You may ask why I am still
long (50% invested in Stocks) now since I post extremely bearish commentary
such as those by John Hussman (yesterday) and others; Robert Prechter, the Aiden
Forecast newsletter, Albert Edwards, Paul B Farrell,
Marc Faber, Robert Weidemer, Bob Janjuah, Harry Dent Jr, Jimmy Rogers
and Abigal Doolittle (just to name a few) over the past year. It is important to remember that the stock
market remains in a secular (long term) bear market that began in 2001. Based on the history of past bear markets,
the odds are high that there will be another major collapse in price in the
markets. Almost all of the experts I
named above have predicted a drop to at least 850 on the S&P 500 (my
target) or lower. What we don’t know is when,
though history would suggest it’s overdue based on the averages. I use the Navigate the Stock Market analysis
to try to get out of the market before the “when”. One indicator I look at is VIX, the Volatility
Index (S&P).
VIX
It is calculated from put
and call options and represents the implied change, up or down, in the S&P
500 index based on its formula.
Basically a VIX of 15 means an expected change of 4.33% over the next
month.
The current Volatility
Index is about what we’ve seen at previous highs (prior to corrections of about
15-20%) at least going back a few years; but back in 2007 the VIX fell all the
way to 10, so the level of VIX isn’t a great indicator by itself, but it does
give some cause for caution.
Today the VIX was up a lot
and that is not a good sign for the near term. Today the NTSM VIX indicator
switched to neutral from buy.
SENTIMENT
Sentiment is very low
now. As of yesterday’s close (my
sentiment indicator is almost always a day late) sentiment was 37%-bulls. That’s a surprise that would seem to indicate
that this bull-run could keep going up.
On the other hand sometimes the masses get it right and the sentiment is
correct. That usually happens when the
direction of the markets is clear. For
example, it’s not a surprise to find bearish sentiment when the market is
collapsing in panic selling. It is a
surprise now, though, because it suggests that the S&P 500 can go higher
from here. Sentiment is not a great
indicator though for making buy/sell decisions – it can be very early or
late. Currently, Sentiment remains
neutral.
VOLUME
Volume
switched to neutral several days ago as more volume began trending to the
downside.
MARKET
Tuesday the S&P 500
finished unchanged at 1404. VIX rose 8%
to 14.85.
NTSM
The
NTSM analysis deteriorated today and switched to HOLD at the close on Tuesday. (Only
the Price indicator is currently positive. Sentiment, Volume and VIX indicators
are all neutral.)
MY INVESTED POSITION
Based on the BUY signal, 6
July, I moved back into the market on 9 July (after the weekend) at S&P 500
1352. I now have a 50% stock allocation
overall. For my age, that is what most
advisors recommend, however, I am normally much more aggressive. I have less invested in stocks now because
there’s a lot of risk.
