There are three periods
for stock market analysis and the health of the market can be judged quite
differently depending on your time frame.
LONG TERM VIEW
Long term we have analysis
like John Hussman's and an article from Atlantic Magazine I linked after Hussman. If there’s one word that summarizes the
long-term view it might be, “disaster.”
LONG TERM VIEW - JOHN
HUSSMAN
“...we continue to infer
that the economy has already entered a recession – something that will probably
take several more months to be broadly recognized. We’re seeing fresh lows on
the most leading economic component that we infer using unobserved components
methods...matching weakness that emerged in late 2000 and late 2007. On a
slightly positive note, we don’t yet see the near free-fall in these measures
that occurred later in 2001 and 2008 as economic weakness rapidly gained
momentum.” – John Hussman, PhD, Weekly Market Comment, “Eating the Future” (24
Sep 20120). Full commentary at...http://www.hussmanfunds.com/
In his comment on the
financial markets, Mr. Hussman suggested that we may not be far off from a
point where ALL investors try to find a buyer at higher prices (greater
fool?). Unfortunately, at that point,
there are no more buyers and a collapse in price must follow.
LONG TERM VIEW - the ATLANTIC
(October 2012 Atlantic Magazine)
The Next Panic, by Peter
Boone and Simon JohnsonEurope’s crisis will be followed by a more devastating one, likely beginning in Japan.
“Our financial systems appear to be returning to their inherently unstable nature, which plagued the 19th and early 20th centuries....Increasingly, however, it appears that future generations will not be the only ones harmed by our decisions; we are already feeling the negative impact. In recent decades, financial sectors throughout the rich world grew at historically unprecedented rates; now they are dangerously outsize relative to the rest of the economy. Changing that dynamic in any orderly way looks extraordinarily difficult. Yet history suggests it will change, and soon. The era of large-scale, uncontrolled financial booms and busts—last seen in the 1930s—is back.
Peter Boone is a director
at Salute Capital Management and a visiting senior fellow at the London School
of Economics. Simon Johnson is a professor at MIT Sloan and senior fellow at
the Peterson Institute for International Economics.
Full story at...http://www.theatlantic.com/magazine/archive/2012/10/the-next-panic/309081/single_page=true
INTERMEDIATE TERM
That is the realm of NTSM
analysis where I try to identify buy-and-sell points to avoid those pesky
corrections greater than 10%. If I succeed
in that role, I’ll also miss the long-term crashes. See the NTSM paragraph below for the current
NTSM summary.
SHORT TERM...New-Highs/new-lows
I have been watching the
5-day new-high data on the NYSE. That’s
the number of stocks that made new highs over the past 5-days. As a market internal, it should be a clue
regarding the short term market health.
In a healthy, bull-market the number of new-highs should be going
up. It can be especially telling if the
major indices, like the S&P 500, are flat, or going down, while the market
internals are improving. Unfortunately, over the past 2-weeks or so we have seen the opposite; the new-highs are diminishing while the market has been flat. This leads me to believe that the indices will follow the market internals down, at least in the short term. That is the reason I have not increased my stock allocation recently. I want the new-high/new-low internals (and breadth too) to confirm this bull market in the short term. Until that happens, I’ll remain conservatively invested at 50% stocks. In the meantime, if the NTSM analysis gives a sell recommendation, I’ll go to no greater than 15 to 30-percent invested in stocks. Who knows, maybe next time I’ll shoot for zero percent invested.
MARKET
RECAP
Monday the S&P 500
finished down 1/4% to 1457 (rounded).
VIX rose 1-1/4% to 14.15.
NTSM
The
NTSM analysis dropped to HOLD Monday.
Only the price indicator is positive now and it is at an extreme positive level
(up-moves have been larger than down-moves) that hasn’t been approached since January 2011, exactly 1-month before the 2011
correction started.
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 currently have a 50%
stock allocation overall. For my age,
that is what most advisors recommend as a fully invested position, however, I
am normally much more aggressive. I have
less invested in stocks now because there’s a lot of risk.
