“…the rally that took place in October did nothing more than go back and tickle the former support, which is now resistance, and the price is coming down again. So I think one has to be very careful here overall. I have no problem having a majority of money in cash at this point." – Louise Yamada, Louise Yamada Technical Research Advisors. Story at…
http://www.financialsense.com/contributors/louise-yamada/stocks-topping-oil-32
TIME TO SELL, SELL, SELL (CNBC)
"We are still very close to the highs, which is why I recommend locking down some gains and raising some cash. You might need it." – Jim Cramer. Story at…
http://www.cnbc.com/2015/12/11/cramers-game-plan-its-time-to-sell-sell-sell.html
JOHN HUSSMAN ON THE MARKETS (Hussman Funds)
“I’ll emphasize again that market internals are the hinge that distinguishes a valuation bubble that expands from one that collapses, so an improvement in market internals would reduce the immediacy of our downside concerns, and would also tend to reduce our concerns about oncoming recession. In the absence of clear improvement in market internals - and last week was categorically opposite to that - I view the stock market as being in the late-phase of an extremely overvalued top formation that will likely be followed by profound losses over the completion of this market cycle, and the U.S. economy as being on the cusp of a new recession.” – John Hussman, PhD. Weekly Market Commentary at…
http://www.hussmanfunds.com/wmc/wmc151214.htm
He may finally (after several bearish years) be right.
WHY THE BULL MAY BE DEAD
-Profits. Companies have been experiencing declining profits and revenues for Q3 and more pain is expected for Q4. Further, the ratio of Corporate Profits to GDP is at an extreme value that supports the Bear thesis. The dollar is strong and that hurts multi-national companies.
-ISM & Fed Manufacturing are Trending Down in a fashion that suggests a recession on the way.
-Sentiment: Sentiment (measured as %-bulls = {bulls/[bulls+bears]} in selected Rydex/Guggenheim funds on a 5-day basis) peaked at 85%-bulls after the all-time S&P 500 high of 2131 on 21 May. (Sentiment peaks after a top since dip-buyers move in late.) Sentiment is suggesting that “The Top” is in for this cycle; the 85%-sentiment level is similar (on a standard deviation basis) to the top in 2000.
-Margin: Margin Debt maxed out in April 2015 at an all-time high. Margin debt-peaks correlate well with market tops.
-New-Highs: The % of new highs on the NYSE was 2.3% at the May all-time high for the S&P 500. That is an extraordinarily low number and it too suggests that the top of 21 May was an important top. The % of new highs at the top in 1929 was also 2.3% although the measurement method is slightly different, because not all issues on the NYSE today are stocks.
-New-Highs: At the top in December 2014, 9% of stocks on the NYSE made new-highs so fewer stocks are participating in this aging bull-market. This strongly suggests that a Bear Market is approaching. The folks at Lowry Research indicate that new-highs break lower 6-months to 1-year before a final top and somewhat longer if the bull phase has been extended. New-highs (on a 5-day basis) peaked in Jan of 2013. More recently, a near-term peak was made in early February 2015, 9-months ago. By this measure, a bear market start is likely.
-China. Troubles in China continue and weak exports there suggest a world-wide slow-down.
-Charts: The charts look a lot like the major tops in 2000 and 2007; another very bearish indicator.
-Secular Bear Market is still on – the year 2000 NASDAQ Composite high has not been significantly breached higher. Secular Bear Markets usually have 3-peaks; we’ve had 2 and we are now experiencing the third.
-Trends: The 200-dMA of the S&P 500 is now sloping down and the 150-dMA of %-stocks advancing is 48.5%. Both are bearish long-term signals.
-Divergence: Small and mid-cap divergence also suggests that a major top may have occurred back in May. That’s another way of saying that market breadth is declining. As bull markets age, investors get more selective and shy away from small and mid-cap stocks. Recently, the markets advance has been fueled by only a dozen or so large-caps stocks.
-Only 27% of stocks were above their 200-dMA this past Friday.
I calculated 2-to1 odds that the bull market has ended. See my discussion at…
http://navigatethestockmarket.blogspot.com/2015/11/stock-market-top-john-hussman-phd-2-to.html
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was up about 0.5% to 2022 at the close.
-VIX fell about 7% to 22.73.
-The yield on the 10-year Treasury rose to 2.23.
While there is plenty of evidence that supports a major top, it is not guaranteed; therefore, I am not opposed to putting more funds into stocks if I get the right signals. For example…
The Advance/Decline ratio is still signaling oversold; that’s 4-days in a row. RSI was within a whisker of “oversold” at today’s low of 1994; the Smart Money Index was not. We got the bounce up I mentioned yesterday, but the trend remains down. That might be changing, but it would be confirmed only if we see some further significant improvement in the Market Internals. If we do, I will increase my %-invested in the stock market to 30% invested in stocks. As I have commented, my current position of 0% in the stock market is too low. It is better to hedge a bit and leave some in the market if I am wrong about a Bear Market – a very real possibility!
MARKET INTERNALS (NYSE DATA)
(I am getting data from a new site. Some of their numbers are subject to minor revision later today so the previous day’s numbers may be slightly different than reported previously. To make matters worse, some of this afternoon’s data was corrupt. I will have better volume data later this evening.)
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 34.3% Monday vs. 36.1% Friday. (A number below 50% is usually BAD news for the markets. On a longer term, the 150-day moving average of advancing stocks slipped to 48.5%. A value below 50% indicates a down trend.
The McClellan Oscillator (a Breadth measure) remained negative Monday and continued its decline. This indicator is at its lowest value since the 25 Aug recent low on the S&P 500.
New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was minus-609. (It was -368 Friday.) The 10-day moving average of the change in spread was -63 Monday. In other words, over the last 10-days, on average; the spread has decreased by 63 each day. Market Internals improved to neutral due to increasing up-volume last Thursday and remain neutral Monday.
Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late. They are most useful when they diverge from the Index. In 2014, using these internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive, out on Negative – no shorting). Of course, few trend-following systems will do well in an extreme low-volatility, nearly straight-up year like 2014.
NTSM
Monday, the NTSM long term indicator was HOLD. The Price indicator is positive. Sentiment is neutral; VIX & Volume are negative. This indicator is close to a sell.
This indicator was SELL previously so a sell now would be
relatively meaningless; that explains my invested position.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
All cash: G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 100%
I made a rather impulsive sell decision. For my reasons (or lack of reason) see “My Invested Stock Position” in my prior blog at...
http://navigatethestockmarket.blogspot.com/2015/11/factset-earnings-cass-freight-index.html
There have been enough major top indicators recently to warrant more caution than usual. If we see an improvement in internals, I will increase my invested %.
One needn’t be “all-out” to be well protected if there is a bear market. In fact, I don’t recommend it. For example: With 30% invested in the stock market, one would only lose 15% of the portfolio if the market were to be cut in half; one would have plenty to invest at the bottom and 30% in stocks hedges the bet if the markets go up.
