“The ratio of nonfinancial equity market capitalization
to nominal GDP is presently about 120%, compared with a historical average
prior to the late-1990’s bubble of just 55%. The comparison - about double the historical norm - is
about the same if one uses the Wilshire 5000, which includes financials, and
for Tobin’s Q (price to replacement cost of assets). The price/revenue multiple
of the S&P 500 is presently 1.6, versus a pre-bubble norm of just 0.8. All
of these measures have a correlation of about 90% with subsequent 10-year
S&P 500 returns, even including recent bubbles and subsequent busts.” - John Hussman, PhD, Weekly Market
Commentary, “Increasing Concerns and Systemic Instability,” for 27 Jan 2014
from Hussman Funds at…
Note that the valuations are “double the historical norm”. Risk of 50% drop is real, but not necessarily likely unless there is more catalyst in the news. If the Asian Contagion/Emerging Market Mess gets worse a crash is always possible.
FACTSET EARNINGS (FactSet, Friday 24 Jan 2013)
“Overall, 123 companies have reported earnings to date for the third (sic) [fourth] quarter. Of these 123 companies, 68% have reported actual EPS above the mean EPS estimate and 32% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is below the 1-year (71%) average and the 4-year (73%) average….”
“…In aggregate, companies are reporting earnings that are 2.7% above expectations. This surprise percentage is below the 1-year (3.3%) average and the 4-year (5.8%) average…”
“…In terms of revenues, 67% of companies have reported actual sales above estimated sales and 33% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is above the average percentage recorded over the last four quarters (54%) and above the average percentage recorded over the previous four years (59).” Full Report from FactSet at...
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_1.24.14/view
Revenues were falling so the estimate revenues were lowered. Now companies are starting to get over that
lowered bar, but beating estimates is always good since the current price of
any given stock should be based (in part) on its estimated earnings and
revenues. Increasing revenues should
result in increasing earnings and this would be a much more positive result
than increasing earnings based on cost-cutting.
Cost cutting has been the norm for some time and we have seen it
starting up again in the retail sector. (Macy’s, Target, WalMart, Sears, JC
Penny, etc.)
CATERPILLAR TOPS ESTIMATE (Reuters)
“Caterpillar Inc. posted a
stronger-than-expected quarterly profit on Monday as cost cuts and an uptick in
demand for its building equipment offset continued weak sales to the mining
industry.
The results, together with a better-than-estimated
preliminary profit forecast for 2014 and a new $10 billion share repurchase
plan, sent Caterpillar's stock up as much as 7 percent in early trading on the
New York Stock Exchange…"We expected there would be a decline in mining
sales in 2013, and it turned out to be worse than we anticipated," Doug
Oberhelman, the chairman and chief executive officer, said in a statement….” Full story at...
The article went on to note that Caterpillar had cut 10,000 jobs last
year in a cost cutting move.
Caterpillar’s expectation for an improving worldwide economy is a big
deal; they are the cyclical bell-weather stock. I thought that Caterpillar’s
earnings might be enough to save the markets today, but no.
DOUBLE TOP?
I’ve mentioned a double top at 1848 several times, but CNBC and a few
trader boards noted a recent top of 1851.
I am referring to a closing high during regular trading hours since that
is what Yahoo Finance publishes under the “Historical Prices” link at...
Perhaps CNBC is looking at an intraday high or an after-hours
quote. The difference between 1848 and
1851 is not much and this would still qualify as a double top in my book.
BOB JANJUAH – BEAR MARKET CALL (ZeroHedge)
“…never underestimate the willingness and ability of
central bankers to persist with flawed policies – but overall I think the end
of the post-2009 QE-driven bull is at hand (or very soon to be at hand) and the
onset of the next significant (post-QE) deflationary bear market, which I think
will run deep into 2015, should now begin to guide all investment decisions… If
we cannot recapture 1800 this week or next, then a weekly close below 1770
points to a much more bearish picture for February. A weekly close below 1770
this week or next tells me that the risk/rewards favour a meaningful risk-off
move to the low-1700s in the S&P during February, with even 1650 and 1600
possible." - Bob Janjuah, Nomura International co-Head of cross-asset
allocation strategy. Commentary at…http://www.zerohedge.com/news/2014-01-27/bob-janjuahs-prompt-return-it-bear-oclock-now
DOW CHART PATTERN “3-PEAKS & A DOMED HOUSE” SUGGESTS 30-50% SELLOFF
(Advisor Perspectives)
Bill Hardison posted an article on dShort.com regarding this chart
pattern and its current incarnation. The
“3-Peaks…” chart pattern was popularized by George Lindsay. As Bill Hardison
noted: “…Lindsay's research showed that most bull markets, be they
secular or cyclical, ended with the Dow showing this pattern.” See dShort.com at…http://advisorperspectives.com/dshort/guest/Bill-Hardison-140127-Lindsay-Formation-Update.php
George Lindsay was a stock market guru in the 60’s and 70’s whose opinions often appeared in the NY Times. (George Lindsey, no relation, played Goober on the Andy Griffith show.)
MARKET REPORT
Monday, the S&P 500 was down 0.5% to 1782 (rounded).
VIX fell about 4% to 17.42. (The options boys aren’t too worried.)
The 10-year Treasury Note yield closed lower to 2.76%. Rates at 3% or above are considered by some traders to be “trouble-for-stocks”.
CORRECTION
When a market tops and begins to correct, there are no
rules about the speed of the correction.
In 2013, we had a near straight up market with little volatility. In January of 2010 we were in a somewhat
similar position following the bottom in 2009.
In January of 2010 a correction started with choppiness at the top
followed by further up and down slow deterioration culminating in an 8% loss
over about 3-weeks. In 2011, the markets
made a very broad and lengthy top from January thru July. When it finally collapsed in July of 2011
there were 12-straight down days for a 3-week loss of about 17%. Any attempt to predict the short-term outcome
at this point is mostly conjecture. I
have suggested a 10-15% correction now (and the depth of correction is mostly a
guess), but I don’t see a straight down move now. It will take a little while
to develop. After that, we’ll see.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing fell to 47%
at the close Monday. (A number above 50%
for the 10-day average is generally good news for the market.) New-lows outpaced new-highs Monday, leaving
the spread (new-hi minus new-low) at minus 59 (It was minus 48 Friday). The 10-day moving average of change in the spread fell
to -25. In other words, over the last 10-days, on average, the spread has decreased
by 25 each day.
Overall, Internals are negative on the market.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading. In
2013, if I had been buying the positive ratings and selling negative ratings I
would have under-performed a buy-and-hold strategy.
NTSM
The NTSM system remained SELL today.
The four areas of analysis, Sentiment, Price, Volume and
VIX are currently rated as follows:
Sentiment, VIX and Volume are all issuing sell signals.
In addition, the “panic indicator” also flashed sell
Friday. The panic indicator is a
statistical analysis of the market and it is very accurate at identifying
reversals at tops and bottoms. Since the
market is at a top, the indicator is telling us there is a strong likelihood of
more sell-off to come.
The Price indicator remains neutral.
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. 30% is a reasonable level
of stock holdings for a correction, so I don’t need to reduce holdings since I
don’t think this will be a major crash.
Even if a surprise collapse did take the stock market down by 50%, I’d
only lose 15% in the stock portfolio. On
the other hand, if I am wrong, leaving 30% invested in stocks hedges the bet
since no system is perfect.
