Market Timing – Weekly Stock Market Strategy – May 2011

Weekly stock market strategy updates that went out to subscribers during May 2011. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 5/1/11

I have moved the intermediate-term market call to bullish. The upside breakout on Wednesday took my indicators back to bullish. I did not send out a mid-week update because I feel the risk is to high to get back in at these levels.

In case you haven’t heard Fed Chairman Bernake held an unprecedented press conference after the FOMC meeting on Wednesday. The movement in gold since the press conference is a no confidence vote for the dollar. Gold has risen almost 4% since Tuesday. This is also the primary reason behind the move in the stock market. The dollar has lost 17% since last June and the SPY is up 29% over the same time frame. If or when the Dollar decides to take a breather from this massive sell-off the stock market rally is over. The Dollar is nearing major long-term support at 72. The Dollar should get a bounce and the stock markets should see a correction.

Jobless claims again came in solidly above its 4-week moving average. This Friday brings the monthly unemployment figures. This number always has the potential to change the market trend.

Weekly Market Update 5/8/11

Fridays Employment Situation numbers showed an up tick in the headline unemployment rate. The market took the overall release as bullish taking the DJIA up triple digits in early part of the session before giving a good part of those gains back heading into the close. Personally I didn’t see anything that excited me. Some of the less reported releases were showing that the jobs that are being created are of the part-time variety. I can hardly get exited about that. Jobless claims on Thursday were worse than expected too. The 4-week moving average of Jobless Claims jumped over 20,000 from the prior week and is over 40,000 higher than a month ago. Remember I said until we have seen the 4-week moving average decline for a while the economy is not improving.

The markets spent most of the week in correction mode. There are two things that helped in initiating or perpetuating the sell-off. One is the Dollar, and the other rising margin rates on various futures contracts. The Dollar reached long-term support and was due for a bounce. Margin increases in some of the overextended futures helped insure that they would see a short-term correction. I am not so sure it was a coincidence that these two events occurred at the same time. Raising margins on Silver and Crude for example were bound to have a greater effect (cause a larger correction) if they coincided with a rising Dollar. What better timing than when the Dollar reaches a support level that is likely to cause a bounce. If you are willing to take this a step further what are the chances the Fed may have had something to due with encouraging the margin increases. If the futures corrections are large enough, the Fed just might be able to justify QE3.

A stock-bond ratio model that I follow has now turned bearish. We are currently only 25% exposed to the market and I am not changing that at this point. This may however change my desire to buy any dips at this point. I know last week the intermediate-term market call moved back to bullish. Normally I would be looking to buy dips now however, with the change in the stock-bond model I feel much better being mostly in cash.

Weekly Market Update 5/15/11

It was a relatively quiet week. All the major indexes ended the week just about where they started. The Debt ceiling is starting to make more and more headlines. It is possible that this will begin to weigh on the stock market.

Weekly Market Update 5/22/11

It was another quiet week with mild losses for the stock market. The dollar rally has slowed for the time being and the moves in stocks and commodities have paused as well. Rest assured as soon as the dollar starts to move again these other markets will too. The debt problems in Ireland and Greece are again making headlines. Albeit not to the extent they did before. The news is still really bad and you have to wonder how much longer the rest of Europe will be willing to keep bailing out the more indebted nations. Keep an eye on what happens in Europe some of the same things could be coming to a city or state near you.

Weekly Market Update 5/29/11

There was not much excitement in the markets this past week. The economic reports are still painting a less than rosy picture. Unemployment claims were still solidly over 400k. GDP has gone from a respectable 3.1% in Q4 of 2010 to 1.8% in Q1 of 2011. More evidence the economy is far from recovery. This patient is on life support. Friday we have the monthly Employment Situation. I would be surprised if we saw anything positive come out of that report.

I have been working on a theory as to why I think a Third round of quantitative easing , or QE3, is a forgone conclusion. The U.S. has to much debt. $14 Trillion is the number that is often mentioned in the press but this number does not include unfunded liabilities. I have seen estimates that our national debt with unfunded liabilities is as high as $144 Trillions. That is $1.2 Million per taxpayer. Does anyone think we have a chance in hell of paying that off? The Fed knows this, and they are taking advantage of the fact that the US Dollar is the world’s reserve currency. When they print more Dollar bills they are exporting inflation. If you think the world hates us now, wait until they figure this one out. The problem is the Fed has been catching some heat for QE1 and QE2 so they have announced that this operation will end June 30. A few events happening at the same time have caused the Dollar to rally.

Those items are:
The Dollar reached long-term support.
The Euro is in more trouble than the Dollar.
A major retracement in some commodities.
Our economy is not yet in recovery mode.
Currently politicians and voters do not have the cajones to make the tough decisions.

I believe that the bounce in the Dollar and decline in commodities will make it easier for the Fed to justify QE3. However, there will need to be some economic reason that will be used as the primary reason for needing another round of quantitative easing. I could be wrong on this part but a new bear market would do the trick. If the market corrects by 20%, the Fed would feel compelled to do something to support the market. Bernanke himself has said the rising stock market is evidence his policies are working. Therefore a sizeable market correction would give him justification for QE3.

The Euro is in even worst shape than the Dollar. That is good for Bernanke and the Fed. I don’t see how the Euro can survive. France and Germany as well as the European banks will tire of extending counties like Greece, Ireland, Portugal, Italy and Spain more money. I would be surprised if the Euro can last two more years. Remember the motto of the current administration, “Never let a serious crisis go to waste.”

As soon as we see some major economic event, the kind of event that could justify QE3, I think it will then be time to put the “Risk Trade” back on. Until then I think it is probably best to sit on the sidelines and keep our powder dry.

Market Timing – Weekly Stock Market Strategy – April 2011

Weekly stock market strategy updates that went out to subscribers during April 2011. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 4/3/11

Unemployment drops again, now at 8.8%. Headlines like this are all probably 90% of the population is aware of, and on the surface it sounds good. What does not sound so good, and is hardly reported is the Labor Force Participation Rate. This number is the percentage of the population that is employed or seeking employment. The Labor Force Participation Rate is now at its lowest level since 1984. There are now 85.5 million Americans not working or seeking employment. Another way to put the employment situation, we would need to create 245,500 jobs per month until the end of 2016, just to reach the employment levels of December 2007. The good news is there are not many economic releases this week.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/bernanke/LFP%20March.jpg

As I stated last week if the SPY closes near 134 the intermediate term call will need to be changed back to bullish. I still think that close is fairly accurate. I will send out a Midweek Update when a change occurs. I do not like being whipsawed by the markets. On the other hand I am glad we were on the sidelines during the sell-off after the Japanese earthquake. I would also prefer to error on the side of caution these days. The fed continues to print money by monetizing our debt. To me that creates a very dangerous environment for the stock market and our economy.

Weekly Market Update 4/10/11

Just a quick reminder I am making the adjustments to the Quarterly ETF portfolio. See the Second Quarter ETF’s listed above.

I was amazed the SPY could not close over 134 all week. Maybe our Government avoiding a shutdown will be enough to move the SPY to a close above 134.

The Fed released the minutes from the March 15th FOMC meeting this past Tuesday. My interpretation is they will have a difficult time justifying another round of quantitative easy, a.k.a. QE3. That doesn’t mean they won’t but with signs of inflation appearing I think they increase the risk hyperinflation by doing QE3. I still believe that the primary reason for market move since September 2010 is due to QE. If the fed ends the QE program, I feel pretty sure the market will decline. I am not sure what the trigger will be. It is possible the market could begin a decline prior to any announcement. After all, they would need to give the market insiders time to adjust their portfolios.

Weekly Market Update 4/17/11

The only economic news that was much of a surprise was the jump in jobless claims. The number of 412,000 was 32,000 greater than the consensus number and still stubbornly higher than its 4-week moving average. This week should be a quiet one in terms of economic releases.

Technically there is not much to report. The market has been very quiet the last few weeks. Is this the calm before the storm? We are approaching the anniversary of the May 6th flash crash after all. Who knows what May has in store for us? So far I am happy holding mostly cash.

Weekly Market Update 4/25/11

The SPY has managed to work its way back to testing the 134 level. The more that level is tested the more likely the possibility of it being breeched.

Last week was quiet in terms of economic news. This coming week however, there are potential market moving reports scheduled for release every day but Monday. Not much else to report.

Market Timing – Weekly Stock Market Strategy – March 2011

Weekly stock market strategy updates that went out to subscribers during March 2011. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Midweek Update 3/1/11

The bounce from last weeks low was even weaker than I had
anticipated. For this reason I recommend exiting your SPY
position on the close today. We will maintain our Quarterly
ETF portfolio until the end of the quarter.

Weekly Market Update 3/6/11

The big economic number this week was the Employment Situation. The headline number dropped from 9.0% unemployment to 8.9%. I contend however that unemployment continues to flat-line and not improve. As I have stated previously as soon as someone uses up their unemployment benefits they are no longer considered unemployed even though they are still not working. To get a better picture of the employment situation I look at the underemployment rate which is currently at 19.9% and has been rising as the unemployment rate has been declining.

I exited our SPY position this week. Volatility has returned and I suspect we will soon see a correction in the markets. Increasing gas and commodities prices will have to put a squeeze on corporate profit margins and earnings season is only a few weeks away. I see the upside as very limited at this point and the risk of being exposed to a sell off to high. Having the bulk of our investments waiting for a buying opportunity I think is the prudent thing to do.

Weekly Market Update 3/13/11

There was not a lot of economic news this past week. What there was did not appear overly bullish to me. Retail sales came out right on the consensus number. On the other hand Business Inventories saw a slight up tick and, Consumer Sentiment dropped rather dramatically.

The technical picture for the U.S. market has deteriorated this week, with the sell off that occurred Thursday. If the SPY closes above 133 it would go a long way toward reversing the technical damage. I wouldn’t be at all surprised to see a test of the 132-133 level before seeing the sell-off continue. The unknown this week is how the markets will react to the natural disaster in Japan. The status of the nuclear reactors is still minute-by-minute so the outcome and any market reaction are uncertain.

Weekly Market Update 3/20/11

Inflation is starting to show in some of the economic releases. The Producer Price Index year on year rate is up 5.8%. Meanwhile the year on year rate change for the Consumer Price Index is 2.2%. This is more evidence of my thesis that profit margins are being squeezed. Businesses are finding it hard to pass along their increased cost to the consumer.

As I mentioned in the mid-week update, I am changing the intermediate term market call to bearish. If we are entering a new down leg in the markets it is better to look to sell rallies. If your primary investment vehicle is a 401k, shorting may not be an option. If that is the case cash or money market might be your best option. If SPY can rally to the range of 130.50-132.00, I may look to short the SPY. SDS is the Proshares Ultrashort S&P 500 etf. It has a market exposure of –200%. I am not suggesting using leverage. What I usually will do is trade half the amount I am looking to short to get a market exposure of –100%.

In the mid-week update I also mentioned my stock/bond model might trigger a sell signal. Well the market bounced enough that the model just missed triggering a sell signal. It is definitely in a cautionary zone and could easily trigger a sell signal this week.

Weekly Market Update 3/27/11

What a difference a week makes. The market has bounced faster and higher than I would have expected. The sell-off that occurred went a long way towards reducing some of the downside risk that I have been concerned about the last few months. The market needed a breather and got it. Sentiment and Technical indicators are now considerably less risky than they were 3 weeks ago.

So where does the market go from here? My intermediate term call is still bearish and the SPY will probably need a couple closes near 134 to make that a bad call. On a short term basis the market is overbought and approaching resistance. We are at what I think is a critical point that could determine the direction over the next 3 to 6 months. If the market can shrug off the fact that we are overbought and continue higher than the intermediate and long-term trend still looks bullish. On the other hand I think a more likely scenario will have the market begin to sell-off this week to possibly retest the recent lows.

Not much to report in terms of economic numbers this past week. The main theme was the housing market keeps getting worse. This coming Friday is the employment situation and this number always has the potential to set the trend for the coming weeks.

Market Timing – Weekly Stock Market Strategy – February 2011

Weekly stock market strategy updates that went out to subscribers during February 2011. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 2/6/11

The big economic number this past week was the employment situation. The headline number was the unemployment rate dropping from 9.4% to 9.0%, which sounds like good news. However, the articles I read did not explain that the main reason for the drop was 500,000 people stopped looking for a job and were no longer considered part of the workforce. When things are so bad that that many people stop looking for jobs, that is bad news. The nonfarm payroll number showed a gain of 36,000 jobs, unfortunately that was 100,000 under the consensus estimate. So at best one might say the economy is flat lining and that is probably being generous.

But don’t let bad economic figures worry you the markets bounced back nicely this week. Technically we may be out of the woods for the time being. This coming week is pretty quiet in terms of economic reports. So any surprises would most likely have to be external. I am going to wait at least one more week before I move our stop on the SPY.

Weekly Market Update 2/13/11

It was a relatively quiet week on the economic front this past week. The market struggled on the open Wednesday thru Friday. However, news of Mubarak’s resignation took the markets from a weak opening to a very strong close on Friday. This coming week should be a little more interesting on the economic front. There are several economic numbers being released this week that have the potential to move the markets.

I refuse to fight the strong trend we are witnessing in the U.S. stock markets. However, there are a few things I would like to point out that you should be aware of so as not to get to complacent in this bull market. Yields on 10 year treasuries have risen from 2.4% to around 3.6% since October. I know that this is still a relatively low rate but it is also a 50% jump in yield. 1987 saw a similar directional move in the stock and bonds prior to the crash that year. Mutual Fund cash levels are at levels that usually coincide with market underperformance going forward. Penny stocks have seen a rise in volume that indicates your average investor has forgotten all about the May 6th flash crash and is getting a little to comfortable with stocks.

I came across an article this week that gives a very persuasive argument about expected future returns in the stock market. It goes into detail how we could see negative real returns for the stock market over the next ten years. If that is true, we all need to keep a close eye on our investments and remember that the buy and hold philosophy, for now, is probably dead. If you have the time you should read the article I have the link below.

I am moving our stop on the SPY to 127.25.

http://globaleconomicanalysis.blogspot.com/2011/02/negative-annualized-stock-market.html

Weekly Market Update 2/20/11

There is not much to report this week the markets continue to move higher. The economic reports that came out this week were somewhat bearish but not enough to keep the markets down.

I did come across another article this week that again discussed the probability of low market returns over the coming decade. I have included a link for you.

http://www.hussmanfunds.com/wmc/wmc110214.htm

Midweek Update for 2/24/11

The market has had a decent sell off over the last three days. The good news is so far it has been an orderly decline. In other words nothing resembling the May 6th flash crash. I have a technical setup that indicates a buy above Thursday’s high in the SPY. However something feels very different this time. With all the turmoil in the oil-producing region we have seen little flight to quality in the US dollar. Even during the Greece riots the first week in May 2010, we saw a strong flight to the dollar. Of course a lot of that had to do with the Euro tanking at the time. But still, I have to wonder if there is something bigger going on here.

With the market PE as high as it is right now I cannot recommend adding to current positions. If the market does bounce off these levels I will be moving our stop up to just below recent lows. I could be wrong this time but the risk levels are just to high.

Weekly Market Update 2/27/11

So far the correction has been orderly and a bounce on Friday
was expected. What the next few weeks brings will be the
critical for intermediate term picture. Will the markets
hold Thursday’s low? Will we be able to make new highs? I
think any attempt to test the highs on the SPY near 135 will
be a good place to lighten our exposure to the markets. The
uncertainty of events in the Middle East and the
corresponding increase in oil and gas prices I think could
be a real problem for the markets going forward. Rising
commodity prices were already going to squeeze company
margins. Increasing fuel costs will surely dampen any
economic recovery that may have been occurring. I will be
moving our stop to 128.75.

Market Timing – Weekly Stock Market Strategy – January 2011

Weekly stock market strategy updates that went out to subscribers during January 2011. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 1/3/11

It was a holiday week and the markets did pretty much what everyone expected, nothing. It was another very quiet week with little movement or volume. Could this be a calm before a storm. I don’t know but when it is this quiet, you have to wonder. I have seen signs of improved consumer activity in my area. Is it a spillover from the bull market? Is the economy really improving or are we setting ourselves up for failure? Maybe I am a bit pessimistic but I am not convinced that the economy has turned. I will keep a close eye on the markets as trading gets back to normal after the holidays.

Weekly Market Update 1/9/11

Another week and the US indexes continue to inch higher. Friday made for a somewhat ominous Hanging man candlestick formation. I won’t place a trade based only on a candle formation. I am just a bit cautious at this point, do to tremendous move we have seen .in the SPY. I have moved the stop on the SPY to 124.50.

I thought I would make a quick comment on the employment number released Friday. The headline number was 9.4% unemployment dropping from 9.8% in December. I think that number is very misleading. Until we see job creation in the neighborhood of 300k per month I am suspect of any so-called recovery. We have quite a few economic reports coming out later this week. It will be interesting to see if inflation becomes a concern after the release of the PPI and the CPI. Retails sales and Consumer Sentiment may show some improvement if all the press about Christmas shopping turns out to be true.

Weekly Market Update 1/16/11

It feels like I could be writing the same thing every week. The markets continued their gradual climb. The inflation numbers came in pretty close to the consensus. Energy prices seem to be the main problem so far. I personally thought the retail sales number was a bit disappointing. The media made such a big deal about holiday shopping I thought the numbers should have come in on the high side of the consensus range and instead they came right in the middle.

With this being a holiday shortened week and no major economic numbers coming out, I am not expecting much that might surprise the markets. The Quarterly ETF Strategy returned a respectable 4.3% for the quarter. I will leave our SPY stop in place for the week.

Weekly Market Update 1/23/11

It has been a while but we finally got a lower close on a weekly basis. The market sold off on Wednesday but did not see much follow through on Thursday. Frankly I would like to have seen a multiple day decline to prove to me that the market is still healthy. As I have stated before I am very uncomfortable with the way this market has moved over the last few months. I have not forgot the May 6th flash crash and the money that exited the market in the weeks following that crash. A strong bull market might do a lot to help some people forget the flash crash. Not me I will need more than strong bull move to convince me things are normal again on Wall Street.
I will be moving our stop on the SPY to 125.50.

Weekly Market Update 1/30/11

We had a mixed bag of economic numbers this week. Consumer Confidence and Sentiment were good numbers and didn’t really surprise me due to the lack of bad news over the last couple months. The weekly Jobless Claims number came out higher than expected and continues to stay stubbornly above its 4 week moving average. I would like to think that if there is any truth behind the so called recovery we will see this drop below the 4 week moving average and stay below it.

The markets took a pretty good hit on Friday. I think the main reason for the sell off was probably the situation in Egypt. What happens now will give us some indication as to the health of the overall market. We have reached oversold (on some) levels so if the market is truly healthy the downside from here should be fairly limited. Our stop will stay put at 125.50.