Tag Archives: Stock Market

A Stroll Through Market History on FOMC Day

We take the Way Back machine to a time of normalcy and plenty, in the 50’s when the stock market did okay but savers were paid (through T Bill yields) to do the most prudent thing people in a natural economy can do… save.  Ever since 1980 the theme has been for the nation to eat its seed corn, with asset owners getting increasingly more portly in the process and savers nudged ever further out to the margin.  The S&P 500 has sure got no complaints these days.  It’s in lockstep with policy.

sp500.1

The 10 year view shows savers have been erased from the picture.  ‘Screw them’ is the implication as the brave new world of finance follows one rule,  ‘asset appreciation or bust!’  In service to asset appreciation has been the duel input of ZIRP (zero rate policy) and a rising money supply, much of which we’d presume was instigated by QE’s money printing and Treasury and MBS asset purchases.  S&P 500?  Still not complaining.

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A “Hidden” Bear Market is Brewing

Guest Post by Chris Hunter

Will market historians look back on the $21 billion IPO of Alibaba – the biggest US IPO in history – as signaling the top of the five-year rally for the S&P 500?

Only time will tell…

But we note with interest that almost half of Nasdaq stocks (47%) are down 20% from their peak over the last 12 months (the official definition of a bear market).

And 40% of Russell 2000 small-cap stocks are in bear market territory.

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Meteorologists and Defenseless Receivers

Guest Post by Michael Ashton

The stock market really seemed to “want” to get to 2000 on the S&P. I hope it was worth it. Now as real yields seem to be moving higher once again (see chart below, source Bloomberg) – in direct contravention, it should be noted, of the usual seasonal trend which anticipates bond rallies in September and October – and the Fed is essentially fully ‘tapered’, market valuations are again going to be a topic of conversation as we head into Q4 just a few weeks from now.

realyields

To use an American football analogy, the stock market right now is in an extended position like a wide receiver reaching for a high pass, but with no rules in place to prevent the hitting of a defenseless receiver. This kind of stretch is what can get a player laid up for a while.

Now, it has been this way for a long time. And, like many other value investors, I have been wary of valuations for a long time. I want to make a distinction, though, between certain value investors and others. There are some who believe that the more a market gets overvalued, the more dramatic the ensuing fall must be. These folks get more and more animated and exercised the longer that the market crash doesn’t happened. I think that they have a point – a market which is 100% overvalued is in more perilous position than one which is a mere 50% overvalued. But we really must keep in mind the limits of our knowledge about the market. That is, while we can say the market is x% overvalued with respect to the Shiller PE or whatever our favorite metric is, and we can say that it is becoming more overextended than it previously was, we do not know where true fair value lies.

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Russia is Still a Bargain

Guest Post by Chris Hunter

If the US stock market is overvalued, where are there bargains on offer?

Regular readers will know that we like Russia – where the news is nearly all bad and where, as a result, the stock market trades on a trailing P/E of 5.7 and yields 4.8%.

Let’s get the theory out of the way first…

There are all sorts of ways to complicate this, but as Warren Buffett put it:

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.

Nearly everyone pays lip service to this idea. Almost nobody invests this way.

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Beta is Boss

Guest Post by Chris Hunter

One of the core principles we follow at Bonner & Partners is that “beta is boss.”

As Bill puts it:

Beta – the returns the market delivers – is much more important than alpha – the returns investors look for in excess of market returns.

Investment pros talk about “seeking alpha.” They mean choosing individual investments – usually stocks – that they hope will beat the averages.

Simply put, there’s a time to be in stocks… and a time to be out of them. Same goes for bonds. And commodities. And any other asset class you can think of.

In fact, one of the most important investing secrets you can learn is that these decisions matter most when determining your long-term wealth.

Most investors have no clue about the importance of beta. Instead, they spend most of their time thinking about how to get exposure to stocks, bonds, etc, not about whether they should own them in the first place.

As regular readers will be aware, US stocks (in general at least) are richly valued right now. And that means long-term returns are likely to disappoint.

So, what are the alternatives?

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Channel 5 News Flash!

Thanks to my budding contrarian of a wife for forwarding this to me, here is what the locals are reading today here in Boston.

Morgan Stanley predicts stock market surge (Investment bank says S&P could crack 3000 by 2020)

Okay, now Channel 5’s got the story and the story is spreading out to the various corners of Main Street (cue the ‘maybe it’s time to invest again’ commercials from John Hancock).

“It’s irrefutable that the U.S. economy is in the best shape it’s been in fundamentally in well over eight years,” said Peter Kenny, chief market strategist at The Clearpool Group.

“Business cycles don’t die of old age,” Parker and Zentner wrote. “Business cycles tend to die of overheating (excessive hubris and debt).”

Translated:  ‘We are myopic trend followers extrapolating bromides from a previous era of relatively normal monetary policy and were nowhere to be found when the latest up cycle actually began in Q1 2013.’

Market Ratio Messages

Using monthly charts I want to update more big picture views of where we stand in the financial markets.  This is just a brief summary [edit; okay it's not so brief.  In fact it had to be ended abruptly or else it would have just kept on rambling] and not meant as in depth analysis with finite conclusions.

I was listening to Martin Armstrong talk about his ‘economic confidence’ model and realized that the way he views gold is similar to the way I do (and very dis-similar to the way inflationists and ‘death of the dollar’ promoters do).  I don’t love the way he writes, and I usually avoid these weird interview sites, but checked it out (linked at 321Gold) anyway and found him enjoyable to listen to.

Anyway, this prompted another big picture look at gold vs. the S&P 500 and as with the shorter-term views, the picture is not pretty.

au.spx

Well, it is pretty if you have patience and no need to promote gold as a casino play.  Gold will be ready when gold is ready and that will not be until confidence in policy making and by extension the stock market, starts to unwind.

Gold vs. SPX has meandered out of a long Falling Wedge (blue dotted) with 2008’s Fear Gap still lower.  On the big picture the risk vs. reward is with gold over the stock market.  But it is a funny thing about big pictures; they move real sloooow.  A fill of that gap may not feel so good to anyone vested in an immediate conclusion to gold’s bear market vs. SPX.

Moving on, let’s look at some ratios of components of the stock market…

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SPX, 60 Min. Status

Updating the status of the 60 minute chart we observe the following…

  • The anticipated resistance zone has been acheived.
  • The gap and bottoming pattern measured target are higher.
  • RSI is getting over bought (remember, this is just a 60 min. chart) so some disturbance can come about at the resistance zone.
  • But the gap and 1980+ levels remain viable.
  • Hey, it’s what the 60 min. chart says.

spx.60min

Stock Market Bounce

With the help of at least one MSM headline, the bounce looks to continue, as anticipated.  Clicking the graphic yields the bearish bullish story.

mw.headline

Here is how the S&P 500 closed yesterday, with a bullish looking flag settling down toward a visual support level that would be about a 50% retrace of the first up leg (again, this is a 60 min. view, not a daily, so everything’s compacted).  The potential is that a bottoming pattern is still forming.

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Stock Market Bounce Scenario Updated

The more I look at it the more I think the bounce can exceed 1960, which was the upper end of the original target (we noted some details by daily charts in an NFTRH+ update).  The market is down today but the 60 min. chart paints it as just the end of the first leg up.

spx.60min

In fact, if SPX holds the noted support line it could make a shoulder to a bottoming pattern (again, talking 60 min. view here) with a measurement up above the gap.  Then to make things even more interesting, the bears would have to really think about things.

I continue to hold ‘bounce’ and fundamental longs, but with real interest being the gold sector as it attempts to make some signals that could transition the year long+ bottoming process into something else all together.

I am not interested in shorting SPY again until a) the market rolls over or more likely b) the upside objectives are hit and then signs of weakness or over bought hysterics ensue.  Short gains this year have been good because I have given them short leashes in limiting losses and in decisively taking profits.

The market was supposed to bounce, it is bouncing (assuming today’s down is just a pause) and now the script needs to be managed to make sure it remains the script.