Has the Market Already Hit Its High for the Year?

Market followers love to make timing predictions. These predictions come in all time frames and flavors:

• The market has made the high for the day, and will now trade down. Or the opposite.
• This is the bottom. Or the top.
• We have seen the highs (or lows) for the year.
• Or when the Dow was at 9500, would we see 10000 before 9000?

Bold Predictions

Doug Kass, on August 26th, called the high. He was off by a few weeks and a few percentage points, but he has continued to argue for this viewpoint in columns at TheStreet.com and in appearances on CNBC.

His colleague Jim Cramer has now agreed, and recommends reducing portfolios.

James Altucher sees explosive potential, after reviewing a list of inaccurate bearish predictions, writes as follows:

The economy is recovering nicely, says Altucher, and 2010 is going to be a huge year. Companies that stopped making things and fired thousands of employees last winter out of fear of a second Great Depression will restock their shelves and start hiring like mad. The federal stimulus, which has barely kicked in yet, will really get cranking. Consumers will find jobs much easier to get, and the resulting optimism (and income) will prompt them to start spending again.

And the market?

It's going to the moon, says Altucher.

Ken Fisher is looking for a 20-25% gain "by January" which is not quite the end of the year. Fisher earns one of the highest ratings from CXO Advisory, one of our featured sites.

Less Bold Predictions

Barry Ritholtz on October 27th predicted a possible 5% to 15% correction, after leaning bullish for much of the year.

Our own official predictions, recorded weekly, were correctly bullish through September, but shifted to neutral two weeks ago. We use a three-week time horizon for this forecast.

What Does it All Mean?

It all depends upon one's time frame. Are you trying to trade the market intra-day? Are you using a one-month time horizon? Do you have the long run in mind?

Each investor is different -- different in risk tolerance, time to retirement, time to a need for college funds, mix of asset allocation. It is not all about market timing.

In my conversations I find that most investors are missing the big picture. Peter Lynch (with the Dow at 4000 or so) famously noted that he could not predict the next 1000 point move, but he was confident of the next 10,000 points.

I agree, and here is the main problem:

Most investors are still responding to fear.

The current fear dates from last year, causing most to miss the market rebound. Now many feel that they have "missed the move" and what they read reinforces the fear.

Here are some thoughts that I am sharing with my own clients:

• My initial target for this year was the pre-Lehman level from last fall. We have not yet reached this target, but we will. We have averted the Great Depression that the market was forecasting at that time.
• There are many attractive stocks. I am selling some holdings only because there are others that offer even better chances. Try to focus on specific company chances instead of general market commentary.
• The analysis of economic prospects is polluted by political punditry. Many commentators have a vested interest in a certain political outcome. Others are trying to sell books or high commission products. It is a minefield for the general and inexperienced reader.
• Economic data continues to improve, despite a well-orchestrated chorus of critics.
• The stimulus efforts have worked, and there is plenty more in the pipeline. Most of the pop economists have the viewpoint that the stimulus will stop and the economy will fail.

Reactions on the Economy

Stimulus efforts may jump start a real move. Check out yesterday's auto sales data, after the cash for clunkers initiative, and you will see a real improvement -- small, but a start, not a bubble.

1. Most of the stimulus funds are still in the pipeline.
2. The Obama Administration is committed to keeping this going until it works, including things like the incentives for home buyers.
3. The major complaints -- deficit spending -- are in a different time frame.
4. Watch Warren Buffett, who made the deal of his lifetime buying a railroad yesterday.

It is a time to separate one's political viewpoint from one's investment viewpoint. Those who are fighting the Fed, fighting Obama, and fighting Congress are spitting into the wind.

Comments

[AxIt:]

"It is a time to separate one's political viewpoint from one's investment viewpoint. Those who are fighting the Fed, fighting Obama, and fighting Congress are spitting into the wind."

Great closing. And I would add: the wind will throw back the spit to their faces. I do not know how many little chickens are missing the run of the market due to political views. But if this is happening they just deserve it.

Nov 04 05:52 AM

[richjoy403:]

Thank you Jeff Miller for a very well-reasoned and articulated article. You appropriately covered both the bear and bull positions. I can't find anything to challenge.

It seems to me the market does need a correction of 10% or so, but the bears keep investing on the dips (are they closet bulls?), and thus have stopped the market from having a 10% correction at least 3 times since March (with dips of only 4-5%).

I am reading both sides, and just in case the bears are right, I have been investing with trailing stops since March...it is working nicely.

Nov 04 06:08 AM

[Mad Hedge F...:]

pxd The scariest costume I saw on Halloween worn by a kid dressed as the Dow Jones Industrial Average. Listening to all of the gnashing of teeth and hand wringing after the Friday close about broken trend lines, accelerating downside volume, and crisscrossing moving averages, you would think that a time machine had just magically transported us back to the dark days of March, 2009. The volatility index (VIX) has popped from 20% to 30% in a week. Impressive. A new CNBC poll says that two thirds of investors are now expecting a “W” shaped recession, and that the next big move in the market is down. Once all of the performance chasers finally got the equity weightings they should have had last March, the market could only go down. We cut through support in the S&P 500 at 1050 like a hot knife through butter. Next stop: 980. Then hold your breath.

Nov 04 06:17 AM

[AndrewBaker:]

Yes, it's not sensible to ignore the political influence, biased and unhelpful though it is, and concentrating on specific stocks is a good idea, though even the best fall in a downturn. So, follow the trend appears to me the best way right now, even if it goes against what one believes is the "right" direction. And having tight stops is so important in doing this. (Even your good stocks can be bought back cheaper after they've triggered a stop-loss.)

Nov 04 07:15 AM

[enigmaman:]

Good article that touches on some of the reasons why this rally hasnt been fully embraced. I think the problem is most do not believe it to be real and there is to many conflicting reports that cloud the issue even further. Nobody has provided a clear reason why main street (MS) has not participated in this rally and has embraced cash instead. Some arrogant posters have classified MS them as "chickens who deserve what they get" like in the market investors are so smart and everybody else is stupid. Isnt it the job of the market (salesman) to convince main street ( client) as to why they should be invested, why doesnt anybody look at from this angle, why only from the point of view the customer is stupid, or chicken (immature characterization ) maybe the product being sold or the salesman doing the selling is no good or doesnt believe it as well, In any professional selling business that is what they try to determine, lousy salesman blame the customer when in fact the product or the salesman are the problem, the pros know this fact " people are convinced more by the height of your conviction than by the depth of your logic". Why is it that investors are the problem why isnt the market the problem. Yes we all come to the table with our own point of view and the job of the market is to convince us why we are wrong, but it has failed badly in that, so who is at fault them, If Im not buying what you are selling, do you blame me or yourself for not getting the job done, closing the deal, a good salesman will find out where the problem lies, where he might have went wrong and then will make a course correction because in the end he knows the fault lies with him, the poor salesman blames the customer for being dumb, chicken, not worthy etc, and then limps back to his office "called a losers limp."
Obviously MS is not convinced that this rally is real, yes its up, yes paper profits are there but they know it could all evaporate in less time then it to to accrue and WS will not give them a heads up until they are safetly out, this is what MS fears because this is what always happens, so if MS isnt cooperating this time there is nobody to blame but WS, that it bothers WS so much might mean that MS will not be the pigeon this time around

Nov 04 07:21 AM

[JAMES CARLINI:]

"Economic data continues to improve, despite a well-orchestrated chorus of critics."

I have heard many times that the market is strong and that "we've turned the corner, the recession is over". In that time, the market has spun around 9,500 to 10,000 as if it was quagmired in that range.

Last week it was supposed to be moving forward. I heard a lot of the Rah! Rah! Rah! - and then it dropped 250 points.

I don't put my faith into charts and based the push-pull dynamics of issues surrounding the market, it is not a bull market nor a full bear market. I still believe it is a "donkey market" where because of these different dynamics pulling it in opposite directions, it is not going anywhere.

It is being stubborn to move out of that 9,500-10,000 range. Blame whomever - that has been the reality of the tape.

I do not think the market will break out of the 10,000 range by year-end.

Nov 04 07:38 AM

[Papaswamp:]

I think the issue with Main Street is the government. MS is notoriously suspicious of the govt and with its fingers in so many pies, MS is hesitant to get into the market. Once/if the govt gets out of the market and employment improves, then MS will get back in with more confidence.

Nov 04 07:40 AM

[Albertarocks:]

Thanks for a great article Jeff. I don't think we're going to have to wait long for the answer to the question "has the market already hit its high for the year". Since 2006 the dollar and the equity markets have been locked tightly in an "inverse" relationship. If we knew the answer to the question "has the dollar already reached its low for the year", we'd know with certainty where the markets are heading. Perhaps we're going to get an answer to the direction of the dollar from whatever emerges from the G-20 meetings that are currently in session.

Nov 04 08:56 AM

[Belome:]

With all due respect I believe it is ok to be fearful of a market that has gained nothing in ten years. It is ok to fear the criminal activities of Wall Street when then have filled their pockets and stuck the U.S. taxpayer with the bill. So pardon me if I don't subscribe to your optimism. I am afraid that it is you that is disconnected with reality sir. The Fed is attempting to create one final bubble to ultimately inflate our way out of our problems and it wont work, you see the average consumer is smarter now they are on to the system and how it works. This will end badly.

Nov 04 09:01 AM

[anarchist:]

I quit using stop-losses after it became clear to me that the stock would come down, trigger the stop-loss and go back up to lock in a nice loss.


On Nov 04 07:15 AM AndrewBaker wrote:

> Yes, it's not sensible to ignore the political influence, biased
> and unhelpful though it is, and concentrating on specific stocks
> is a good idea, though even the best fall in a downturn. So, follow
> the trend appears to me the best way right now, even if it goes against
> what one believes is the "right" direction. And having tight stops
> is so important in doing this. (Even your good stocks can be bought
> back cheaper after they've triggered a stop-loss.)

Nov 04 09:07 AM

[TurtleTrader72:]

The fact that most people don't trust this market makes me believe that we have more upside to go even over the short term. This distrust was technicaly seen last week when the VIX made a relatively dramatic move to the upside (21 to 31). This shows us how quickly fear built up during a short down turn in the market. In my opinion, this is actually a good thing because fear (relatively speaking) is a healthy thing in an uptrending market. Remember the saying, a bull market loves to climb a wall of worry. With that being said, the charts may also be indicating that the VIX has topped out (at least in the short term) indicating a temporary bottom. However, I think we will have to wait to close out the week to confirm this. I feel that it is important to keep in mind that as long as people are worrying about this market and the economy, the uptrend has a better chance of continuing.

"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria" (Sir John Templeton). I think we are far from euphoria so think this bull market has a long way to go over the longer term as well.

Nov 04 11:19 AM

[enigmaman:]

So I wonder, since main street is not participating in this rally there money is not in play not a factor except for cash, bonds, treasuries or buried in the back yard. Pessimist are non believers so they are either out or short, but shorts seem to be out of vogue now. Skeptics are either in and worried, out and worried or short and worried so do they really matter. Optimist, there in and loving it green shoots all over the place. There is no euphoria yet but still I wonder how this market rises without the needed volume, seems like you have a group of investors moving this market and doing very well like GS batting near 1000 quarter after quarter, doesnt that make you wonder, I mean we have unbelievable amounts of cash moving to safe havens every month, who is buying


On Nov 04 11:19 AM TurtleTrader72 wrote:

> The fact that most people don't trust this market makes me believe
> that we have more upside to go even over the short term. This distrust
> was technicaly seen last week when the VIX made a relatively dramatic
> move to the upside (21 to 31). This shows us how quickly fear built
> up during a short down turn in the market. In my opinion, this is
> actually a good thing because fear (relatively speaking) is a healthy
> thing in an uptrending market. Remember the saying, a bull market
> loves to climb a wall of worry. With that being said, the charts
> may also be indicating that the VIX has topped out (at least in the
> short term) indicating a temporary bottom. However, I think we will
> have to wait to close out the week to confirm this. I feel that it
> is important to keep in mind that as long as people are worrying
> about this market and the economy, the uptrend has a better chance
> of continuing.
>
> "Bull markets are born on pessimism, grow on skepticism, mature on
> optimism, and die on euphoria" (Sir John Templeton). I think we are
> far from euphoria so think this bull market has a long way to go
> over the longer term as well.

Nov 04 12:01 PM

[Fabien Hug:]

Straight to the point. Too many people attach a morale value to the present conditions (read Mr. J. Grantham comments for the quarter) which, even if correct on a moral point of view, is irrelevant for investment decisions.

Nov 04 12:22 PM

[TurtleTrader72:]

Interesting reply...However, historically main street does not participate in most bull runs until they are almost over. Normaly it is the instituional guys like GS that get in near the bottom. When you start to hear that main street is getting involved it is usualy time to get out. I agree that it is suspicious but what makes you think the market cannot rise on low volume? I would speculate that if volume start to show a noticable increase it would probably be a good sign the a top is near. At least in the intermediate term..
I hope this helps.

On Nov 04 12:01 PM enigmaman wrote:

> So I wonder, since main street is not participating in this rally
> there money is not in play not a factor except for cash, bonds, treasuries
> or buried in the back yard. Pessimist are non believers so they are
> either out or short, but shorts seem to be out of vogue now. Skeptics
> are either in and worried, out and worried or short and worried so
> do they really matter. Optimist, there in and loving it green shoots
> all over the place. There is no euphoria yet but still I wonder how
> this market rises without the needed volume, seems like you have
> a group of investors moving this market and doing very well like
> GS batting near 1000 quarter after quarter, doesnt that make you
> wonder, I mean we have unbelievable amounts of cash moving to safe
> havens every month, who is buying

Nov 04 03:50 PM

[David Van K...:]

Practically every commenter here agrees that Main Street has not participated in, does not love, this market...meaning the rally since March. What is the data that backs that up? I'm not challenging it, I'm just wondering why everybody accepts this with no hesitation. How does one measure "Main Street's" participation in the market?

Are those of us here on Seeking Alpha Main Street? Are AAII members? Because if so, a lot of Main Streeters--judging from their comments--have in fact invested in this rally and profited from it. I know that I have, and I suspect I'd be considered a Main Streeter. For the record, I've loved this rally the whole way. To me, anyway, it was predictableand sensible, and it has been profitable.

Nov 04 04:46 PM

[enigmaman:]

Yes I agree that main street, considered by WS as the dumb money is traditionally needed to mark a top but the question is not if or when Main street gets in, its what happens if they dont get in which I is what I believe, what will keep driving this market from retreating, how long can this game be played passing the ball from one MM to another,without more players joining they will tire of the game and it will then end. Dont hold your breath for main street to show, they wont, so what is plan B

On Nov 04 03:50 PM TurtleTrader72 wrote:

> Interesting reply...However, historically main street does not participate
> in most bull runs until they are almost over. Normaly it is the instituional
> guys like GS that get in near the bottom. When you start to hear
> that main street is getting involved it is usualy time to get out.
> I agree that it is suspicious but what makes you think the market
> cannot rise on low volume? I would speculate that if volume start
> to show a noticable increase it would probably be a good sign the
> a top is near. At least in the intermediate term..
> I hope this helps.
>
> On Nov 04 12:01 PM enigmaman wrote:

Nov 04 07:26 PM

[enigmaman:]

From recent article " are retail investors coming back" While there is still a massive pile of cash sitting on the sidelines, we aren’t seeing it being funneled to the equity market aggressively by mutual fund buyers. They continue to send the majority of their money to ’safer’ bond funds by a 20 to 1 margin (in August equity funds took in about $2 billion while bond funds absorbed $40 billion

There are many other stats that confirm retail investors are sitting this rally out, if they did get ion at 20, 30, 40, 50% gaiins do you really think they will get in now as the market seems to be rolling over, not very likely!


On Nov 04 04:46 PM David Van Knapp wrote:

> Practically every commenter here agrees that Main Street has not
> participated in, does not love, this market...meaning the rally since
> March. What is the data that backs that up? I'm not challenging it,
> I'm just wondering why everybody accepts this with no hesitation.
> How does one measure "Main Street's" participation in the market?
>
>
> Are those of us here on Seeking Alpha Main Street? Are AAII members?
> Because if so, a lot of Main Streeters--judging from their comments--have
> in fact invested in this rally and profited from it. I know that
> I have, and I suspect I'd be considered a Main Streeter. For the
> record, I've loved this rally the whole way. To me, anyway, it was
> predictableand sensible, and it has been profitable.

Nov 04 07:34 PM

[untrusting ...:]

Exactly correct. We wonder how it is that the optimists never fail to question or even wonder how it is Goldman Sachs has a 90-99% winning trading records for 3 consecutive quarters. From a pure historical or even statistical probability standpoint, such a trading record is virtually impossible. Thus most retail investors can clearly see that there is plenty of monkey business in the market rally and thus are staying away in droves. The evidence shows that not only are insiders selling in near record numbers, but that small investors are shunning stocks and moving heavily into bonds. When one combines that with reports that much of the market volume is dominated by a small handful of traders, then it is no wonder that many believe the market will experience a significant sell-off somewhere in the relatively near future.


On Nov 04 12:01 PM enigmaman wrote:

> So I wonder, since main street is not participating in this rally
> there money is not in play not a factor except for cash, bonds, treasuries
> or buried in the back yard. Pessimist are non believers so they are
> either out or short, but shorts seem to be out of vogue now. Skeptics
> are either in and worried, out and worried or short and worried so
> do they really matter. Optimist, there in and loving it green shoots
> all over the place. There is no euphoria yet but still I wonder how
> this market rises without the needed volume, seems like you have
> a group of investors moving this market and doing very well like
> GS batting near 1000 quarter after quarter, doesnt that make you
> wonder, I mean we have unbelievable amounts of cash moving to safe
> havens every month, who is buying

Nov 05 12:09 AM

[Ted Kavadas:]

I can't agree with your comment "Those who are fighting the Fed, fighting Obama, and fighting Congress are spitting into the wind."

In fact, there are many signs of danger and potential danger in the markets if one looks closely. These signs can be seen on both a fundamental and technical basis.

I am writing a blog series titled "Danger In The Markets?" that shows this on a technical analysis basis. For those interested, it can be found at my blog here:

www.economicgreenfield.../

Nov 05 01:18 PM