By Chris Ciovacco
Have you ever looked back after the market gains 20% and said to yourself how did I not capture more of that move?
Did you look back after the 2000-2002 or 2007-2009 bear market and ask yourself how did I let myself lose that much money?
This week’s video explains why those horrible experiences are so common in the stock market and covers methods to minimize the odds of repeating past investing missteps.
VIDEO CORRECTION: At the 13:31 mark, the summary table for CASE B should be 56% and 44% as shown here.
By Callum Thomas
Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I’ll pick a couple of themes and hammer them home with the charts, but sometimes it’s just a selection of charts that will add to your perspective and help inform your own view – whether its bearish, bullish, or something else!
The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It’s worth noting that the aim of the #ChartStorm isn’t necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.
So here’s the another S&P 500 #ChartStorm write-up!
1. S&P500 Seasonality: First up is a look at how the S&P500 is tracking against its historical average seasonal pattern. On this one I would look more at where the seasonal tendency lies in the coming months than where the market has been tracking as such, and the key takeaway there is that from a seasonal standpoint there is some upside bias in the next couple of months, followed by the “sell in May” doldrums. For a few reasons I think this ties in well with some of the other dynamics such as valuation, monetary policy, and earnings cycles. So watch out for that seasonal soft patch further out.
Bottom line: The market is in the middle of a positive seasonal patch.
Continue reading Weekly S&P 500 #ChartStorm
By Rob Hanna
I discussed last weekend that monthly option expiration (opex) week is typically a bullish week, especially during the months of March, April, October, and December. Obviously, the bullish tendency did not play out this past week. So does this mean the bullish tendency may be delayed a week? Or is the market not doing what it is “supposed” to a sign that it is likely to continue lower? Or neither? I constructed some studies to find out. This 1st one looks at instances like we are currently experiencing where typically bullish opex weeks fail to deliver.
The numbers here all point towards an upside edge. The edge improves as we look out from 1 to 5 days. But how does this differ from performance following instances that saw the bullish opex week tendency play out? For comparison, I flipped that requirement and have shared those results below.
Continue reading When Bullish Opex Weeks Fail To Play Out
By Tim Knight
Index after index, ETF after ETF, I am seeing the same thing: (a) a trio of lower highs, indicating the bulls are slowly losing their grip (b) a short-term supporting trendline whose fate should hopefully be determined by Friday;s close (that is, break or save).
Continue reading Triples and Breaks
By Kevin Muir
It’s 819 days since the start of the Fed tightening cycle. Why would I know that so precisely? Because I just finished creating a chart of the stock market performance before and after the first fed tightening.
Indexing the stock market performance around certain events like the first Fed hike is not novel. Tons of market strategists create these sorts of visuals. But Ned Davis created a chart I found so fascinating – what’s that line about good and great artists? Well, I am stealing it.
Actually, I just wanted to see it updated, so I thought it was worth recreating from scratch, but all the credit goes to Ned.
As I mentioned, in a lot of ways it’s just a regular piece of research. The truly insightful part of Ned’s chart was to divide the tightening cycles into slow and fast campaigns. For example, when the Fed began hiking in April of 1955, they raised rates at a gradual, slow pace. This was in contrast to November of 1967 when the Federal Reserve raised rates quickly.
Continue reading Slow Cycle Rally All Played Out?
By Callum Thomas
As investors pore over multitudes of data and factors, exploring lofty valuation metrics, swings in investor sentiment, trends and technicals, earnings and economics, one interesting aspect is that of seasonality. Economists and laypersons alike are profoundly aware of the impact of the physical seasons on activity and behavior. And sure enough, even the stock market appears to go through seasons of better and worse performance through the year.
I highlight this now because we are in the middle of one of the strongest positive seasonal periods of the year, historically speaking. Aside from November and December, March and April historically have been some of the best performing months in the market. The same can not be said of the proceeding May-October period, which tends to be the worst.
Continue reading Seasonal Surge
By Callum Thomas
As the title suggests, a familiar if ominous sign has emerged in the US IPO market. As I’ve previously written on a number of times, studying trends and statistics in IPO statistics (initial public offering) can yield key insights on the state of the equity market as a whole and the resultant risk vs opportunity outlook.
The chart in today’s blog comes from a discussion on the trends in the US IPO market from the Weekly Macro Themes report. That discussion aside from the negative earnings aspect, also looked at median age of IPO, proportion of foreign IPOs, and the pace of withdrawals and filings.
As alluded to, the chart shows the proportion of US IPOs with negative earnings.
Continue reading A Familiar if Ominous Sign in the US IPO Market
One of the questions that was front and center headed into 2018 was whether diversification was going to be harder to come by in an environment where bonds, stocks and credit were the most simultaneously expensive they’ve been in damn near 100 years.
While the stock-bond return correlation has been reliably negative for some two decades, it’s becoming harder to see how that can continue given stretched valuations in equities and the fact that the narrative around rising yields is changing. For most of the post-crisis period, rising yields were seen as a barometer of the robustness of the recovery. As long as that narrative stuck, stocks could not only digest rising yields, but could theoretically rally on the excuse that rate rise was down to optimism on the growth front (everyone clap for the reflation story).
Continue reading There’s Nowhere to Hide
By Chris Ciovacco
CLUES BACK IN FEBRUARY
A February 26 post outlined the longer-term risk-on implications of trend flips in the stock (SPY) vs. bond (TLT) ratio and the tech (VGT) vs. bond (TLT) ratio. Rather than having growth-oriented stocks making a new high relative to defensive-oriented bonds, we would expect bonds to be leading in a “fear of a recession and bear market” scenario as shown on February 5. The chart below favors bullish probabilities.
Continue reading Markets Look To Complete Important Bullish Step
By Keith Weiner
Think back to the halcyon days of the dot com boom. This was a time after Greenspan declared “irrational exuberance”. Long Term Capital Management collapsed in 1998, and Greenspan decided to risk propelling exuberance to a level beyond irrational. Super-duper-irrational exuberance?
Anyway, Greenspan cut interest rates a few times in late 1998. Technology companies were able to raise $5 million or more with just a sketch on a napkin (“serviette” for those outside the US). Companies at a “later stage”, though without revenues, could raise $30 million. A company called “Webvan” was able to raise nearly a billion dollars without ever becoming profitable.
These companies should not have been able to raise so much capital. At any given point in the development of a company, there are only so many things that need spending. Not to mention can be justified to investors.
It is obvious in retrospect that those particular companies wasted investor money (if not the broader principles), after investors booked the losses, but it was anything but clear at the time. Keith recalls debating the so called hypothesis of efficient markets with some people who believed that all market prices are correct. That all changes in price are random, unpredictable.
We have written a lot about how falling interest rates cause capital consumption. It drives speculation, which is a process of conversion of one speculator’s wealth into another’s income. No one wants to spend his wealth, but people are happy to spend their income.
Continue reading Super-Duper-Irrational Exuberance, Report
By Rob Hanna
The employment report has helped to spark a big rally today, and the NASDAQ is hitting new all-time highs. I looked back at other instances where the NASDAQ spiked higher and closed at a new high on the day of an employment report. The results I saw were compelling. Here are the list of instances along with their 5-day returns:
With the only loser closing down 0.06%, the stats are completely lopsided for the bulls. Employment-sparked momentum leading to new highs like we are seeing today has seen positive short-term follow through in the past. This certainly appears worth keeping in mind as traders ready for next week.
Hat-tip to @McClellanOsc for the idea to test!
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By Elliott Wave International
Beware of the “New Normal” in the Stock Market
The January 2018 Elliott Wave Financial Forecast put it this way:
After two decades of Mania Era asset bubbles and sentiment extremes, what now seems normal to many investors is actually highly abnormal.
That’s right — many investors no longer fear asset bubbles. That is why too many will be caught off-guard when the Mania Era inevitably ends.
Many investors are not frightened by the phrases “stock market bubble,” “housing bubble” or any other type of financial bubble.
Because, by the time the talk of a bubble makes it into the news cycle, investors perceive the long rise in asset prices as the norm and “today” as “different.”
A classic Elliott Wave Theorist made the point this way:
It’s never irrational exuberance in the present, only in retrospect or in the future. To quote the White Queen, “The rule is: jam tomorrow and jam yesterday–but never jam today.”
For example, even as the bull market in stocks celebrates its 9th birthday, read these headlines:
- There Is No Bubble: Why Stock Bears Continue To Cry Danger — Seeking Alpha, Feb. 7, 2018
- There’s no reason to run from the stock market — CBS Moneywatch, Feb. 7, 2018
- Stock market fall looks like a correction, not a crash — The Guardian, Feb. 6, 2018
Also think back to 2005, when housing prices were soaring and house flipping was the rage. In November of that year, the Elliott Wave Financial Forecast mentioned another fatal assumption about bubbles:
Continue reading “The Last Great Myth of Every Financial Euphoria”