David Darst, the Morgan Stanley chief investment strategist, has six boxes on his bear market checklist, and none of them are filled in yet.
"…he certainly sees danger that conditions could change, particularly in the case of policy mistakes. But the current trajectory is higher."
Bear Market Checklist:
1. Is the Federal Reserve tightening monetary policy?2. Are stock price valuations stretched?
3. Is investor euphoria present?
4. Are bond spreads widening?
5. Is there a recession looming?
6. Are transportation stocks, small caps and bank stocks retreating?
"Right now we are 0-for-6 in the bear market
checklist," Darst said. Story at…
http://www.cnbc.com/id/100720862
I can make a case that 2 of the 6 should be checked: first,
valuations.
STOCKS (AND EVERYTHING) ARE OVERVALUED (Rex Nutting blog
at MarketWatch)
The Shiller PE: “[It] is now 23.2, vs. the pre-bubble average of about
15. It’s been higher on only three occasions in the past 93 years: Just before
the 1929 crash, just before the 2000 crash, and just before the 2008 crash.”David Levy, chairman of the Jerome Levy Forecasting Center:
“From surging bank stock prices to rising Manhattan coop values, all present bull markets are zero-interest-rate bull markets,” Levy wrote recently. These bull markets are occurring in an environment of high private-sector debts and limited growth potential, and therefore are “intrinsically speculative, limited in their potential, fragile and ultimately capable of severe declines.”
… No one’s sure when the reckoning will take place, but it’s likely to be ugly when it does.” Story at
http://www.marketwatch.com/story/its-not-just-stocks-everything-is-overvalued-2013-05-10?pagenumber=2
Sentiment has been extreme recently and is
now elevated; but that’s only 2 of the 6, so no bear market yet. I still expect a correction (10-20%) relatively
soon. The S&P 500 is 11% over its
200-dMA so a correction can be expected at any time.
MARKET RECAP
Friday, the S&P 500 was up 0.4% to 1,634 (rounded
VIX fell 4% to 12.59. Friday, the S&P 500 was up 0.4% to 1,634 (rounded
Market internals remain positive, but their
momentum is slowing down. Internals may
signal a turn down, but not quite yet. I must admit that when I suggested on 19 April that the market would reverse to the upside
(see http://navigatethestockmarket.blogspot.com/2013/04/stock-market-crash-prediction-another.html
), I didn’t expect a 3-week move up. On
the other hand, the market has only covered 5% in that period so I don’t feel
that I have missed to big a move…at least so far.
NTSM
Friday, the overall NTSM analysis was again HOLD at the close.
Indicators are positioned as follows:
VOLUME is positive based on the market’s sustained rise and subsequent
up volume. SENTIMENT has pulled back to
neutral, but it remains elevated at 61%-bulls. VIX is neutral, but it is leaning to the sell
side. PRICE is almost a sell now, because
the up moves have been smaller than the down moves.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500
-1540). My reasoning may be found at…(although
that probably looks pretty lame by now.)http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
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.
