John Hussman: Market Internals Suggest Heightened Concern

Excerpt from the Hussman Funds' Weekly Market Comment (5/25/09):

Straight to the chase – our measures of market internals have somewhat unexpectedly broken down in recent sessions, partly as a result of hostile interest rate action, as well as reversals in a number of sensitive measures of "distribution" (largely driven by price-volume behavior) in an environment where overall price-volume behavior was already tepid. Breadth as measured by advances versus declines is still the clear bright spot in the market's action.

Importantly, the market still has the ability to establish a more constructive tone if it can advance past the recent resistance area. On the basis of constructive breadth and the potential that a better-sponsored advance might improve the tone of internals, we do continue to hold 1-2% of assets in the Strategic Growth Fund in call options, but overall, I am most concerned about abrupt downside risk, and apart from that “anti-hedge” in index calls, the Fund remains well hedged against the impact of market fluctuations here.

One of the concerns that seems to be developing here is that the stock market has gone a significant distance on what is now an article of faith (and a largely discounted one) that an economic recovery is close at hand. To some extent, that puts us in a situation where instead of requiring only that the news is “less bad than expected,” the maintenance and extension of recent gains will require actual improvement in economic reports. As continuing unemployment claims, retail sales and other data are suggesting, those improvements may not come as easily as expected.

Comments

[J. D. Swampfox:]

Dr. Hussman is always an insightful and pragmatic read. I, for one, am truly glad he makes his weekly opinions available for free..

May 26 11:03 AM

[Donald Ingram:]

Improvements?

Those "green shoots" that is the hot new buzz phrase? Those are the weeds growing in the cracks of the mall parking lots! Park your money in physical gold/silver, or risk joining the bread lines!
This economic juggernaught has just really begun to roll!
Decoupling is happening right under your noses. The world has discovered that they are not as bad off as first thought, at least not as bad off as the States! As Peter Shiff puts it, "We are not the engine, we are the caboose and we are being cut loose."

May 26 11:48 AM

[Thomas J. G...:]

Is Hussman a "technical" person too?

May 26 01:13 PM

[conceptwizard:]

By this fall America will be headed for a currency crisis, perhaps much sooner. The dollar’s rally ended months ago at 89.50 on the USDX. It closed recently at 82.51. The latest upward blip was on short covering. Get set for another downward move. This is what happens when you have bogus rallies created by de-leveraging. It is only a matter of time before the Treasury and the Feb become completely isolated from foreign investment and then they will only have the printing presses left. That means your money and your assets will have fallen in value 60% to 95%, except for the only true money, gold and silver.

May 26 02:06 PM

[whidbey:]

Yes, Concept wizard's remarks are on point.

Today is just another demonstration of what happens to governments run on debt. The acceptance of Treasury new offerings was tepid, new buyers of more than short term notes are reluctant to accept the risks clearly implied present policy. Gold and currency may be the proper answer.

May 26 05:59 PM

[John Galt:]

If you were create a little stock market experiment where you ONLY looked at the data like an economist... the falling GDP, 500,000 + jobs lost every month, asset price deflation, housing prices falling every month for over 2 years, foreclosures, credit card defaults, trade deficits, auto bailouts, financial bailouts, state bailouts, "stimulus" and all the other transfers of wealth...

You'd think it was nuts for the market to be up from the March lows. Things "might" be getting worse at a slower pace, but I believe a lot of that belief comes from...

1. The government telling you so
2. The market rallying

If you stepped away from everything, stopped listening to the "experts", the politicans with their vested interest, and the "fed" who has been wrong for 2 years in a row... You could come up with your own conclusion.

If the government/market wasn't telling people what to think, they'd think the world was going to end tomorrow. It amazes me how many people that think everything will be better in 6 to 9 months.

May 26 11:06 PM

[1930pkc:]

Wonderful to find this site! I believe what I find and find what I believe.

May 27 03:00 PM

[aardvark:]

Maybe the green shoots got overshot?
Men, man your bubbles.
Ladies count your unhatched chickens.
Boys and girls buckle up.
The deleveraging train is leaving the station.

May 27 06:16 PM