Paul D. Castro, CFA

Mindless Churn in Trendless Market

Investors Intelligence (I'm a subscriber) is saying the sentiment DNA of this period mirrors 1994 - 1995.

For the entire 12 months of 1994 the S&P bounced around between 400 and 500, never once closing above 481 or closing below 438 (a range of 9.8%). In December 1994 the S&P then took off on a 52% rally that finally peaked in May 1996.

We'll just have to wait and see if the price action also mirrors the sentiment. My money is invested as if it will.

Today’s Bull Market Is Tomorrow’s Bear Trap

Oops! Meant to post that the average downtrend in the DJIA shows a 22% loss peak-to-trough.

Today’s Bull Market Is Tomorrow’s Bear Trap

I agree with those here who dispute the basic premises of this article. In fact, as per research done by Bespoke (see link below) 300 pt rallies in the DJIA have in the past occurred at the start of big uptrends.

bespokeinvest.typepad....

Since 1956 the DJIA has completed 16 downtrends (the current downtrend is the 17th). Those 16 downtrends (series of lower pullback low's and lower rally high's) have averaged 370 calendar days each and losses of each. Measuring from the peak on 10.09.07 to the most recent low on 07.15.08, the current downtrend has lasted 280 calendar days and evaporated 23% of the DJIA's value.

So far the current downtrend has been fairly typical and, if the historical averages are any guide, is pretty close to being over.

See my blog for similar analyses I conducted on the Russell 2000, the Nasdaq Composite and the S&P500.

www.vestopia.com/IDs/P...

Have We Reached the Turning Point?

"Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria" ~ Sir John Templeton

U.S. Unemployment During Recessions and Expansions

Dec -07 expansion? Did you mean the Dec-01 expansion? According to the NBER the last recession ended Nov-01.

Gauging Market Strength After a Move to New Highs

Right on, Dr. Brett! This is what it's like to be in the early innings of a new bull market. I prefer looking at whether or not we are on a series of higher intermediate highs and higher intermediate lows to determine trend. In all 4 major indexes (DJIA, Nasdaq, S&P and Russell 2000) we have within the last few weeks made the first higher intermediate high since last summer or fall (depending on the index). Nice to see other indicators confirm what I already know.

S&P 500 Down More Than 1% for First Time in 26 Days

The S&P has just recently made a higher intermediate high for the first time since last October. By my count;

08-15-07 close = 1,406.70 = higher low,
10-09-07 close = 1,565.15 = higher high,
01-22-08 close = 1,310.50 = lower low (first lower low since Nov 02 which was also the last lower low of the post-bubble bear market),
02-01-08 close = 1,395.42 = lower high,
03-10-08 close = 1,273.37 = lower low,
05-06-08 close = 1,418.26 = higher high (first since Oct 07)

What this most recent higher high means is a new uptrend (ie, bull market) has begun. The last time the S&P made a higher high after a series of lower highs and lower lows was in Mar 04. That uptrend lasted until the lower low in Jan 08 (ie, 3 yrs and 10 months). The only event that could occur which would annul the new bull market thesis would be a take-out of the Mar 08 closing low.

A new Bullish Divergence

Moby,

I was referring to intermediate highs, not all-time highs. To illustrate, the last time the S&P 500 made a higher price high was on October 9, 2007 when it closed at 1,565 which exceeded the previous intermediate closing high of 1,552 reached on July 13, 2007. The most recent intermediate high was the close at 1,395 on February 1, 2008.

So when I say a higher high, I am looking for the S&P to close above 1,395 sometime in the next few weeks. Once that happens, then I'm looking for an intermediate low that does not violate the 1,273 close we saw on March 10, 2008. If this happens then a new series of higher highs and higher lows would have begun (ie, a new bull market).

Current Valuations Are Well Above the Market's Historical Average

Begs the question. Which earnings numbers should one use to calculate the S&P's P/E. Operating or As Reported? Go to www2.standardandpoors....
and see that trailing 4-qtr operating earnings were $82.54. By my calculator, that makes the trailing P/E = ~16.6. The same site shows S&P As Reported earnings of $67.81 but when you click on www2.standardandpoors.... under S&P 500 the excel page that loads shows S&P 1500.

The Current Market according to the Dow Theory

Hillcrest,

The buy signal was given in early 2004 which was the first time coming out of the bear market when the Industrials and the Transports first made a concurrent higher high. The higher high in both the transports and the industrials in July 2007 served at the time to confirm the uptrend phase was still intact, at least until a sell signal was given in November 2007. There is a distincition between signal and phase (ie, trend).

Is the Risk Monster Getting Hungry Again?

Thanks for pointing out the needed correction which I made to my blog.