BULLS RUNNING OUT OF TIME
“It’s almost mind-boggling that investors actually expect the present speculative run to end well. As I wrote about the oil market in July 2008 as prices raced toward $150 a barrel…“Geek's Rule o' Thumb: When you have to fit a sixth-order polynomial to capture price history because exponential growth is too conservative, you're probably close to a peak.” Oil prices actually collapsed to about $35 a barrel shortly thereafter. The preceding advance to the speculative peak was very well-described by a “log periodic bubble” of the sort that characterizes the S&P 500 at present…
…Based on the
fidelity of the recent advance to this price structure, we estimate the
“finite-time singularity” of the present log-periodic bubble to occur (or to
have occurred) somewhere between December 31, 2013 and January 13, 2014. That
does not mean that
prices must immediately crash – only that the dynamics will then lend
themselves to a great deal of potential instability, if prior log-periodic
bubbles in equity and commodity markets across history are any indication. It
bears repeating that our own defensiveness is driven by a broad ensemble of
evidence, not simply price dynamics, not simply valuations, not simply
sentiment, but the “full catastrophe” – which includes the fact that strong
economic, speculative and monetary enthusiasm has historically been quite a
contrary indicator for stocks….
…we now estimate negative
prospective total returns for the S&P 500 on every horizon of less than 7
years.” – John Hussman, PhD, Hussman Funds Weekly Market Commentary for 6
January 2014. Full commentary at…http://www.hussmanfunds.com/
John Hussman is fitting a plot of a mathematical equation
(sixth order polynomial) to the S&P 500 because, as he says, the
exponential curve is not steep enough to fit the current S&P
trajectory. His guess of a downturn
starting before 13 January (or at least noting the conditions are ripe for
downturn) is based on the curve relative to prior bubbles and additional
negative syndromes that have led to downturns in the past. See the plot and analysis at…
http://www.hussmanfunds.com/wmc/wmc140106.htm
CRASH IS NEAR - WORSE THAN 2008 (WSJ)
“…2014 will be the year of “major reversals,” with the
Dow Jones Industrial Average expected to start a two-year decline that could
eventually take it down more than 70% to below 5000. United-ICAP chief market technician Walter
Zimmerman said the Dow Industrials could still rally another 4% or so first, to
a high around 17150, before the great reversal begins. And for those who
thought 2008 was the worst bear market they will ever see, just wait...’Based
on our longer-term time cycles the present stock market rally must be
considered the bubble to end all bubbles,’ Mr. Zimmerman wrote in a note to
clients….He sees the S&P 500 eventually bottoming as low as 450…75%...below
current levels.”Full story at…
http://blogs.wsj.com/moneybeat/2014/01/03/the-bearish-call-to-end-all-bearish-calls/?mod=WSJ_hpp_MIDDLENexttoWhatsNewsFifth
Here is a link for the full analysis and discussion by
Walter Zimmerman at United – ICAP:
http://www.united-icap.com/LinkClick.aspx?fileticket=Tz4OdBkIa44%3d&tabid=145&mid=632
OTHER VIEWS OF THE ZIMMERMAN CRASH CALL – FOR BALANCE
Just to provide some balance, here are a couple of comments from a
trader board: (1) “As with most of these charlatans, they have no explanation as to why the markets will collapse other than looking at a chart of past history. What calamity must befall the global market (not just the US) that would cause a 70% drop? Nuclear war? California earthquake dropping 1/3 of it into the Pacific Ocean? The Yellowstone Caldera exploding?”
…or another comment:
(2) “…those of us who have been believing that
this fraudulent economy means a collapsing stock market have left hundreds of
thousands of dollars - maybe millions on the table in our own accounts. At some point, it probably
does implode, but the can kicking has worked far longer than many of us thought
and will probably continue to work longer than we thought imaginable.
That said, if we are near retirement, we can't be "all in" on an
economic fraud. It's important to listen to guys like this, but we must
use a filter when doing so.”
Actually past history predicts exactly this sort of crash
in the context of a secular bear market and I have mentioned many times that this sort of reversion is expected (although I'd expect a bottom no worse than 700-1000). The catch is: saying it is going to start NOW
seems implausible. I think there has to
be a catalyst. In 2000 it was Fed
tightening with the express purpose of slowing an overheated economy. In 2007
it was a housing crisis and the fear of 10-dollar gasoline along with the Bear
Sterns failure at or near the prior market highs. This time? Perhaps it will be falling corporate profits (given the large % of warnings during last quarter's earning season - we’ll see. Hussman and Zimmerman will
be right…but when? I thought Hussman was right in 2013 and that opinion didn’t fare
too well.
JANUARY EFFECT (Seeking Alpha)
Forget the first-day rule (as the first day of January
goes, so goes the year) and the 5-day rule (similar to the first day rule, but for
5-days). The only January rule that
works is:“…an entire month's performance does hold predictive abilities. Particularly when that month in question is January. Again, I'll turn to number-cruncher extraordinaire, Silverblatt, for the irrefutable proof. He calculated that the market adage, "as January goes, so goes the year," has been right in 62 out of the last 85 years. That works out to 72.9% of the time. While it's not a sure thing, the odds of January's performance predicting the year's overall outcome is much better than flipping a coin.” Story at…
http://seekingalpha.com/article/1930301-The-Shakespeare-Omen-Haunts-This-Years-Market?source=yahoo
MARKET REPORT
Monday, the S&P 500 was down 0.3% to 1827 (rounded). The index is down 1% in the last 3-days; no
big deal (so far) and those fear mongering about 3-down days in a row are
wasting my time.
VIX was down about 2% to 13.55.
The 10-year Treasury Note closed at 2.96% yield. As
explained by Art Cashin, UBS Director of Floor Trading on the NYSE and CNBC commentator,
rates at 3% or above are considered by some traders to be “trouble-for-stocks”.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing was up
slightly to 58% 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 Monday, leaving
the spread (new-hi minus new-low) at +105 (it was +73 Friday). The 10-day moving average of change in the
spread was +4. In other words, over the last 10-days, on average, the spread
has increased by 4 each day. Market
internals remained neutral on the market.
The 10-dMA of up-volume has been trending down; otherwise breadth and
new-high/new-low data look good. 
Market Internals are a decent trend-following analysis of
current market action, but in 2013, if I had been buying the positive ratings
and selling negative ratings I would have under-performed a buy-and-hold
strategy.
NTSM
The S&P 500 was 10.1% above the 200-dMA at the close
last Tuesday and a value of 10% has led to small pullbacks in 2013 (and corrections
in 2011 and 2012). That stat was 8.5%
above the 200-dMA Monday. The Index is
1.8% above the 50-dMA. It will be
interesting to see if the computers get worried if the 50-dMA is broken.
I expect the markets to pullback in the first quarter of
2014, but it remains to be seen whether it will be another small buy-the-dip
event or something more.
My New Year’s resolution was to stop trying to predict
short term moves in the markets…That lasted one-day!
The most recent BUY signal for the NTSM system was 25
October. The “5-10-20 Timer” switched to
BUY from HOLD on 18 December.
MY INVESTED POSITION
I am about 30% invested in stocks as of 20 December
(S&P 500-1540) because I upped my stock holdings by 10% on the 20th
of December. Unless I get a SELL signal
in the NTSM system, I will continue to income-average (a little each month)
into the stocks to get my %-invested up to around 50% (max for me now) unless
there is a correction that would allow me to move in sooner and at a higher
percentage. Since that is my expectation, I have not upped my invested
percentage in one move as I normally would.
(A good rule of thumb for percent invested is to subtract your age from 100 and put that amount into the stock market. Generally a minimum of 50%-50% stocks and other investment is a reasonable value for the over 50-crowd; that’s my group. With bond yields rising keep to the short end of bonds, i.e., less than 10-year maturity or mutual funds that focus on the short end.)
