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
Showing posts with label Dow Jones Industrial Average. Show all posts
Showing posts with label Dow Jones Industrial Average. Show all posts
Wednesday, November 17, 2010
Tuesday, November 16, 2010
Hindenburg Re-appears
A major mystery for me this summer has been the strange levitation of the stock market, despite an endless list of reasons for it to get crushed. Not only does the market have to contend with a shrinking money supply, a failing financial system, crumbling European bailouts and an inept Federal Reserve, but it also seems that the entire galaxy is aligned against it. For more on the Hindenburg Omen, click here: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
By now, the market should have begun its catatrophic descent. Why hasn't it? My guess is that all the hot air coming out of politician's yaps, coupled with the aggressive market support employed by the Federal Reserve and Helicopter Ben, has temporarily put a delay on what I still contend is inevitable. The best efforts of the Fed will not work. Here's why: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
Today's trading witnessed a very Hindenburg-like day. According to Yahoo Finance, there were 136 new highs and 164 new lows among nearly 4,000 issues traded. That would provide the initial trigger for the Hindenburg. As noted in prior pieces, there are a myriad of filters, but honestly, one needs no filter other than a gas mask to see that the "House Of Cards", known as the U.S. Financial System is on the verge of collapse.
But that's not all. Nearly every asset market has gotten incredibly and feverishly over-extended, including precious metals and mining stocks. We have discussed other technical indicators which are also very ominous, and those are discussed here: http://markostake.blogspot.com/2010/09/lets-get-technical.html, and http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
Add to that the rising inflation pressure showing up in prices at WalMart and other retail stores, plus in today's report on the Producer Price Index. Creeping inflation will put a cap on the Fed's ability to perform it's levitation tricks or a full blown hyper-inflation episode will ensue even sooner. It, too, is inevitable, once monetary velocity picks up.
So, what's an investor to do? Go To Cash! The only investments likely to survive this assault will be the very oversold U.S. Dollar and very short-term Treasuries. Yeah, the returns suck, but even 0% is better than losing 20% or more in a fairly short period of time.
Unlike the meltdown of 2008, which, too, was forsaged by a series of Hindenburg Omens, this one will not be an exact repeat. This time, Gold, Silver, Commodities and precious metals mining stocks ought to hold up much better. A correction to their 200 Day Moving Averages would be the most likely scenario, as discussed in this recent "Marko's Take": http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html.
Better to wait for another entry point, well below current levels, than to sweat it out in a volatility spike down that may just give you a heart attack. And, the bargains that will become available will be well worth waiting for.
So, how long may stocks go? Obviously, no one knows, but a Dow Jones Industrial Average of between 6,000 and 8,000 would seem to be a logical target occuring early in 2011.
It's going to be a very, very cold winter for most investors. Store lots of blankets!
Marko's Take
By now, the market should have begun its catatrophic descent. Why hasn't it? My guess is that all the hot air coming out of politician's yaps, coupled with the aggressive market support employed by the Federal Reserve and Helicopter Ben, has temporarily put a delay on what I still contend is inevitable. The best efforts of the Fed will not work. Here's why: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
Today's trading witnessed a very Hindenburg-like day. According to Yahoo Finance, there were 136 new highs and 164 new lows among nearly 4,000 issues traded. That would provide the initial trigger for the Hindenburg. As noted in prior pieces, there are a myriad of filters, but honestly, one needs no filter other than a gas mask to see that the "House Of Cards", known as the U.S. Financial System is on the verge of collapse.
But that's not all. Nearly every asset market has gotten incredibly and feverishly over-extended, including precious metals and mining stocks. We have discussed other technical indicators which are also very ominous, and those are discussed here: http://markostake.blogspot.com/2010/09/lets-get-technical.html, and http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
Add to that the rising inflation pressure showing up in prices at WalMart and other retail stores, plus in today's report on the Producer Price Index. Creeping inflation will put a cap on the Fed's ability to perform it's levitation tricks or a full blown hyper-inflation episode will ensue even sooner. It, too, is inevitable, once monetary velocity picks up.
So, what's an investor to do? Go To Cash! The only investments likely to survive this assault will be the very oversold U.S. Dollar and very short-term Treasuries. Yeah, the returns suck, but even 0% is better than losing 20% or more in a fairly short period of time.
Unlike the meltdown of 2008, which, too, was forsaged by a series of Hindenburg Omens, this one will not be an exact repeat. This time, Gold, Silver, Commodities and precious metals mining stocks ought to hold up much better. A correction to their 200 Day Moving Averages would be the most likely scenario, as discussed in this recent "Marko's Take": http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html.
Better to wait for another entry point, well below current levels, than to sweat it out in a volatility spike down that may just give you a heart attack. And, the bargains that will become available will be well worth waiting for.
So, how long may stocks go? Obviously, no one knows, but a Dow Jones Industrial Average of between 6,000 and 8,000 would seem to be a logical target occuring early in 2011.
It's going to be a very, very cold winter for most investors. Store lots of blankets!
Marko's Take
Friday, October 15, 2010
Markets To Obey The Law Of Gravity
The Universe has been theorized about by many incredibly brilliant cosmologists, such as Carl Sagan, Albert Einstein and Steven Hawking. While certain concepts remain hypothesized and theoretical, one constant is omni-present: The Law of Gravity.
The Law of Gravity determines so many things we observe in the universe such as Newton's Laws of Motion. In fact, planetary alignment also is a little understood factor in determining certain events in the financial markets. For more on how planets affect markets, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
For the record, despite the fact that we've been calling for a crash for months, I still have NOT abandoned that position. Some of the reasons are articulated here: http://markostake.blogspot.com/2010/10/die-hard-markets.html.
But today, some new very relevant information came to bear. The Philadelphia Banking Index (BKX) has broken down and is asserting downside leadership. Earnings reports from General Electric (GE) today were very disappointing. Bank of America (BA) is under pressure as a result of the under-reserving for loan losses. In fact, of the top 6 volume leaders this morning, 5 are financials and all are getting slammed. Without a vibrant financial sector, the market can NOT advance!
In addition, the stock market appear to have completed a 50% correction of the bloodbath it took in 2008-9. From a high of about 14,000, the Dow Jones Industrial Average (INDU) has now bumped its head at 11,000, a retracement of roughly half of the waterfall it endured all the way down to its low of about 8,000.
If the Dow should have a roughly equivalent slam it could lose another 6,000 points which would take it to a next stop of 5,000. (It dropped from 14K to 8K, now may decline from 11K to 5K).
For the very short-term, we remain cautious on Gold and the precious metals mining sector, although this industry group, and commodities in general, are poised for the long-awaited upside explosion http://markostake.blogspot.com/2010/10/gold-and-precious-metals-miners-set-to.html.
Maximum downside is very limited to probably no more than 10%. Upside potential remains massive and, despite some risk, it's worth keeping positions. We continue to expect an ultimate high for Gold of $5,000 per ounce at the very least. The rules of thumb we can use to project this level, are articulated here: http://markostake.blogspot.com/2009/12/gold-1200-is-it-too-late-to-buy.html.
Happy Investing!
Marko's Take
The Law of Gravity determines so many things we observe in the universe such as Newton's Laws of Motion. In fact, planetary alignment also is a little understood factor in determining certain events in the financial markets. For more on how planets affect markets, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
For the record, despite the fact that we've been calling for a crash for months, I still have NOT abandoned that position. Some of the reasons are articulated here: http://markostake.blogspot.com/2010/10/die-hard-markets.html.
But today, some new very relevant information came to bear. The Philadelphia Banking Index (BKX) has broken down and is asserting downside leadership. Earnings reports from General Electric (GE) today were very disappointing. Bank of America (BA) is under pressure as a result of the under-reserving for loan losses. In fact, of the top 6 volume leaders this morning, 5 are financials and all are getting slammed. Without a vibrant financial sector, the market can NOT advance!
In addition, the stock market appear to have completed a 50% correction of the bloodbath it took in 2008-9. From a high of about 14,000, the Dow Jones Industrial Average (INDU) has now bumped its head at 11,000, a retracement of roughly half of the waterfall it endured all the way down to its low of about 8,000.
If the Dow should have a roughly equivalent slam it could lose another 6,000 points which would take it to a next stop of 5,000. (It dropped from 14K to 8K, now may decline from 11K to 5K).
For the very short-term, we remain cautious on Gold and the precious metals mining sector, although this industry group, and commodities in general, are poised for the long-awaited upside explosion http://markostake.blogspot.com/2010/10/gold-and-precious-metals-miners-set-to.html.
Maximum downside is very limited to probably no more than 10%. Upside potential remains massive and, despite some risk, it's worth keeping positions. We continue to expect an ultimate high for Gold of $5,000 per ounce at the very least. The rules of thumb we can use to project this level, are articulated here: http://markostake.blogspot.com/2009/12/gold-1200-is-it-too-late-to-buy.html.
Happy Investing!
Marko's Take
Tuesday, September 21, 2010
Let's Get Technical (Part 2)
Yesterday, we built a case that the markets, despite a surprisingly strong Septemeber, were doing their best to prove Abe Lincoln right by "fooling most of the people, most of the time". There is much more evidence of that.
Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:
"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS). RS = Average of x days' up closes / Average of x days' down closes."
"The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."
To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.
At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.
A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/).
If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below. Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.
What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.
A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA). Historically, major Gold rallies have peaked in excess of 30% above is 200DMA. The HUI has historically peaked more than 50% above its 200DMA.
The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA. One might argue that this means that they have further to go. True enough. But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum.
We continue, therefore, to urge extreme caution. Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.
Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008. And, it may even surprise everyone and rally. However, use the guidelines outlined in yesterday's piece before jumping in with both feet.
Marko's Take
Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:
"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS). RS = Average of x days' up closes / Average of x days' down closes."
"The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."
To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.
At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.
A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/).
If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below. Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.
What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.
A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA). Historically, major Gold rallies have peaked in excess of 30% above is 200DMA. The HUI has historically peaked more than 50% above its 200DMA.
The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA. One might argue that this means that they have further to go. True enough. But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum.
We continue, therefore, to urge extreme caution. Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.
Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008. And, it may even surprise everyone and rally. However, use the guidelines outlined in yesterday's piece before jumping in with both feet.
Marko's Take
Monday, September 20, 2010
Let's Get Technical
On the surface thus far, September has seemed to be a very normal month. Below the surface, it has been far from it. Coventional wisdom is aware that, historically, it is the weakest calendar month in terms of average stock market performance and, therefore, there was a decent level of angst about what would happen when traders and portfolio managers returned from their summer vacations in the Hamptons.
The market has been up 9 of the last 11 days. These extreme strings of near-consecutive days up or down are very often signs of exhaustion. Market tops tend to be rolling like an upside down arc or parabola. Significant bottoms, on the other hand, are very often V-shaped, characterized by panic selling.
If we put those two observations together we can form an educated opinion as to the technical health of the stock market. In the last 11 days, the Dow Jones Industrial Average has gone up a mere 6% the Standard & Poors 500 has risen 7%, the Russell 2000 8% and the Nasdaq 100 11%. If the market was firing its thrusters for a huge move up, we ought to have seen gains of about double those just experienced.
A 9 of 11 exhaustive string on the downside could potentially result in drops of 20% or more.
Somewhat disturbing is the behavior of the Gold Bugs Index (HUI), especially in light of the move in Gold itself. The HUI is up only 1% despite a 3% advance in Gold and a 10% gain in Silver. In addition, the Dollar index is down 2%, which should have provided a modest tailwind. This is NOT healthy action. The breakout of Gold above $1,250 was NOT accompanied by a breakout of the HUI above 500. For a true bull market to have begun, the twin conditions of Gold above $1,250 AND 500 on the HUI should have bene met. That a breakout didn't occur was quite surpising. I guess Gold 2K will have to be put on hold.
Therefore, while the likelihood of a MAJOR drop in Gold or the HUI is small, we ought to remain on alert that a correction of some sort has become highly probable. In combination with a waterfall decline in stocks, precious metals are better avoided than ridden-out except with long-term money. More importantly, whatever correction occurs will represent yet another low risk entry point.
The other key reason to argue for extreme caution at this time is the major headwind created by the plunging money supply. The most recent figures and the implications are covered here: (http://markostake.blogspot.com/2010/09/turning-economic-titanic.html).
The deflationary forces are confirmed by the action of the bond market which has made new highs after a nearly 30 year bull market. In addition, longer rates have come down much more than short-term rates flattening the yield curve. The slope of the yield curve is particularly critical to the financial sector as the bulk of borrowing is done on the short end, while lending tends to be longer term. The spread between the two creates the level of profitability.
So, it continues to make sense to stay liquid. There will be a better time to take risk.
Marko's Take
The market has been up 9 of the last 11 days. These extreme strings of near-consecutive days up or down are very often signs of exhaustion. Market tops tend to be rolling like an upside down arc or parabola. Significant bottoms, on the other hand, are very often V-shaped, characterized by panic selling.
If we put those two observations together we can form an educated opinion as to the technical health of the stock market. In the last 11 days, the Dow Jones Industrial Average has gone up a mere 6% the Standard & Poors 500 has risen 7%, the Russell 2000 8% and the Nasdaq 100 11%. If the market was firing its thrusters for a huge move up, we ought to have seen gains of about double those just experienced.
A 9 of 11 exhaustive string on the downside could potentially result in drops of 20% or more.
Somewhat disturbing is the behavior of the Gold Bugs Index (HUI), especially in light of the move in Gold itself. The HUI is up only 1% despite a 3% advance in Gold and a 10% gain in Silver. In addition, the Dollar index is down 2%, which should have provided a modest tailwind. This is NOT healthy action. The breakout of Gold above $1,250 was NOT accompanied by a breakout of the HUI above 500. For a true bull market to have begun, the twin conditions of Gold above $1,250 AND 500 on the HUI should have bene met. That a breakout didn't occur was quite surpising. I guess Gold 2K will have to be put on hold.
Therefore, while the likelihood of a MAJOR drop in Gold or the HUI is small, we ought to remain on alert that a correction of some sort has become highly probable. In combination with a waterfall decline in stocks, precious metals are better avoided than ridden-out except with long-term money. More importantly, whatever correction occurs will represent yet another low risk entry point.
The other key reason to argue for extreme caution at this time is the major headwind created by the plunging money supply. The most recent figures and the implications are covered here: (http://markostake.blogspot.com/2010/09/turning-economic-titanic.html).
The deflationary forces are confirmed by the action of the bond market which has made new highs after a nearly 30 year bull market. In addition, longer rates have come down much more than short-term rates flattening the yield curve. The slope of the yield curve is particularly critical to the financial sector as the bulk of borrowing is done on the short end, while lending tends to be longer term. The spread between the two creates the level of profitability.
So, it continues to make sense to stay liquid. There will be a better time to take risk.
Marko's Take
Thursday, August 26, 2010
How We'll Know If Hindenburg Omen Is Wrong
Yesterday, a 4th dirigible was seen flying the not-so-friendly skies. According to Robert McHugh, who seems to be THE expert in the now famous Hindenburg Omen, we need 5 to get a "cluster". But, let's take a deep breath, reduce our hyperventilation, and examine what signs we might look for that would suggest that this entire exercise is nothing but a blip on the radar screen.
One key factor is time. The "crash window" is open, but won't stay open for very long. If the financial markets don't implode pretty soon, then this entire exercise will become, as Dee Dee Myers used to say, "non-operational". Ms Myers, who had the tremendous misfortune of explaining away Mr. Clinton's ongoing non-truths, had to constantly change stories as new facts came to light. But, we can discuss that at another time.
If the Dow Jones Industrial Average (INDU) remains near or above 10,000 through the end of September, at the LATEST, I'd say that it would be time to go back to the lab.
Key downside levels to watch would be roughly 9,500 on the INDU, 1,025 on the Standard & Poor's 500 (SPX) and 2,100 on the Nasdaq Composite (IXIC). A break above 10,500 on the INDU, 1,100 on the SPX or 2,300 on the IXIC would suggest that the markets are probably poised to rally more.
As far as Gold goes, a break above $1,250 would suggest that an upside explosion could be at hand. Contrarily, a penetration below $1,200 would be bearish, short-term, and probably be followed by a sharp, albeit temporary, correction.
Other signs that this whole scenario is incorrect would include rising long-term interest rates or a falling Dollar. In the instance of a deflationary scare, we should see a strong dollar and strong bond market. The key industry group to watch is the financial stocks. They are currently poised to be leaders on the downside. The markets CANNOT rally without at least a some upside strength in this group.
Do we care about earnings or economic statistics? NO! They are backwards looking and have ZERO predictive value. In fact, any decline is likely to take place against a backdrop of at least decent news. Like a sleight-of-hand magician, markets are very expert at having investors look up when investors should be looking down. Look at my pretty assistant!
It's important to note, that as of this writing, not ONE of these possible contra-indicators is in place. In fact, there is only one piece of evidence that the scenario is not imminent. The yield curve is steep and positively sloped, meaning that the difference between long-term rates and short-term rates is high. The reason this is important is that a steep yield curve creates a very profitable lending environment for banks and other financial institutions which borrow short or cheap and lend long or dear. Since banks aren't lending, this may not be all that signficant.
The slope of the yield curve determines how profitable the financial sector will be prospectively. And, as noted above, the health of this sector is important to the direction of markets and the entire global financial system. It also has very high predictive value in assessing the prospects for economic growth.
Another sign of strength would be felt in the commodities markets outside of the precious metals, which are acting as currency right now. Keep an eye on oil, food and key industrial metals such as Copper. Dr. Copper, as it's known, is a better economist than most Nobel Laureates. Doc Copper has "Marko's Take" in his waiting room. As of today, all the commodities are either weak and weakening or looking very toppy.
So, keep on an eye on the checklist that might suggest that the dark clouds are nothing more than a short thunderstorm. The forecast is for torrential rains, but predicting the market is not much more of a precise science than the weather. Even if it doesn't rain, don't forget your umbrella.
Therefore, unless the conditions for a re-assessment are met, as described above, investors should continue to hold lots of cash, use inverse ETFs for hedging and profits, and wait out the storm.
Marko's Take
One key factor is time. The "crash window" is open, but won't stay open for very long. If the financial markets don't implode pretty soon, then this entire exercise will become, as Dee Dee Myers used to say, "non-operational". Ms Myers, who had the tremendous misfortune of explaining away Mr. Clinton's ongoing non-truths, had to constantly change stories as new facts came to light. But, we can discuss that at another time.
If the Dow Jones Industrial Average (INDU) remains near or above 10,000 through the end of September, at the LATEST, I'd say that it would be time to go back to the lab.
Key downside levels to watch would be roughly 9,500 on the INDU, 1,025 on the Standard & Poor's 500 (SPX) and 2,100 on the Nasdaq Composite (IXIC). A break above 10,500 on the INDU, 1,100 on the SPX or 2,300 on the IXIC would suggest that the markets are probably poised to rally more.
As far as Gold goes, a break above $1,250 would suggest that an upside explosion could be at hand. Contrarily, a penetration below $1,200 would be bearish, short-term, and probably be followed by a sharp, albeit temporary, correction.
Other signs that this whole scenario is incorrect would include rising long-term interest rates or a falling Dollar. In the instance of a deflationary scare, we should see a strong dollar and strong bond market. The key industry group to watch is the financial stocks. They are currently poised to be leaders on the downside. The markets CANNOT rally without at least a some upside strength in this group.
Do we care about earnings or economic statistics? NO! They are backwards looking and have ZERO predictive value. In fact, any decline is likely to take place against a backdrop of at least decent news. Like a sleight-of-hand magician, markets are very expert at having investors look up when investors should be looking down. Look at my pretty assistant!
It's important to note, that as of this writing, not ONE of these possible contra-indicators is in place. In fact, there is only one piece of evidence that the scenario is not imminent. The yield curve is steep and positively sloped, meaning that the difference between long-term rates and short-term rates is high. The reason this is important is that a steep yield curve creates a very profitable lending environment for banks and other financial institutions which borrow short or cheap and lend long or dear. Since banks aren't lending, this may not be all that signficant.
The slope of the yield curve determines how profitable the financial sector will be prospectively. And, as noted above, the health of this sector is important to the direction of markets and the entire global financial system. It also has very high predictive value in assessing the prospects for economic growth.
Another sign of strength would be felt in the commodities markets outside of the precious metals, which are acting as currency right now. Keep an eye on oil, food and key industrial metals such as Copper. Dr. Copper, as it's known, is a better economist than most Nobel Laureates. Doc Copper has "Marko's Take" in his waiting room. As of today, all the commodities are either weak and weakening or looking very toppy.
So, keep on an eye on the checklist that might suggest that the dark clouds are nothing more than a short thunderstorm. The forecast is for torrential rains, but predicting the market is not much more of a precise science than the weather. Even if it doesn't rain, don't forget your umbrella.
Therefore, unless the conditions for a re-assessment are met, as described above, investors should continue to hold lots of cash, use inverse ETFs for hedging and profits, and wait out the storm.
Marko's Take
Tuesday, August 24, 2010
I See The Bad Moon Arisin'
Last night was a full moon. A BAD moon. With the recent solar eclipse window still open, coupled with the full moon, the anticipated crash, should it happen, ought to take place imminently. A review of the significance of astro-harmonics can be reviewed by clicking here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
Now that earnings season has encouraged investors, it's time for the economic reality to splash cold water in the financial markets' faces. The news is exceptionally poor.
The Richmond branch of the Federal Reserve’s measure of manufacturing activity for the mid-Atlantic region plunged by about 30% . The fall was less than economists were predicting, but the decline strongly suggests tha one of the US’s only area of strength has an empty gas tank.
The economy’s weakest sector, housing, got yet more bad news. Sales of existing homes fell 27.2% in July, the steepest monthly drop in 15 years and past consensus expectations of a 12% decline.
The Richmond Fed’s index came in at 11, versus 16 the previous month. Last week, the Philadelphia branch registered a disappointing index of factory activity that sent markets reeling, as it suggests a potential dip in the August reading of the broader Institute of Supply Management’s index. The Chicago Fed’s index is due next week.
And this is just the beginning. In today's trading, it appears that we will have yet another Hindenburg Omen. This makes at least 3, depending on whose definition of it one ascribes to. What's a few New Highs and New Lows among friends, anyway?
The equally ominous head and shoulders pattern gives us at least an idea of what might be reasonable to expect here in terms of the next intermediate low. A good rule of thumb is that once the neckline is broken, the downside target is equal to the decline that immediately preceeded it.
Thus, one could look to these levels for the market to take its next breather: 525 on the Russell 2000, 925 on the Standard & Poors 500, 1900 on the Nasdaq Composite and 8500 on the Dow Jones Industrial Average. And, these levels, or some approximation thereof, should be reached BEFORE the actual crash occurs, if there is one.
The only safe places to hide capital are Utilities, Oil Companies with a high dividend, Gold (physical), the Dollar and ultra-safe Bonds. For the aggressive, inverse ETFs such as FAZ and TWM ought to provide at least a good hedge, but also a very risky, but potentially very profitable trade.
I see the Bad Moon Arisin', I see trouble on the way....
Marko's Take
Now that earnings season has encouraged investors, it's time for the economic reality to splash cold water in the financial markets' faces. The news is exceptionally poor.
The Richmond branch of the Federal Reserve’s measure of manufacturing activity for the mid-Atlantic region plunged by about 30% . The fall was less than economists were predicting, but the decline strongly suggests tha one of the US’s only area of strength has an empty gas tank.
The economy’s weakest sector, housing, got yet more bad news. Sales of existing homes fell 27.2% in July, the steepest monthly drop in 15 years and past consensus expectations of a 12% decline.
The Richmond Fed’s index came in at 11, versus 16 the previous month. Last week, the Philadelphia branch registered a disappointing index of factory activity that sent markets reeling, as it suggests a potential dip in the August reading of the broader Institute of Supply Management’s index. The Chicago Fed’s index is due next week.
And this is just the beginning. In today's trading, it appears that we will have yet another Hindenburg Omen. This makes at least 3, depending on whose definition of it one ascribes to. What's a few New Highs and New Lows among friends, anyway?
The equally ominous head and shoulders pattern gives us at least an idea of what might be reasonable to expect here in terms of the next intermediate low. A good rule of thumb is that once the neckline is broken, the downside target is equal to the decline that immediately preceeded it.
Thus, one could look to these levels for the market to take its next breather: 525 on the Russell 2000, 925 on the Standard & Poors 500, 1900 on the Nasdaq Composite and 8500 on the Dow Jones Industrial Average. And, these levels, or some approximation thereof, should be reached BEFORE the actual crash occurs, if there is one.
The only safe places to hide capital are Utilities, Oil Companies with a high dividend, Gold (physical), the Dollar and ultra-safe Bonds. For the aggressive, inverse ETFs such as FAZ and TWM ought to provide at least a good hedge, but also a very risky, but potentially very profitable trade.
I see the Bad Moon Arisin', I see trouble on the way....
Marko's Take
Tuesday, July 27, 2010
String Theory
While in many ways the capital markets resemble what academics refer to as a "random walk", there is a hidden structure to how they work. The majority of investors believe that earnings are what's important. They are eventually, but NOT in the short-term. Valuation only provides us with guidelines, but says virtually nothing about timing. As they say, "Timing Is Everything".
The markets have now rallied for 14 of the last 16 days. Statistically, that's virtually impossible. In, addition, The Dow Jones Industrial Average (Dow) has had triple-digit gains 3 days in a row. That's unprecedented.
Strings of up and down days are followed by very few analysts. Not too long ago, I studied market strings. Here's what I found:
A streak of 7 days up or more is exceedingly rare. In fact, virtually every occurrence marked either a significant market top or bottom. These strings suggest exhaustive moves. Terminal moves. Moves subject to sharp and violent reversals. The same goes for strings such as 11 of 13 days or 9 or 10 days. They feel good, but they do NOT indicate market health.
The 2008-2009 market meltdown witnessed 8 down days in a row. This marked the the final panic lows. Now, we have an even more extreme string up. The waterfall decline we've been anticipating is all set up.
Markets make major turns at extremes of investor sentiment. Once everyone has bought in, and all the short-sellers have been forced to run for cover, who's left to buy? NO ONE! That's what makes the current string so dangerous. Everyone is bought in. Everyone thinks earnings will carry stock prices higher. The analysts warning you about coming problems have been temporary discredited.
The largest percentage moves up occur in bear market rallies. Virtually all of the 10 largest percentage moves up occurred either during the Great Depression or during the meltdown of 2008-2009. They're a sign of emotional extremes, NOT of market health.
Bull markets progress gradually. The bull's job is to make sure that as few people as possible ride the wave up. It's never easy. Any major move will have intermittent market smashes designed to scare the hell out of anyone. They are there to make you question your convictions. Bear market rallies are designed to keep you bullish, to keep you from selling and to make sure you hold your stock all they way to the bottom.
Thus, while it's tempting to conclude that this recent move up is indicative that "all's well", nothing could be further from the truth. All the extra-ordinary fundamental problems still exist. They are far from being solved.
So, if you're cautious but looking at the recent sharp move as indicative of a recovery, think again. The same type of sharp upward corrections have NEVER been indicative of a good buying opportunity. They don't now.
Remember, the key to this right now is SURVIVAL.
Marko's Take
The markets have now rallied for 14 of the last 16 days. Statistically, that's virtually impossible. In, addition, The Dow Jones Industrial Average (Dow) has had triple-digit gains 3 days in a row. That's unprecedented.
Strings of up and down days are followed by very few analysts. Not too long ago, I studied market strings. Here's what I found:
A streak of 7 days up or more is exceedingly rare. In fact, virtually every occurrence marked either a significant market top or bottom. These strings suggest exhaustive moves. Terminal moves. Moves subject to sharp and violent reversals. The same goes for strings such as 11 of 13 days or 9 or 10 days. They feel good, but they do NOT indicate market health.
The 2008-2009 market meltdown witnessed 8 down days in a row. This marked the the final panic lows. Now, we have an even more extreme string up. The waterfall decline we've been anticipating is all set up.
Markets make major turns at extremes of investor sentiment. Once everyone has bought in, and all the short-sellers have been forced to run for cover, who's left to buy? NO ONE! That's what makes the current string so dangerous. Everyone is bought in. Everyone thinks earnings will carry stock prices higher. The analysts warning you about coming problems have been temporary discredited.
The largest percentage moves up occur in bear market rallies. Virtually all of the 10 largest percentage moves up occurred either during the Great Depression or during the meltdown of 2008-2009. They're a sign of emotional extremes, NOT of market health.
Bull markets progress gradually. The bull's job is to make sure that as few people as possible ride the wave up. It's never easy. Any major move will have intermittent market smashes designed to scare the hell out of anyone. They are there to make you question your convictions. Bear market rallies are designed to keep you bullish, to keep you from selling and to make sure you hold your stock all they way to the bottom.
Thus, while it's tempting to conclude that this recent move up is indicative that "all's well", nothing could be further from the truth. All the extra-ordinary fundamental problems still exist. They are far from being solved.
So, if you're cautious but looking at the recent sharp move as indicative of a recovery, think again. The same type of sharp upward corrections have NEVER been indicative of a good buying opportunity. They don't now.
Remember, the key to this right now is SURVIVAL.
Marko's Take
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