BANK OF AMERICA – STAY DEFENSIVE (ZeroHedge)
"Stay defensive," warns BofAML's
Macneil Curry. While risk assets ended last week on a very strong note, with
the S&P500 putting in its best 2 day performance since October; the weight of evidence says
that new S&P500 lows are coming and that risk assets should
suffer in the weeks ahead.” Story at…
REPORT FROM A TRADER BOARD
Comment from “The Old Fool” a stock trader: “Right now we are on a cliff or a springboard. We have
charts calling for a shoot to the moon and others suggesting caution.
Since I don't need to kill to eat, I will take the cautious route.”
OFF TOPIC – MORE ON THE AFFORDABLE CARE ACT
There was a fascinating article in the Wall Street
Journal on the Affordable Care Act over the weekend. You may have heard the reports that the
Congressional Budget Office said that estimates of people who will choose not
to work to keep low-cost (or free) health care has been revised upward to 2.5
million. (On a personal note, my wife who is a teacher in a low income City has
had staggering experience with under privileged kids whose parents won’t let
them work because the family would lose benefits and that was Before the ACA.) A few excerpts
from the WSJ article follow:
THE ECONOMIST WHO EXPOSED OBAMACARE (Wall Street Journal)
“Mr. Mulligan studies how government choices influence
the incentives and rewards for work—and…Mr. Mulligan is responsible for the
still-raging furor over the Congressional Budget Office's conclusion that ObamaCare
will, in fact, harm growth and jobs….
…the CBO—Congress's official fiscal scorekeeper, widely
revered by Democrats and Republicans alike as the gold standard of economic
analysis—reported that by 2024 the equivalent of 2.5 million Americans who were
otherwise willing and able to work before ObamaCare will work less or not at
all as a result of ObamaCare…
…At a February 2013 hearing he [Mulligan] pointed out
several discrepancies between the CBO's marginal-tax-rate work and its
health-care work, and, he says, "That couldn't persist forever. There
would have to be a time where they would reconcile those two approaches
somehow." More to the point, "I knew eventually it would be
acknowledged that when you pay people for being low income you are going to
have more low-income people." Story
at…
There are many unintended consequences of actions by our
Government. The Affordable Care Act has
already incentivized businesses to cut employees to part-time (<32hours) so
they don’t have to offer healthcare. As
the above article points out, it is also true that the poor are incentivized to
remain poor. I can’t tell you how
disappointing this is to me and it is why I hate all Politicians. I say, ALL
Politicians because, while the ACA is a Democratic bill, the Republicans have
their share of incompetent legislation too.
Here’s a chart from ZeroHedge I have mentioned before. This is not a right-wing propaganda chart;
this was from a State report that was discussing the need for reform of our
convoluted welfare system. The single mom in the following example is better
off earning $29,000 than $69,000.
Chart from ZeroHedge at…
MARKET REPORT
Monday, the S&P 500 was up 0.2% to 1800 (rounded).
VIX was down about down 0.2% to 15.26.
The 10-year Treasury Note yield fell slightly to 2.67%.
Rates at 3% or above are considered by some traders to be
“trouble-for-stocks”.
VIX held nearly unchanged; the options players may think
the correction is over, but today everyone was waiting perhaps for the FED. Yellen testifies tomorrow in the House. Perhaps there will be new information. If
not, I think the market retreats. It’s
not a slam dunk though.
Market Internals are all positive for the 10-day averages
I follow, but I had expected that around 1800 would be a reversal point.
S&P 500 1800 retraces half the loss so far.
(The Fibonacci guys will have a slightly different number for a
potential reversal.) So the markets would be expected to reverse in a
correction after a bounce at around 1800. I am waiting too.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing rose to 55%
at the close. (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 + 47. (It was +58 Friday). The 10-day moving average
of change in the spread was +11. In other words, over the last 10-days, on
average, the spread has increased by 11 each day.
All of the short term internals indicators are positive. So the question remains, is this just a
temporary bounce off the bottom or is the correction over? There still are not
many clues, but the internals say it’s over. I'm not buying It yet.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading. In
2013, using these internals alone would have made a 16% return vs. 30% for the
S&P 500 (in on Positive out on Negative – no shorting). Of course, few trend-following systems will
do well in an extreme low-volatility, straight-up year.
NTSM
The NTSM system switched to HOLD Monday. The first Sell signal of this cycle was over
2-weeks ago on 24 January.
Volume, VIX, Price and Sentiment indicators are all neutral.
MY INVESTED POSITION
I am about 30% invested in stocks as of 20 December
(S&P 500-1540) because I upped my stock holdings by 10% on the 20th
of December. 30% is a reasonable level
of stock holdings for a correction, so I don’t need to reduce holdings since I
don’t think this will be a major crash.
Even if a surprise collapse did take the stock market down by 50%, I’d
only lose 15% in the stock portfolio. On
the other hand, if I am wrong, leaving 30% invested in stocks hedges the bet
since no system is perfect.
