“One of the striking things about the late-1990’s bubble was that even investment professionals who should have known better were swept into New Economy thinking... it is the absence of an obvious bubble in any individual sector, and instead a bubble in profit margins across the entire corporate sector, that is likely to be the “hook” that drags investors deep into eventual bear market losses [this time]...Warren Buffett once noted ‘when people forget that corporate profits are unlikely to grow faster than 6% per year, they tend to get into trouble.’” - John Hussman, PhD, Weekly Market Comment, “The Hook”, Hussman Funds at...
http://www.hussmanfunds.com/index.html
John Hussman further noted that corporate profits are now running near
11% of GDP “...a level that is clearly explained by massive
federal deficits and depressed personal savings...”
As he noted in his commentary, this doesn’t mean that an immediate
decline is necessary. As was the case in
2000 and 2007, further limited advances are possible. I would suggest that, in the short term,
advances are limited to the 0-5% range since the markets have rarely exceeded
levels higher than 15% above the 200-day moving average (dMA). As of today’s close, the S&P 500 is 8.4%
above its 200-dMA. Over the last
2-years, the S&P 500 has corrected at a level of 10% above its 200-dMA and
that was also true in 2007 before the last top.
CYPRUS
The “solution” for Cyprus seems to be very similar to a proposal
suggested in the Wall Street Journal last week: let the banks fail and protect
insured depositors. Bondholders,
stockholders and depositors whose deposits exceed the insured limit will
lose. The amount of loss remains to be
seen. This was the expected
outcome. I am not sure that a bank failure
is ever good news, so it will be interesting to see how the markets react this
week. Today - not so good.
HEAD AND SHOULDERS…TRIPLE TOP…OR BOTH
The chart below shows the S&P 500 over the past several weeks. There is a weak head and shoulders pattern
that may be signaling a top. A
head-and-shoulders pattern is one of the most reliable patterns used by
chartists. The good news (if there is
one) is that targets associated with the pattern would only indicate a low of
about 1525 and that is why I termed it a weak signal. The target is assumed to be the difference
between the head and the lower shoulder – of course it could continue
lower. I think it is open to
interpretation whether the neckline is the horizontal dashed blue line or the
dashed down-sloping black line.
The pattern also represents a triple top since all three peaks are
within ½-percent of each other. The
peaks are close together though (less than 2-weeks for the entire pattern) and
that is not as strong as if the pattern had occurred over a longer time, at
least in my opinion.
No guarantees that this is the top, but taken with my relevant
discussion on Friday (http://navigatethestockmarket.blogspot.com/2013/03/sentiment-at-extreme-levels.html),
I think it tends to provide some further evidence to support my feeling that
the top is in. As on Friday, I am
suggesting the top was on the Ides of March, at S&P 500 1563. As always, we'll see.
MARKET RECAP
Monday, the S&P 500 finished down 0.3% to 1552 (rounded). VIX was up 1% to 13.74.
Monday, the S&P 500 finished down 0.3% to 1552 (rounded). VIX was up 1% to 13.74.
NTSM
Monday, the NTSM analysis remained HOLD at the close.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500-1525),
due to my risk tolerance rather than the numerical NTSM analysis. To put it bluntly, I currently have no
tolerance for risk. (If I were strictly
following the NTSM numbers, I'd still be heavily invested in stocks.) My
reasoning may be found at…
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
