Are We at the Beginning of a Bull Market? 21 comments
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In my article about casino stocks, I mentioned that I was looking for one or two legs down in the market before really considering a new bull market.
I have to admit that projecting what the market will do in the next 6-12 months is pure speculation. Now, what I know for sure is that the long term is great for investors (I'm talking about a 5 year outlook) and that even if people buy very solid fundamental stocks now, they will be greatly reward 5 years from now.
But still, the short term outlook of the market could be helpful to see if we could enter at a lower price for a long term hold on any given stock we believe in.
I would like to share with you what I look at to see if we are closer to a bull market or a bear market rally :
- VIX: The CBOE Volatility Index is a very interesting metrics that is best known as "fear index". Usually when we are in a bull market, this index is below 20-25. Right now we are still above 30. At the peak of the crisis, (October-November) we were even above 60. This indicator is of interest in order to value what is the short term outlook, according to traders. I will start to strongly believe in a new bull market when the VIX will drop below 25. The reinstatement of the Uptick Rule could help that soon.
- Volume on the market: So far, I believe that the volume during the rally isn't significant enough to be comfortable with the idea that it is a bullish move more than a short cover rally. I'm looking for a volume 50 to 100% higher then the actual volume at the beginning the real bull market. I intend to follow blue chip stock to value the volume of the rally. Just look at the drop in average volume for stocks like Apple (AAPL) or Google (GOOG) that are both great long term picks but still had gains on lower average volume than usual. By the way, I think both Apple and Google should be core components of any long term portfolio.
- Euro/Dollars: Due to the Fed policy during this crisis, I believe that the dollar should be weaker if we enter into a true bull market. I expect the dollar to settle around at least 1.40-1.50 against the Euro. It would mean that the US currency is no longer trading as a safety choice but at its real value, which should be below the actual level against the Euro.
- Gold price: I don't necessarily think that a bull market means a lower gold price. We still need a significant pullback in Gold Price along with the beginning of the real bull market is necessary to feel comfortable with a potential rally in the equity market.
- Bottom in housing price: If the housing price index continues to fall, banks will continue to feel pressure and will continue to restrict lending. We need to see a real multimonth bottom in housing prices to be sure that banks will finally have less pressure with their mortage credit portfolios.
- Credit Market: The economy needs a solid credit market to fuel part of its growth since the Lehman bankruptcy and the complete freeze of credit in October-December Quarter. We have seen a pickup in this area of the economy, but we need more than the actual small increase in credit. We need to follow closely the movement of the spread in credit.
- Yen: We need to see a weaker Yen to confirm a pickup in the equity markets. Right now, the Japanese currency is used as a major safe-haven trade. As soon as we see a Yen at 110-120 against the dollar, for example, we will be more and more confident that the worse is behind us and that we are heading toward a real bull market.
Those are some of the key elements I always follow to check if we are in the beginning of a bull market or right in a middle of another bear market rally.
Based on those metrics, I do believe that right now the rally that started after the low of March 6 will have one or two major corrections in order to retest the lows of November and October of 08 before moving to a real multiyear bull market. I think that the March low is the real bottom of this market (the intraday low of 666 on the S&P 500 on March 6th sounds like a PERFECT low for me). Now, if the regulators fail to control naked shorts and reinstate a strong uptick rule (not a fake new rule that would have no power), we could put the March low in real danger. I hope that won't be the case and the regulators will do their job and make the right decision for a long term solid market.
I personally will gradually increase my positions on all the stocks I believe in. I do buy little by little every month, using Benjamin Graham's advice for investors in the middle of a Bear Market. I will be sure that at the end, I will have an average price that will be good for me on all the stocks I strongly believe in over the long term. By doing that, I also don't have to really worry about bull market or bear rallies as I'm positioning my portfolio for a 5-10 years and I will gradually build all my positions. I will continue this slow investment process until mid 2010, when I will probably have the entire portfolio I'm looking to hold over the long term. I might reduce or increase the length of my gradual investments if I see some of the key metrics above moving on the bull or the bear side as all my short term predictions are still pure speculation, and the only certainty I have is the market will be in better shape 5 years from now.
I would advise people to do the same on all stocks they believe in over the long term.
You all have to remember that if you are real fundamental long term investors, this market is a gift for you. So use it wisely and build you a life retiring portfolio right now for the next decade.
Disclosure : Long on Apple and Google, intend to continue to increase slowly my position on both stock for my own portfolio and my customer portfolio.
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This is true in real life and is true in the economy and is especially true in the market.
Flinty determination, and a quiet optimism will get us out of this. So here is my message to the shorts -- have fun while your party lasts...but don't bet your retirement on it :-)
But i'm against manipulation like naked short for example or bear raid along with rumor.
With the reinstatement of the Uptick Rule, short won't be able to manipulate on the downside the market and will let the natural value of the company effect the price.
Right now, the shorts can decide if they want to kick down a stock or not thanks to naked short sale and no uptick rule.
I still believe that in the market there is some companies that are over value and shorts has some good reason to position themself.
The Vix doubled the next day the uptick rule has been cancel. Any point of view on this one ?
I think that if the regulator comes and controls a little bit shorters (apply to them the same control to Long investor) march low will hold. If there is no control, we will be in for another bear raid..... potential market and we will make new lows.
I would advice you to look at those two interesting videos :
vimeo.com/4520843
video.google.com/video...
vimeo.com/3722293
I think you will understand what i mean by market manipulation.
On May 14 06:59 AM logicalthought wrote:
> >>Now, if the regulators fail to control naked shorts and reinstate
> a strong uptick rule (not a fake new rule that would have no power),
> we could put the March low in real danger.<<
>
> Yes, the problem with the markets isn't the lack of earnings; it's
> the shorts... The credibility of this author is zero
In fact this article fails to mention unemployment altogether.
i'm just against the principle to have a messenger that don't follow the same rules that the others....
I do believe that short term fundamentals is tough to predict but long term fundamental is still very solid and because it isn't possible to forecast the short term, i just gave the indicator i follow to know if we are closer to the end of the bear market or not.
Now i still believe that more regulation would have provide a more stable market and therefore more confidence.
Look out at the three link i provided above and you will understand against what kind of shorts i'm talking about.
On May 14 07:22 AM chistletoe wrote:
> The shorts (like myself, at the moment) are the messengers.
> Shooting the messenger rarely solves the problem.
>
> The fundamental problem is that, fundamentally, there is no reason
> for optimism. Many, many people are looking to the past and seeing
> how the US economy recovered from recessions, depressions, downturns,
> or whatever you want to call them, in the past. But the past is
> the past. Recovery means a new ground for optimism, in other words,
> for economic growth. There is no new disruptive technology such
> as the automobile, the exploration of space, or or the Internet,
>
> to increase productivity and open new frontiers. We are looking
> at peak oil, which has already arrived. We are, ominously, also
> looking at peak food, with scary implications. Even worse, some
> of us are already aware that the "global warming" bubble has also
> burst and dramatic climate change for the worse is also starting.
>
>
> I am happy for anyone to reinstate the uptick rule. There are still
> plenty of fools around capable of creating upticks, and that's always
> the best time to short anyway. I can ride this market down to zero.
> Everything that goes up must come down, right?
Concerning the bank, you will see the day they will pass the real test or be in real good shape as soon as you see a better credit market. It is imply in the state of the credit market.
On May 14 09:05 AM Pcatlow wrote:
> The big message missed here is WHEN will the Banks be held to a true
> test of their ability to operate without further capital? All
> of our major Banks, hold Goldman, are unstable and continue to face
> pressures from mounting unemployment and so on.
>
> In fact this article fails to mention unemployment altogether.
Build your long term portfolio slowly on very solid fundamental and long term growth stock. At the end you will get an average price for each of the stock you though about that will probably please you.
As you say, sooner or later the market will reverse and we will be in a real bull market. Now when will it happen ? I don't know :) probably in the next 5 years. And in fact i don't care as i think real long term investor will be reward at the end.
On May 14 07:41 AM Bandwagon2009 wrote:
> Hmm...to Chistletoe....optimism is a state of mind...and while I
> am not suggesting we all bury our head in the sand, a certain amount
> of optimisim is justified based on history. Things do recover...though
> in some cases it may take time and painful effort, if there is a
> will and desire. Fatalism was never an American trait. Pessimism
> and looking for bad news in everything becomes a self fullfilling
> prophecy.
>
> This is true in real life and is true in the economy and is especially
> true in the market.
>
> Flinty determination, and a quiet optimism will get us out of this.
> So here is my message to the shorts -- have fun while your party
> lasts...but don't bet your retirement on it :-)
It's a different world right now....many things out there that can derail our ecomomy and the markets that we didn't have before.
I think many people including myself are beginning to believe that long term buy and hold which you are recommending may not be a viable stradegy going forward - at least not currently.
People who warned about WWII approaching and the Nazi threat were "doom and gloomers"; Winston Churchill went from being called one and heckled in Parliament to the hero of the nation in the space of a couple of years.
Step away from the numbers; regression to the mean does not apply with outlier events of great magnitude.
Unemployment is "usually" a lagging indicator. However, people without jobs don't pay mortgages, auto loans, credit card, and other bills. We are adding over half-a-million JOBLESS people per month. Take 600,000 and multiply by median income of $40,000. That's $240 million dollars less per month going into the economy. It is also a drag of $100 million at least for unemployment benefits paid out by government.
The social impacts on the market cannot be ignored. Increased spending and money printing will inevitably lead to higher taxation which will stunt any growth. Obama's agenda will eventually tax EVERY wage earner, it will start immediately with cap and trade. Interest rates will have to be raised to prevent inflation if not hyperinflation.
Get out of the market now; this is Spring 1930 revisited.
I m talking about real stock picking where you choose very solid long term growth company with sound fundamental and sound management.
I only predict that the economy will be in better shape. I m not predicting a S&P at a certain level.
On May 14 10:14 AM rockingandrolling wrote:
> This is very wishful thinking. You state you can't predict short
> term 6-12 ....but that you "know for sure" that the market will
> be good for investers over 5 years. Nobody including YOU - can predict
> this! In 5 years the S&P can be at 300 just as easily as it can
> be at 2000!
>
> It's a different world right now....many things out there that can
> derail our ecomomy and the markets that we didn't have before. <br/>
>
> I think many people including myself are beginning to believe that
> long term buy and hold which you are recommending may not be a viable
> stradegy going forward - at least not currently.
>
>
>
=> Now you have unemployment benefit (so take into account those benefit and also severance package)
=> Now you don't lose your money in a bank seizure.
through those two elements that are huge difference from the 30's you will understand we are not at all in the 1930 spring.
We will have a before and an after recession like after every recession. Now i think this time it will have a strong effect on people behavior and investor behavior and i think this is a great things. The days of over leverage and hyper speculation are, i hope, OVER
On May 14 10:14 AM ebworthen wrote:
> There is "doom and gloom" and then there is reality.
>
> People who warned about WWII approaching and the Nazi threat were
> "doom and gloomers"; Winston Churchill went from being called one
> and heckled in Parliament to the hero of the nation in the space
> of a couple of years.
>
> Step away from the numbers; regression to the mean does not apply
> with outlier events of great magnitude.
>
> Unemployment is "usually" a lagging indicator. However, people without
> jobs don't pay mortgages, auto loans, credit card, and other bills.
> We are adding over half-a-million JOBLESS people per month. Take
> 600,000 and multiply by median income of $40,000. That's $240 million
> dollars less per month going into the economy. It is also a drag
> of $100 million at least for unemployment benefits paid out by government.
>
>
> The social impacts on the market cannot be ignored. Increased spending
> and money printing will inevitably lead to higher taxation which
> will stunt any growth. Obama's agenda will eventually tax EVERY
> wage earner, it will start immediately with cap and trade. Interest
> rates will have to be raised to prevent inflation if not hyperinflation.
>
>
> Get out of the market now; this is Spring 1930 revisited.
However, the rest of the employed people still need goods and services, generating a vastly larger aggregate demand (which also includes demand for goods and services from the industry, government, etc.) Hence, the companies producing them may have to shrink their output, but not to zero. Therefore, they will have earnings, and some will even pay dividends, and keep value of their shares at some level. That level is now being debated by the market, the great arbiter of thought and money behind it. The current situation may be reminiscent of the past situations, but the size and the composition of the world economy, the populations and their demand, the investors and speculators, the communications and many other factors influencing the market are in many respects quite different today.
Hence, the analogies with the past, while illuminating, cannot be taken at their face value.
On May 14 10:14 AM ebworthen wrote:
> There is "doom and gloom" and then there is reality.
>
> People who warned about WWII approaching and the Nazi threat were
> "doom and gloomers"; Winston Churchill went from being called one
> and heckled in Parliament to the hero of the nation in the space
> of a couple of years.
>
> Step away from the numbers; regression to the mean does not apply
> with outlier events of great magnitude.
>
> Unemployment is "usually" a lagging indicator. However, people without
> jobs don't pay mortgages, auto loans, credit card, and other bills.
> We are adding over half-a-million JOBLESS people per month. Take
> 600,000 and multiply by median income of $40,000. That's $240 million
> dollars less per month going into the economy. It is also a drag
> of $100 million at least for unemployment benefits paid out by government.
>
>
> The social impacts on the market cannot be ignored. Increased spending
> and money printing will inevitably lead to higher taxation which
> will stunt any growth. Obama's agenda will eventually tax EVERY wage
> earner, it will start immediately with cap and trade. Interest rates
> will have to be raised to prevent inflation if not hyperinflation.
>
>
> Get out of the market now; this is Spring 1930 revisited.
I don't believe that we are in a bull market right now. Those indicator i mention are just metric to give me some idea if we are more on the bull or bear side of the market.
Now i think that the best way to invest over the long term in this market is to slowly build your position over a multimonth period so that you won't have to worry about when will the bear market end etc. etc.
On May 14 10:55 AM kelm wrote:
> You are describing a bull market like those we have seen in fairly
> recent history. If we have a prolonged recession you may see a very
> different set of indicators at the start. This is a global economic
> crisis so I would look to confirming signals from major overseas
> markets and commodities as well. I agree that there is likely more
> work to do before a new bull. There are two many fundamental fiscal
> issues that this nation is dealing with that have to be resolved
> in order for their impairments to be removed from economic growth.
The data (from almost every perspective I take) suggests otherwise and history suggests that you are likely to be wrong.
The mistake you make is that you are basing your prediction on your lifetime of knowledge, which is now failing you. At worst we are in year 2 of what will likely be a 15-20 year underperforming stretch for the stock market. At best we are in year 9.
I don't just base this on past history as that would be foolish. I base it on the macro economy and the fact that we still have yet to unwind most of the leverage we built up over past decades.
To top it off, every way that I can objectively value the stock market using historic norms (book value, P/E, price to earnings, trend average) tells me that the stock market has been overvalued and is only at fair value, at best. The history of bubbles (of all kinds) makes it clear that we should expect to see a similar period where the market is undervalued to balance out the period (1980's, 1990's & 2000's) of overvaluation.
...unless things are different this time. :-)
If you pick stocks (without considering diversification but ONLY fundamentals) you will outperform over a 5years period.
Personnally all portfolio i manage since 2000 are all in the green (even at the march 6 low) but they don't contain TONS of stocks but only some that i believed in term of fundamentals.
I'm not talking about diversification etc. But only picking stock you believe in over the long term, they will sooner or later turn out to be great profitable stock if you made strong homework on them.
On May 14 02:37 PM Fred Voetsch wrote:
> "Now, what I know for sure is that the long term is great for investors
> (I'm talking about a 5 year outlook) and that even if people buy
> very solid fundamental stocks now, they will be greatly reward 5
> years from now."
>
>
> The data (from almost every perspective I take) suggests otherwise
> and history suggests that you are likely to be wrong.
>
> The mistake you make is that you are basing your prediction on your
> lifetime of knowledge, which is now failing you. At worst we are
> in year 2 of what will likely be a 15-20 year underperforming stretch
> for the stock market. At best we are in year 9.
>
> I don't just base this on past history as that would be foolish.
> I base it on the macro economy and the fact that we still have yet
> to unwind most of the leverage we built up over past decades.
>
> To top it off, every way that I can objectively value the stock market
> using historic norms (book value, P/E, price to earnings, trend average)
> tells me that the stock market has been overvalued and is only at
> fair value, at best. The history of bubbles (of all kinds) makes
> it clear that we should expect to see a similar period where the
> market is undervalued to balance out the period (1980's, 1990's &
> 2000's) of overvaluation.
>
> ...unless things are different this time. :-)
I do believe that fundamental pick (of course if your fundamental research over the long term outlook is good) will provide you great reward over time.
You will always have tons of stocks that will perform greatly over 5-10yrs even if during this period a tough recession happened. This time will once again be the case.
It is all about patient and more important strong homework on stocks you pick and timing of entry. Stocks like Apple, Google, Potash, Intuitive Surgical are great long term pick. Solar Stocks (if the credit market pick up again) will be great long term pick etc.
Now if you had a portfolio diversify that reproduce (with marginal difference) the index, it is clear that it isn't sure return will be great because you will always have one or more sector on your portfolio that will pressure your portfolio.
On May 14 02:40 PM Fred Voetsch wrote:
> On May 14 12:11 PM I am NOT Ned!! wrote:
On May 14 02:40 PM Fred Voetsch wrote:
> On May 14 12:11 PM I am NOT Ned!! wrote:
No, not "tons" but, rather, a tiny minority of stocks, akin to finding a handful of needles in a haystack. Remember, "relative performance" doesn't pay the bills, and a really ugly market brings multiple compression on ALL stocks, even the "good ones". It isn't easy to find stocks that go up (rather than just down less than the others) in a really bad macro environment. Proof positive of this is that the companies that you specifically mention (Apple, Google, Potash and Intuitive Surgical) are WAY off their highs of 2007/2008. According to your theory, they still should have gone up. The only stocks to get long in an ongoing recession are those with specific near-term inflection points that have absolutely nothing to do with the overall economy. On the risky side, those would be small-cap biotechs that don't need money and have pivotal data or pending FDA drug approvals. On the less risky side, it would be a smaller company with a decent balance sheet introducing a VERY hot new product of some sort without too many slow-selling (because of the economy) legacy products. It would NOT be any kind of mega-cap company (no matter how cool its products are) that can't outgrow the "multiple compression" that takes place in a bad market.
Shooting the messenger rarely solves the problem.
The fundamental problem is that, fundamentally, there is no reason for optimism. Many, many people are looking to the past and seeing how the US economy recovered from recessions, depressions, downturns, or whatever you want to call them, in the past. But the past is the past. Recovery means a new ground for optimism, in other words, for economic growth. There is no new disruptive technology such as the automobile, the exploration of space, or or the Internet,
to increase productivity and open new frontiers. We are looking at peak oil, which has already arrived. We are, ominously, also looking at peak food, with scary implications. Even worse, some of us are already aware that the "global warming" bubble has also burst and dramatic climate change for the worse is also starting.
I am happy for anyone to reinstate the uptick rule. There are still plenty of fools around capable of creating upticks, and that's always the best time to short anyway. I can ride this market down to zero. Everything that goes up must come down, right?