The Merry Month of May Ends
Historically girls dance around the Maypole winding the ribbons up. Then they reverse and unwind those ribbons. Is this an appropriate metaphor for May 31, 2013?
Global economic data Friday was weak. In the eurozone unemployment overall rose to 12.2% vs 12.1% as the EU entered its sixth straight recessionary quarter. The unemployment rate from PIIGS countries ranged from 40.5% to a mind numbing 62.5%. India reported its worst GDP data (4.8%) in a decade. The Aussie bank index has fallen 12% from its recent high. The IMF warned (no, they don’t have a standing army, navy or ICBMs) Japan to better monitor its yen currency debasement.
There were some really interesting and unusual U.S. economic data releases to end the month. The negative was Personal Income (0% vs .1% exp & prior .3%) and Spending (-.2% vs exp .0% & prior .1%) report. It’s hard to grow the economy if consumers aren’t able to save and spend. Next the unremarkable U of Mich. Consumer Sentiment report (84.5 vs 83.7 exp & prior 82.7) being so since it’s so weighted by stock prices. Last was the shocker from the Chicago PMI (58.6 vs 50 exp & prior 49) which steamrolled estimates and prior data. The latter is basically a survey of chosen participants who provide comments to various questions. It was odd given some comments that were quite negative. Zero Hedge highlights these negative comments as follow:
Lately the months start good and then end bad.
Three months of declining sales in one of our core product lines indicates a slow down, though there are a couple of others hanging in there.
Some primary commodity resins we buy are starting to moderate and even decline a bit in price.
Business activity should be picking up and be stronger by this time of the year, but a bit more delayed than usual, so some concern there.
With the second corrugated linerboard increase in 6 months, the producers are showing us what an oligopoly is all about.
Corrugated costs are going up based on supposed paper demand increases. The timing of this is a bit off based on only modest increases in market demand. I expect this increase to fail with time.
Most other items are not increasing at this time.
New orders have been light since March, but the sales people are still optimistic that a couple of big orders are soon to be released.
A deeper reading of the Chicago report per Bloomberg noted: “This report, which covers all areas of the Chicago economy not just manufacturing, may be suffering from a low sample size this month, which may or may not explain today's great surge”.
Later the “core” April Retail Sales was just revised lower from .6% to .2% which is a significant change.
Investors were given a migraine overall whether the “bad news is good and good news is great” theme was still in play. But wait; let’s remember Friday offered a very large ($5 billion) POMO action which should have lubricated trading desks. Let’s just call it “tactical money printing”.
One thing is crystal clear; highly correlated global trends are breaking up. There is no way U.S. markets can take a lonely bullish walk from Europe, Japan, China, India, Latin America and even bond markets. See short chart video of EWZ. Previously most markets have been in lock-step with bullish trends differing only by degree. Now these high inter-market correlations are breaking up at least short-term.
The dollar (UUP) rallied while gold (GLD) reversed course along with commodities (DBC). Emerging Markets (EEM) and many formerly popular BRIC markets (EWZ, RSX, EPI & FXI) haven’t made investors money consistently over the past two years due to protracted trading ranges. Eurozone markets (IEV & EZU) are in tough shape despite the ECBs jawboning efforts. Bonds (TLT to HYG) markets have been hit hard in May. The same is true for earlier much in demand dividend sectors.
We’ve raised cash to over 75% from our previous 50% position as recently as two weeks ago. Now we have to wait for Mr. Market’s next move.
Volume on this last day of May increased substantially while breadth per the WSJ was negative.
The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a
market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.I believe readings of +1000/-1000 reveal markets as much extended
VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
SPY 5 MINUTE
From my experience its possible there can be pockets of strength within overall weakness. Discovering these is difficult and for us the tape should and will find them. One positive for us anyway is long/short opportunities may finally present themselves again. That style has been the least effective within the QE/ZIRP environment as bullish trends were dominant globally.
We move into June with the first important reading coming from Friday’s Employment Report followed by the much watched Fed Meeting on the 19th. Then things should slow toward the holiday period but there’s no guarantee that will be the case. Monday will begin some rebalancing from stocks to bonds by those managers with that mandate so be careful.
Sell in May and go away will be on every investor’s mind after Friday’s week performance. It’s always been when you sell that’s been the measure for this maxim to be effective. If so the high for SPY would have been May 21st at $167.17. Then there’s the reappearance of the Hindenburg Omen but that’s for another day’s discussion.
The sun was warm but the wind was chill.
You know how it is with an April day
When the sun is out and the wind is still,
You're one month on in the middle of May.
But if you so much as dare to speak,
A cloud comes over the sunlit arch,
A wind comes off a frozen peak,
And you're two months back in the middle of March.
Let’s see what happens.