“The financial markets are at a transition that reflects
tension between two realities. The first is that the Federal Reserve’s policy
of quantitative easing has driven the stock market to valuations associated
with the most extreme speculative peaks on record, coupled with a fresh boom in
initial public offerings – with companies having zero or negative earnings
accounting for three-quarters of new issuance – and record issuance of
“covenant lite” leveraged loans (loans to already highly indebted borrowers,
lacking normal protections that mitigate losses in the event of default). The
other reality is that unconventional monetary policy has done little to push
real economic activity or employment past the border that has historically
distinguished expansions from recessions (about 1.8% year-over-year growth in
both real final sales and non-farm payroll employment)… In 2000 and 2007, we
regularly encountered two arguments, which boil down to a) there’s no catalyst,
and b) this time is different. In 2000, it was a New Economy. In 2007 and 2008,
Ben Bernanke assured investors that the risks were “contained” and Janet Yellen
confidently dismissed concerns about speculative risk with the words “No, No,
and No.” History suggests a straightforward response: following speculative
peaks, market losses are typically in full swing well before any catalyst is
widely recognized, and b) the specifics of every cycle may be different, but
broadly speaking, speculative episodes end the same way.” – John Hussman, PhD,
Weekly Market Commentary for 7 April 2014 from Hussman Funds at…
http://www.hussmanfunds.com/wmc/wmc140407.htm
S&P 500 OVERVALUED
(ZeroHedge)
“According to this chart from JPM the market's forward
P/E ratio now is precisely 15.2x. What was it at precisely the last bubble peak on
October 9, 2007? 15.2x.” Chart at…
I wouldn’t get worked up over
the above story because the 2007 crash was not due to a valuation bubble. It was the result of the sub-prime crisis and
housing collapse. The chart showed that
the 2000 bubble had a PE of 25.6x. THAT was a valuation bubble. However; there are other valuation metrics
that should be cause for concern now, such as the Shiller PE (CAPE) or the
Q-Ratio and both have been mentioned here in the past. They are at historically high levels.
MARKET REPORT
Monday, the S&P 500 fell 1.1% to 1845 (rounded).
VIX was up about 12% to 15.57. As expected when stocks are getting crushed, the yield on the 10-year Treasury Note moved down, now it’s 2.70%.
Today’s close was only 0.3% above the 50-day moving
average (50-dMA) and 5.1% above the 200-dMA that is now 1756. Those are 2-potential stopping points for
this selloff. The Index fell to 1742 on
3 February 2014 and it could easily test that level. At that point we might be able to tell if the
market was going to recover from that level or fall further.
In recent history, these corrections have stopped at the
50-dMA. If the market breaks the 50-dMA
that will trigger more selling.
There has been late-day selling over the last 3-sessions
and that continued today.
Today was another statistically significant down-day
since it exceeded my price and volume statistical parameters. This would usually (about 62% of the time) be
followed by an up-day Tuesday. That
didn’t work today though.
My guess is that the market bounces tomorrow or Wednesday and the S&P
500 moves up some before the correction continues.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE
fell to 53% at the close. (A number above
50% for the 10-day average is generally good news for the market.) The daily percentage advancing for the last
3-days has been 41%, 35%, and 27% as breadth has declined each day. Breadth is the only internal that remains
positive.
New-highs outpaced new-lows Monday. The spread (new-highs minus new-lows was +6. (It was +156 Friday). The 10-day moving average
of change in the spread was minus 4. In
other words, over the last 10-days, on average, the spread has decreased by 4 each
day. The smoothed 10-dMA of up-volume fell today. The internals are neutral, but only because
my rule says all 4-indicators have to be negative. In fact, the Internals look pretty bad no
matter how you slice it.
NTSM
The NTSM analytical model remained HOLD Monday. Sentiment has popped up to a screaming high 83%-bulls
and this indicator is now negative. Sentiment is now as high as it was on 31
December and the Market has gone nowhere since.
The VIX, Price & Volume indicators are neutral, but VIX was almost
negative today. Another bad day will
likely push the NTSM indicator to Sell. 
MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks
on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at
the close. Further the 5-10-20 Timer
was positive along with market internals on 26 March as they are today, 28 March. 50% is fully invested for me at this time. 
