“…just six short months ago, none other than the Fed chairman himself uttered these crucial words during his June 19th press conference:
‘...when asset purchases ultimately come to an end the unemployment rate would likely be in the vicinity of 7%.’ So here we are at 7.0%... and no taper in sight as excuse after excuse is rolled out for keeping the floodgates open…Simply put, they are cornered and need to Taper; but know the 'bad' effect it will have... and given Bernanke's history of forecasting, how can anyone "trust" forward guidance?”
http://www.zerohedge.com/news/2013-12-06/quote-day-7-target-er-threshold
1929 ANALOG (McCLELLAN FINANCIAL PUBLICATIONS)
November 27, 2013
MORE FROM McCLELLAN: "The operating theory behind
price pattern analogs is that similar market conditions can produce similar
patterns…
…a couple of independent pieces of analysis by some friends of mine.
Stan Harley, a former Navy F-14 pilot and author of the Harley Market
Letter, has figured on Jan. 10 as an important top date candidate based on his
Fibonacci cycle expansion work. And another friend, Ed Carlson, is the current
living expert on the works of the late George Lindsay. Ed also targets the
first half of January as the later of two likely ultimate top dates for this
uptrend… …So here we have 3 wholly unrelated technical disciplines altogether pointing toward a big market top in mid-January.” - Tom McClellan, Editor, The McClellan Market Report. Commentary/analysis at…
http://www.mcoscillator.com/learning_center/weekly_chart/1929_analog/
Tom points out in the piece that the exact date of 14 Jan is not really
the point: a top is coming sooner rather than later. Mark Hulbert wasn’t so sure about the Analog
chart. See below commentary…
SHOULD THE ABOVE CHART SCARE WALL STREET? (MarketWatch)
“David Leinweber, founder of the Center for Innovative Financial
Technology at the Lawrence Berkeley National Laboratory, isn’t impressed. In an
email, he said that “if you looked at enough periods of the same length, you’d
find all sorts of very similar pictures, most without a crash at the end.” Leinweber views charts such as this one as an
example of a potentially dangerous practice known as “data mining”— endlessly
analyzing a database until you “discover” a pattern.” – Mark Hulbert. Mark Hulbert is unconvinced by the chart
presented y Tom McClellan. See his full
commentary at…http://www.marketwatch.com/story/the-chart-thats-scaring-wall-street-2013-12-06
THE TRUTH…(Excerpts from Hussman Weekly Commentary)
“Our estimate of prospective 10-year nominal S&P 500 total returns
has eroded to just 2.3%, suggesting that equities are likely to underperform
even the relatively low returns available on 10-year Treasury bonds in the
coming decade. …I fully understand that investors would like to believe 13 years after the 2000 bubble peak (during which time the S&P 500 has achieved annual total returns of scarcely 3% annually) it should be impossible that stocks could be in yet another valuation bubble…
…What we observe today is very broad based overvaluation across asset classes
…equities / GDP (based on Federal Reserve Z.1 Flow of Funds data) are worse than in 2007 and are approaching the records seen in 2000.
… the median price/revenue ratio for S&P 500 stocks is now higher than at the 2000 peak
…Value Line now reports the lowest median 3-5 year appreciation potential among all of the stocks it covers - lower than 2000 and 2007, and every point back to the 1960’s...
…the only other instance that bearish sentiment was this low while the Shiller P/E was over 19 was the exact peak of the S&P 500 in January 1973, before the market lost half its value.
…there are only four instances in history when the Shiller P/E was over 19, the market was at a 5-year high, and bearish sentiment was anywhere below 18.5%. These instances were 1972, 1987, 2007, and today. The 2000 peak doesn’t appear because bearish sentiment never moved below 20% that year.” – John Hussman, Phd, Weekly Market Comment for 9 December from Hussman Funds at…
http://www.hussmanfunds.com/
I always enjoy John Hussman’s commentary and the above is but a short
excerpt. See his website to delve into
details.
One of his points, that price/revenue is now higher than the 2000 peak,
may be meaningless. Earnings are now
higher per $ of revenue than they were in 2000 – otherwise P/E based on
operating earnings wouldn’t be as low as they are now. I suspect the reason is that companies are
more efficient now than 14 years ago or perhaps it‘s because many companies
didn’t have earnings in the dot.com era.
Otherwise, his arguments are impressive; but with QE in place, are they
relevant? Even Tom McClellan has pointed
out that QE has overridden tried-and-true market indicators including sentiment
indicators based on Rydex Money Fund balances.
In November Tom wrote: “…in early 2013, when Money Market Fund assets
dropped to a low level, but the market kept on rising. Credit the Fed and its $85 billion of bond
purchases each month for providing the fuel for that uptrend. That creates an
ongoing interpretational quandary: does sentiment just not matter any more?”
QE has certainly made a mess of the NTSM system where sentiment is one
of my 4-categories of analysis.
Sentiment levels now exceed the 2000 and 2007 peaks. Amazing!
SENTIMENT and CHANGES TO THE NTSM SYSTEM
The NTSM sentiment indicator is 76%-bulls based on the amount of $ bet
long and short in selected Rydex funds over the past 5-days. I have revised my sell signal for the
Sentiment indicator to a multiple of standard deviation based on prior market
extremes in 2003 and 2007. The Sell level is now a sliding scale based on
market action in the Rydex funds. Now it
is 72%-bulls. (My Buy level has always
been based on statistical analysis rather than a static number.)
Another change I am making is the addition of a trend following indicator
to add another buy signal for occasions when longer-term market internals don’t
give a clear buy signal. The 5-10-20
trend following system should fill the bill. (More on that later).
FACTSET EARNINGS INSIGHT (Factset)
“Earnings Guidance: For Q4 2013, 92 companies have issued negative EPS
guidance and 11 companies have issued positive EPS guidance.” Factset report at…http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_12.6.13/view
MARKET REPORT
Monday, the S&P was up 0.2% to 1808 (rounded).
VIX fell 2% to
13.49. Monday, the S&P was up 0.2% to 1808 (rounded).
MARKET INTERNALS (NYSE DATA)
Monday’s volume on the NYSE was 7% above the norm over the past month, so today’s slight increase in price wasn’t all that impressive. Similar to Friday, that may mean there is little conviction in today’s move and the market may revert to declines later this week. (I know this is a broken record, but that’s what it looks like.)
The 10-day moving average of stocks advancing fell to 48%
at the close Monday. (A number below 50%
for the 10-day average is generally bad news for the market.)
New-highs outpaced new-lows Monday, leaving the spread
(new-hi minus new-low) at plus 97 (it was plus 44 Friday). The 10-day moving average of change in the
spread fell to minus-7. In other words,
over the last 10-days, on average, the spread has decreased by 7 each day.
Just like Friday, this trend following indicator is
neutral on the market in the short term, because the advancing volume was
barely positive. Otherwise it would have
been negative.
The 10-day moving average of the four of the internals I
track got worse Monday and unless this trend changes, the markets will
experience some trouble ahead.
Market Internals are a decent trend-following analysis of
current market action, but in 2013 (so far), if I had been buying the positive
ratings and selling negative ratings I would have under-performed a
buy-and-hold strategy.
I need a pullback to get back in. Otherwise I will continue to sit out the
party. Internals look iffy. Sentiment is terrible. The S&P 500 is 9%-above the 200-day MA. The odds of a pullback look better than even.
MY INVESTED POSITION (NO CHANGE)
I remain about 20% invested in stocks as of 5 March
(S&P 500 -1540). 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 now under-performing my own system by about 6%!) 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.
I still lean toward getting back in, after a pullback, to
speculate on a final ride to the top.
NTSM did give several buy signals over the weeks of 14 and 21 Oct, but
the market just looks too frothy to rush back in…we’ll see if the market will
pullback so I can join the insanity. If
not, cash is fine, but I am getting tired of remaining in cash!
