Navigate the Stock Market: October 2013

Thursday, October 31, 2013

Chicago PMI Treats Market to a Trick

The following good news from the Chicago Purchasing manager’s Index should have been a treat for the markets.

CHICAGO PMI SURGES AT THE FASTEST PACE IN OVER 30 YEARS (Business Insider)
“Chicago PMI, a gauge of manufacturing in the Midwest, surged to 65.9 in October, from 55.7. This is the highest level since March 2011, and the biggest monthly increase in over 30 years…’The government might have shut down, but Chicago area companies powered ahead in October as orders and production surged,’ said Philip Uglow, Chief Economist at MNI Indicators.” Full story at…
http://www.businessinsider.com/october-chicago-pmi-2013-10

This is a concern to the markets because as we noted yesterday, “Tapering” of QE represents a significant threat to the stock markets. In this environment, Good news (treat) is bad news (trick), because good economic news brings tapering sooner.

AETNA CEO: WHY INSURANCE WILL BE COSTING MORE (CNBC)

“The fact that many current health-care plans do not offer all the benefits required under Obamacare means that many premiums are likely to jump dramatically, Aetna CEO Mark Bertolini told CNBC…"Aetna alone will pass through to its customers over $1 billion in taxes and fees associated with the Affordable Care Act that need to go into the pricing," Bertolini said….The Aetna chief went on to say increased costs to the plans include new taxes and fee implementations, including new changes in ratings to things such as pre-existing conditions as a result of expanding policy benefit requirements.” Story at…
http://www.cnbc.com/id/101153188

SINGER: SOMETHING IS WRONG AND DANGEROUS (ZeroHedge)

"The recent trading environment has felt something like walking into a place and having a sense that something is wrong and dangerous but not knowing exactly what will happen or when. “QE Infinity” has so distorted the prices of stocks and bonds that nobody can possibly determine what the investing landscape would look like, or what the condition of the economy and financial system would be, in the absence of Fed bond-buying." -Paul Singer, Elliott Management Story at…
http://www.zerohedge.com/news/2013-10-30/elliotts-paul-singer-warns-something-wrong-and-dangerous

DAVID EINHORN NEWSLETTER EXCERPT (ZeroHedge)

“The game of Earnings Expectation Conflation continues. It’s a bit like limbo - with a twist. Though the bar gets lowered every round, the goal is to make it over the bar, rather than go under it…third quarter index earnings growth is now expected to be half of what was forecast in June. Of course, when earnings are announced in October and they “beat” the guidance set in July, everyone will celebrate…
…The index is no longer cheap…There is evidence of much more (and increasingly creative) speculative behavior…
…We never expected to find ourselves in an environment like this again, given the savings that were lost when the internet bubble popped.” Excerpted from David Einhorn newsletter of last month from ZeroHedge at…
http://www.zerohedge.com/news/2013-10-31/david-einhorns-advice-how-trade-equity-bubble-spoiler-alert-dont

MARKET REPORT
Thursday, the S&P was down 0.4% to 1757 (rounded).

VIX was up about 1% to 13.78.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing fell to 53%. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows, Thursday, leaving the spread (new-hi minus new-low) at +108 (it was +185 Wednesday). The 10-day moving average of change in the spread fell to minus-20. In other words over the last 10-days, on average, the spread has declined by 20 each day.

NTSM ANALYSIS

All indicators are now “Hold”, although the Sentiment indicator was 69% as of the close Wednesday. (I don’t get the data on this until later tonight.) Currently, my sell indicator is calculated at 70% as a multiple of standard deviation based on the past 200-days of data. (This is for the sentiment only and it takes more than 1-indicator to give a sell signal in the NTSM system.) I looked back to the highs in 2009 and found that at the first significant top in July of 2007, the %-bulls (my sentiment indicator) never got higher than 59%. This isn’t really too surprising since the Financial crisis was never a valuation issue. As I noted yesterday, the funds I currently use for sentiment were not around in 1999/2000 so we don’t have good data for comparison. That’s too bad because the dotcom crash was a valuation bubble.

In all of 2009, 2010 and 2011 sentiment did not get as high as it is now. There were only 2-days in 2012 when it got above today's value. So far there have been 12-days in 2013 when the level exceeded today's value.

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.

I still lean toward getting back in, after a pullback, to speculate on a final ride to the top. NTSM did give several buy signals last week, but the market just looks too frothy to rush back in…we’ll see if the market will pullback so I can join the insanity. If not, cash is fine.

Wednesday, October 30, 2013

FED SAID NO TAPER; BUT MARKETS GOT A TAPER CUT ANYWAY

FED MEETING ENDS…
…with no taper of QE. I was the only person on the planet who even suggested that taper might be possible today.

THE TAPER ACCORDING TO CITI BANK (ZeroHedge)

Steven Englander of Citi Bank writes that the odds of QE Taper are as follows:
20% December
45% January
25% March
10% beyond March
Story at…
http://www.zerohedge.com/news/2013-10-30/citi-now-sees-odds-decemberjanuary-taper-announcement-doubling-35-65

SLIGHTLY LESS DOVISH FED SENDS RIPPLE THRU MARKETS (CNBC)

“The Fed signaled it will keep its easing programs in place, but markets were spooked by a tone that sounded slightly less dovish than some traders expected...
…’The Fed didn't acknowledge a suspected weakening in the economic data,’ Luschini [Mark Luschini, chief investment strategist at Janney Montgomery] said. ‘I am assuming the market is interpreting that there could be tapering in December, January or March.’" Story at…
http://www.cnbc.com/id/45392801

SENTIMENT: THE DOTCOM BUBBLE - THE CURRENT BUBBLE

Prior to the top in 2000, it was clear in the charts of major indices that the rate of rise in the stock markets was not sustainable. What was not clear was, simply, when would the markets breakdown? As I pointed out in my blog post “Payrolls & Unemployment: Lackluster… Signs of Stock Market Topping” at
( http://navigatethestockmarket.blogspot.com/2013/10/payrolls-unemployment-lackluster-signs.html ), the markets are now in a similar unsustainable rise and that is why I conclude the S&P 500 is in a bubble. (On my chart, I called it a “parabolic” rise; obviously it’s not, since I drew straight lines, but never mind – the point is the same.) Since a bubble can last for years, the important question is the same as 1999; when will the market breakdown? One clue is sentiment.

Unfortunately, the Rydex funds I have used for my sentiment calculation for my daily analysis did not exist in 1999. We can, however, look at 2-Rydex funds that were available in 1999 and calculate a sentiment value based on the asset value in those funds. These funds price twice daily and were designed to be traded. Before ETFs, this was the only easy way for the average investor to short the market.

I downloaded asset values of the “Inverse Nasdaq 100 Strategy Investor Class” and the “Nasdaq 100 Strategy Investor Class” short and long mutual funds respectively and calculated the 5-day value of %-Bulls (bulls divided by bulls+bears)

At the top of the dotcom bubble, the 5-day sentiment value reached 97%-bulls, a stunning, stratospheric-number indicating no one thought a crash was coming. (Remember when “earnings don’t matter” and the “Greenspan put” were in vogue?) That’s not all though: 2007 %-bulls and today’s values were shockers too.

To summarize:

BULL MKT SENTIMENT

2000 TOP 97%-Bulls

2007 TOP 89%-Bulls

29 Oct 2013 98%-Bulls

It’s a bubble folks and that may explain why the S&P 500 is up 28% in 2013 while the economy has been nearly stagnant and earnings have been based on gains in efficiency (layoffs/lack of hiring among other things) rather than revenue growth.

This alternate look at sentiment just confirms my sentiment values, which are also at extreme levels. Sentiment is suggesting a top, but Sentiment, by itself, is not a good indicator for timing the market since it can remain elevated for a considerable time. For another clue we can check out what popped the dotcom bubble, or perhaps I should say, “Who popped the dotcom bubble?”

Answer? The FED: The Federal Reserve raised the Federal Funds Rate 3-times in 1999 (June, August, November) and again in Feb 2000. The party ended in April 2000. My guess is that we repeat the 2000 experience: A correction at the first FED taper of QE followed by significant market weakness after the 3^rd or 4^th QE reduction.

Some may argue that the Fed Funds rate is not the same as QE. I agree. QE-tapering will be much worse for stocks; QE affects longer term interest rates while the Fed funds rate influences short-term rates.

While many have suggested that the Fed’s QE program threatens the economy due to potential inflation down the road, the greater, and more pressing threat, is from a collapse in stock prices. The Fed needs to start reducing QE soon – the longer they wait, the more pain we get.

MARKET REPORT
Wednesday, the S&P was down 0.5% to 1763 (rounded).

VIX was up about 2% to 13.65.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing fell to 58%. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows, Wednesday, leaving the spread (new-hi minus new-low) at +185 (it was +212 Tuesday). The 10-day moving average of change in the spread fell to minus-3. In other words over the last 10-days, on average, the spread has declined by 3 each day.

Market Internals are neutral on the market for this short term indicator.

NTSM

MY INVESTED POSITION

Tuesday, October 29, 2013

Stock market: The Good, the Bad, and the Bland

THE GOOD: S&P IS 15% UNDERVALUED: STRATEGIST (CNBC)
"Is it a stretch to say that the S&P will trade at one standard deviation over its 20 year mean? That would equal 18.7 times 2014 earnings, which would put the S&P north of 2,050 – I don't think that's a stretch," he added…The naysayers will come in and say global growth is stagnant, economic growth is anemic. The reality is that this is the first year since 1995 that we've had simultaneous growth in China, Europe, the U.S. and Japan. Yes, it's slow but valuations aren't stretched," he added.

However, Krake added that once the Fed does begin its tapering program, the S&P 500 will see a 10-15 percent correction following the announcement. However, until this happens, he said equities will remain extremely attractive.” - Paul Krake, founder of View from the Peak:Macro Strategies. Story at…

http://www.cnbc.com/id/101146839

THE BAD: WHAT CATEPILLAR’S BIG DROP IN EARNINGS MEANS FOR THE GENERAL STOCK MARKET (Sasha Cekerevac at dShort.com)

“In its corporate earnings release, Caterpillar cites several issues that it's worried about, including uncertainty regarding U.S. fiscal and monetary policy, the health of economic regions globally (including the eurozone and China), and a lack of demand from customers…the firm has cut 13,000 jobs globally over the past year, reduced pay and incentives, and initiated the “implementation of general austerity measures across the company.”

“Considering Caterpillar is a large firm within the S&P 500 and it has its fingers on the pulse of the global economy, do any of these comments give you hope or confidence that either the domestic or international economies are about to surge upward in growth? Not to me, it doesn't.”

“This is where I raise serious questions about the strength and health of the S&P 500. Caterpillar is one of the largest international companies, a component of the S&P 500, and would not be issuing such a weak forward guidance regarding potential for corporate earnings growth unless management was truly concerned about the future.” Full story at…

http://advisorperspectives.com/dshort/guest/Sasha-Cekerevac-131028-CAT-and-the-Market-.php

THE BLAND: ADS SHOWS ECONOMY GOING NOWHERE

“The Aruoba-Diebold-Scotti business conditions index (from the Philadelphia Federal Reserve) is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data.” – Federal Reserve

Zooming in on year 2013, below, shows no downtrend, but on the other hand, it shows no improvement in Business Conditions for all of 2013 either.

ADS Business Conditions Index available at…

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

MARKET REPORT
Tuesday, the S&P was up 0.6% to 1772 (rounded) for another new high at the close.

VIX was up about 0.6% to 13.39.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing reversed its downtrend and popped up to 63%. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows, Tuesday, leaving the spread (new-hi minus new-low) at +212 (it was +167 Monday). The 10-day moving average of change in the spread bounced up to +12 . In other words over the last 10-days, on average, the spread has improved by +12 each day. This too was a reversal of downtrend.

Market Internals remain Positive on the market for this short term indicator.

Today we have more evidence of frothy market action: the S&P 500 has been up 9 out of the last 10-days and 14 out of the last 20 and that is somewhat negative so I’ll have to be patient and wait longer.

I noted a series of divergences yesterday and predicted a down day for Tuesday…oooops. Surprisingly (to me anyway), today was up fairly strongly.

MY INVESTED POSITION

Danger: Affordable Care Act Ahead

As regular readers of this blog know, I am not partisan; I hate ALL Politicians so I generally avoid political subjects. I do, however, care about the Federal Debt and the U.S. economy; with that said, Obamacare is not entirely a Political issue. I said when Obamacare was passed that it would add on more Debt to the US. (The Congressional Budget Office, the nonpartisan analytical arm of Congress, has calculated the gross cost of Obamacare’s coverage provisions at approximately $1.8 trillion over [a] 10-year period. - http://www.politifact.com/truth-o-meter/statements/2013/sep/27/saxby-chambliss/saxby-chambliss-says-obamacare-biggest-entitlement/ ). The current uproar over the Obamacare website has gotten all the attention, but that is about to change.

The problems with the Obamacare website are almost meaningless. The real issue is that large numbers of middle-class citizens will not be able to keep their current health plans and will have to pay more for a plan that meets Affordable Health Care Act (ACA) requirements (a good Orwellian title). The additional money will upgrade their plans and pay for the poor and currently un-employed who previously couldn’t afford a health insurance plan. Over the next several years, this will be a drag on our struggling economy.

WHITE HOUSE KNEW MILLIONS COULD NOT KEEP PLANS UNDER OBAMACARE [even though Obama repeatedly promised that they could.] (CNBC)

“Four sources deeply involved in the Affordable Care Act tell NBC News that 50 to 75 percent of the 14 million consumers who buy their insurance individually can expect to receive a "cancellation" letter or the equivalent over the next year because their existing policies don't meet the standards mandated by the new health care law.”

“One expert predicts that number could reach as high as 80 percent. And all say that many of those forced to buy pricier new policies will experience ‘sticker shock.’”

“…Those getting the cancellation letters are often shocked and unhappy….George Schwab, 62, of North Carolina, said he was "perfectly happy" with his plan from Blue Cross Blue Shield, which also insured his wife for a $228 monthly premium. But this past September, he was surprised to receive a letter saying his policy was no longer available. The "comparable" plan the insurance company offered him carried a $1,208 monthly premium and a $5,500 deductible.

And the best option he's found on the exchange so far offered a 415 percent jump in premium, to $948 a month.

"The deductible is less," he said, "But the plan doesn't meet my needs. It’s unaffordable."

"I'm sitting here looking at this, thinking we ought to just pay the fine and just get insurance when we're sick," Schwab added. "Everybody's worried about whether the website works or not, but that's fixable. That's just the tip of the iceberg. This stuff isn't fixable." Story at…

http://www.cnbc.com/id/101150855

It appears that Mr. Schwab is not alone and he has a good point. Why buy insurance if you can pay a small penalty (1% of taxable income), and get insurance later during an annual open season if you need it for a long-term illness? Only Politicians could dream up a system like this. Imagine if you could buy car insurance after an accident.

Monday, October 28, 2013

Stock Market Top: Soon…Companies Reporting Falling Revenue…Manufacturing Slows

Finally, here is an analysis predicting a correction with a reasonable methodology and an actionable timeline.

TOP SOON (McClellan Financial Publications)

Tom McClellan writes:
“Gordon Scott, CMT, co-author of the book Invest to Win…has noticed an interesting phenomenon in the movements of the overall stock market which he relates to the 12-month holding period for long term capital gains taxes. If an investor holds a share of stock or other investable asset for more than a year, and has a profit, then the income tax owed on that profit is at a lower rate than for ordinary income. So an investor has at least some incentive to hang onto a winning trade until the 366th day after entering that trade.

Gordon Scott finds that this incentive shows up in stock price indices with a meaningful selloff appearing about 13-14 months after an important price bottom…Coming up just ahead, we are now almost at that same 12-13 month point following the selloff in October and November 2012.” Interesting analysis with a lot more detail at…

http://decisionpoint.com/TAC/MCCLELLAN.html

While Tom McClellan presented an opinion above from his web site, the below article (from another site) suggests that Tom doesn’t necessarily share that negative view, at least in the longer run.

TOM MCCLELLAN: MARKET READY FOR A BIG RUN INTO NEXT SUMMER

“Tom McClellan, Editor of McClellan Financial Publications. Tom believes the market is technically ready for a big run into next summer. He also notes there is a lot of liquidity coming into the market from the Fed (see charts).” Analysis at…
http://www.financialsense.com/financial-sense-newshour

FACTSET EARNINGS INSIGHT (Factset)

EARNINGS & REVENUES:
“With 49% of the companies in the S&P 500 reporting actual results, the percentage of companies reporting earnings above estimates is above the four-year average, while the percentage of companies reporting revenue above estimates is below the four-year average.” Factset Earnings Insight available from Factset at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.25.13/view

CMT: The bar was set low by analysts so it’s not a surprise that earnings are beating the lowered expectations. I am surprised that revenues are below estimates. Revenues have been dropping so I had expected that analysts would have it right by now.

FACTSET EARNINGS INSIGHT (Factset)

EARNINGS GUIDANCE:
“At this stage of Q3 2013 earnings season, 57 companies in the index have issued EPS guidance for the fourth quarter. Of these 57 companies, 49 have issued negative EPS guidance and 8 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the fourth quarter is 86% (49 out of 57). This percentage is well above the 5-year average of 63%.” Factset Earnings Insight available from Factset at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.25.13/view

APPLE MISSES (Minyanville)

“Apple (NASDAQ:AAPL) reported fiscal fourth-quarter earnings and revenues that beat both its own guidance and Wall Street's expectations. It also delivered very impressive iPhone unit sales. However, Apple's first-quarter gross margin guidance was weak, prompting a sell-off.” [The sell-off was in after-hours trading, but as I write this Apple is only off a few points].” Market news at…
http://www.minyanville.com/sectors/global-markets/articles/aapl-earnings-apple-earnings-blackstone-insider/10/28/2013/id/52435

If you see good-news headlines that Industrial Production improved... forget-about-it. Industrial production improved, but mostly because of weather-related utility production. There were issues with the manufacturing numbers inside the Industrial Production. Here’s the real story…

MANUFACTURING SLOWS (Reuters)

“U.S. manufacturing output slowed in September as the production of computer and electronic goods fell, suggesting business spending ended the third quarter with less momentum.

Manufacturing production edged up 0.1 percent last month after advancing 0.5 percent in August, the Federal Reserve said on Monday. The report comes on the heels of a report last week showing a gauge of business spending tumbled in September…In September, a rebound in utilities output [weather dependent] lifted overall industrial production 0.6 percent, the largest increase since February.” Story at…

http://www.reuters.com/article/2013/10/28/us-usa-economy-idUSBRE99L04G20131028?feedType=RSS&feedName=businessNews

MARKET REPORT
Monday, the S&P was up 0.1% (2pts) to 1762 (rounded) for another new high at the close.

VIX was up about 0.2% (2pts) to 13.31.

Let’s look at some divergences occurring today. S&P 500 was up 0.1%, but…

(1) VIX was up 2% (and that correlates negatively with the markets).
(2) Only 45% of stocks advanced.
(3) Only 44% of volume was up.
(4) Cyclical stocks were down 0.3%.
(5) The S&P 500 sold off a couple of points in the last hour.

The divergences were not huge, but behind the scenes, we see that most stocks did not fare well on Monday. The S&P 500 was up slightly, but it represents a narrower part of the market in number, if not size. Usually, the indices will follow the majority, so I expect the S&P 500 to decline Tuesday.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing dropped again to 59 %. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows, Monday, leaving the spread (new-hi minus new-low) at +167 (it was +221 Friday). The 10-day moving average of change in the spread fell to +1. In other words over the last 10-days, on average, the spread has improved by +1 each day.

Market Internals remain Positive on the market for this short term indicator, but just barely.

MY INVESTED POSITION

Friday, October 25, 2013

Sentiment at 8-Month Lows

CONSUMER SENTIMENT FALLS TO 8-MONTH LOW (Bloomberg)
“Bloomberg Consumer Comfort Index declined to minus 36.1 in the period ended Oct. 20, the lowest since February, from minus 34.1. The report also showed more households were pessimistic about the economy than at any time in the past year even as lawmakers approved a deal that ended the partial shutdown of federal agencies.” Story at…
http://www.bloomberg.com/news/2013-10-24/consumer-confidence-in-u-s-declines-to-lowest-in-eight-months.html

MORE SENTIMENT SURVEYS DOWN (ZeroHedge)

“Following record UMich misses, Gallup's economic confidence collapse, the slump in the conference board's measure of confidence, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Consumer Confidence data from UMich continues to confirm a problem for all those 'hoping' for more multiple expansion. Falling for the 3rd month in a row, and missing expectations for the 2nd month in a row, this is the lowest confidence print in 2013.” Story at…
http://www.zerohedge.com/?page=1

MARKET REPORT
Friday, the S&P up 4% to 1760 (rounded) at the close.

VIX fell about 0.8% to 13.09.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing dropped again to 60%. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows, Friday, leaving the spread (new-hi minus new-low) at +221 (it was +200 Thursday). The 10-day moving average of change in the spread fell to plus 6. In other words over the last 10-days, on average, the spread has improved by +6 each day.

Market Internals remain Positive on the market for this short term indicator.

NTSM system switched to HOLD today, as the PRICE indicator dropped to hold because down moves in price and volume have been larger than up moves over the past month.

I still lean toward getting back in, after a pullback, to speculate on a final ride to the top. NTSM did give several buy signals earlier this week, but the market just looks too frothy to rush back in…we’ll see if things look more positive later.

MY INVESTED POSITION

Thursday, October 24, 2013

Jobless Claims Disappoint…Manufacturing Slows (PMI)

JOBLESS CLAIMS HIGH; MANUFACTURING SLOWS (Reuters) - The number of “Americans filing new claims for unemployment benefits fell less than expected last week, but a lingering backlog of applications in California makes it difficult to get a good read of labor market conditions…’Underlying labor market conditions probably are not as bad as the recent claims data suggest,’ said Daniel Silver, an economist at JPMorgan in New York… In a separate report, financial data firm Markit said its ‘flash,’ or preliminary, U.S. manufacturing Purchasing Managers Index fell to 51.1, the lowest since October 2012, from 52.8 in September.” Story at…
http://www.reuters.com/article/2013/10/24/us-jobless-claims-idUSBRE99N0L520131024

AMERICANS LACKING IN BASIC SKILLS (CNN/Money)

“American adult proficiency in literacy, numeracy and problem solving ranks as some of the lowest among developed countries, despite a relatively high level of education, according to a recent survey. In literacy, the United States came in 9th out of 13 industrialized countries surveyed, according to a report from the Organization for Economic Cooperation and Development.” Story at…
http://money.cnn.com/2013/10/24/news/economy/american-skills/index.html?iid=Lead

OFF-TOPIC: OUR EDUCATION SYSTEM IS DISTORTED BY FEDERAL $

My wife teaches so I am all too familiar with the declining abilities of students and standards of education. Oddly, a major problem is counter-intuitive. Federal money is distorting education with disastrous results. Federal funds are tied to standards of Learning (SOLs), i.e., standardized testing based on the policy of “no-child-left-behind.” That policy requires that the ALL students pass SOLs and graduate from high school; therefore, many states have nearly eliminated vocational learning. So kids that have neither the aptitude nor the inclination to do well in schools can’t easily go to a trade school. (That’s one reason why local contractors couldn’t find brick-masons a few years ago and that slowed several construction projects our organization managed.)

Since kids must pass (otherwise teachers are punished), many of the school systems in my area have made it official policy to no longer give zeros for missing work. 50% is the minimum grade. This gives lazy kids a chance to catch up late in the year. Teachers also dumb-down curriculum in other ways. There is no credit for having exceptional students – only punishment for failure to keep the SOL passing rates at minimum levels.

Those that end up in summer school are passed on so the school system can meet the Federal requirements, too. A good friend of mine taught summer school last year. He had a Senior repeating English. The kid came to 1/3 of the sessions and did no work. My friend was directed to pass him anyway. If your numbers go down, you don’t get the Federal dollars.

While schools would be better off being funded without strings attached, in the end, the bigger problem is lack of parenting that leaves students rudderless.

MARKET REPORT
Thursday, the S&P was up 0.3% to 1752 (rounded) at the close.

VIX fell about 2% to 13.2.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing has dropped to 62%. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows Thursday, leaving the spread (new-hi minus new-low) at +200 (it was +135 Wednesday). The 10-day moving average of change in the spread fell to plus 12.

Market Internals remain Positive on the market for this short term indicator.

NTSM system is BUY again today, but I still expect a pullback, though it may not be a big decline. Some issues are: Market Internals are still positive, but they seem to be rolling over; the Fed meeting may cause a little fear; the market action is overly bullish (8 of the last 10 days have been up); the S&P 500 is 8.5% above its 200-dMA and 10% is usually the break point, so a small pull back is warranted. There are certainly enough issues that could indicate a larger decline; there just isn’t an obvious catalyst. (Duhhhh; it’s never obvious.)

MY INVESTED POSITION

Wednesday, October 23, 2013

FED Tapering: Sooner than you think...

FED TAPERING
Based on hiring numbers in the BLS September Employment report, the pundits/talking heads are predicting “No Taper” of Quantitative Easing (QE) until 2014 (March or June depending on who you listen to). The Federal Reserve Board has stated simply that if the unemployment rate falls enough, they will normalize interest rates. The pundits and FED appear to be using different data-sets.

The FED is focused on the unemployment rate, based on their statements; pundits give more weight to new-jobs created. Pundits may be wrong.

Since the Fed is placing a high value on the unemployment-rate and the rate just dropped from 7.3% to 7.2%, the FED sees the economy slowly improving. Given that they were on the borderline of taper at the last Fed meeting, they just may surprise the markets with taper much sooner than expected; perhaps at the meeting ending 30 October. Considering the heat that Wall Street gave the FED last month for NOT tapering, October may be pay-back-time. – Meade Stith

http://navigatethestockmarket.blogspot.com/

EPIC EARNINGS MISS – CATERPILLAR (CNBC)

“Caterpillar, the world's largest maker of earth-moving equipment, reported a third-quarter profit of $946 million, or $1.45 a share, down from $1.7 billion, or $2.54 a share, in the year-ago quarter.”
Short revue of data at…
http://www.cnbc.com/id/101133181

CAT’s quarterly earnings were 43% below year-ago and revenues were off 18%. That’s a huge miss that indicates worldwide construction and mining are going in the wrong direction in a hurry. As “King-Cyclical,” Caterpillar is closely watched to indicate the future of the world’s economy. It is just one point, so no need to panic yet; but this is concerning. Copper prices have been signaling trouble for the world’s economy for some time, although it has come back from its lows last summer. Copper is used in so many products that it is often referred to as “Dr. Copper,” because it is said to have a PhD in economics.

EQUITIES OVERPRICED (Albert Edwards)

Albert Edwards: "Only the brave can react to what they see and leave the markets. The global macro looks an appalling mess and even more importantly, long-term equity investors can find nothing worth buying. For equity investors we are closer to 2007 than 2001 as the vast bulk of the equity market, as represented by the median PE, PB or Price/Sales, is expensive. The US median price/sales ratios is at a record high, indicating that there is practically nothing cheap in the equity market left to buy." Commentary at ZeroHedge at…
http://www.zerohedge.com/news/2013-10-23/albert-edwards-record-high-median-price-sales-ratio-there-nothing-worth-buying

INVESTOR EUPHORIA

“Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria."
-- Sir John Templeton

MARKET REPORT
Wednesday, the S&P was down 0.5% to 1746 (rounded) at the close.

VIX was up another 0.7% to 13.42, but VIX isn’t rising particularly quickly so this isn’t much concern now.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing is 64%. (A number above 50% for the 10-day average is generally good news for the market.)

New-highs outpaced new-lows Wednesday, leaving the spread (new-hi minus new-low) at +135 (it was +404 Tuesday). The 10-day moving average of change in the spread is plus 19.

Market Internals remain Positive on the market for this short term indicator.

NTSM system is BUY today, but I expect a pullback, though it may not be a big decline. There are certainly enough issues that could indicate a larger decline; there just isn’t an obvious catalyst. (Duhhhh; it’s never obvious.)

MY INVESTED POSITION