ISM PMI Manufacturing Falls to “Contracting”

ISM PMI PRESS RELEASE
“The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 49 percent, a decrease of 1.7 percentage points from April's reading of 50.7 percent, indicating contraction in manufacturing for the first time since November 2012 and only the second time since July 2009. This month's PMI™ reading is at its lowest level since June 2009, when it registered 45.8 percent.” Full press release from ISM at…
http://www.ism.ws/ismreport/mfgrob.cfm

DO NOT USE THE STOCK MARKET TO CLAIM AN ECONOMIC RECOVERY

“How often have we been told that the economy is recovering?
…By my count we are now in our fourth “Recovery Summer.” The recession was officially (and mistakenly) declared over in June 09. Yet, no data series in economics not influenced drastically by liquidity and a zero interest rate policy (e.g., stock prices and home prices) supports the claim.
…One has to wonder just how many summers it takes to add up to a recovery. Other than the Great Depression, no recovery has taken this long and this recovery has not taken yet.
…A good case can be made for the fact that there is no recovery and that we are just beginning our decline….Whether you accept this conclusion or not, don’t be fooled by the performance of the stock market. There is little other than inflationary Fed policy to justify financial asset prices." Full opinion at..
http://www.economicnoise.com/2013/06/03/do-not-use-the-stock-market-to-claim-an-economic-recovery/

You may recall that I posted a summary and link to an article about the lack of correlation between the economy and the stock market.  See

http://navigatethestockmarket.blogspot.com/2013/05/durable-goods-orders-rise-trucking-falls.html

Here’s more on a similar subject…

THE FED & THE MARKET (Hussman)

“One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” – reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about this is that the last two 50% market declines – both the 2001-2002 plunge and the 2008-2009 plunge – occurred in environments of aggressive, persistent Federal Reserve easing…Strikingly, the maximum drawdown of the S&P 500, confined to periods of favorable monetary conditions since 1940, would have been a 55% loss. This compares with a 33% loss during unfavorable monetary conditions. This is worth repeating – favorable monetary conditions were associated with far deeper drawdowns.” John Hussman, PhD, Weekly Market Commentary, Hussman Funds at…
http://www.hussmanfunds.com/

MARKET RECAP
Monday, the S&P 500 closed up 0.6% to 1640 (rounded). The market fell about one-half percent when the ISM number was reported, but clawed its way back toward the end of the day.  Almost the entire gain occurred in the last hour of trading. 

VIX fell 0.1% to 16.28.

MARKET INTERNALS WERE DOWN

While the market was up Monday, the market internals were not.   Decliners outpaced advancers by 20% and there were 174 more new-lows than new highs.  Friday, when the S&P 500 was 10 points lower there were only 67 more new-lows than new highs.  This “spread” is getting worse.  In short, most stocks did not fare well on Monday, but the indices did well, because they represent a narrower part of the market.  Usually, the indices will follow the majority, so I expect the S&P 500 to decline.

NTSM

Monday, the overall NTSM analysis was HOLD at the close, but indicators are deteriorating and the NTSM analysis could issue another Sell-signal soon if market conditions continue down.

SENTIMENT remains extreme negative at 72%-bulls for the 5-day moving-average at Friday’s close.  That indicates that traders are way too confident, complacent…pick your adjective.  Bottom line: this is just more evidence of a top.

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.