Friday, October 4, 2013

Market History 301

Employment numbers were due today for September, but, due to the Government Shutdown, no report today.  Here’s some market history instead…

Doug Short is not a fear monger nor is he prone to making wild predictions.  In this chart and brief excerpt he presents market history…frightening though it may be.
“…A more cautionary observation is that when the P/E10 has fallen from the top to the second quintile, it has eventually declined to the lowest quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 550. Of course, a happier alternative would be for corporate earnings to continue their strong and prolonged surge. If the 2009 trough was not a P/E10 bottom, when might we see it occur? These secular declines have ranged in length from over 19 years to as few as three. The current decline is now in its 13th year.” This is but a brief excerpt.  The full commentary and analysis is well worth the read. Chart and commentary from Advisor perspectives at…

[Henry Blodget is editor and CEO of The Business Insider, a business news and analysis site, and a host of Yahoo Daily Ticker, a finance show on Yahoo.]  It looks like Henry Blodget reads John Hussman, because Blodget’s thesis parallels recent writings by Hussman.
“1) Stocks are expensive relative to earnings.
2) Earnings are much higher than normal.”   Story at…

I’ve posted dozens of these crash stories over the past year or two.  It is easy to predict a crash; you’ll always be right.  The question is when? Without a catalyst, I don’t see a crash, yet. 

2013 STOCK MARKET AN EXACT REPLICA OF 1954? (Profit Confidential)
“A story that ran in Bloomberg on Monday said the movement we see in the S&P 500 now is an almost exact duplicate of what we saw in 1954—a year in which the S&P 500 rose 45%...Comparing the 2013 rally to the rally of 1954 is just outright wrong. The fundamentals behind the two stock market rallies (1954 and 2013) are very different…In the year following 1954, U.S. gross domestic product (GDP) increased more than seven percent. (Source: Federal Reserve Bank of St. Louis web site, last accessed October 2, 2013.)… In the second quarter of 2013, U.S. GDP came in at an anemic annual pace of 2.5%. The Federal Reserve expects U.S. GDP to slow in 2014. In 2015, the Fed expects GDP to run 3.0%-3.5%. For 2016, it expects a GDP of 2.5%-3.3%. (Source: “Economic Projections,” Federal Reserve, September 18, 2013.)…2013 is no 1954!”

“The U.S. economy was booming 60 years ago!
Dear reader, the key stock indices are rising on nothing but the Federal Reserve printing tons of paper money.”  I’ve excerpted just a few nuggets from this piece.  Read the full analysis, news and commentary at…

Friday, the S&P finished up 0.7% to 1691 (rounded) at the close.
VIX fell 5% to 16.74.

The 10-day moving average of stocks advancing on the NYSE rose to 49% Thursday from 45% Thursday.  (A number below 50% for the 10-day average is generally bad news for the market.) 

New-highs outpaced new-lows Friday, leaving the spread (new-hi minus new-low) at +114 (it was +55 Thursday).  The 10-day moving average of change in the spread is minus 2. That just means that over the last 10-days, the spread has been getting worse.

Market Internals are Negative on the market for this short term indicator, but not by much. 

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

The 5-day, percent-bulls (bulls/(bulls+bears) in the Guggenheim/Rydex funds I track was 67%-bulls as of Thursday’s close. That is an extreme bullish value that is usually a negative for the markets.  “USUALLY” is the key word here.  I suspect the crowd is betting that the political impasse will be resolved easily. 

If it is, the bet might be right.  On the other hand, it is not clear to me that the market is falling solely due to political wrangling.

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.