…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 3rd
or 4th 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.Wednesday, the S&P was down 0.5% to 1763 (rounded).
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.
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, otherwise, there is nothing wrong with cash.
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. 
