“It
is now urgent for investors to recognize that the set of economic evidence we
observe reflects a unique signature
of recessions comprising deterioration in financial and economic
measures that is always and
only observed during or immediately prior to U.S. recessions. These
include a widening of credit spreads on corporate debt versus 6 months prior,
the S&P 500 below its level of 6 months prior, the Treasury yield curve
flatter than 2.5% (10-year minus 3-month), year-over-year GDP growth below 2%,
ISM Purchasing Managers Index below 54, year-over-year growth in total nonfarm
payrolls below 1%, as well as important corroborating indicators such as
plunging consumer confidence.”
Mr.
Hussman continues with an interesting discussion of the impacts of Fed
interventions and a discussion of valuation.
Regarding valuation he said, “… major secular
undervaluation as we observed in 1950, 1974 and 1982 would
presently map to about 400 on the S&P 500. When you think of "once in
a generation" valuations and "secular
bear market lows" - that number, not anything near present
levels, should be what crosses your mind. - John P. Hussman, Ph.D., 31 Aug 2011 Weekly Market Comment, http://www.hussmanfunds.com, used with permission.
I
have suggested that the low for this leg of the bear market might be in the
range of 1050 - 825. My worst case guess
would be the previous intraday day low around 650 (in round numbers). 400 on the S&P 500? Wow…let’s hope not. If it does happen, we’ll hope that the NTSM
calls it correctly.
The
Navigate the Stock Market analysis is HOLD again today.
I sold on the 27 July sell signal at S&P 500 1301 and I am
defensively positioned with only a small amount of my portfolio invested in
stocks. (Zero stocks in the 401k.)
(See
the page “How to Use the NTSM System” – the link is on the right side of this
page).
I am also 75% short in the trading portfolio. I will have to re-think the short position if
we go up again. The S&P is breaking
above its top trend line so we may be seeing a better bear market rally than I
had expected. I may sell the shorts and
try to re-short at a higher value on the S&P. I did see a report on CNBC where it was suggested
that the rally for the past couple of days was due to end-of-the-month
positioning and should be over soon so I am inclined to hang on a little longer.
