Excerpts from the Hussman commentary follow…
“As I noted a few weeks ago “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top, and most of the signals that have been most historically useful for that purpose have been blazing red since late-2011.” My impression remains that the downside risks for the market have been deferred, not eliminated, and that they will be worse for the wait…
…With regard to present market conditions, the increasingly severe overvalued, overbought, overbullish features of the market here are coupled with soaring margin debt as speculators accumulate stock with borrowed money; record issuance of low-grade “covenant lite” debt; heavy issuance of new stocks – particularly characterized by speculative narratives; and a price trajectory that is eerily well-described by the mathematics of a “log-periodic bubble” that economist Didier Sornette described a decade ago, and has regularly been observed in financial bubbles across asset classes and countries across history…
…My guess is that the present speculative advance may have a few percent to run – I’ll be particularly concerned if the market does so in a rapid, uncorrected manner in the next couple of weeks, which could suggest crash probabilities approaching 100% based on the sort of analysis above.” John Hussman, PhD, Weekly Market Commentary for 30 December 2013 from Hussman Funds at…
http://www.hussmanfunds.com/
NYSE MARGIN DEBT BARELY BELOW ALL-TIME HIGHS (dShort.com)
“In real (inflation-adjusted) terms, the latest margin
debt is at an interim high, 0.7% below the all-time high in July 2007 [and
above the prior high in 2000].” Analysis and charts at…http://www.advisorperspectives.com/dshort/
That is negative for the markets and suggests a significant
correction/bear market, possibly in a few months.
Art Cashin predicts a small correction…
SMALL CORRECTION COMING – ART CASHIN (CNBC)
"The markets should see a correction ranging from 3 to 5
percent in mid-January as the year-end rally loses steam and indexes veer away
from their moving averages, UBS' Art Cashin said Monday. "It's been a heck
of a run, and it's time for a rest," Cashin said on "Squawk on the Street." "But
given the seasonality, the conventional wisdom is that you'll stay relatively
strong going into around the 10th or 15th of January and then you might see a
correction." Full story and video at… http://www.cnbc.com/id/101301396
And then there is the bullish case…
15 TO 20-YEAR BULL MARKET (CNBC)
"We've been very clear over the past several years
that we believe that we have entered a 15- to 20-year equity bull market, [a]
secular bull market," [Brian Belski] the chief investment strategist at
BMO Capital Markets said Monday on CNBC's "Squawk on the Street." Story and video at…http://www.cnbc.com/id/101301707?__source=yahoo%257cfinance%257cheadline%257cheadline%257cstory&par=yahoo&doc=101301707%257c%27We+have+entered+a+15-+to
My feelings on the possibility of a new secular bull market were covered
on 23 December…(basically I’m skeptical)…See it here…
I try not to guess too much about the future, because I don’t know what
will happen. I use the NTSM system to
track the market.
MARKET REPORT
Monday, the S&P 500 was unchanged at 1841 (rounded) VIX rose 9% to 13.56. That suggests options players suspect trouble ahead after the holidays.
10-year Treasury Note closed at 2.98% yield, below the 3%
worry limit. (Many worry that 3% is a magic trouble number for the stock market.)
(Doug Short has detailed Treasury Yield history at…http://advisorperspectives.com/dshort/updates/Treasury-Yield-Snapshot.php)
NYSE Volume was about two-thirds that of a regular day.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing fell
slightly to 60% at the close Monday. (A
number above 50% for the 10-day average is generally good news for the market.)
New-highs outpaced new-lows Monday, leaving the spread
(new-hi minus new-low) at +129 (it was +181 Friday). The 10-day moving average of change in the
spread was +18. In other words, over the last 10-days, on average, the spread
has increased by 18 each day.
Market internals moved to neutral on the market. This was due to the most volatile component
in my internals basket – the advancing volume.
I suspect this is meaningless, because the low volume means the
up-volume that I track has been low too.
I probably should go back and change this to a %-of total volume rather
than the daily number.
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.
NTSM
The 5-dMA of sentiment
remained 82%-bulls (Friday) in the Rydex/Guggenheim long/short funds I
track. This is an incredibly high value
and the 5-day sentiment value was the highest I have ever seen (data back to
2003). High sentiment is a negative indicator for the stock market – but it
hasn’t stopped the market all year.
The S&P 500 dropped to
9.7% above the 200-dMA and a value of 10% has led to small pullbacks in 2013
(and corrections in 2011 and 2012).
Other indicators are all neutral of positive.
The most recent BUY signal for the NTSM system was 25
October. The “5-10-20 Timer” switched to
BUY from HOLD on 18 December.
MY INVESTED POSITION
I am about 30% invested in stocks as of 20 December
(S&P 500-1540) because I upped my stock holdings by 10% on the 20th
of December. Unless I get a SELL signal
in the NTSM system, I will continue to income-average (a little each month)
into the stocks to get my %-invested up to around 50% (max for me now) unless
there is a correction that would allow me to move in sooner and at a higher
percentage. I expect the markets to
pullback in the first quarter of 2014, but it remains to be seen whether it
will be another small buy-the-dip event or something more.
(A good rule of thumb for percent invested is to subtract
your age from 100 and put that amount into the stock market. Generally a minimum of 50%-50% stocks and
other investment is a reasonable value for the over 50-crowd; that’s my group. With bond yields rising, keep to the short end
of bonds, i.e., less than 10-year maturity or mutual funds that focus on the
short end.)
