5-hour chart:
Daily chart:
Friday, December 31, 2010
Thursday, December 23, 2010
David Rosenberg's - TEN REASONS TO BE CAUTIOUS FOR THE 2011 MARKET OUTLOOK
Source: https://ems.gluskinsheff.net/Articles/Breakfast_with_Dave_122310.pdf
1. In Barron’s look-ahead piece, not one strategist sees the prospect for a
market decline. This is called group-think. Moreover, the percentage of
brokerage house analysts and economists to raise their 2011 GDP
forecasts has risen substantially. Out of 49 economists surveyed, 35 say
the U.S. economy will outperform the already upwardly revised GDP
forecasts, only 14 say we will underperform. This is capitulation of
historical proportions.
2. The weekly fund flow data from the ICI showed not only massive outflows, but in aggregate, retail investors withdrew a RECORD net $8.6 billion from
bond funds during the week ended December 15 (on top of the $1.7 billion
of outflows in the prior week). Maybe now all the bond bears will shut their
traps over this “bond-bubble” nonsense.
3. Investors Intelligence now shows the bull share heading up to 58.8% from
55.8% a week ago, and the bear share is up to 20.6% from 20.5%. So
bullish sentiment has now reached a new high for the year and is now the
highest since 2007 ― just ahead of the market slide.
4. It may pay to have a look at Dow 1929-1949 analog lined up with January
2000. We are getting very close to the May 1940 sell-off when Germany
invaded France. As a loyal reader and trusted friend notified us yesterday,
“fighting” war may be similar to the sovereign debt war raging in Europe
today. (Have a look at the jarring article on page 20 of today’s FT —
Germany is not immune to the contagion gripping Europe.)
5. What about the S&P 500 dividend yield, and this comes courtesy of an old pal from Merrill Lynch who is currently an investment advisor. Over the
course of 2010, numerous analysts were saying that people must own
stocks because the dividend yields will be more than that of the 10-year
Treasury. But alas, here we are today with the S&P 500 dividend yield at
2% and the 10-year T-note yield at 3.3%.
From a historical standpoint, the yield on the S&P 500 is very low ― too low, in fact. This smacks of a market top and underscores the point that the
market is too optimistic in the sense that investors are willing to forgo yield
because they assume that they will get the return via the capital gain. In
essence, dividend yields are supposed to be higher than the risk free yield
in a fairly valued market because the higher yield is “supposed to”
compensate the investor for taking on extra risk. The last time S&P yieldswere around this level was in the summer of 2000, and we know what
happened shortly after that. When the S&P yield gets to its long-term
average of 4.35%, maybe even a little higher, then stocks will likely be a
long-term buy.
6. The equity market in gold terms has been plummeting for about a decade
and will continue to do so. When measured in Federal Reserve Notes, the
Dow has done great. But there has been no market recovery when
benchmarked against the most reliable currency in the world. Back in
2000, it took over 40oz of gold to buy the Dow; now it takes a little more
than 8oz. This is typical of secular bear markets and this ends when the
Dow can be bought with less than 2oz of gold. Even then, an undershoot
could very well take the ratio to 1:1.
7. As Bob Farrell is clearly indicating in his work, momentum and market
breadth have been lacking. The number of stocks in the S&P 500 that are
making 52-week highs is declining even though the index continues to
make new 52-week highs.
8. Stocks are overvalued at the present levels. For December, the Shiller P/E
ratio says stocks are now trading at a whopping 22.7 times earnings! In
normal economic periods, the Shiller P/E is between 14 and 16 times
earnings. Coming out of the bursting of a credit bubble, the P/E ratio
historically is 12. Coming out of a credit bubble of the magnitude we just
had, the P/E should be at single digits.
9. The potential for a significant down-leg in home prices is being
underestimated. The unsold existing inventory is still 80% above the
historical norm, at 3.7 million. And that does not include the ‘shadow’
foreclosed inventory. According to some superb research conducted by the
Dallas Fed, completing the mean-reversion process would entail a further
23% decline in real home prices from here. In a near zero percent inflation
environment, that is one massive decline in nominal terms. Prices may not
hit their ultimate bottom until some point in 2015.
10.Arguably the most understated, yet significant, issue facing both U.S.
economy and U.S. markets is the escalating fiscal strains at the state and
local government levels, particularly those jurisdictions with uncomfortably
high pension liabilities. Have a look at Alabama town shows the cost of
neglecting a pension fund on the front page of the NYT as well as Chapter
9 weighed in pension woes on page C1 on WSJ.
1. In Barron’s look-ahead piece, not one strategist sees the prospect for a
market decline. This is called group-think. Moreover, the percentage of
brokerage house analysts and economists to raise their 2011 GDP
forecasts has risen substantially. Out of 49 economists surveyed, 35 say
the U.S. economy will outperform the already upwardly revised GDP
forecasts, only 14 say we will underperform. This is capitulation of
historical proportions.
2. The weekly fund flow data from the ICI showed not only massive outflows, but in aggregate, retail investors withdrew a RECORD net $8.6 billion from
bond funds during the week ended December 15 (on top of the $1.7 billion
of outflows in the prior week). Maybe now all the bond bears will shut their
traps over this “bond-bubble” nonsense.
3. Investors Intelligence now shows the bull share heading up to 58.8% from
55.8% a week ago, and the bear share is up to 20.6% from 20.5%. So
bullish sentiment has now reached a new high for the year and is now the
highest since 2007 ― just ahead of the market slide.
4. It may pay to have a look at Dow 1929-1949 analog lined up with January
2000. We are getting very close to the May 1940 sell-off when Germany
invaded France. As a loyal reader and trusted friend notified us yesterday,
“fighting” war may be similar to the sovereign debt war raging in Europe
today. (Have a look at the jarring article on page 20 of today’s FT —
Germany is not immune to the contagion gripping Europe.)
5. What about the S&P 500 dividend yield, and this comes courtesy of an old pal from Merrill Lynch who is currently an investment advisor. Over the
course of 2010, numerous analysts were saying that people must own
stocks because the dividend yields will be more than that of the 10-year
Treasury. But alas, here we are today with the S&P 500 dividend yield at
2% and the 10-year T-note yield at 3.3%.
From a historical standpoint, the yield on the S&P 500 is very low ― too low, in fact. This smacks of a market top and underscores the point that the
market is too optimistic in the sense that investors are willing to forgo yield
because they assume that they will get the return via the capital gain. In
essence, dividend yields are supposed to be higher than the risk free yield
in a fairly valued market because the higher yield is “supposed to”
compensate the investor for taking on extra risk. The last time S&P yieldswere around this level was in the summer of 2000, and we know what
happened shortly after that. When the S&P yield gets to its long-term
average of 4.35%, maybe even a little higher, then stocks will likely be a
long-term buy.
6. The equity market in gold terms has been plummeting for about a decade
and will continue to do so. When measured in Federal Reserve Notes, the
Dow has done great. But there has been no market recovery when
benchmarked against the most reliable currency in the world. Back in
2000, it took over 40oz of gold to buy the Dow; now it takes a little more
than 8oz. This is typical of secular bear markets and this ends when the
Dow can be bought with less than 2oz of gold. Even then, an undershoot
could very well take the ratio to 1:1.
7. As Bob Farrell is clearly indicating in his work, momentum and market
breadth have been lacking. The number of stocks in the S&P 500 that are
making 52-week highs is declining even though the index continues to
make new 52-week highs.
8. Stocks are overvalued at the present levels. For December, the Shiller P/E
ratio says stocks are now trading at a whopping 22.7 times earnings! In
normal economic periods, the Shiller P/E is between 14 and 16 times
earnings. Coming out of the bursting of a credit bubble, the P/E ratio
historically is 12. Coming out of a credit bubble of the magnitude we just
had, the P/E should be at single digits.
9. The potential for a significant down-leg in home prices is being
underestimated. The unsold existing inventory is still 80% above the
historical norm, at 3.7 million. And that does not include the ‘shadow’
foreclosed inventory. According to some superb research conducted by the
Dallas Fed, completing the mean-reversion process would entail a further
23% decline in real home prices from here. In a near zero percent inflation
environment, that is one massive decline in nominal terms. Prices may not
hit their ultimate bottom until some point in 2015.
10.Arguably the most understated, yet significant, issue facing both U.S.
economy and U.S. markets is the escalating fiscal strains at the state and
local government levels, particularly those jurisdictions with uncomfortably
high pension liabilities. Have a look at Alabama town shows the cost of
neglecting a pension fund on the front page of the NYT as well as Chapter
9 weighed in pension woes on page C1 on WSJ.
A very thought provoking & straight from the heart post from Dr. John Hussman (A good Christmas read)
For starters Dr. John Hussman is a long/short hedge fund manager who is both geographically and intellectually far away from any cheap Wall Street Fund managers/analysts.
His claim to fame?
He has called last few major/crashes to almost the last day/week. And not just that - he has beaten 99% of Fund managers over the last 5 years as per Bloomberg (http://www.thecapitalgoldgroup.com/2010/11/u-s-stocks-drop-amid-irish-bailout-fund-raids-in-insider-trading-probe/)
Here's a year end post from Dr. John Hussman
http://www.hussmanfunds.com/wmc/wmc101220.htm
Its somewhat complicated read - esp if you are reading Hussman's post for the first time but if you make it a habit of reading his every Monday evening (IST) post, this summary would be a very good guide to what could come in 2011.
His claim to fame?
He has called last few major/crashes to almost the last day/week. And not just that - he has beaten 99% of Fund managers over the last 5 years as per Bloomberg (http://www.thecapitalgoldgroup.com/2010/11/u-s-stocks-drop-amid-irish-bailout-fund-raids-in-insider-trading-probe/)
Here's a year end post from Dr. John Hussman
http://www.hussmanfunds.com/wmc/wmc101220.htm
Its somewhat complicated read - esp if you are reading Hussman's post for the first time but if you make it a habit of reading his every Monday evening (IST) post, this summary would be a very good guide to what could come in 2011.
Sunday, December 19, 2010
If you are looking for a topping out of world markets -- two very important indices to watch for
You got it right - the mother of all indices! US Banking Index. It never happens that world markets will top out without the US Banking index - where all the mess started off back in July 2007.
US Bank Index has underperformed S&P500 for the last few months and it has just started rallying - trying to take out resistance around 51. To me the writing is on the wall - If KBW Bank Index does manage to take out the resistance level then don't look for a top in S&P500 or any other world markets very soon!
The next one is Topix Japanese Banking Index, which is down 90% from its 1992 levels! It recently hit an all time low in November!
#############
Update on 22nd Dec
#############
One more picture -- the Japanese Index from 1984-2010
BTW -- As of this morning (22nd Dec) in US markets, US Bank index has made a 6 month high crossing the 51.XX resistance. It looks like it can go up another 7-8% before it meets next resistance at 56-57 range.
Wednesday, December 15, 2010
Saturday, December 11, 2010
Saturday, December 4, 2010
Patience Please - From BkForexAdvisors.com
Patience Please
Want to know what is the greatest enemy of most traders? Patience. Most of us simply get in and out of our trades way too quickly making our entries too early and taking our exits too fast. For those of us who trade on intra-day basis the problem is even worse as we are often tempted to trade just for the sake of trading and one impatient decision can erase half a days work.
As speculators we have only only one true edge in the market - selectivity. Investors have much more capital than we do and are able to weather wide swings in price. Market makers have much better information on flow and while making money from bid ask spreads. Both of those participants can remain in the market on near permanent basis. As traders we don't have such luxury. But we do have one serious advantage - we don't have to play the game when there is no meaningful activity. We can sit on the sidelines for as long as we want. Unfortunately, that's something that very few of us do.
I certainly can't do it very well. My need to be involved often trumps the good sense to be selective and I wind up paying for my impulsive actions over and over and over again. In fact I know that if I was more patient my P&L would improve markedly.
Depending on your time horizon trading requires two different types of patience. If you are a short term intra day trader patience in timing is much more important than getting an optimal price. Essentially you need great patience in entry since your targets are relatively close and will likely be hit if you are correct in your analysis of the price action but so will your stops if you are wrong. On the other hand longer term positional traders typically have much wider stops, so they can often survive the ebb and flow of intra day price action but have a difficult time in holding their position to the target profit. Basically short term traders needs patience with their entries, while longer term traders need patience with their exits.
One of the great ironies of trading is that we often focus all of our energy on money management and never consider the importance of patience to our overall success. After a while almost all of us learn to take stops, to avoid doubling down into losing positions and to control our leverage, Yet few of us work on learning how to be more patient which ultimately may be the true key to long term success.
As speculators we have only only one true edge in the market - selectivity. Investors have much more capital than we do and are able to weather wide swings in price. Market makers have much better information on flow and while making money from bid ask spreads. Both of those participants can remain in the market on near permanent basis. As traders we don't have such luxury. But we do have one serious advantage - we don't have to play the game when there is no meaningful activity. We can sit on the sidelines for as long as we want. Unfortunately, that's something that very few of us do.
I certainly can't do it very well. My need to be involved often trumps the good sense to be selective and I wind up paying for my impulsive actions over and over and over again. In fact I know that if I was more patient my P&L would improve markedly.
Depending on your time horizon trading requires two different types of patience. If you are a short term intra day trader patience in timing is much more important than getting an optimal price. Essentially you need great patience in entry since your targets are relatively close and will likely be hit if you are correct in your analysis of the price action but so will your stops if you are wrong. On the other hand longer term positional traders typically have much wider stops, so they can often survive the ebb and flow of intra day price action but have a difficult time in holding their position to the target profit. Basically short term traders needs patience with their entries, while longer term traders need patience with their exits.
One of the great ironies of trading is that we often focus all of our energy on money management and never consider the importance of patience to our overall success. After a while almost all of us learn to take stops, to avoid doubling down into losing positions and to control our leverage, Yet few of us work on learning how to be more patient which ultimately may be the true key to long term success.
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