I am currently only 50% invested in stocks rather than my usual reckless, roll-the-dice position of 100% invested in stocks. 

The catalyst for major declines has usually been a significant event, economic or otherwise.  Sometimes major events are foreseeable.  In 2001 we had extreme valuation and the catalyst for the start of the Bear market was Fed tightening to cool the economy – boy, did it ever!  In 2007 the catalyst was overblown housing prices that caused a Banking crisis coinciding with a market top that matched the 2001 top.  In both of those cases I was able to exit the market within about 5% of the top.

As we approach the 2001 top once again {now only 4% below the 1560 (approximately) all time top} we must ask, “Is there a catalyst that will trigger a major decline?”  Candidates are world-wide debt; currency wars; European/Asian recession; US Recession; US Debt; Political Gridlock; Declining profit margins and probably a few others.

On an optimistic note, only declining profit margins looks like an immediate issue (to be resolved in the current earnings season) and it may take months before any of the issues will rise to crisis levels, if at all. 

Lesser, but significant contractions in the markets have been preceded by unforeseeable events such as 911, the Japanese nuclear crisis or earthquakes in Taiwan. 

Regarding earnings, Apple reports tomorrow after the close and it will be widely watched to indicate the future of tech earnings.

HISTORY SUGGESTS ANOTHER DOWNTURN

Doug Short presents an interesting history of the Dow Jones Industrial Average adjusted for inflation.  He notes that Bear markets have usually had 2 or 3 lower-lows.  So far, the Dow has suffered 1 lower-low in the current bear market.  This is just another way of warning that the current Bear probably has at least 1-more major downturn before the markets can escape from the clutches of the Bear.  Chart from dShort.com (Doug Short Advisor Perspectives).

http://advisorperspectives.com/dshort/charts/markets/Dow/recoveries.html?sixteen-real-recoveries.gif

THE REAL HOUSING RECOVERY – Lance Roberts, January 22, 2013
“The headlines read that "Housing starts surged by 12.1% in December proving that the housing recovery is back."  In reality the numbers were as follows:

-December starts:  61,500 (down 2.8% from November)

-Annualized December starts:  738,000
-Reported seasonally adjusted December starts:  954,000  (Up 12.1% from November)
-Seasonal adjustment to December starts:  +216,000

Historically, the data smoothing methodology was "close enough"  and the variations were, more or less, worked out over time.  However, in the current economic environment, the seasonal adjustment process may be overstating that actual activity that is occurring within the underlying economy.  With housing currently making a very small contribution to overall economic activity, just slightly more than 2.5% as shown in the chart below, the difference between the "real" economic impact of 61,500 homes being started nationwide versus 954,000, of which 216,000 were a mathematical seasonal adjustment, can be quite dramatic.“ 

Full story at…
http://www.streettalklive.com/daily-x-change/1468-the-real-housing-recovery-story.html

MARKET RECAP

Tuesday, the S&P 500 was up 0.4% to 1493 (rounded).  VIX fell 0.2%, to 12.43.

NTSM

The NTSM analysis remained HOLD Tuesday.

Only one indicator, Price, is positive.  Sentiment, Volume and VIX are all neutral.

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

S&P 500 “Up, Up, Up and Away”

THE PATH TO 1,650 FOR S&P 500 - Breakout (Yahoo Finance)
"...Ryan Detrick, sr. technical strategist at Schaeffer's Investment Research is looking for another 15% this year and is taking comfort in the strength of small caps. "The small cap leadership is a good sign," Detrick says of their new high and 10-year outperformance. "That's an indicator that potentially sometime later this year, blue chips and the Dow Jones very well might also breakout to new highs."  Story at...
http://finance.yahoo.com/blogs/breakout/talking-technicals-path-1-650-p-500-130532830.html

MARKET RECAP

Friday, late day buying pushed the S&P 500 up 0.3% to 1486 (rounded).  VIX fell an astonishing amount, more than 9%, to 12.34 as of 4pm.  The surprising aspect is that the VIX fell so much with relatively little movement in the markets.  

“No fear,” says the VIX.  I think a falling is good for the bulls. Prior to 2008 I think the VIX fell all the way below 10, so it can keep going down, in spite of what the experts say.

NTSM

The NTSM analysis remained HOLD Friday. 

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks. 

 

Inflation? Inflation? There is no inflation in Baseball!

BASEBALL TICKET PRICES SOARING TO NEW HEIGHTS (from the LA Times)
“The sport's average ticket price went up 11.8%--the highest markup in a decade--to $16.67 this year. But that's nothing compared with the increases in Detroit, San Francisco and Houston.”  Full story at…
http://articles.latimes.com/2000/apr/05/sports/sp-16328

11.8% in one year?  There is no inflation…there is no inflation…there is no inflation…

Peter Schiff points out that the inflation data collected by the Bureau of Labor Statistics is blatantly wrong and goes on the discuss how the CPI formula has been frequently changed and the present danger of inflation due to under reporting of its rate.  Now the Politicos think the CPI overstates inflation.

INFLATION PROPAGANDA EXPOSED (Seeking Alpha, Peter Schiff)

“...from 1999 to 2012 the Bureau of Labor Statistic's (BLS) "Newspaper and Magazine Index" (a component of the CPI) increased by 37.1%. But a perusal of the cover prices of the 10 most popular newspapers and magazines (WSJ, Washington Post, Time, Sports Illustrated, U.S. News & World Report, Newsweek, People, NY Times, USA Today, and the LA Times) over the same time frame showed an average cover price increase of 131.5% (3.5 times faster than the BLS' stats)...

According to the BLS we can all breathe easy on that front because their "Health Insurance Index" increased a mere 4.3% (total) in the four years between 2008 and 2012. Interestingly, over the same time, the Kaiser Survey of Employer Sponsored Health Insurance showed that the cost of family health insurance rose 24.2% (5.5 times faster)... Believe it or not, health insurance costs are assigned a weighting of less than one percent of the overall CPI. In contrast, the Kaiser Survey revealed that in 2012 the average total cost for family health insurance coverage was $15,745, or almost one third of the median family income.

If the BLS could be so blatantly wrong in reporting the prices of newspapers and health insurance, should we believe that they are more accurate on all other sectors?”

This was a long story and well worth the read.  Full commentary at...

http://seekingalpha.com/article/1114901-inflation-propaganda-exposed?source=yahoo

MARKET RECAP

Thursday the S&P 500 was up 0.56% to 1481 (rounded).  VIX rose about 1% to 13.57.  

NTSM

The NTSM analysis remained HOLD Thursday. 

Only the Price indicator remains positive.  All other indicators are neutral.

 

Market internals look good and late day buying, thought to indicate market action by the pros, has been up substantially, although it pulled back some yesterday.

MY INVESTED POSITION

Based on a BUY signal 7 of 9-days, and more importantly, consecutive closes above the prior high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14 January.  I am currently invested in a range of near 50% invested in stocks.