Consumer Spending Down…Chicago PMI Up

CONSUMER SPENDING FELL (not drastically) (Reuters)
"U.S. consumer spending fell in April for the first time in almost a year and already low inflation declined further, undercutting arguments for a near-term tapering of the Federal Reserve's bond-buying stimulus...Consumer spending fell 0.2 percent, the weakest reading since May last year, the Commerce Department said. When adjusted for inflation, spending nudged up 0.1 percent." Story at...
http://www.reuters.com/article/2013/05/31/us-usa-economy-idUSBRE94T0HI20130531

CHICAGO PMI SURGES UP (Fox News)

"Chicago PMI surged to a reading of 58.7 in May, up from 49.0 in April, according to data released Friday, marking the best reading in over a year, just a month after the worst reading in three-and-a-half years." Story at... http://www.foxbusiness.com/markets/2013/05/31/chicago-pmi-surges-past-expectations/#ixzz2Uteff6JY

REASON FOR DEFENSIVENESS (Hussman)

“…(I)t’s important to stress that our defensiveness is a reflection of prevailing, observable evidence and the alignment of our investment views with the average outcome of such evidence across similar instances over the course of history. The consistency of negative outcomes also worsens the expected return/risk ratio presently.  A defensive stance here does not require any particular forecast about recession, profit margins, bubble/crash dynamics, QE, European banking strains, or any of the numerous risks in the economic and financial backdrop…
…My concerns here are not based on a forecast about any particular event in this specific instance. It is based on an ensemble of observable factors that can be tested and validated across numerous independent samples of market history over time…” – John Hussman, PhD, Hussman Funds Weekly Market Commentary for 27 May 2013 at…
http://www.hussmanfunds.com/

UPDATE MEDICARE/SOCIAL SECURITY (AP)

"The government said Friday that Medicare's giant hospital trust will not be exhausted until 2026, two years later than projected last year, while the date that Social Security will exhaust its trust fund remained unchanged at 2033." Story at...
http://www.cnbc.com/id/100780248

TRADER COMMENT

“The correction is official, but no one seems to believe it”.  (His comment Tuesday was that a close below 1650 on Friday would confirm the correction.)

MARKET INTERNALS

Market internals are very negative now and that suggests to me that the correction will continue.  The 10-dMA of breadth fell to 45% today.  Only 15% of stocks on the NYSE finished in positive territory for the day.  In addition, there were 90 stocks that made new highs today, but 2-weeks ago there were more than 500.

MARKET RECAP
Friday, the S&P 500 closed down 1.4% to 1631 (rounded).

VIX rose 12% to 16.30.  Finally, someone woke up the options boys.

The S&P 500 is still 10% above its 200-day moving average, so there is a good possibility that the market may fall about 10% from here.

NTSM

Friday, the overall NTSM analysis was HOLD at the close.

SENTIMENT is extreme negative at 71%-bulls for the 5-day moving-average at Thursday’s close.  (I’m almost always a day late on the Sentiment value since the data is not published until after I finish writing.)  Sentiment was 70% for Thursday.  Both the 1-day and 5-day values are at extreme high values often found around tops.  Other indicators are now leaning negative.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

El-Erian: We need top line growth…

EL-ERIAN, PIMCO CEO
Stephen Weiss of Short Hills Capital said on CNBC that the stock market is on the cusp of a huge bull market.  He had the following comment and question for PIMCO’s CEO: Corporations are strong and profits and fundamentals are great. How can PIMCO advise people to walk away from risk?  El-Erian replied:
“We need top line growth [revenue growth]…we need genuine growth…Europe is slowing; China is also slowing.  Can you get growth to validate the fundamentals; that is the question.”  Transcribed from CNBC

FACTSET – EARNINGS UP/REVENUE DOWN

“With over 97% of the companies in the S&P 500 reporting actual results, the number of companies reporting earnings above estimates is in-line with the recent average, while the percentage of companies reporting revenues above estimates is below the recent average.
…The first quarter marked the third time in the last four quarters that the percentage of companies reporting revenues above estimates finished below 50%...
…The blended revenue growth rate for Q1 2013 is -0.3%, down from an estimate of 0.4% at the end of the quarter (March 31). However, only two of the ten sectors are reporting a decline in revenues: Energy and Materials.”
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_5.24.13

GDP REVISED DOWN SLIGHTLY TO 2.4% (Bloomberg)

“The U.S. economy expanded less than previously estimated in the first quarter as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010.  Gross domestic product rose at a 2.4 percent annualized rate, the Commerce Department said today in Washington.”  Story at…
http://www.bloomberg.com/news/2013-05-30/economy-in-u-s-grew-at-2-4-rate-less-than-first-estimated.html

JOBLESS CLAIMS RISE, BUT STILL WITHN 2013 RANGE (Reuters)

“Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 354,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 4,000 more applications received than previously reported…Economists polled by Reuters had expected first-time applications to hold steady at 340,000 last week…Steady improvement in labor market conditions and rising house prices are helping to sustain consumer spending, limiting the impact of the drag from fiscal policy on the economy.”  Full story at…
http://www.reuters.com/article/2013/05/30/us-jobless-idUSBRE94T0HH20130530

MARKET INTERNALS

Breadth continues to indicate that over the last 2-weeks less than half of the stocks on the NYSE are going up.  I measure Breadth as %- of stocks advancing.
The 10-dMA of breadth remained at 47% today, Thursday, a number that probably indicates trouble ahead.

I should caution that the market internals tend to be a very short term indicator.  It is always possible that the internals will reverse upward and change our opinion of the market.

MARKET RECAP
Thursday, the S&P 500 closed UP 0.4% to 1654 (rounded).

VIX fell 2% to 14.53. (The options folks just aren’t concerned.)

NTSM

Thursday, the overall NTSM analysis was HOLD at the close.

SENTIMENT is extreme negative at 71%-bulls for the 5-day moving-average and on Wednesday, it was 74% for the day (3 of every 4 traders were betting Thursday would be positive).  Groups of extreme days (greater than 70% on a given day) usually indicate topping.  At the top in April of 2010, there were four individual days exceeding 70%-bulls; this week there have been 2-days greater than 70%.  In April 2010, the 5-dMA never got higher than 63%-bulls.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

USA Today - Stock Market Cover story…Uh oh!

Remember my blog last month that included a great John Hussman graphic showing market tops corresponding to Barrons articles? (See…
http://navigatethestockmarket.blogspot.com/2013/04/the-top-is-in-cover-story-rule.html)

Cover stories often indicate a turning point.

If there was any doubt that the market is topping, here’s the killer…

The Trend is Down…

I am tired of trying to call a top.  I think the markets are in a topping process, but where we are in that process is, more-or-less, anybody’s guess.  Here’s a note from a trader board; this trader isn’t pulling any punches.

TRADER BOARD:

Watch the SPX 1650 weekly close; a close under 1650 on Friday means the long awaited correction, since Ben announced QE3 in 2012, is here.

ECB WARNS OF FINANCIAL RISKS (Bloomberg)

“The European Central Bank said weakness in the euro-area economy and the fragility of the region’s banks risk ending what it describes as the calmest period in financial markets since 2011…“The prospects for the euro area remain well below those for international peers –- including major advanced and emerging market economies,” the ECB said. “Both private and public sector forecasts indicate an only gradually improving near-term economic outlook in the euro area. The latest ECB staff projections suggest a gradual recovery in the second half of this year, largely driven by a pick-up in domestic demand.”  For the story see the following…
http://www.bloomberg.com/news/2013-05-29/ecb-warns-financial-weakness-could-break-best-lull-in-two-years.html

MARKET INTERNALS

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago as indicated on the below chart.  Wednesday, the 10-dMA of percent advancing stocks fell to 47%.  (Below 50% for this indicator usually spells trouble.) Green is the 10-day moving average of percent advancing.  It has closed below 50% two of the last three trading-days.

BREADTH – MEASURED AS PERCENT OF STOCKS ADVANCING

 Other internals are negative too.  It appears that the trend is down and I’d expect the S&P 500 to follow.  Even if it does swing back to the upside, I suspect that the S&P 500 is not likely to get above its previous high.  Perhaps we’ll finally see a correction!

 

MARKET RECAP
Wednesday, the S&P 500 closed Down 0.7% to 1648 (rounded).

VIX was UP 2% to 14.83.

 

NTSM

Wednesday, the overall NTSM analysis was HOLD at the close.

The NTSM indicators are as follows:

SENTIMENT is negative at 69%-bulls (5d-MA); PRICE is positive; VOLUME is neutral, but trending down; VIX is neutral, but trending down.

 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Consumer Confidence Rises

CONSUMER CONFIDENCE SOARS (Reuters)

“U.S. consumer confidence strengthened in May to the highest level in more than five years, suggesting Americans' attitudes were resilient in the face of belt-tightening in Washington, a private sector report showed on Tuesday.

The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists' expectations for 71. It was the best level since February 2008.”  Story at CNBC…

http://www.cnbc.com/id/100768979

 

Care to guess what the S&P 500 was in February 2008?  It was 1,400 and falling from its peak of around 1550 in Oct 2007.   

Chart from dShort.com

For analysis of Consumer Confidence and additional charts see dShort.com at http://advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php

Consumer confidence tends to follow the stock market so it will be interesting to see how Confidence goes if the markets start getting stressed.

ARCHITECTURAL WORK DECLINES

"The American Institute of Architects (AIA) publishes a monthly report called the AIA Architecture Billings Index (ABI)...Simply put, it measures whether billings increased, decreased, or stayed the same from one month to the next...In February 2013, the AIA inquiries index also hit a post-2008 high at 64.8. Since February, however, the ABI index has plunged...In March, the ABI dropped to 51.9, and in April (the latest reading) it dropped again, this time into contractionary territory at 48.6." Story at Seeking Alpha at...

http://seekingalpha.com/article/1460581-a-canary-in-real-estate-s-coal-mine

I mentioned a few weeks ago that I know engineers who are being laid off here...and locally, we have a good economy! If Architects and Engineers are working less, rest assured that the same will be true for contractors and construction workers 6 to 9-months from now.

MARGIN DEBT HITS RECORD HIGH (WSJ - MoneyBeat)

"Investors ramped up their borrowing against brokerage accounts in April, taking margin debt to its highest-ever level. Investors borrowed $384.4 billion against their investments in April, a 1.3% gain from the previous month, and a 29% rise from the same month last year, according to the New York Stock Exchange. That exceeds the record high of $381.4 billion in debt held against investments, known as margin debt, from June 2007." Story at...
http://blogs.wsj.com/moneybeat/2013/05/24/margin-debt-hits-record-high/

Margin debt is like sentiment; it can indicate too much complacency and extreme high margin debt usually corresponds to a top.  Speaking of tops…

As I noted Friday night, sentiment was 72% bulls at the close for the day Friday.  I measure sentiment with a 5-day moving average of percent-bulls based on the amount invested in select Guggenheim/Rydex funds and that sentiment value has been elevated (above 60%) or extreme (above 65%) since the end of January of 2012.  

The daily sentiment value also frequently exceeds 70% at a top.  Looking back, the daily value was above 70% on 28 December and about a month ago on 12 April.  In December, extreme bullishness was the correct call since the S&P 500 bounced from its 200-dMA.   After that, sentiment has climbed to unreasonable and unsustainable levels as the market has climbed.  When will the market turn? That remains to be seen; we are in such a bullish market that I don’t care to guess.

MARKET INTERNALS

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago.  Tuesday, the 10-dMA of percent advancing stocks was 51%, a slight improvement over Friday’s 49%.  (Below 50% for this indicator usually spells trouble.) The trend in the 10-day breadth remains down so we’ll just have to wait (again) to see what happens.  Overall, market internals have flattened some, but they are still trending down.  Still looks like the markets are toping, but we may get back to the prior top along the way.  

MARKET RECAP
Tuesday, the S&P 500 closed up 0.6% to 1660 (rounded).

VIX was UP 3.5% to 14.48 so there was some concern by the options boys, but the rise in VIX is slow that it not something that long invetsors should be too worried about yet.

NTSM

Tuesday, the overall NTSM analysis was HOLD at the close.

SENTIMENT remains negative at 69%-bulls (5d-MA) as of Friday’s close.  That’s an extremely high value. 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

 

Sentiment Update – Buying the Dip Again!

Sentiment hit 72% at the close today, Friday.  That means that almost 3 out of every 4 traders are betting that Tuesday (Monday's the holiday.) will be an up-day in the Guggenheim/Rydex funds I follow.  I track the “success” of these trades and as of Thursday, traders were correct only 30% of the time over the last month.  That’s why sentiment tends to be a counter indicator (extreme bullish values imply a negative outcome for the market)…and it isn’t just the daily sentiment value.

The 5-day moving average of sentiment hit 71% at Friday’s close.  Going back 4-years I could only find 1-day when sentiment got this high and that was after a bottom.  (I was too lazy to open my archived files to check this further back.)

Conclusion: This is looking more like a top. 

Durable Goods Orders Rise; Trucking Falls

DURABLE GOODS RISE (Reuters)
Durable goods orders, which range from toasters to aircraft, increased 3.3 percent last month, the Commerce Department said on Friday. The department also revised prior readings for orders to show a smaller decline in March than previously estimated… economists expect the austerity will sap strength from the economy as the year progresses. In April, shipments for capital goods in the defense sector fell 5.6 percent.”  Story from CNB at…
http://www.cnbc.com/id/100764511

A good bit of the gain was due to aircraft orders as Boeing got orders for 51 aircraft in April vs. 29 in March.

MORE ON DURABLE GOODS ORDERS

We can always count on ZeroHedge to provide a sobering perspective on economic news and, as usual, Tyler didn’t disappoint.  The following chart from ZeroHedge shows year-over-year change in Durable Goods orders:

Chart from ZeroHedge at…
http://www.zerohedge.com/news/2013-05-24/spot-trend-us-durable-goods-and-capex-spending

TRUCKING FALLS SLIGHTLY

“The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 0.2% in April after rising 0.9% in March…Year-to-date, compared with the same period in 2012, the tonnage index is up 4%...’The slight drop in tonnage during April fit with trends from other industries that drive a significant amount of truck freight, such as manufacturing and housing,’ ATA Chief Economist Bob Costello said…”
Press release from ATA at…
http://www.truckline.com/article.aspx?uid=ca8703ee-9564-4cb6-a741-3ce79bcd4b1b

IS THE ECONOMY PREDICTIVE FOR THE STOCK MARKET

I dutifully report on the economy in this blog and we all assume that there is a correlation between the economy and the stock market.  It’s a no brainer right?  The economy does well and stocks do well; “Perhaps not”, according to Seeking Alpha. I submit the following from Kane Cotton, contributor to Seeking Alpha:

"Does the change in real GDP in year one predict a change in the S&P 500 in the next year?"
“…So, is it predictive? In a word, "No." We found a very weak correlation of 6.3% and an even lower R-squared of 0.004. What about staggering by two years? The results were slightly better, but we still found virtually no predictive power. Correlation improved to only 8.7% and r-squared remained very low at only 0.007.”

Bottom line, when analyzed mathematically, there was little correlation except over very long periods such as on a decade basis.  A good economy this decade predicted a good stock market next decade.   This seems counterintuitive, but perhaps it does make sense.  The markets usually fall before a recession starts in anticipation and rise before a recession is over and that kills the correlation or predictive power of following the economy to predict stock market outcome. For the full story see…

http://seekingalpha.com/article/1450531-if-you-want-to-know-where-stocks-are-headed-don-t-ask-the-economy

In the end, even if you believe that the economy predicts the stock market, it may not matter:  “What do you call an economist with a prediction? Wrong.” - Robert Kuttner

WHERE’S THE BUY THE DIP MENTALITY TODAY? (ZeroHedge)

“While yesterday saw the mainstream media cock-a-hoop at the fact that we pulled 'off-the-lows' with the phrase "buy the dip mentality" parrotted prayer-like every minute of the afternoon. Overnight shenanigans saw that BTFD mentality come and then quickly go and now the US market is fading fast.”  – ZeroHedge, 10:18 AM, Friday.  Story at…
http://www.zerohedge.com/news/2013-05-24/wheres-buy-dip-mentality-today

Actually, the buy-the-dip mentality was alive and well Thursday before the close.  In the Guggenheim/Rydex funds I track for the NTSM sentiment indicator, investors bet on the long side by more than a 2 to 1 margin at Thursday’s close.  The 5-day moving average is similarly “uber”-long with 68%-bulls.  That’s an extreme value that generally portends market declines ahead, but not necessarily immediately.

THE FUTURE OF AMERICA IS IMMIGRATION

This was an interesting short article at dShort.com from contributor Eric Schaefer of American Independence Financial Services.  He said that declining populations in many countries around the world will slow their growth while population growth in the US helps our competitive edge.  He concluded:

“Those who worry that the 21st Century will witness the eclipse of American power should take some comfort from these projections. But, the title is ours to lose if we shortsightedly yank the welcome mat from our borders. It is the countless individuals seeking to immigrate to our shores to become Americans, who will help preserve our global economic lead.” - Eric Schaefer.  Story at…

http://advisorperspectives.com/dshort/guest/AI-130523-The-More-the-Merrier.php

MARKET INTERNALS

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago.  Today, Friday, the 10-dMA of breadth fell to 49% of stocks on the NYSE advancing.  (Below 50% for this indicator usually spells trouble.) Decliners outpaced advancing stocks by almost 25%.  The S&P 500 was only down 1-point, so a lot of stocks declined, but they weren’t in the S&P 500 index.

As noted yesterday, new-hi/new-lo data is very negative, but it did not quite reach a level that would give me confidence that a correction is imminent.  Still, the change here was dramatic: Wednesday there were 462 new-highs on the day in the NYSE; Thursday there were 43.

Overall, market internals look like they are calling for continued decline, but there is other data that muddies the water: (1) There was late day buying today the pulled the S&P 500 almost back to positive for the day. Late day buying means the Pros are bullish, but I still haven’t seen much predictive power in this indicator.  (2)  VIX fell on the day so there is not sufficient option-money being bet to the short (put) side of the balance sheet to confirm a correction. (3) NYSE Volume was very low Friday, so it would seem that there is not much selling pressure; still, if there aren’t any buyers, the market will fall and selling will pick up.  In this regard, we’ll watch Tuesday's (Monday's the holiday) volume and price action to see if buyers move in.  If not, this could get ugly fast.

MARKET RECAP
Friday, the S&P 500 closed down a point 1650 (rounded).

VIX was down only about 0.6% to 13.99 so there was little concern by the options boys. Complacency continues!

NTSM

Friday, the overall NTSM analysis was HOLD at the close.

SENTIMENT remains negative at 67%-bulls as of Thursday’s close. 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Jobless Claims Down…Flash PMI Down…Stocks Down…How Can you Laugh, When You know I’m Down?

JOBLESS CLAIMS DOWN BY 23,000 TO 340,000 (MarketWatch)
“Initial jobless claims — a close proxy for layoffs — dropped by 23,000 to a seasonally adjusted 340,000 in the week ended May 18, the Labor Department said Thursday.  Economists polled by MarketWatch expected new claims to decline to 343,000 from a revised 363,000 in the prior week…The bigger problem with the labor market is lackluster hiring. The economy has added an average of 196,000 net jobs a month through the first four months of 2013, but that’s far below the pace necessary to rapidly reduce the nation’s still-high 7.5% unemployment rate.” Story at…
http://www.marketwatch.com/story/jobless-claims-sink-by-23000-to-340000-2013-05-23

FLASH PMI SHOWS SLOWED MANUFACTURING GROWTH  (Reuters)

“Financial data firm Markit said its ‘flash,’ or preliminary, U.S. Manufacturing Purchasing Managers Index fell to a seven-month low of 51.9 in May from 52.1 the previous month. A reading above 50 indicates expansion…. "Slower growth could be linked to a combination of fiscal drag hurting demand at home while at the same time many export markets…led to a renewed decline in export orders in May," said Chris Williamson, chief economist at Markit.”  Story at …
http://www.cnbc.com/id/100761328

ANOTHER CNBC TALKING HEAD: ENDING QE WILL BE GOOD FOR THE MARKET; IT SHOWS CONFIDENCE IN THE ECONOMY

Hogwash! Don’t be fooled by this silliness.  Ending QE will cause significant problems for the stock market.  For evidence we can look at the market reaction yesterday:  up on Bernanke’s statements that QE will continue; down about 1.5% after Bernanke quibbled by suggesting QE might end if the economy picks up during the Q&A part of his testimony.  Additionally, the Fed minutes from the prior Fed meeting noted that Fed members discussed an early end to QE. 

I did hear a reasonable comment that the Fed would begin to taper QE in March.  The commentator reasoned that the next Fed meeting in September would be too soon to taper QE.  December is too close to Christmas; so that leaves March after elections; seems reasonable to me.  Since the markets anticipate 3-6 months in advance, Markets may begin reacting in earnest in the Fall especially if the Fed telegraphs its moves.  Of course, the Fed minutes and comments from non-voting members are already telegraphing some early information.

COMMENTARY ON THE FED STATEMENT, POINT-BY-POINT (Mish Shedlock)

“Bernanke: Although near-term fiscal restraint has increased, much less has been done to address the federal government's longer-term fiscal imbalances. Indeed, the CBO projects that, under current policies, the federal deficit and debt as a percentage of GDP will begin rising again in the latter part of this decade and move sharply upward thereafter, in large part reflecting the aging of our society and projected increases in health-care costs, along with mounting debt service payments. To promote economic growth and stability in the longer term, it will be essential for fiscal policymakers to put the federal budget on a sustainable long-run path.

Mish: Note the blatant hypocrisy of Bernanke whining about non-existent cuts and about tax rollbacks the country could not afford [in earlier testimony], while warning Congress that something must be done to put the federal budget on a sustainable long-run path.”  - Excerpt from Global Economic Trend Analysis
For the complete article see…
http://globaleconomicanalysis.blogspot.com/2013/05/bernankes-semi-annual-tap-dance-of.html#eqM4zvrEdh6XbIXZ.99

MARKET INTERNALS

The 10-dMA of breadth began falling (and thus diverging from the S&P 500’s rise) about 3-weeks ago.  Thursday, the 10-dMA of breadth indicated 51% of stocks on the NYSE advancing, the same as Wednesday’s close. (Below 50% for this indicator usually spells trouble.) So there was not a confirmation of a correction here.

New-hi/new-lo data is stretched, but did not quite reach a level that would give me confidence that a correction is imminent.  Still, the change here was dramatic: Wednesday there were 462 new-highs on the day in the NYSE; Thursday there were 43.

Overall, market internals are on the edge.  Further deterioration in internals would foretell more down days ahead for the stock markets, but I’d like to see more data for confirmation.

MARKET RECAP
Thursday, the S&P 500 closed Down 0.3% to 1651 (rounded) after starting out the day with more than 1% losses. 

The buy-the-dip crowd jumped in to save the day for the time being.  How do I know?  71% of money in the Guggenheim/Rydex funds I track was bet long at the close Wednesday in anticipation of an up-day on Thursday.  Values above 70%-bulls tend to occur around the top so if we haven’t hit it yet, we may soon be there. 

VIX was up only about 2% to 14.07 so there was no concern in “option land”, at least at the close. 

NTSM

Thursday, the overall NTSM analysis was HOLD at the close.

Wednesday was a statistically significant down day, so some of the buying today might have been based on the belief that the S&P 500 would reverse to the upside as is frequently the case after a big move down.  The 5-dMA of Sentiment climbed to 68%-bulls Wednesday at the close so there are plenty of buyers out there.

It will be interesting to see what happens in the markets tomorrow.  I lean toward it turning down, but in this market, I haven’t got a clue!

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Federal Reserve to Continue QE…Cyclical Stocks Leading the Rally – Hogwash!

BERNANKE: FED TO KEEP LOOSE MONETARY POLICY (CNBC)
“Federal Reserve Chairman Ben Bernanke's signal that monetary policy will remain loose gave stocks another lift Wednesday, paving the way for many indexes to advance to new record highs.”  Story at…
http://www.cnbc.com/id/100747262

But wait! It didn't turn out that way. Stocks were up after the testimony, but stocks fell on the day. It looked like, "Buy the rumor - sell the news" to me, but the Fed minutes told a different story, at least to investors. 

 

FED MINUTES: A DIFFERENT STORY? (AP VIA CNBC)

"A number of participants" on the U.S. Federal Reserve's Federal Open Markets Committee this month favored slowing the Fed's efforts to maintain record-low long-term interest rates as early as summer — if the economy showed strong and sustained growth….But those officials appeared at odds over what evidence would demonstrate such gains. “ Story at…
http://www.cnbc.com/id/100758771

CYCLICAL STOCKS LEADING THE MARKET HIGHER? – HOGWASH!

In the 1800’s when hogs were transported on-deck at the stern of a riverboat, the water used to wash off the boat was referred to, literally, as “hogwash.”  Today, there’s some economic hogwash going on.

Over the last month, the Morgan Stanley Cyclical Index is ahead of the S&P 500 by only 2%.  Over the last 2-months, the index is underperforming the S&P 500 by nearly 1%.  The statement that cyclicals are “leading the rally” is hogwash!  

Interestingly, Yahoo charts show the cyclicals outperforming by 4% over the past month.  Sorry…those charts are wrong.  I’ve checked the numbers several ways and, further, Google charts agree with me.

I remain concerned about the LACK of outperformance by the cyclicals relative to the S&P 500, but since they are still trending up, there is presently no recession concern by investors.

CHASING THE MARKET, 1998 STYLE

In 1998, the S&P 500 was up about 10% in January and continued on a tear upward.  I didn’t have a system at the time, but the rise seemed unsustainable so I sold out of my 401k in February with better than a 10% gain for the year.  I came to regret the decision as the market continued its climb, but I hate chasing a rising market, so I remained out.  I stayed out until a correction began in July when the market peaked out 30% higher than it had been at the start of the year. 

I bought back in near the bottom on 31 August; the markets fell 20% during the correction. 

In the end, I came out even.  I tell this story just to suggest to those who may be out of the market, for whatever reason, it is usually best not to “chase” the market upward when it appears “frothy”.  We will likely get a reasonable chance to buy back in at a later date.

If the NTSM system came up buy, I’d buy back in tomorrow, but that is not likely anytime soon.  I have a hard time buying with Sentiment at extreme, bullish-levels and no “buy” confirmation from the NTSM VIX indicator. 

HEDGE FUNDS – WORSE THAN NTSM (ZeroHedge)

“The typical hedge fund generated a YTD return of 5% through May 10, compared with 15% gains for both the S&P 500 and the average large-cap core mutual fund…”
Story at…
http://www.zerohedge.com/news/2013-05-22/ben-bernanke-crushes-hedge-funds-average-hedgie-underperforming-sp-65-2013

MARKET INTERNALS

Market internals are flattening and “breadth” (I measure as %-advancing) has been trending down for the last week.  Today the 10-dMA of breadth crashed 4% down to 51%-advancing.  I’d say a drop below 50% indicates correction likely, if not underway.  We’ve been here before though, so no guarantee.  Falling below 50%-advancing (10-dMA) near the top (almost the current condition) is a greater concern than dropping below 50%-advancing at a trough.  Other internals remain neutral so no smoking gun here; I’ll keep an eye on it and report more tomorrow after the close.

BANKS FINANCING THE STOCK RALLY?

I have seen several commentators suggest that the stock market is being driven by Banks.  The Banks sell Bonds to the Fed (The Fed can’t buy them directly from the Treasury).  The banks aren’t loaning because of lack of demand, so the Banks buy stocks.  If true, this is just another reason for not allowing “Investment” Banks to be combined with “Retail” Banks.  (They were allowed to combine under the Clinton administration with strong support by the Republicans and lots of Bank money greasing the political skids on both sides of the isle.)  That’s when your local bank started trying to sell you stock market advice.

MARKET RECAP
Wednesday, the S&P 500 closed Down 0.8% to 1655 (rounded). 

VIX was up only about 3% to 13.82 so the Options-boys were not worried by today’s sell off in stocks.

NTSM

Wednesday, the overall NTSM analysis was HOLD at the close.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.

Fed Week (Not Bike Week)

S&P 1800? (MarketWatch)
“Stay long equities, short commodities, says Deutsche Bank’s Chadha”…In a note published Tuesday, ‘We stay the course in our asset allocation which remains long equities, credit and the dollar; short duration, cash and commodities. We do not expect a sustained pullback in risk assets in the face of reasonable negative catalysts until positioning gets much more extended.”  Story at…
http://blogs.marketwatch.com/thetell/2013/05/21/sp-1800-stay-long-equities-short-commodities-says-deutsche-banks-chadha/

All eyes on the Fed...

WHO NEEDS HARLEYS? - IT’S FED WEEK (Minyanville)

This ride is courtesy of the FED.
“Bank of Japan’s Governor Haruhiko Kuroda will kick things off on Wednesday with a decision and press conference where no change and lots of market-soothing comments should be made….Wednesday also brings us US Fed Chair Ben Bernanke testifying before Congress…Later that day we get the minutes from the last US Fed meeting, which will be analyzed, interpreted, misinterpreted, and fretted about until the next time we get meeting minutes.”  Story at… http://www.minyanville.com/special-features/wall-of-worry/articles/The-Central-Banks-Speak-The-Markets/5/21/2013/id/49933#ixzz2TwVy8oVH

OIL AT $96 PER BARREL (MarketWatch)

“Motorist and leisure travel group AAA, however, said Monday that it expects motorists to face the highest Memorial Day retail gasoline prices since 2011. It blamed increasing prices on higher oil prices and tight supplies in many parts of the country caused by planned and unplanned refinery problems.

The average price for a gallon of regular gasoline stood at $3.65 on Tuesday, up from $3.58 a week ago, according to AAA’s Daily Fuel Gauge Report.”  Story at…

http://www.marketwatch.com/story/oil-futures-seesaw-us-inventories-may-decline-2013-05-21

Higher oil prices are just another drag on the economy.

MARKET RECAP
Tuesday, the S&P 500 closed up 0.2% to 1669 (rounded). 

VIX was up about 3% to 13.37.

NTSM

Tuesday, the overall NTSM analysis was HOLD at the close.

SENTIMENT was 66%-bulls at the close yesterday for the 5-dMA of Guggenheim/Rydex Funds I track.  It doesn’t get much more extreme than that. The   PRICE indicator is currently positive, because moves have been bigger to the upside than the downside. Other indicators are neutral.

I don’t think analysis means much now as the markets just power up.  CNBC noted that the Dow is up 19-Tuesday’s in a row and that has not happened since 1927.  So let’s do some analysis…1929-1927=2yrs…therefore; the markets will go up for the next 2-years.  Sorry, it’s a weak attempt at humor.

 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.