Major averages sank on higher volume yesterday. Leading stocks continued to get hit hard. So far this year, when the major averages pull back 2-3%, leading stocks get hit much harder pushing investors to the exits, only to see the major averages quickly find their footing due to quantitative easing putting a floor under the markets. However, one cannot operate on the basis of mindless assumptions about what the market will do - keeping track of stops and selling levels is critical in preventing serious losses.
This morning's BLS jobs report showed an increased of 204,000 non-farm payrolls vs. espectations of 100,000. While this number is statistically insignificant, the market is initially reacting to the downside as futures sell off at the time of this writing. Improving jobs data increases the likelihood of QE tapering, and of course this is what the market will discount in the face of such data.
While 2011 and 2012 were not much better with their trendless, volatile characters, 2013 has presented a new challenge which makes pyramiding positions difficult most of the time with only a scant few exceptions.
Market timing has also been unusually challenging since leading stocks get hit hard and distribution days pile up pushing the Market Direction Model as well as other timing models into sell signals. That said, MDM has sat longer on its buy signals and sat for briefer periods on its cash and sell signals over the last couple of months as it accounts for full bore QE by all the major central banks, thus has sidestepped a couple false cash and sell signals as a result. Indeed, to further bolster levels of QE, the ECB cut a key lending rate to 0.25% on Thursday and the Australian central bank said more rate cuts are possible suggesting global economic recovery seems further away.
The US Federal Reserve, Bank of England, ECB, and Bank of Japan continue to print money aggressively en masse. If the US is any guide, its actual unemployment rate figures jump above 10% when factoring in those who have given up looking for work. The Fed knows this so actual tapering is probably much further off.
However, should selling pressure increase in the days ahead, the model would switch out of its buy signal.