Monday, September 9, 2013

Stock Market Crash Coming Soon

I have posted literally dozens of “crash-posts” by pundits predicting a crash in the markets.  They are almost all missing the most critical piece of information: When?

Here’s a post from ZeroHedge where “Variant Perception” says a crash is coming between now and the beginning of Q4 2013.  Q4 begins 1 October 2013. 

“Via a mathematical framework, that has been empirically shown to accurately model bubbles, and give a prediction for when they will ultimately come to an end, Variant Perception (VP) investigates the S&P 500 today. The framework suggests a window of time within which the S&P will experience a 'regime change', which may involve a steep price drawdown. Using this framework, VP predicts this regime change will occur any time between now and the beginning of Q413.” Story at Zero Hedge at…

Variant Perception may be found at…

Monday, the S&P finished up 1%  to 1672 (rounded) at the close.
VIX was down 1.4% to 15.63.

Today was a statistically significant day as measured by price and volume so a down day is suggested for tomorrow, likely followed by further down days in the short-term.

The 10-day moving average of stocks advancing on the NYSE was up slightly to 52% at the close Monday.  (A number above 50% for the 10-day average is generally good news for the market.) 

New-highs outpaced new-lows today leaving the spread at +123 (it was +67 Friday), with the 10-day moving average of change in spread positive and trending up. 

The Internals are positive on the market

I report internals, because I think they give clues about future market direction, especially when there is divergence. However, I decided to do a back-test of the market internals to see if they are truly predictive of market action in the short term on a daily basis.  Looking at charts vs. the S&P 500, the internals I report do SEEM to be accurately suggesting future market movement, but patterns can be deceiving.  My back-test consisted of 3-market-internal, indicators that needed to agree with each other for a buy or sell signal.  I found they slightly underperformed the S&P 500 over the last 2-years by about 3% each year. Since they underperformed, there is no point in back-testing 10-years (nor going into detail about the indicators).  The fact that they underperformed by a fairly small number shows there is some correlation and one could conclude that the internals (the way I am using them) are an OK trend following indicator, but not great.  I’ll need to do more work to see it the internals can be tweaked to find a better predictive indicator.

Monday, the overall long-term NTSM analysis remains HOLD at the close.

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system 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.