Wednesday, November 17, 2010

The Titanic Syndrome

It sounds like something a trained psychiatrist would diagnose, but it is yet another arcane and statistical market quirk.  This indicator was created by a gentleman named Peter Eliades, who publishes a newsletter called Stockmarket Cycles (http://www.stockmarketcycles.com/).

Eliades has been in the business of technical analysis since 1972, when he began to appear on Los Angeles-based UHF channel 22 as a commentator.  Back then, a 14 year old real life Alex P. Keaton would watch him during school breaks from within the Beverly Hills High library.  Kind of explains why my social life wasn't exactly brimming in those days.

Eliades predicted that the horrible early 1970's bear market would bottom during the week of December 9-13, 1974 many, many months in advance.  It bottomed on December 9th.  Publication of Stockmarket Cycles began in July of 1975.

In 1985, the first year he was rated by the independent rating services, Mr. Eliades earned the Timer Digest’s "Timer of the Year" award and placed second in 1986 in a close race which wasn’t decided until the final trading day of the year.  In 1989, Mark Hulbert (Hulbert Financial Digest) named Mr. Eliades as the "Most Consistent Mutual fund Switcher" based on Eliades timing signals for the years 1985, 1986, 1987, and 1988.  From January 1985 when Hulbert first started rating Stockmarket Cycles, through August 1990, Stockmarket Cycles had the #1 market timing record in the country with a timing gain of 174.3% versus a comparable gain in the Wilshire 5000 Total Return Index of 119%.

In other words, the man is no Abbey Joseph Cohen.  Now, before we go on to Eliades' current outlook, it is important to note that he and "Marko's Take" do not exactly mesh at the current time.  MT says market meltdown imminent with a sub 8000 low for the Dow Jones Industrial Average by early 2011.

From the latest Stockmarket Cycles update for Tuesday, November 16th:

According to Eliades, "we would say that there is a real chance for a short to intermediate-term decline over the next several weeks but because of significantly higher nominal four-year projections, those projections force us to continue to look for higher prices going into 2011."

While our penchant for tongue-in-cheek hubris suggests that we vote for us, last I checked "Marko's Take" has yet to win a single Timer's Award.  Clearly, a conspiracy.

Eliades goes on to describe the Titanic Syndrome:

"Our good friend, Shon Saleh, a great institutional broker at Smith Barney in Century City California, jogged our memory today by asking a question about 52-week highs and lows after a new high is registered in the market. The answer to the question is the Titanic Syndrome, a market indicator devised by Bill Ohama.  Bill recognized back in the 1970s and 80s that if the Dow Jones Industrial Average made a new high for the year or had rallied 400 points or more (remember this was back in the 70s and 80s when 400 points was a lot bigger percentage move than it would be today) and that new high was followed within seven trading days by a day which saw more 52-week lows than 52-week highs on the New York Stock Exchange, a Titanic Syndrome signal would be given suggesting a market top of some significance.  Well guess what? Today was the seventh trading day after the November 5 new high registered in the Dow and the official number of new highs versus new lows on the New York exchange was 20 new highs and 139 new lows. New lows swamped new highs. On the face of it, a Titanic Syndrome signal was generated." 

When employing these indicators which use historical data as a benchmark of their efficacy, it is important to take into account how the nature of markets has changed.  Of particular importance has been the enormous growth of bond funds, ETFs and other exotic securities which may affect how the ratios of new highs and new lows relative to issues traded is computed. 

Eliades does, in noting the presence of the Titanic Syndrome, expect a potential sharp correction possibly dead ahead.  However, he views it as a correction, while we're thinking MAJOR MARKET TOP.

Marko's Take

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