Calls for a Market Correction Looking Incorrect... So Far

By Lloyd Khaner  MAY 16, 2013 9:25 AM

The next week or so should tell us if we are in for another rip higher or perhaps one of those 3-4% market corrections we have had a couple of times this year.

 


The Wall of Worry is coming down like a -- you fill in the blank -- and keep it clean; my kids read this thing every once in a while.

At 19 worries, the market is not exactly maxing and relaxing, but we sure have stopped fretting about things that gave our conniptions conniptions just a few short months ago.
 
So where are we? Well, as this Wall goes to print (or zeros and ones), the Dow (INDEXDJX:.DJI), the S&P 500 (INDEXSP:.INX), and the Nasdaq (INDEXNASDAQ:.IXIC) are up mid-teens for the year and the NIKKEI (INDEXNIKKEI:NI225) is up 45%. And here I thought an equity average’s annual performance could ever match my age again…sure is getting close.
 
While we haven’t had classic 5-10% bull market corrections this year, there has been a good amount of sector rotation and capitalization rotation. That’s a fancy way of saying that some of your stocks have probably been dropping or at least not going up much while the market averages have been grinding higher. Congratulations -- I hereby deputize you an official portfolio manager.
 
The next week or so should tell us if we are in for another rip higher or perhaps one of those 3-4% market corrections we have had a couple of times this year. It does seem like the pros and the Joes could use a financial and psychological reason to buy into the market at this point. If a pullback happens, it may be short and swift, so this may not be the time to walk away frustrated from this frustrating market.
 
Welcome to the biz.
 
Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.



 
QE: The shot not yet heard 'round the world. When will the selling of all that paper they bought begin? Don’t hold your breath -- they're still buying the stuff.  
 
US ECONOMY: Some days, it’s good; some days, it’s bad; some days -- actually, most days, we just don’t have a clue.
 
UNEMPLOYMENT: The unemployment rate in Greece for people ages 15-24 hits 64.2%. Youth may be wasted on the young, but jobs sure aren’t.
 
INVESTOR SENTIMENT: Arguing that 120 million-to-1 odds are finite, mom and pop investors still have more faith in winning the lottery than winning in the stock market.
 
HOUSING CRISIS: All my friends are selling their homes within weeks of listing them, leading me to ask, “Is the mother of all housing crashes finally over?” 
 
EUROPEAN ECONOMY: GDP numbers just came out, and the good news is that they were only a tad worse than expected. Everybody gets a trophy!
 
FRANCE: Seriously considering a tax on smartphones, aka, “The Dumbtax on Smartphones.”
 
DEFLATION: Global central banks have one unified response to this potential scourge: “Pump up the jam…pump it up a little more, get the party going…”
 
SPAIN: The government has mandated the country’s banks to sell 10-year bonds. Makes you kinda wonder what their crystal ball says about life in 2023?
 
VOLATILITY: Okay, up market volatility we can tolerate. But don’t forget what the aptly named group Blood, Sweat & Tears says on this subject: “What goes up, must come down…”
 
HIGH-FREQUENCY TRADING:
Lloyd: You remember Mother’s Day this year?
HAL: Yep, got her flowers.
Lloyd: Did you give them to her, then take them back, then give them to her, then take them back --
HAL: Last time I heard that one, I was running DOS software executing portfolio insurance.
 
CHINA: You and your potentially-less-than-7% GDP growth numbers are making us all very GD nervous.
 
GLOBAL ECONOMY: Equity markets on their respective soapboxes decrying, “Not great now, but wait until next year!”
 
JAPAN: Regarding the yen currency, to quote Patton Oswalt, “My weakness is strong.”
 
DRAGHI: Rate cut sends a clear message: Bumblebee is still buzzing.
 
SEQUESTRATION: Spending cuts are always messy and this non-plan plan is already looking like a morning-after fraternity party living room.
 
PORTUGAL: Considering more austerity, not less. Worked for Ireland; it wasn’t fun though.
 
SYRIA: Formal condemnation and roadmap to government transition may be forthcoming…and may not be.
 
GOLD: Did anyone get the license plate of that 18-wheeler that just ran over Mr. Yellow Metal?
 
 
What Is Lloyd's Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
SPY, DIA, GLD.

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