John
Hussman, PhD, noted in his 12 December 2011 Weekly Market Comment,
“The present market environment warrants unusual concern, in my
view. Based on a wide variety of evidence and its typical market implications
over an ensemble of dozens of subsets of historical data, the expected
return/risk profile of the stock market has shifted to hard-negative. This
places us in a tightly defensive position. This isn't really a forecast in the
sense that shifts in the evidence even over a period of a few weeks could move
us to adjust our investment stance, but here and now we observe conditions that
have often produced abrupt crash-like plunges. This combination of evidence
includes elevated valuations, overbullish sentiment, market internals best
characterized as a "whipsaw trap" on the basis of typical
follow-through, heightened credit strains, and clear evidence (on reliable
forward-looking indicators) of oncoming recession, among other factors.” - Full Comment may be
found at Hussman Funds
http://www.hussman.net/wmc/wmc111212.htm
(used with permission).
This scenario is always a possibility, but if that
were the case would we have observed the Market action that we have seen in the
recent weeks? Specifically, we have seen
the S&P 500 complete a correction cycle on 25 November that had lasted 17-1/2
weeks. It doesn’t seem like the S&P
would enter another downturn so quickly since there hasn’t been any significant
news (so far) that would send us careening down. It
could happen though, and I expect that it will; as always, the timing is
difficult (if not impossible) to call. My crystal ball is quite foggy and the
NTSM system doesn’t predict the future either.
Today,
Monday, the S&P 500 went down 1.5% to 1236.
If we continue down, NTMS will give a sell
signal, but that should be obvious. It
could happen in a few days or not at all.
My feeling is we won’t get a sell before Christmas, but I’ll wait and
see.
The NTSM system is still BUY today.
I
bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct
NTSM buy signal. I remain 100% long in
the long term portfolio (100% stocks in the 401k.). (See the page “How to Use
the NTSM System” – the link is on the right side of this page).
I
am 90% long in the trading portfolio.
Just
a reminder: 100% invested in stocks is way too much for most rational
folks. Don’t do it unless you have a
high tolerance for risk.
