Monday, April 22, 2013

The Top is In – The Cover-Story Rule

DOW 16,000 (Barrons)
Barrons said in its “…latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for US stocks – an all-time high…going back more than 20-years.”  About a third of those managers expect the Dow to reach 16,000 by the middle of next year, or about 10% higher than today’s value.

Barron’s made this their cover story and front-page news.  I took note because cover stories in major magazines are often at market turning points. 

John Hussman picked up on the same theme, but he had an interesting take on the subject.  Rather than repeat his comments, I’ll just repeat the graphic from Hussman Funds.  As the chart shows, cover stories like this often happen at, or near, the top.

Chart from Hussman Funds @
Barrons pointed out (quoting Bespoke Investment Group) that “…IBM’s earnings report has accurately predicted the market’s direction over the ensuing 5-weeks more than 75% of the time.”  IBM fell 10% over the last 2-days after it missed its revenue and earnings targets Friday.

Monday, the S&P 500 was up 0.5% to 1563 (rounded). VIX fell about 4% to 14.39.

Monday, the NTSM analysis was HOLD at the close.  Only PRICE and SENTIMENT indicators are negative. VOLUME and VIX are neutral. 

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
…but now I have confirmation from the NTSM analysis which sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)
I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.