The Wednesday Update of the Navigate the Stock Market System

My guess is the correction (if it ever gets here) will be announced by a large up-day, perhaps in the 1-1/2 to 2% range.  If that happens, I will buy a “short” mutual fund in the trading account.  (A short fund goes up when the market goes down.) I use the Rydex Inverse Nasdaq 100 2x Strategy fund. 

 

I won’t sell my longer term holdings until the NTSM analysis give a SELL signal.

SUMMARY OF INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator has pulled back and is now 40%.  This is a middle-of-the-road reading.  (Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.)

PRICE: Neutral. Price action has meandered around and there isn’t a clear direction indicated.

 

VOLUME: Neutral.  More volume has been going to the upside…even with today’s down day in price.  That’s good, but the numbers aren’t strong enough to be a Buy yet.

 

VIX:  Neutral. 

The overall status for the Navigate the Stock Market system is HOLD.   (Our indicators are based on closing data so we generally wait until after the market close to update the system.)

MY INVESTED POSITION: I remain 100% invested in retirement funds and all cash in the trading account.  (This is an absurdly aggressive position (for an old guy) and I don’t recommend it unless you have an extremely high tolerance for risk.

Betting on a correction…

Over the past 2-weeks the %-bulls indicator has dropped from 59% to today’s reading of 40%.  This is telling us that more people are shorting the market - betting it will go down.  The more people bet on the correction, the less likely it is to happen.  40% is a reasonably low number and that is bullish for the market. 

 

On the other hand we have seen a lot of small moves to the upside in S&P price and that indicates this rally is slowing down.  There is always something to worry about.  As always we’ll have to wait and see.

 

NTSM computer analysis still indicates a HOLD.   

Correction coming?

Well maybe, but we haven’t seen a good signal for the short term – I am looking for a small (say 5%) mini-correction anytime.  Apparently, so is everyone else.

%-Bulls dropped to 42% today.   On 28 Jan, %-bulls was 59% so we have backed-up quite a bit.  This may give us some more room to keep climbing-the-wall-of-worry.   We’ll see.

The Navigate the Stock Market (NTSM) analysis is still a hold. 

Jobs, Jobs, Jobs

I commented earlier that the ADP hiring data hasn’t been reflected in Government stats. Wow, was that an understatement. The ADP report said the economy created 189,000 jobs last month; Bureau of Labor Statistics reported Friday that 30,100 net jobs were created. To be fair, these two stats aren’t quite comparable, but the expectations were for a much better number. The number was so bad that everyone ignored it…including investors…citing weather and other factors.


S&P 500 was up 0.25%. The jobs information also paints a painful long-term picture. David Stockton (former Budget Director with the Clinton Administration) was a guest on CNBC and he said that the economy now has 1/2–million fewer jobs than it did in January 2000. (This data was presented by the Economic Policy Institute.)


This just reminds us why Bear markets can last decades. Let’s hope the current bear market doesn’t last that long. The Navigate the Stock Market computer analysis is still a HOLD.

Mutual funds inflows

CNBC reported that US equity Mutual funds experienced inflows for the first time since April 2010.  ICI data showed that $6-billion went into equity mutual funds in January.

 

Not much change today in the Navigate the Stock Market computer analysis.  It’s still a HOLD.

The Wednesday Update of the Navigate the Stock Market System

CNN Money reported that private employer payrolls rose by 187,000 in January, according to payroll processor ADP.   

That’s good news, but the ADP predictions have not been born out by the Government stats so it is not clear that this will result in a boost for the market when Gov data is released Friday.  Still, it is good news and fundamentals continue to look good.  Earnings for the quarter so far have been good.  Retail was excellent, as we noted previously.  The Fed is trying to support the market.  I thought we’d see more profit taking today after the big up-day yesterday, but we held on well.  So that’s good too. 

There is so much bullishness out there that I’d guess any correction (if we do have one soon) will be in the 10% range.

As far as our analysis, I’d rather see the Navigate the Stock Market (NTSM) computer analysis issue a BUY signal, but we’ll take the HOLD and keep watching the market go up...forever?      

SUMMARY OF INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral. %-bulls indicator has pulled back and is now 49%.  This is an elevated number, but not enough to issue a sell signal.  (Sentiment is a reverse indicator; a high %-bulls indicator is bearish for the market and vice versa.)

PRICE: Buy. Price action has turned positive again.

VOLUME: Neutral.  The volume indicator improved today.  More volume has been going to the upside…even with today’s down day in price.  That’s good, but the numbers aren’t strong enough to be a Buy yet.

VIX:  Neutral.  Vix pulled back to neutral with the big spike up on Friday.  It has improved since then, but it has a way to go before it will call Buy. 

The overall status for the Navigate the Stock Market system is HOLD.   (Our indicators are based on closing data so we generally wait until after the market close to update the system.)

MY INVESTED POSITION: I remain 100% invested in retirement funds and all cash in the trading account.  (This is an absurdly aggressive position (for an old guy) and I don’t recommend it unless you have an extremely high tolerance for risk.

"...overvalued, overbought, overbullish, rising-yields..."

“As of last week, the Market Climate for stocks remained characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been quite hostile for stocks, but with what I've called "unpleasant skew" - a seemingly relentless series of slight, marginal new highs, typically followed by an abrupt vertical plunge that wipes out weeks or months of progress in a few sessions.” January 31, 2011 Weekly Market Comment by John P Hussman, Ph.D. (used with permission of Hussman Funds -  http://www.hussmanfunds.com)

Indicators improved today; the Vix dropped around 10%; but as I have been suggesting, and as Mr. Hussman eloquently reminds us, caution is the watchword as this market seemingly goes up without end.    

For the past 3-weeks, the graph of S&P price is much less steep, i.e. the daily rate of advance has slowed significantly and we have seen lower lows.  For chartists, this “megaphone” pattern may show the top is near.  I’m not much into charts, but there is some logic here since it is a graphical representation of Mr. Hussman’s observation, at least in the short term.  

The NTSM analysis currently recommends HOLD as it has since 28 January.  Given the big move up today, it is tempting to call a top now, but I’ll follow the NTSM guidance instead. 

I am still 100% long in retirement accounts.  My trading portfolio is all cash.  (This is an absurdly aggressive position (for an old guy) and I don’t recommend it unless you have an extremely high tolerance for risk.