Jeff Miller | Oct 06, 2013 04:21AM ET
Is it premature to think ahead, to a time after the budget and debt logjam is broken? Markets are celebrated for anticipatory power. There are already some signs this is happening. We would all enjoy relief from the parade of politicians and pundits –and especially the annoying and unhelpful countdown clock.
For the last two weeks I have Sarah Binder explains why this ploy is unlikely to work.
The default swaps and other "fear" indicators suggest that many think they have seen this show before. Many prominent business leaders are calling for a sensible solution. While there is some market reaction to speeches, it is less significant than it was in the 2011 debt ceiling debate.
A New Theme
Over the next two weeks I expect the market to shift attention to Q3 earnings. In the absence of fresh economic data, the discussions will start early. The best and most recent update comes from earnings expert Brian Gilmartin, who notes the jump in the forward earnings for the next year – but also the decline in year-over year expectations. The full article deserves study, but here is a key quote :
Here are the numbers as they fall out presently:
If these expectations are met, it remains a bullish scenario. Is the bar too high?
I have some thoughts on the changing market focus which I'll report in the conclusion. First, let us do our regular update of last week's news and data.
Background on "Weighing the Week Ahead"
There are many good lists of upcoming events. One source I regularly follow is the weekly calendar from Investing.com . For best results you need to select the date range from the calendar displayed on the site. You will be rewarded with a comprehensive list of data and events from all over the world. It takes a little practice, but it is worth it.
In contrast, I highlight a smaller group of events, including some you have not seen elsewhere. My theme is an expert guess about what we will be watching on TV and reading in the mainstream media. It is a focus on what I think is important for my trading and client portfolios. Each week I consider the upcoming calendar and the current market, predicting the main theme we should expect. This step is an important part of my trading preparation and planning. It takes more hours than you can imagine.
My record is pretty good. If you review the list of titles it looks like a history of market concerns. Wrong! The thing to note is that I highlighted each topic the week before it grabbed the attention. I find it useful to reflect on the key theme for the week ahead, and I hope you will as well.
This is unlike my other articles where I develop a focused, logical argument with supporting data on a single theme. Here I am simply sharing my conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am putting the news in context.
Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!
Last Week's Data
Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:
The Good
Despite the stock market reaction, this was a pretty good week for economic data.
As always, there was a little bad news:
The Ugly
Investor confusion! Misguided "investors" bought Tweeter Home Entertainment (TWTRQ), not Twitter whose ticker symbol will be TWTR. Despite the similarity in names and stock symbols, purchasers really should know better. When the Twitter IPO finally occurs the symbol will be TWTR and it will NOT be a penny stock. The bankrupt Tweeter has the trailing "Q" in the symbol – TWTRQ – the market equivalent of a scarlet letter. It traded up 1800% to a high of thirteen cents, eventually sparking a trading halt. famous chart show (a mixed picture this week) which I always review in preparation for the week ahead. These are members-only features, but the cost is modest and the value high.
The Indicator Snapshot
It is important to keep the current news in perspective. I am always searching for the best indicators for our weekly snapshot. I make changes when the evidence warrants. At the moment, my weekly snapshot includes these important summary indicators:
Financial Risk
The SLFSI reports with a one-week lag. This means that the reported values do not include last week's market action. The SLFSI has recently edged a bit higher, reflecting increased market volatility. It remains at historically low levels, well out of the trigger range of my pre-determined risk alarm. This is an excellent tool for managing risk objectively, and it has suggested the need for more caution. Before implementing this indicator our team did extensive research, discovering a "warning range" that deserves respect. We this article . For more on the system ratings, you can write to etf at newarc dot com for our free report package or to be added to the (free) weekly ETF email list. You can also write personally to me with questions or comments, and I'll do my best to answer.]
The Week Ahead
This week's schedule will be dramatically affected by the government shutdown. Private data will assume unusual significance.
The "A List" includes the following:
The "B List" includes the following:
We'll get some speeches, including ECB President Mario Draghi at the Economic Club of New York on Thursday.
How to Use the Weekly Data Updates
In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a "one size fits all" approach.
To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?
My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.
Insight for Traders
Felix has switched to a neutral posture. For our trading accounts we lightened up at mid-week, but we are once again fully invested. This happens when we find three or more attractive sectors, even in a neutral or soft market. Felix's ratings have been in a fairly narrow range for several months. The rapid news-driven shifts are not the ideal conditions for Felix's three-week horizon. The high penalty box rating continues to underscore the uncertainty.
Insight for Investors
The challenge for investors is to distinguish between the major trends and the short-term uncertainty. The main themes are not related to headlines news, even though sentiment may drive market fluctuations. Do not be seduced by the idea that you can time the market, calling every 10% correction. Many claim this ability, but few have a documented record to prove it. Most who claim past success are using a back-tested model. Please see new investor resource page -- a starting point for the long-term investor. (Comments and suggestions welcome. I am trying to be helpful and I love feedback).
Final Thought
Whenever you can see overlap in the positions of two opposing parties, the eventual resolution is just a matter of time.
The key point is that the GOP is no longer insisting on changes to ObamaCare. We are back to a discussion of deficits and spending. The Democratic offers overlap with prior GOP demands, so it is just a matter of time.
I expect the following:
This all highlights the difference between trading and investing. If you are waiting for a market decline, you should commit in advance to buying in if you are proven wrong. If you normally have a 60% stock allocation for example, and you decide to go out of the market, you need a plan to get back in. For most people, it is wiser not to make these short-term guesses, accepting the reality of some volatility.
The big danger is an overall loss of confidence. This is what happened in 2011. If the issue continues long enough, perceptions will become reality. Sober Look examines the issue , including this chart:
While I am optimistic on the final outcome, there might still be a rocky ride.
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