I suspect that sometimes
the market drops on Monday because of the “Hussman Weekley Comment.”
Excerpts from the Weekly
Market Comment, April 30, 2012, by John Hussman, PhD, of Hussman Funds follow:
“Over the past 13 years, and including the
recent market advance, the S&P 500 has underperformed even the minuscule
return on risk-free Treasury bills, while experiencing two market plunges in
excess of 50%. I am concerned that we are about to continue this journey. At present, we estimate that the S&P 500
will likely underperform Treasury bills (essentially achieving zero total
returns) over the coming 5 year period, with a probable intervening loss in the
range of 30-40% peak-to-trough....
...Presently...we have
signs of oncoming recession. This is particularly evidenced by collapsing
economic measures in Europe, softening economic performance in developing
economies including China and India, and jointly
weak year-over-year growth in key U.S. economic measures such as real personal
income, real personal consumption, real final sales, and reliable leading
indicators from the OECD and ECRI, as well as our own measures.” Full Comment at: http://www.hussmanfunds.com/
Readers of this blog may
wonder why I post John Hussman, PhD, excerpts so frequently. I do it to remind myself (and readers) that
we must follow the data – not our emotions or the prognostications of the TV
talking-heads. The economic data at
present is not pretty. Hussman presented
a couple of graphs that show the Eurozone is already in recession, based on
Purchasing Manager Index (PMI) readings.
As was reported last week, the United Kingdom is officially in
recession. That doesn’t bode well for
the US.
There is a strong
correlation of the economy and stock market performance between the US and
Europe.
Another important reason
for following the Hussman Weekly Commentary, and I hope you will all read the
full article at Hussman Funds, is that his analysis is completely different
than mine. He is following economic
trends and those are often not immediately translated into the stock market. My analysis at NTSM follows Sentiment, Price,
Volume and VIX of the S&P 500 and is a very short-term oriented system.
Currently, the market is
starting to look stretched by even our short term standards. The NTSM system has not issued a sell signal
since September 2011, but I think that will change within the next month or
so. The size and related volume of moves
to the up side is much smaller than it was 2-months ago. Sentiment peaked briefly into the sell zone
and then quickly fell back to neutral levels.
It has been about
37-months since the last major bottom (March of 2009). On average the bull periods in a secular bear
markets have lasted 26-months with the longest at 63-months from 2002 to
2007. One may guess that the long bull
market was due to Fed meddling. I
suggest “meddling” because the drop of 57% after the 2002-2007 bull was the
largest drop after a bull-market during a secular-bear on record, going back to
1907. That suggests the Fed didn’t avoid
any pain; it just pushed it into the future. (Last October's low isn't looking as significant right now.)
Some have called the
recent market action a “mini-correction.
We saw similar market action last year a few months prior to the 19%
decline last summer. The NTSM VIX
indicator is at a level that has produced a sell signal in the past. If we begin to see some fear in the market,
VIX will climb and NTSM will switch to sell rather quickly.
Bottom line: If the market
can’t get above its recent prior high of 1417, the odds are that it will
fall. I am less sure that this will just
be a re-trace back to the 200-dMA since Europe is again coming into play and
the US employment data has been worse than expected.
Of course, no one has a
crystal ball and the markets may just continue to climb the “wall-of-worry.”
I commented a week or so
ago that it was not time to be complacent.
That is truer today. I will be
closely watching the NTSM analysis.
THE MARKET
The S&P 500 was DOWN 0.4%
Monday to 1398. VIX rose 5% to 17.15.
NTSM
The NTSM analysis remained
HOLD today, Monday.
MY INVESTED POSITION
I bought back into the
stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy
signal. I remain 100% long in the
long-term portfolio (and 100% stocks in the 401k.). (See the page “How to Use
the NTSM System” – the link is on the right side of this page). 100% in stocks is quite extreme so don’t do
it unless you have a high tolerance for risk.
