Chicago PMI Falls; Consumer Sentiment Higher; Correction Over? No.

CHICAGO PMI: LARGEST MONTHLY DROP IN 4-YEARS (Business Insider.com)
“Chicago PMI ticked 51.6. Consensus was for 55.0. It's the largest monthly drop in over four years…Activity dropped back in June following the large rise in May… while these latest data point to some weakening between the first and second quarter, it is too early to say if this will continue.” - Philip Uglow, chief economist at MNI. Story at…
http://www.businessinsider.com/chicago-pmi-june-28-2013-2013-6

Elsewhere in this article it was suggested that part of the PMI drop may be due to weather conditions.

US CONSUMER SENTIMENT COMES IN HIGHER THAN EXPECTED (Reuters)
“U.S. consumer sentiment improved in late June, ending the month close to a near six-year high set in May, as optimism among higher-income families rose to its strongest level in six years, a survey released on Friday showed.”  Full story at…
http://www.cnbc.com/id/100852184

CORRECTION OVER? SENTIMENT SAYS NO.

Opinions are split regarding whether the correction is over or not. If it is, this will be the highest sentiment exiting any correction in the past 4-years. (I didn't look further back.) The average for ALL of those corrections has been 42% at the low.  

Looking specifically at previous small corrections of 5-10% over the past 4-years, the average Sentiment at the bottom was 46% for 4-small corrections.  The correction low in this current cycle is S&P 500-1573 on 24 June.  Sentiment on 24 June was at an extreme high of 66%-bulls.  (In other words investors were betting long 2 to 1 in the Gugenheim/Rydex funds I track for the NTSM sentiment indicator and that indicator is a 5-day moving average.)

As I noted yesterday, Sentiment looks too high for this correction to have ended this past Monday (24 June).  Sentiment of 66%-bulls is consistent with a Top, not a Bottom. 

 

People making predictions are usually over-confident in their predictions.  I'm not. There are no guarantees; only time will tell if I am right.

MARKET REPORT
Friday, the S&P 500 was down 0.4% to 1606 (rounded).

VIX finished unchanged at 16.86.

NTSM

Friday, the overall NTSM analysis was HOLD at the close.
Sentiment, Price, Volume and VIX are all neutral, but leaning to the down side.

MARKET INTERNALS

Internals were flat today and didn’t give up many clues.  The concern that last Monday (24 June 2013) may have been the bottom due to the new-high/new-low reversal on Tuesday, remains; but as noted yesterday and above in "CORRECTION OVER? SENTIMENT SAYS NO...sentiment really does say "NO!" 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  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.

Unemployment Claims; Households Worse-off than 2-Years Ago; Correction Will Continue

UNEMPLOYMENT CLAIMS
“In the week ending June 22, the advance figure for seasonally adjusted initial claims was 346,000, a decrease of 9,000 from the previous week's revised figure of 355,000. The 4-week moving average was 345,750, a decrease of 2,750 from the previous week's revised average of 348,500." From...
http://www.workforcesecurity.doleta.gov/press/2013/062713.asp

Breifing.com had indicated a consensus of 345,000 so Initial Claims are in-line with estimates.

AMERICAN HOUSEHOLDS MATERIALLY WORSE THAN 2-YRS AGO (Consumer Metrics Institute)

Regarding the latest GDP report from the BLS, here’s what CMI had to say:
“…global economic headwinds…do not bode well for sustaining even lackluster numbers over the balance of the year.”

“And we continue to note the one truly serious domestic issue within the data:
-- Real per capita disposable incomes took yet another hit. The astonishing annualized contraction of real per capita disposable income has now reached -9.21% -- dwarfing the -7.52% contraction rate recorded in the first quarter of 2009 (the worst quarterly contraction recorded during the official duration of the "Great Recession")…
…all of the unprecedented fiscal and monetary stimulus has left American households materially worse off than they were two years ago.” -  Consumer Metrics Institute, Home of Daily Consumer Leading Indicators.  Web Page at…
http://www.consumerindexes.com/

STOCKS HAVE BOTTOMED (CNBC)

Stocks have bottomed, and it's time to go long, Dennis Gartman of The Gartman Letter said Wednesday.  "I own a little bit," he said. "I think it's the right thing to do." – Dennis Gartman
http://www.cnbc.com/id/100847356

My comment: Perhaps the S&P 500 has bottomed, but I think we will need to revisit the bottom to know for sure.  This looks like a bounce to me that will fail and traders will return to selling.  I certainly can’t say when, but my guess would be reasonably soon.  These bounces are sometimes topped by a big price increase, so the top may be signaled by a really positive day - let’s say roughly 1.5% up for the S&P 500.  Alternatively, the top of the channel is about 1620 so the S&P 500 could top out close to today’s close.  Great prognosticator right?  As Yogi didn’t say: "It's tough to make predictions, especially about the future."

 

See MARKET INTERNALS AND WHY THIS ISN'T THE BOTTOM below.

MARKET REPORT
Thursday, the S&P 500 was up 0.6% to 1613 (rounded).

VIX was down about 2% to 16.86.

NTSM

Thursday, the overall NTSM analysis was HOLD at the close.
Sentiment, Price, Volume and VIX are all neutral.

MARKET INTERNALS AND WHY THIS ISN’T THE BOTTOM

Internals improved today, as expected on the up day.  The 10d-MA of breadth is 51%; above 50% represents a positive market, but I’d also like to see the 20d-MA above 50%.  It is currently 46%.

New-highs outpaced new-lows by 62.  Over all, the number of stocks hitting new-highs was 88.  This number is in line with the bottom of similar dips in 2012 (looking at data 3-days after the bottom), however; sentiment was entirely different at those bottoms.  Here are the specifics:

3-days after the bottom in Nov 2012 there were 90 new-highs; 3-days after the bottom in June 2012 80-stocks made new-highs.  Sentiment for these 2-corrections was at 47% and 46%, respectively, 3-days after the bottom.  Current Sentiment is 63% - entirely too bullish for a bottom.  Time will tell if I am right.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  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.

Bonds Will Crash the Stock Market; GDP Revised Down

GDP REVISED DOWN
1^st Quarter GDP has been revised down to 1.8%.  It had been previously reported at 2.4% and that was the number expected by most economists.  This is a big downward revision and is cause for concern.
Read the Reuters story at http://www.cnbc.com/id/100845284

From CNBC: “Make no mistake about it: this is really grim…The biggest source of the downward revision came from consumer spending. Government economists had estimated that consumer services consumption (excluding housing and utilities) would grow by 2.5 percent, instead it grew at just 0.7 percent.” – CNBC at…

http://www.cnbc.com/id/100846027

COLLAPSE OF BOND DEMAND DOOMS THE STOCK MARKET (ZeroHedge)

“[It is] the collapse in investment grade bond demand that is dramatic (and worse than Lehman). [Lehman Brothers declared bankruptcy in 2008.]  It's not like we couldn't see it coming at some point (here) and as we warned here, What Happens Next?  Simply put, stocks cannot rally in a world of surging debt finance costs.” Story at…
http://www.zerohedge.com/news/2013-06-25/bonds-its-lehman-repeat

FINANCIAL STRESS INDEX CLIMBING RAPIDLY (CNBC)

“The St. Louis Fed's Financial Stress Index has shot upward in the past few months… The last three times that we've seen spikes like this were during the U.S. financial crisis of 2008, during the acceleration of the Greek crisis in May 2010 and in August 2011, when the U.S. credit rating was downgraded by S&P.”  Story at…
http://www.cnbc.com/id/100842780

CONSUMER CONFIDENCE PEAKS (USA Today)

“Consumer confidence is at a five-year high. It has risen three straight months, reaching 81.4 in June on a 100-point scale set in 1985. The median forecast of economists in a Bloomberg survey was that the number would be 75, up from 74.3 last month, highest confidence reading since before the recession.”
Story at…
http://www.usatoday.com/story/money/business/2013/06/25/consumer-confidence/2455203/

This looks like Consumer Confidence is correlating to the high sentiment readings.

MORTGAGE RATES SPIKE; THEN MARKETS DOWN
“…the last times we saw mortgage rates surge like they just have, that marked the peak in consumer confidence and the market followed shortly after.”  Story at…
http://www.zerohedge.com/news/2013-06-25/what-happened-last-2-times-mortgage-rates-spiked

GOLDMAN SACHS NOTE (nf  national forex)

“The stronger the correction, the sooner it is likely to end. From an economic standpoint, investing in equities is likely to prove worthwhile again only towards the end of the third quarter of 2013,” the bank said in a research note on Friday.

“But as the exact timing is impossible to predict and expected returns are disproportionately high one year ahead, investors who wish to purchase equities should react sooner rather than later. As interest rates remain low, the hunt for yield continues and the growing demand for equities means that corrections are likely to be frequent but short-lived.” - By CNBC.com’s Matt Clinch.

http://nationalforex.com/2013/06/25/june-25-2013-goldman-sachs-stock-market-view/?utm_source=rss&utm_medium=rss&utm_campaign=june-25-2013-goldman-sachs-stock-market-view

MARKET REPORT
Wednesday, the S&P 500 was up 1% to 1603 (rounded).

VIX was down about 7% to 17.21.

NTSM

The overall NTSM analysis was HOLD at the close.

Sentiment, Price, Volume and VIX are all neutral. (Without getting into the boring details some buy and sell signals hold over for a week or so.  For example, the "new-high/new-low reversal” occurs on 1-day only, but the buy signal for that specific indicator remains positive for another week.  Sentiment too is carried forward.  This just makes the NTSM system work better.  I see no point in listing each separate indicator.)

THE DK REPORT

Here is a good chart analysis site.  David does analysis on a number of chart timing methods and posts results regularly.  I usually just scan the 1^st page and count the buy/sell signals.  Currently, the 1^st page is running 13-Sell signals to 1-Buy signal.  I can’t remember seeing it that negative in the several years I have checked in on the site.  Find the “DK Report” at…
http://stockcharts.com/public/3828047/tenpp

MARKET INTERNALS

Internals improved today, as expected on the up day.  The 10d-MA of breadth is 50.5%; above 50% represents a positive market, but I’d also like to see the 20d-MA above 50%.  It is currently 45%.

New-highs/new-lows were about even today with new-highs slightly outpacing new-lows.

I commented yesterday (Tuesday) about the spread reversal in new-high/new-lows (from -525 to -95) and how that it might represent a bottom in this correction.  The volume Tuesday was average for the month so there wasn’t a consensus among traders that the correction is over.  Given the issues with the bond market, it seems too soon for an end.  Further, it has only been 25-trading-days since the top and that is about half the recent average for correction duration measure from top to bottom.

The reversal looks more like a bounce because the S&P 500 was close to its lower trend line.  These things are never written in stone though, so watch and wait.  My record of calling bottoms has not been good on short corrections.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  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.

Durable Goods Orders; Bond Market Selloff

DURABLE GOODS ORDERS (MarketWatch)
“Orders for big-ticket U.S. goods jumped 3.6% in May, mainly because of more demand for commercial jets and military equipment. Economists surveyed by MarketWatch had expected orders to rise 3.8%...Stripping out the volatile transportation sector, orders [rose] a much smaller 0.7% last month. Orders for core capital goods, a key barometer of private-sector business investment, advanced a modest 1.1% but posted the third straight gain.”  Story at…
http://www.marketwatch.com/story/us-durable-goods-orders-climb-36-in-may-2013-06-25-8913023

BOND MARKET STAMPEDE (CNBC)

A bond sell-off has been anticipated for years, given the long run of popularity that corporate and government bonds have enjoyed. But most strategists expected that investors would slowly transfer out of bonds, allowing interest rates to slowly drift up.

Instead, since the Federal Reserve chairman, Ben S. Bernanke, recently suggested that the strength of the economic recovery might allow the Fed to slow down its bond-buying program, waves of selling have convulsed the markets…
…The recent pain has spilled over into stock markets, pushing the Standard & Poor's 500-stock index down an additional 1.2 percent on Monday.”  Story at…
http://www.cnbc.com/id/100840444

BONDS A BARGAIN?

“…some analysts say investors are overreacting to the latest statements by Fed chairman Ben Bernanke, who has stressed that the central bank will do more if the economy falters.   "I think that soon, investors will figure this out and start to buy again," said Kevin Giddis, head of fixed-income at Raymond James. "In the meantime, it is hard to watch."   Story at…
http://money.cnn.com/2013/06/25/investing/bonds-treasuries/index.html?iid=HP_LN

This is a threat.  Panic in markets is never a good thing.  Many have expressed grave concerns over run-away interest rates; the ongoing sell-off in the bond market represents that risk, but as noted above, it may reverse and interest rates are far from catastrophic.

TRADER COMMENT

“Downside target for Nasdaq is roughly 3060 and for S&P roughly 1460 unless things fall apart in a bear market. Good luck trading, Don”

HAVE I MENTIONED THAT I HATE ALL POLITICIANS?

There are always unintended consequences of the ill-conceived political “solutions” the clowns in Washington dream up.  This is from Mish Shedlock at Global Economic Analysis:
Immigration Bill Incentivizes Employers To Fire Americans and Hire Amnestied Immigrants; Immigration and Obamacare’s Employer Mandate
Read more at http://globaleconomicanalysis.blogspot.com/#JjmoXWPLViXrE13l.99
Mish presents a logical and well thought out case.

MARKET REPORT
Tuesday, the S&P 500 was up 1% to 1588 (rounded).

VIX was down about 8% to 18.47.

The S&P 500 is close to its lower trend line at about 1550 (my assessment).  Today’s bounce may simply be a response to where others see the lower trend line.

NTSM

Tuesday, the overall NTSM analysis remained SELL at the close. The first NTSM sell signal in this cycle was on 16 April at S&P 500 1575. 

Sentiment, Volume and VIX are all negative and the “panic-indicator” flashed sell Thursday (on the huge down day).  Price is positive; more on that in Market Internals below.

MARKET INTERNALS

Internals improved today, as expected on the up day.  The 10d-MA of breadth is still only 44%; above 50% represents a healthy market.

There was a big turn in “spread” for new-high/new-lows.  Spread is the difference between the numbers of stocks making new-highs vs. new-lows.  Yesterday the spread was -525; today it was -95.  That suggests a turn in the markets and a possible bottom, but there are so many other negative indicators now that it is hard to know what is signal and what is noise.  This indicator is in the Price category of the NTSM analysis, but it is only one indicator and it always takes more than one indicator to call a buy.  Further, my classical “bottom-analysis” looking at price, volume, and market internals did not indicate yesterday as a bottom.  Still, this warrants following carefully.  We’ll just have to see what happens with other indicators in the next couple of days.  

SENTIMENT is now neutral:  The 5-day moving average was down to 65%-bulls in the Guggenheim/Rydex funds I track as of tonight's (Tuesday’s) close. 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  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.

Buy the Dip Crowd - Wrong Again!

INTERSTING COMMENTS FROM JOHN HUSSMAN
“Make no mistake, last week’s decline was not because of a hawkish Federal Reserve, but in spite of a dovish one…Bernanke indicated that the Fed will not stop adding to it until at least 2014…The fact that we are…seeing broad internal deterioration here is of some concern, because it smacks of something more afoot. It might be the increasing credit strains in China. It may be growing expectations for disappointing earnings preannouncements. It may be economic weakness that finally catches up to the general (though not uniform) deterioration that we’ve seen across leading measures of economic activity … But whatever the reason, investors appear to be shifting from risk-seeking to risk-aversion…

...What concerns me most is that the present market environment is very reminiscent of other cycles in which deterioration of interest-sensitive securities, following overvalued, overbought, overbullish conditions, was then joined by broad deterioration in market internals…There are five instances: 1929, 1987, 2000 and 2007 and today. The prior ones are associated with some of the worst market losses in history.” – John Hussman, PhD, Hussman Funds weekly Market Commentary for 24 June 2013 at

http://www.hussmanfunds.com/wmc/wmc130624.htm

My comment: I’ve taken excerpts from the commentary to get to the essence.  I recommend a full reading of this week’s Hussman commentary. 

COMMENT FROM A DAY TRADER

“One thing is for sure: virtually everyone (except staunchly bullish stock brokers) realizes that the economic "recovery" is an illusion which only exists because of the Fed's monetary support. And most are prepared to rush for the exits at the hint of that support being reduced or removed. The global economic conditions are only worsening, not improving. And the US will be negatively impacted by what's happening in Japan, China, and Europe. Once this ball starts rolling downhill, it will be difficult to stop.”

My comment: There remains the possibility that the US can avoid the world-wide downturn…unlikely; but it is a possibility.

BARGAIN HUNTERS BEWARE (Reuters)

“Bargain-hunters beware! Wall Street's 2 percent weekly fall may not be the buying opportunity for stocks that it might seem.  The stock market begins the last week of June still rattled by the U.S. Federal Reserve's plans for reducing its stimulus efforts, called quantitative easing, or QE. Next week could bring more big intraday swings and volatility as asset managers reevaluate their portfolios to adjust to the new regime of diminishing support from the Fed.”  Story at…
http://www.reuters.com/article/2013/06/22/us-usa-stocks-weekahead-idUSBRE95K17I20130622

BERNANKE SHOWS POOR TIMING (Reuters)

“St. Louis Federal Reserve Bank President James Bullard on Friday issued a sharp rebuke of his colleagues' decision this week to announce a plan to reduce the central bank's bond buying, calling the move premature and worrying the Fed is risking its credibility as a force for price stability…."President Bullard ... felt that the committee's decision to authorize the chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed," the regional Fed bank said in a statement.” Story at…
http://www.reuters.com/article/2013/06/21/us-usa-fed-bullard-idUSBRE95K0FY20130621

MARKET REPORT
Monday, the S&P 500 was down 1.2% to 1573 (rounded).

VIX was up about 6% to 20.11.

Monday was day 23 in the correction counting from the top on 21 May.  The 19% correction in 2011 lasted 108-days. (The crash in 2009 lasted more than 200 days.)  No sign of a turn-around yet. 

 

NTSM

Monday, the overall NTSM analysis was again SELL at the close. The first NTSM sell signal was on 16 April at S&P 500 1575.  Today the S&P 500 broke below that level.  

Sentiment, Volume and VIX are all negative.  Add in the “panic-indicator” that flashed sell Thursday (on the huge down day) and NTSM analysis remains firmly in the negative camp.

MARKET INTERNALS

Internals were horrible today, Monday.  Only 13% of stocks advanced today and over the last 2-weeks only 38% of stocks have advanced.  New-high/new-low data was horrendous too, (I’m running out of stupid adjectives) with 17 new highs compared to 542 new lows. 

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was 67%-bulls in the Guggenheim/Rydex funds I track as of Friday’s close.  That was down only 1% from Thursday. 

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
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.

 

High Volume: Trouble for the Stock market?

DISTRIBUTION DAYS SIGNAL A TOP
“It's important to keep in mind that several days of institutional selling, whether it's in a stock or an index, can presage more of it down the line…Few investors knew what lay ahead for the market in the second half of 2008, but the Nasdaq composite fired some warning shots with five higher-volume declines from Aug. 19 to Sept. 4….The Nasdaq sank more than 40% over the next 11 weeks. By March 2009, it fell 50% from its April 2008 high of 2551.39.”
http://finance.yahoo.com/news/heavy-distribution-day-count-often-220500812.html

CHINESE. US FACTORIES STRUGGLE, EUROPE STILL IN SLUMP (Reuters)

“Factory output in China weakened to a nine-month low in June while U.S. manufacturing closed out its worst quarter in the last four, suggesting the road to recovery for the world economy remained an uneven one…
…"A slowdown in the Chinese economy doesn't help the outlook for the U.S. particularly, but American growth isn't entirely dependent on what happens in China," said Philip Shaw, chief economist at Investec…
…U.S. growth picked up in the first three months of the year, boosted partly by a recovering housing market, though the pace is expected to drop off in the second quarter.”  Story at…
http://www.reuters.com/article/2013/06/20/us-economy-global-idUSBRE95J0CX20130620?feedType=RSS&feedName=businessNews

END OF QUARTER AHEAD

Be prepared for more shake, rattle and roll. Markets could be in for another bumpy week as investors adjust to higher yields and institutions shuffle portfolios ahead of the quarter's end.
http://www.cnbc.com/id/100835492

MARKET RECAP
Friday, the S&P 500 was up 0.27% to 1592 (rounded).

VIX was down about 8% to 18.90.

VOLUME

Volume was huge Friday; the NYSE saw twice the volume that has been the norm over the past month.  Couple that with the small movement on the S&P 500 (only about a quarter of one percent upward) and we have what I call a distribution day.  (This is a bit different than the definition of a distribution day that involves keeping a count of high volume days.) Today, a lot of people wanted to sell and even more wanted to buy.  I’m tempted to suggest that the buyers represent the dumb money buying at the wrong time.  The sellers…they’re the smart money.  Will that interpretation be correct?  I don’t know. 

I think I can say that since Markets rarely move in only one direction, I wouldn’t be surprised to see a bounce up to around 1620-1625. 

NTSM

Friday, the overall NTSM analysis was again SELL at the close.  

Sentiment, Volume and VIX are all negative.  Add in the “panic-indicator” that flashed sell Thursday (on the huge down day) and NTSM analysis is firmly in the negative camp.

MARKET INTERNALS

Internals were unimpressive today.  The number of stocks advancing today was only slightly ahead of the number of decliners; new-high/new-low data was abysmal with 34 new highs compared to 387 new lows.  I had to go back to 4 October of 2011 to find more new lows on a given trading day; there were 972 that day as the markets completed a correction low.  Bottom line: The new-high new-low data isn’t signaling a turn-around because, even on the up day today, it deteriorated.   

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was 67%-bulls in the Guggenheim/Rydex funds I track as of Friday’s close.  That was down only 1% from Thursday.  On Thursday at the close, 65% of investors were betting that Friday would be up.  They were right, but that’s still a bit surprising given the monster down day Thursday.  This overly bullish stance of traders means that the correction has further to go.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
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.

When the Fed Speaks, investors listen.

EQUITIES TO MOVE HIGHER DESPITE TAPERING - PROS
The Federal Reserve's talk of tapering asset purchases won't kill the rally in equities, two top market economists told CNBC on Thursday. They said stock prices are likely to rise into 2014.

"Risk assets will eventually collect themselves and will be doing better," said Ward McCarthy, Jefferies & Company chief U.S. financial economist. He cited four reasons for a bullish stance on equities: continued job growth, an improving housing sector, high growth potential in energy and manufacturing that is "poised for recovery."    Story at…
http://www.cnbc.com/id/100831606

PHILLY FED ACTIVITY PICKS UP TO A 2-YR HIGH

“The Philadelphia Federal Reserve Bank said its business activity index rose to 12.5 from minus 5.2 in May, far exceeding economists' expectations for minus 2. It was the highest level since April 2011…Any reading above zero indicates expansion in the region's manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.”  Story at…
http://www.reuters.com/article/2013/06/20/us-usa-economy-phillyfed-idUSBRE95J0Q320130620

LEADING ECONOMIC INDEX UP (Conference Board)

“The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in May to 95.2 (2004 = 100), following a 0.8 percent increase in April, and a 0.3 percent decline in March…
…Says Ataman Ozyildirim, economist at The Conference Board: “Despite month-to-month volatility, the LEI’s six-month growth rate remains steady, suggesting that conditions in the economy remain resilient. Widespread gains in the leading indicators over the last six months suggest there is some upside potential for economic activity in the second half of the year.”  Press release at….
http://www.conference-board.org/data/bcicountry.cfm?cid=1

…but as noted in a prior blog, the stock markets don’t correlate well to the economy and today was all about the Fed and tapering. 

Markets look 3 to 6-months out and investors don’t like the thought of a market without the Fed’s QE.  In the past, I have often argued, as Bernanke did yesterday, that the Fed wasn’t putting on the breaks, just easing up on the accelerator.  No matter – investors didn’t like it then and they don’t like it now: Time to price in the new information.

MARKET RECAP
Thursday, the S&P 500 was down 2.5% to 1588 (rounded).

VIX was up about 23% to 20.49. 

NTSM

Thursday, the overall NTSM analysis switched to SELL at the close.  

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was 68%-bulls in the Guggenheim/Rydex funds I track as of Wednesday’s close. (It will be interesting to see Sentiment at the close today!)  VIX is negative as the options players woke up in a big way.  VOLUME went negative.

CORRECTION CONFIRMED

Market internals crashed Thursday; the S&P 500 broke its lower trend line; VIX rose dramatically and is now over 20; the “panic indicator” in the NTSM system flashed sell; and the S&P 500 broke its 50-dMA.  If the market falls to its 200-dMA, it will drop another 5.5% from here.  (That has been my prediction for some time.)

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
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.

Margin Debt Predicts Stock Market Crash; Fed Tapering

Ninety-nine percent of all Politicians give the rest a bad name.

MARGIN DEBT OVER 2.25% GDP – STOCK MARKET ALWAYS CRASHES (Investment Watch)

“What do 1929, 2000 and 2007 all have in common? Those were all years in which we saw a dramatic spike in margin debt . In all three instances, investors became highly leveraged in order to “take advantage” of a soaring stock market. But of course we all know what happened each time. The spike in margin debt was rapidly followed by a horrifying stock market crash. Well guess what? It is happening again. In April (the last month we have a number for), margin debt rose to an all-time high of more than 384 billion dollars.” Full discussion at Investment Watch at…
http://investmentwatchblog.com/what-do-1929-2000-and-2007-all-have-in-common-whenever-margin-debt-goes-over-2-25-of-gdp-the-stock-market-always-crashes/

NEXT 18-MONTHS WILL REDEFINE ECONOMIC ORTHODOXY FOR THE WEST (ZeroHedge)

“Simply put, Bass explains, we do not want to admit that there is this serious (potentially perilous) outcome that disallows the world to continue on the way it has. and that is why so many people, whether self-preserving or self-dealing, miss all the warning signs and get this wrong…"I would like to live in a world where it's all rainbows and unicorns and we can make Krugman [Keynesian economist and columnist for the NY Times] the President - but intellectually it's simply dishonest"  - Kyle Bass. Summary and video at ZeroHedge at…
http://www.zerohedge.com/news/2013-06-18/kyle-bass-next-18-months-will-redefine-economic-orthodoxy-west

TAPERING TO START THIS YEAR - GUESSING (Bloomberg)

Obama said Bernanke has “already stayed a lot longer than he wanted or he was supposed to” in an interview with Charlie Rose that was broadcast June 17 on PBS…
…“One of the implications of the fact that Ben is now very, very likely to be leaving at the beginning of the year is that he’s going to want to get the so-called exit strategy under way,” Feldstein said on CNBC television today. “He’s going to want to start the tapering before he leaves so that he can say,‘I did all these good things, and I put us on an exit path.’” - Martin Feldstein, Harvard University Economics Professor.  Full story at…
http://www.bloomberg.com/news/2013-06-19/bernanke-exit-signaled-by-obama-means-tapering-feldstein-says.html

BERNANKE HINTS EASING END IS NEAR (CNBC)

“At a news conference, the central bank chief said if the economy continues to improve the asset-purchasing program could start winding down towards the end of 2013 and wrap up in 2014.”  Story at…
http://www.cnbc.com/id/100828661

MARKET RECAP
Wednesday, the S&P 500 was down about 1.4% to 1629 (rounded).

VIX was up about 0.2% to 16.64. 

What? S&P 500 was down over 1% and the VIX was up only 0.2%; odd.

MARKET INTERNALS AND MORE ODDITIES

Even after Wednesday’s Fed debacle the 10-day moving average of percent bulls is slightly above 50% and that is generally positive for the markets…at least in the short term.  176 stocks made new highs today while only 86 made new lows. 

Bottom line…market internals are not yet confirming a turn-around to the downside.  Neither is the VIX. 

Today was statistically significant in price and volume and that usually means a reversal tomorrow so we might see a positive close Thursday.  It really looks like the market may go a little higher or, alternatively, the tea leaves may all reverse soon.

The Fed news may trump the technical tea leaves so we’ll just have to wait and see.

NTSM

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

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was up again to 70%-bulls (!!!!) in the Guggenheim/Rydex funds I track as of Tuesday’s close.   A 5-dMA of 70%-bulls is almost unheard of and this has been going on for 9 out of the last 15-trading days.

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.

Bounce Continues

Money isn't everything, but it sure keeps the kids in touch.

MARKET MORE DOUBTFUL ABOUT FED EASING BENEFITS (CNBC)

“The effects of the Federal Reserve's bond-buying program are looking more lackluster and more disruptive to market functioning, according to the latest CNBC Fed survey… Fifty-eight percent of the respondents see the Fed ending the program within 12 months, by June 2014. Five percent expect the Fed to stop the program entirely this year, while about 12 percent see it ending in 2015 or later.”  Story at…
http://www.cnbc.com/id/100822543

CPI RISES ON HIGHER RENT (Forbes)

“Headline CPI gained 0.1% in May, marking its second positive reading in at least the past seven months and coming in below expectations which called for a 0.2% print. Over the past 12 months, CPI inflation is up 1.4%, accelerating from April’s 1.1% reading…Tuesday’s reading is but a single data point, yet it does show a move away from the disinflationary tendencies seen in previous reports. The Fed, which favors personal consumption expenditure (PCE) as a measure of inflation, will be working with a 0.2% decline in April, according to the latest data reported.”  Story at… http://www.forbes.com/sites/afontevecchia/2013/06/18/after-two-months-of-deflation-cpi-rises-on-higher-rent-as-bernanke-and-the-taper-loom/

FED POLICY TO IMPLODE (MarketWatch)

“Be sure your seatbelt is fastened, because nothing has really come to rest. We have entered the New Abnormal, a period in which every market assumption must be questioned and the wise investor is prepared to be surprised.”  And that’s how famed economist Nouriel Roubini and Ian Bremmer, the president of Eurasia Group, launch into an eight-screen Institutional Investor assault on all that’s going wrong with the global economy right now and on how new crises are most certainly headed our way…”

“…a slow exit risks creating a credit and asset bubble as large as the previous one, if not larger. Pursuing real economic stability, it seems, may again lead to financial instability. Thus the exit from the Fed’s QE and zero-interest-rate policies will be treacherous: Exiting too fast will crash the real economy, while exiting too slowly will first create a huge bubble and then crash the financial system.” – Roubini and Bremmer.  Full story at….

http://blogs.marketwatch.com/thetell/2013/06/18/roubini-bremmer-and-the-fed-policy-thats-going-to-implode/

MARKET RECAP
Tuesday, the S&P 500 was UP about 0.8% to 1652 (rounded).

VIX was down about 1% to 16.61.

Repeating…

As I suggested Friday (posted on Saturday), the Market Internals indicated a possible reversal Friday and Monday’s action confirmed it for me.  The market has once again bounced from its lower trend line.  The down-trend is now over, at least for the short-term. 

Tuesday…This trend change has now been confirmed in the charts since the upper boundary of the downtrend line has been broken.

I think the market may get back to the recent high around 1670, but that is mostly guesswork.  Internals still look good so unless the Fed upsets the apple cart Wednesday at 2PM, the markets can go higher.  This is a short term bounce though and should not be mistaken for a new secular bull market as the POM-POM boys on CNBC are suggesting.

The S&P 500 is 10% above its 200-day moving average and I don’t think it will get too much higher; 1670 is my high guess.

MARKET INTERNALS

The 10-day moving average of percent bulls is now up to 51%.  (More than half of the stocks have been advancing over the last 2-weeks.)  That is generally positive for the markets…at least in the short term.  The new-highs outpaced new-lows (spread) by nearly 100 Tuesday, although the spread fell a little from yesterday.

NTSM

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

SENTIMENT remains extreme:  (The broken record report.) The 5-day moving average was up again to 70%-bulls (!!!!) in the Guggenheim/Rydex funds I track as of Monday’s close.   That suggests topping in the markets.

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.