New Bull Market Has Started - Did You Miss It? Me Too. 19 comments
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After the near-collapse of the US banking system, and the attendent freeze in the credit markets, and the multi-month crash in equity markets that took the S&P 500 from over 1500 to under 700, many still doubt the 5 month rally that has since ensued. They seem to be waiting for a retest of what Barry Ritholz referred to as "generational lows." My opinion, don't hold your breath.
If you're assuming that the year-long recession is merely the beginning of the next great depression, statistically speaking, you're making an improbable wager. The more likely outcome given the massive governmental action is that we've experienced a severe recession that is already bottoming.
click to enlarge
The chart above is a weekly chart of the S&P 500 from 1995 through Friday. Notable is how long and persistant uptrends in the stock market are once they get a good head of steam. From 1995 to the bubble-top of 2000 neither rising interest rates, over-valuation, an Asian currency crisis, or the failure of Long-Term Capital derailed the equity market. As Bill Fleckenstein likes to say, the buyers had to "exhaust themselves." That happened in 2000.
If you went short in the years prior to that as many smart hedge fund managers did, you probably did poorly. When the bubble-burst in 2000, the market began a rather gradual decline lasting unti 2003. Shorting the deflating stock market bubble at that time was a trend-following way to consistently make money.
The stock market got choppy in 2002 and 2003, as the trend changed, but by late 2003, the stock market began an uptrend that relatively few had faith in. That inital flicker of an uptrend continued for four solid years in spite of various soft economic data points and various bearish pronouncements. In fact, as you can see the equity markets seem to have accelerated into the top in 2007, when red flags were emerging in the credit markets.
Such is the nature of trends. Trends start amidst few believers, and end with most people all in. It took a 1930's-like collapse of the banking system to bring down the equity markets in 2007-2009.
Shown above is the stock market crash of 2008, when the S&P 500 entered the year around 1400, and ended the year around 900. The markets experienced a final round of panic selling culminating in March 2009 when the S&P 500 bottomed below 700. Since then, the market has taken off like a rocket, and has advanced an astonishing 50%.
Shown above is the daily chart of the S&P 500 this year. The final climatic low can be seen in March, with a few closes near the S&P 675 level. At that time, complete financial meltdown was on the table, we were supposed to be in the early phases of the Great Depression part 2 (a view many still share), and everyone who wanted to sell sold, and everyone who wanted to be short was short. It was a panic/liquidation low, not seen since 1987 (a good time to buy given that the DJIA was below 2000).
That being already priced into the stock market, naturally, it stopped going down and advanced. The market tends to confound both the smart and the dumb money as much as possible. More than likely "large entities" intervened directly in the market and prevented further downside. It's happened before and it likely happened then. That being the case, a new uptrend has been established, and any attempts to short the market since then have been difficult if not disasterous.
The economic news is still spotty at best and crummy at worst. And the market is "due" for a pull back. But with zero-percent interest rates, a "stabilizing" economy, and a possible reversal of the Democratic control in the Congress as soon as next year, it seems to me that the trade is to buy the dips, not sell the blips. At this point the economic news is just noise.
We can see how the markets have been shrugging off bad news, and lifting off on good news. That's a bull market. Hard to believe after that past 2 years, I know. Especially since most of us missed the easy money made off the March bottom and wish for a big correction to get in at something close to those levels. That is unlikely at this point, in the absence of a terrifying financial event.
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Methinks the smart money did not miss entering at the February/March lows, and said smart money has already cashed in a fair portion of their winning chips.
all generalizations
use log charts for some credibility
doug kass called the "generational low"
The facts are that while a number of wall street insiders and other professionals are turning bearish, the sentiment of public investors is highly bullish (in the US I follow AAII showing 51% bullish, high reading whereas not too many weeks ago on July 9th bearish levels hit 54% so it worked out as a great contrarian indicator). Furthermore, Investor's Intelligence bullish sentiment is almost at 50% highest level since dec 2007 and bearishness is at 21% lowest since oct 2007. Definitely raises some flags to say the least -- this is not the time to get bullish or complacent, please be careful.
I am slightly net short, mostly china, emerging markets, and oil, but not giving it much leeway at all -- any rally on spx (if 38% or 1020 resistance does not hold and spx punches higher) I am out, will ask questions later.
So it seemed after a 45%+ bounce in early 1930, after a very similar rise off the panic bottom. That was the point at which it seemed that the recession had ended; but it was also the point where the depression began, due to accelerating debt defaults. That's what's in store for us too. It'll take longer because the gov't has backstopped the banks this time, but that's just set up the gov't. as another domino.
How do you know? You can speculate and calculate and chart, but the only way to "know" what the stock market is "going" to do near term is to be in the control room at Goldman Sachs when they're pushing the "buy" or "sell" button, lol.
I sometimes tend toward hyperbole, but my first article on SA was titled "The Death of Stocks," published Oct. 19, 2008. I'm no Pollyanna. I too believe the stock market will pull back within the next two months or so, we are in "that" time of year: Sept-Oct.
I personally feel any comparison to the 1930s is silly. Grapes of Wrath? Nah.
>>Should also add trading is not so much about being right, but about cutting the loss and getting out immediately when things don't go as planned -- and that could be my day on Monday, never know, but it is the best occupation in the world, in my opinion, where theory and practice come together on a global scale.<<
Yep. In fact, I don't own a single stock or stock ETF in any of my accounts. I'm long silver, short oil, and long the Australian Dollar.
I believe the US is in a long-term decline from the dominant post- WWII economy to merely another large economy. That decline, over decades, will continue to feature a falling dollar, inflation, and economic stagnation. We've already turned to just creating money from thin air, not good.
In truth, other than some trading, the investment I'm most confortable with is precious metal bullion in particular and energy in general.
Also like that you were just tending toward hyperbole. My concern was that after missing a 50% rally, investors start to pile in and instead of just missing out on 50% return, they take a big hit to the downside -- that is what I said was worse. I also noticed from your profile that you trade in harmony with short term trends and invest with long term trends. So you stuck to your discipline and didn't miss the bull market because the long term trend is still negative. My line in the sand is the 80 or 89 week ma or 20 month ma (legacyfunds.wordpress..../). We get above that and hold, and I will call that a bull market, but until then it is just a powerful bear market rally. As you can see I charted various time periods, using 1 simple ma, and that did a good job of keeping a trader on the right side of bull or bear, short term trends notwithstanding.
So it still remains that the big risk to our wealth is the downside because even if this turns out to be a bull, we have time to get in after any big run in the short term as the fundamentals aren't there to support a huge rally from here -- and we haven't had a pullback. I do intend to go long on the pullback, provided 860 holds. If that fails then we increase the odds of a retest of the lows or worse.
On Aug 16 05:06 PM Dr. O wrote:
> How do you know? You can speculate and calculate and chart, but the
> only way to "know" what the stock market is "going" to do near term
> is to be in the control room at Goldman Sachs when they're pushing
> the "buy" or "sell" button, lol.
>
> I sometimes tend toward hyperbole, but my first article on SA was
> titled "The Death of Stocks," published Oct. 19, 2008. I'm no Pollyanna.
> I too believe the stock market will pull back within the next two
> months or so, we are in "that" time of year: Sept-Oct.
>
> I personally feel any comparison to the 1930s is silly. Grapes of
> Wrath? Nah.
Many are "intuitively aware" that a recovery is due.
But! the facts say not likely, in fact, not likely until we correct the euphoria and hope is choked on the front lawn so god and every body see that emotions are not money, and hope is not evidence of demand.
We are just living in the future again. Keep the flack jackets on and helmets in place. It is coming.
I just don't care about the stock market anymore as an investment for my future, THERE IS NO WAY IN HELL that i can trust any corporate report or government economic data numbers.
So all you money managers and investment analysis have destroyed your market place.
Great Obama and Ben saved a few giant American financials and 2 car companies with extreme taxes and continued destruction of the moral elements that make a country great.
Until the faith in the system is restored it is purely and equally a bigger gamble then any casino with out the dancing girls and the free drinks.
Anyway, nikkei/china/hang seng lower, european futures, dow/sp/naz all negative. Commodities are going to correlate as well, at least at this stage. $ and treasuries will likely catch a bid again (i know everyone hates these now, but that's how it goes).
On Aug 16 08:39 PM Dr. O wrote:
> Suzzane H has a remarkable profile.
>
> In truth, other than some trading, the investment I'm most confortable
> with is precious metal bullion in particular and energy in general.
I'll peel off the SLV and FXA today, no need to ride out what could be a wicked correction. My only remaining position is SCO, double short crude. Given the action, that should work.
Your positions in FXP and EEV should do well. I'm thinking about BZQ (yes, there's an ultra-short Brazil, lol).
Well....the only time my money is in 100% anything is when I'm in cash (in which case I'm reluctantly long the dollar). I generally don't do triple-long ETFs, although I did well will FAS a while back.
I like TBT, and have traded it, but there's nothing compelling about the chart and if a correction is finally at hand hold money will migrate back to Treasuries, of course.
One odd feature of this deflationary credit collapse is the bid given to the dollar, Treasuries, and the sell off in commodities. That presents an opportunity to get out of the dollar, or get into commodities, IMHO.
There is nothing wrong with short or long positions provided there are predetermined stops, a trend on a short time frame (really, really short time frame with the 3x), and the volatility-based stops keep rising with the trend -- one gets taken out when the trend changes.
It's usually not this hard. The market indexes gapped below both their 10 and 20 day smooth moving averages. The 40 day for the Russell is 530 which is also horizontal support. The MACDs are in rollover mode though.
Looks like my article had it wrong. How many times do you read that! Markets change, I change, lol. Sell the blips and cover the dips.
I'm all out except for SCO.
Better your article be wrong then you not changing with the market -- that is what defines a great trader, when wrong getting out, or positioning properly as you did, congrats. Those that can't admit they are wrong don't last. We still have to be flexible, there is no guarantee this is the start of a correction, may just be the breather before going higher -- but no need to ride it down regardless.
On Aug 17 10:09 AM Dr. O wrote:
> Suzzane not sure where 992 comes from. That's like 2% below the high
> for this 5-month move. Unless you're trading on very short time frames.
>
>
> It's usually not this hard. The market indexes gapped below both
> their 10 and 20 day smooth moving averages. The 40 day for the Russell
> is 530 which is also horizontal support. The MACDs are in rollover
> mode though.
>
> Looks like my article had it wrong. How many times do you read that!
> Markets change, I change, lol. Sell the blips and cover the dips.
>
> I'm all out except for SCO.