Worst day since December 2008...at
least that’s what MSN.com reported. My
records show that on 1 Dec 2008 the S&P dropped almost 9% in one day. If you want to review 2008, the Buy/Sell
record for the NTSM system is shown on the Page titled “Output of the NTSM
System Showing BUY/SELL Points” linked on the right side of this page. 2008 was extremely volatile and painful year,
down over 37% for the year. Let’s hope
that 2011 is not a repeat of 2008.
Unfortunately,
the NTSM system doesn’t give too many clues about how deep a correction will
be. It just gives us Buy and Sell
signals.
To
make a guess on the size of the correction we can look at past history.
We
are now 4-years from the previous high.
In 1966 the market fell hard 4-years after the previous high. You can see from the “Compare 1966 Bear
Market to the Current Bear Market” page (also linked in this blog) that in 1966
there was a 25% decline in the Dow at this point. Here’s some more historical data if you want
to get a better idea of the range of past market action. (from a prior Weekly Market Comment by John Hussman, PhD.,
Hussman Funds, at http://www.hussman.net/.)
As
far as valuation, many advisors feel that valuations are OK. Of course we often quote John Hussman, PhD,
here and he has been writing regularly that valuation is terrible based on the
10-yr averages that he uses.
We
are already 7% below the 200-day moving average so we crashed that line of
defense.
VIX
went up over 35% to 31.66 today. That’s
a stunning move. It implies a 66% likelihood of a 9% move in
the S&P 500 within the next 30-days.
Technically, either up or down, but with the VIX up, the move is usually
down.
Checking
the charts, the S&P 500 chart shows pretty good support in around 1175. If we don’t stop at 1175 there is also strong
support all the way down at 1050. Let’s
hope we don’t have to drop that far, but coincidentally (or perhaps not), that
would be about a 25% drop from the 1364 high we saw last May. I hate Bear markets!
The
drop is due to the bad economic data we’ve seen recently and the revised belief
that we may indeed have another recession. So while earnings have been OK (not great, but
not bad either) those earnings are now in doubt for the future and the market
looks about a quarter or two into the future.
So many investors/traders are taking a more risk averse position
(selling stocks & buying bonds) given the questions about future earnings.
I
don’t really have an opinion about the economy…I just watch how the market
behaves (via the NTSM analysis) and Buy and Sell accordingly.
Today
the NTSM system was SELL. I sold last week on the 27 July sell signal. I am defensively positioned with only 30%
invested in stocks.
