Key Signals To Watch For A Major Stock Market Top [View article]
Hello Craig,
Thanks for your comment and for raising a good follow up question. You are exactly right in your point, and it is still likely that we will see the traditional technical patterns play out as they have in the past - TheFounder astutely pointed this out below. The caveat that I was raising here was that the proliferation of HFT and central bank liquidity in recent years have caused some of these traditional technical relationships to break down at times. And if we have a computer driven shock event, it is possible that whatever the unknown outcome were that it could completely dislocate markets and move them out of reach of attempting any sustained rally toward a double top. This is an extreme low probability scenario, but one that should at least be the back of the mind given the geopolitical environment that we live in today.
The Best Way To Hedge Against A Stock Market Decline [View article]
Hello Kevin,
Thanks as always for your comment. You raise an excellent point about the potential for a head and shoulders pattern forming in the TLT. And the Presidential and Congressional cycle perspectives that you have provided are very insightful and interesting. I will definitely watch how things unfold in this regard on your recommendation.
Thanks also for your recent contributions to SA. In particular, I have enjoyed reading your recent Instablog posts.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello dancing diva - Thanks as always for your comment and I appreciate your kind words on my article. Thanks again and I hope that you are doing well.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello PalmDesertRat,
Thanks for your comment and for raising an excellent point with which I agree. While the underlying instabilities that could ultimately unravel the current market are distinctly different from what sparked the 2000 and 2007 corrections, I agree that the subsequent decline that followed an initial sharp correction this time around would likely be more of a sustained grind lower 2000 style instead of a catastrophic cascade 2007 style if for no other reason there is so much liquidity being pumped in by global central banks trying to prop up the system. Unfortunately, this has the potential to prolong the pain of any corrective scenario in the end. This assumes, of course, that global central banks are not forced to suddenly drain liquidity along the way.
This is an excellent point and I agree with your view here. Thanks again.
The Best Way To Hedge Against A Stock Market Decline [View article]
Hello User 11848701,
Thanks for your comment. This is a great question. While to your point I am not recommending owning any of these ETFs today or in the near-term, a more aggressive allocation to rising rates could be established through an inverse ETF such as the TBT. Some long only choices include the FLOT or the BKLN which have floating rate bonds are also possibilities, although I suspect they may not perform as well as some are anticipating once rates begin rising. Some of the shorter duration products like SHY and HYS are also worth consideration as are some of the defined maturity products, although these would be more defensive choices rather than something to leverage a bet on higher interest rates. These are just a few of the alternatives available to position once rates appear set to rise.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello caperdory - Thanks for your comment and I agree that weekly formations usually take several months to play out. Thanks for raising and emphasizing this point.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello TheFounder,
Thanks for your comment. You are absolutely right that we have been running with very high RSI readings for several months now, which has been the pattern during both current and past QE programs once U.S. Treasury purchases were put into place. And I completely agree that a correction will eventually follow this overheated phase - the higher the market inflates on the power of increased liquidity, the more dramatic the subsequent correction is likely to be.
You also raise an excellent point about the 2011 and 2012 tops, as both exhibited a double top pattern before falling into correction, which is supportive of this occurring again if we enter into another corrective phase.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello Rseye,
Thanks for your comment and for raising good points. You are right that SPY has been running at or near overbought levels for months now. It is extraordinary how the stock market can hold such high readings during U.S. Treasury driven QE phases. And I think your point about oil prices is spot on - if we see the inflation of asset prices overflow into commodities markets, particularly gasoline prices, this would present a meaningful downside risk for continuing the rally.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello Norman,
Thanks as always for your comment. I appreciate it and also enjoyed your recent instablog post on Ross Stores. I agree with your investment approach in the current environment and Ross Stores is among the names that I actively follow in this context.
The Best Way To Hedge Against A Stock Market Decline [View article]
Hello Tirthraj Singh,
Thanks for your comment. I completely agree with your reasoning and timing around any rise in interest rates. I think the only exception is if a move higher in rates is something that occurs outside of the control of policy makers and instead is forced by the market. Beyond this exception, I think you are absolutely correct.
The Best Way To Hedge Against A Stock Market Decline [View article]
Hello JMikeK,
Thanks for your comment. And I think you have hit on what is the most important question tied to any position in long-term Treasuries including TLT. It is a position that has served well as a hedge against a stock market decline, but this will not always be the case. At some point interest rates are going to rise sharply, and both long-term Treasuries and stocks will suffer mightily under such a scenario. But with this being said, I completely agree with you that an increase in rates is still some time away. If anything, I believe rates are likely to continue going lower before they begin moving higher at some point down the road.
The Best Way To Hedge Against A Stock Market Decline [View article]
Hello tawse57,
Thanks for your comment. You raise a number of good points here. If one were to remove the influence of global central bank liquidity injections, the risks to the downside in this market would clearly outweigh the potential for any further upside. But given that monetary stimulus is the primary driver of stocks at this point, it is leading to a far wider range of potential and unpredictable outcomes. While it is very possible that we could see a significant drop at any given point in time, it is also to your point very possible that we could see stocks rise another +25% from here without interruption. With so much liquidity being pumped in by central banks from around the world at this point, this upside risk is a very real possibility at this point even if the fundamental economic and market backdrop continues to deteriorate.
This wide range of potential outcomes provides all the more reason to consider hedging strategies while still staying long the stock market.
Thanks for your comment and I think you raise a number of excellent points with which I agree. Thanks also for your recent article on Raytheon. I have spent a great deal of time recently focused on stocks exhibiting dividend growth, and this was a very worthwhile article in this context.
I was even more constructive on stocks back in the mid November period when they established their most recent bottom and did not have any TLT hedges on at that time.
At this stage of the rally seven months later, the risk/reward profile for stocks is less favorable even with the ongoing flow of liquidity that is likely to propel it even higher from here at least for the short-term. With this in mind and given the pullback in long-term U.S. Treasuries that has also occurred along the way, applying hedges such as the TLT are now more attractive.
Thanks again for your comment and for always raising good points and counterpoints.
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and for raising a good follow up question. You are exactly right in your point, and it is still likely that we will see the traditional technical patterns play out as they have in the past - TheFounder astutely pointed this out below. The caveat that I was raising here was that the proliferation of HFT and central bank liquidity in recent years have caused some of these traditional technical relationships to break down at times. And if we have a computer driven shock event, it is possible that whatever the unknown outcome were that it could completely dislocate markets and move them out of reach of attempting any sustained rally toward a double top. This is an extreme low probability scenario, but one that should at least be the back of the mind given the geopolitical environment that we live in today.
Great question. Thanks again
The Best Way To Hedge Against A Stock Market Decline [View article]
Thanks as always for your comment. You raise an excellent point about the potential for a head and shoulders pattern forming in the TLT. And the Presidential and Congressional cycle perspectives that you have provided are very insightful and interesting. I will definitely watch how things unfold in this regard on your recommendation.
Thanks also for your recent contributions to SA. In particular, I have enjoyed reading your recent Instablog posts.
http://bit.ly/ZTzObn
Thanks again. I appreciate it.
Key Signals To Watch For A Major Stock Market Top [View article]
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and for raising an excellent point with which I agree. While the underlying instabilities that could ultimately unravel the current market are distinctly different from what sparked the 2000 and 2007 corrections, I agree that the subsequent decline that followed an initial sharp correction this time around would likely be more of a sustained grind lower 2000 style instead of a catastrophic cascade 2007 style if for no other reason there is so much liquidity being pumped in by global central banks trying to prop up the system. Unfortunately, this has the potential to prolong the pain of any corrective scenario in the end. This assumes, of course, that global central banks are not forced to suddenly drain liquidity along the way.
This is an excellent point and I agree with your view here. Thanks again.
The Best Way To Hedge Against A Stock Market Decline [View article]
Thanks for your comment. This is a great question. While to your point I am not recommending owning any of these ETFs today or in the near-term, a more aggressive allocation to rising rates could be established through an inverse ETF such as the TBT. Some long only choices include the FLOT or the BKLN which have floating rate bonds are also possibilities, although I suspect they may not perform as well as some are anticipating once rates begin rising. Some of the shorter duration products like SHY and HYS are also worth consideration as are some of the defined maturity products, although these would be more defensive choices rather than something to leverage a bet on higher interest rates. These are just a few of the alternatives available to position once rates appear set to rise.
Great question. Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment. You are absolutely right that we have been running with very high RSI readings for several months now, which has been the pattern during both current and past QE programs once U.S. Treasury purchases were put into place. And I completely agree that a correction will eventually follow this overheated phase - the higher the market inflates on the power of increased liquidity, the more dramatic the subsequent correction is likely to be.
You also raise an excellent point about the 2011 and 2012 tops, as both exhibited a double top pattern before falling into correction, which is supportive of this occurring again if we enter into another corrective phase.
Great points. Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and for raising good points. You are right that SPY has been running at or near overbought levels for months now. It is extraordinary how the stock market can hold such high readings during U.S. Treasury driven QE phases. And I think your point about oil prices is spot on - if we see the inflation of asset prices overflow into commodities markets, particularly gasoline prices, this would present a meaningful downside risk for continuing the rally.
Great points. Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks as always for your comment. I appreciate it and also enjoyed your recent instablog post on Ross Stores. I agree with your investment approach in the current environment and Ross Stores is among the names that I actively follow in this context.
http://seekingalpha.co...
Thanks again.
The Best Way To Hedge Against A Stock Market Decline [View article]
Thanks for your comment. I completely agree with your reasoning and timing around any rise in interest rates. I think the only exception is if a move higher in rates is something that occurs outside of the control of policy makers and instead is forced by the market. Beyond this exception, I think you are absolutely correct.
Thanks again.
The Best Way To Hedge Against A Stock Market Decline [View article]
Thanks for your comment. And I think you have hit on what is the most important question tied to any position in long-term Treasuries including TLT. It is a position that has served well as a hedge against a stock market decline, but this will not always be the case. At some point interest rates are going to rise sharply, and both long-term Treasuries and stocks will suffer mightily under such a scenario. But with this being said, I completely agree with you that an increase in rates is still some time away. If anything, I believe rates are likely to continue going lower before they begin moving higher at some point down the road.
Thanks for your comment. I appreciate it.
The Best Way To Hedge Against A Stock Market Decline [View article]
Thanks for your comment. You raise a number of good points here. If one were to remove the influence of global central bank liquidity injections, the risks to the downside in this market would clearly outweigh the potential for any further upside. But given that monetary stimulus is the primary driver of stocks at this point, it is leading to a far wider range of potential and unpredictable outcomes. While it is very possible that we could see a significant drop at any given point in time, it is also to your point very possible that we could see stocks rise another +25% from here without interruption. With so much liquidity being pumped in by central banks from around the world at this point, this upside risk is a very real possibility at this point even if the fundamental economic and market backdrop continues to deteriorate.
This wide range of potential outcomes provides all the more reason to consider hedging strategies while still staying long the stock market.
Excellent points. Thanks again for your comment.
New S&P 500 Price Target: 2001 [View article]
Thanks for your comment and I think you raise a number of excellent points with which I agree. Thanks also for your recent article on Raytheon. I have spent a great deal of time recently focused on stocks exhibiting dividend growth, and this was a very worthwhile article in this context.
http://seekingalpha.co...
Thanks again.
The Best Way To Hedge Against A Stock Market Decline [View article]
Thanks as always for your comment. You raise an important point here. I think that the market is likely to continue rising from here.
http://seekingalpha.co...
I was even more constructive on stocks back in the mid November period when they established their most recent bottom and did not have any TLT hedges on at that time.
http://seekingalpha.co...
http://seekingalpha.co...
At this stage of the rally seven months later, the risk/reward profile for stocks is less favorable even with the ongoing flow of liquidity that is likely to propel it even higher from here at least for the short-term. With this in mind and given the pullback in long-term U.S. Treasuries that has also occurred along the way, applying hedges such as the TLT are now more attractive.
Thanks again for your comment and for always raising good points and counterpoints.