5 REASONS TO EXPECT A CORRECTION (MarketWatch)
REASON: 2“The Dow Jones set its 37th record high on Thursday…it’s worth noting that eclipses the 34 record highs set in the year of 2007, right before the bottom fell out. Record highs alone are not sign of a top, of course. After all, in 1995, the market set 69 new highs — a record amount of record highs…But the highs of 2013 feel different … Consider that in 1995, the unemployment rate was in the mid-5% range … there wasn’t a single year in the 1990s with a GDP growth rate of less than 4%. A bull market in stocks was great, but also part of a broader narrative of economic might in the decade...That’s wasn’t the case in 2007 as cracks in the growth story started to emerge. And that certainly isn’t the case now as persistently high unemployment and anemic growth are the rule.” Story at…
http://www.marketwatch.com/story/5-reasons-to-expect-a-correction-2013-11-18?pagenumber=2
FOREIGN PURCHASES OF US SECURITIES DROP TO POST-LEHMAN LOW
(ZeroHedge) Story at…
http://www.zerohedge.com/news/2013-11-18/foreign-purchases-us-securities-drop-new-post-lehman-low
NARROWEST STOCK VALUATION EVER (Bloomberg)
“Cheap is converging with expensive in the American equity market,
narrowing options for investors looking for bargains after the broadest rally
on record lifted almost 90 percent of the Standard & Poor’s 500 Index this
year.
The difference in valuations shrank to the smallest since at least 1990
after companies such as Hormel Foods
Corp. (HRL) and CenterPoint
Energy (CNP) Inc. rose to levels that match Ralph Lauren Corp. and Citrix Systems Inc., whose
five-year average profit growth rate is twice Hormel’s and CenterPoint’s. A
measure of the dispersion of price-earnings ratios in the S&P 500 compiled by Goldman Sachs Group Inc.
narrowed to 41 percent in June, the lowest on record, and held around that level
since…The monolithic market means investors may have nowhere to hide should
shares fall...“We’ve seen a runup in prices in the market, and we don’t think
it’s cheap anymore,” Bruce McCain, who helps oversee more than $20 billion as
chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a Nov. 13 phone interview.” Full story at…
http://www.bloomberg.com/news/2013-11-18/buying-low-thwarted-by-narrowest-stock-valuation-gap-on-record.html
Taper, the story that keeps on giving…
http://www.cnbc.com/id/101196328
I am surprised there is still taper-talk (to reduce the Fed’s QE
program) given Yellen’s dovish (anti-taper) testimony at the Senate
confirmation hearings.
HUSSMAN (Hussman Funds)
"...It’s quite correct to observe that the Shiller P/E was even higher at
the 2000 bubble peak than it is today, provided that one also observes that the
S&P 500 has achieved a nominal total return averaging just 3% annually
since then. Moreover, even that 3% annual return has been achieved only by driving present
valuations to what are again the highest levels in pre-bubble history. The Fed
has done it again – and it doesn’t even realize it. We have another equity
bubble on our hands – the third since 2000 – and the fallout will be enormous."
“…We can listen to Yellen’s assertions to the Senate that QE has
significantly lowered interest rates in support of economic activity, and
actually observe that long-term yields are higher
today than in October 2010 when QE2 was launched.”
[I thought this was a very interesting comment that jives with Lance
Roberts’ commentary I mentioned in Friday’s blog. Lance wrote: “…the
transmission system of government interventions is clearly broken.” {See YELLEN
PROMISES MORE. EVIDENCE SUGGESTS LESS (STA Wealth Management – Lance Roberts)} in Friday’s blog. Back to the Hussman commentary…]
“…based on the log-periodic structure of the recent market bubble (which
we don’t rely on and neither should you), my very weak impression is that we
have to allow
for a further market advance in the range of 6-8% - a pattern that would
complete a mathematically beautiful Sornette-type bubble.” - John Hussman, PhD, Weekly Market Commentary
for 18 November 2013 from Hussman Funds at…
http://www.hussmanfunds.com/wmc/wmc131118.htm
MARKET REPORT
Monday, the S&P was down 0.4% to 1792 (rounded).
VIX was up about
7% to 13.10.Monday, the S&P was down 0.4% to 1792 (rounded).
Just to emphasize Friday’s comment: The S&P 500 was
9.8% above the 200-day moving average on Friday’s new all-time high of 1798.
That is a level that has been trouble for the markets recently.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing fell to 49%
at the close Monday. (A number below 50%
for the 10-day average is generally bad news for the market.)
New-highs outpaced new-lows Monday, leaving the spread
(new-hi minus new-low) at +255 (it was +212 Friday). The 10-day moving average of change in the
spread was plus 12. In other words over
the last 10-days, on average, the spread has increased by 12 each day.
Market Internals are conflicting at the close
today. So this trend following indicator
is neutral.
Market Internals are a decent trend-following analysis of
current market action, but in 2013 (so far), if I had been buying the positive
ratings and selling negative ratings I would have under-performed a
buy-and-hold strategy.
NTSM ANALYSIS
Sentiment is EXTREME
negative. All other NTSM indicators are neutral. Overall,
NTSM is neutral. That is a broken record.
(I am mostly out of the market already.)
MY INVESTED POSITION (NO CHANGE)
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.
I still lean toward getting back in, after a pullback, to
speculate on a final ride to the top.
NTSM did give several buy signals over the weeks of 14 and 21 Oct, but
the market just looks too frothy to rush back in…we’ll see if the market will
pullback so I can join the insanity. If
not, cash is fine.
