HUSSMAN ON THE MARKET
"I want to share my view that the statistical risk of severe market outcomes, given present observable data, has almost never been worse."
“…last week, the stock
market experienced some significant damage to internals (breadth, leadership,
price/volume measures, etc). As a result, our estimates of prospective
return/risk have plunged lower again, to what is now the second most negative
figure we’ve observed in a century of data – the September 14, 2012 weekly
close of 1465.77 continues to mark the most negative estimate…’
“…It’s tempting to assume
that last week’s market weakness was nothing more than a post-election letdown
for Wall Street, or a transitory focus on the “fiscal cliff.” But that
perspective would ignore the months of extreme indicator syndromes that were in
place well in advance of the recent weakness. As for immediate catalysts,
Germany reported a significant miss in industrial production the day after the
election, and the European Union downgraded its expectations for 2013 growth…”
John Hussman, PhD, Weekly
Market Commentary for 12 Nov 2012 from Hussman Funds at…http://www.hussmanfunds.com/
My CMT: John
Hussman, PhD, provides the Strategic view of the market. I think the NTSM blog presents the Tactical view. Tactics are the day-to-day actions we must
take to win the war, even though small term losses or an occasional skirmish
may be lost along the way. John
Hussman's strategy addresses an overall, longer-term view.
As John Hussman has frequently noted, his analysis looks out as long as 18-months into the future and he has been positioned conservatively nearly that long. As a result, some may have been tempted to discount his views. Not me. I have always suggested that he is correct; it is the timing that is hard to call. Now, I think his timing is aligned with mine and provides some support for the NTSM recent sell signals. Will we be proven right? Only time will tell!
As John Hussman has frequently noted, his analysis looks out as long as 18-months into the future and he has been positioned conservatively nearly that long. As a result, some may have been tempted to discount his views. Not me. I have always suggested that he is correct; it is the timing that is hard to call. Now, I think his timing is aligned with mine and provides some support for the NTSM recent sell signals. Will we be proven right? Only time will tell!
MARKET
RECAP
Monday the S&P 500 down
0.4% to 1375 (rounded). VIX fell 0.2% to
16.65.
The market moved up as the
buy-the-dip crowd moved in. Near the
middle of the day, the market was up around 0.4%. Behind the scenes, the number of stocks
declining significantly exceeded those advancing and the number of stocks
making new-lows was twice those making new-highs. Those internals aren’t consistent with a
healthy market, and certainly not on a day when the market appeared to be
moving up. The market fell in the
afternoon and gave up all gains to make this an ugly day.
NTSM
The
NTSM analysis remained SELL Tuesday.
MY INVESTED POSITION
Based on the SELL signal,
7 November 2012, I moved out of the stock market at 1377 on the S&P 500. Because of the extreme negativity I have
noted from Hussman and others, I am currently invested in a range of near 15%
invested in stocks. I also took short
positions on the morning of the 8th that make me currently net short
the S&P 500. (I am using Guggenheim
(formerly RYDEX) funds and 2x Short ETF, SDS.
Those are dangerously volatile so I don’t recommend them unless you have
a BIG tolerance for risk. Also, if they
are held too long they may not perform well.
REPEATING STRATEGY
As
I have noted before, others may choose to keep more invested in stocks without
too much damage to their portfolio if the invested % is low. For example, if one were to keep 30% invested
in stocks and the market crashed by 50%, the loss to the portfolio would only
be 15%. If that is your plan, keep the
low-beta stocks (those with lower P/E ratios) such as utilities, consumer
staples, or value oriented mutual funds.
Sell technology. Keeping 30%
invested in stocks is actually a pretty good strategy since it hedges the bet
if I am wrong and the market continues up after a sell signal.
To
be clear I am not predicting a crash; but there seems to be a lot of risk now.
