Wednesday's market action had all the music, lighting, choreography and party-like atmosphere of an Earth Wind and Fire concert (I tried to find a picture of the Ohio Players in this context but couldn't find one I liked).We are in a period where we have very fast moves in both directions that seem to last for a couple of weeks or so. This has been going on for a while and seems like it will continue but who can say for sure. If it does continue then this fast move up will end (maybe near the 200 DMA like the last one?) and then the market will move back down just as quickly. Of course it could be over now, this post was written Wednesday night.
I am not trying to make a prediction with the above possibility merely pointing out (mainly to clients) that another whoosh down is very plausible. We've had all these whooshes with out dramatic changes in the fundamentals in the US. I would say the fundamentals in Europe are changing a little quicker but I think it is correct to say that Europe is the same story and we are living through the deterioration at this point.
Last we I said something very similar while also noting that I think the upper and lower ends of the range are moving up slightly. Where the last one peaked at SPX 1275 maybe this one will peak 10 or 15 points higher as an example and where the intermediate bottom last week was 1158 maybe the next bottom will be something like 1170 as an example. Maybe we churn in that manner up near the May high of 1363 which then becomes the real test for the market to which I would lean bearish. If this plays out I think it would take months and to repeat, sentiment would swing from glee to despair every couple of weeks or so.
One reader has commented a few times about hating this market but going along for the ride, I suspect he would really hate the above scenario.
To be clear this not a description of a healthy market. The market can get healthy again in any number of ways but it appears to be a long way from there now. If this has changed somehow we are decently long such that we should continue to participate which is philosophically where we want to be; smoothing out the ride if possible not being completely out.
20 comments:
I've read three articles this week from recognized authors which argue that this is the best buying opportunity in years for out-sized, long term gains. Their arguments are based largely on market valuations, with some drilling down to the individual company level.
I don't fully understand the point those people are making. 43 months ago the SPX was 46% lower than where it closed yesterday.
I read an interesting metaphor about the stock market a few days ago.
In "The Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School" by Andrew Hallam, the author compares the stock market to a person walking a hyper active dog on a very long leash. Sometimes the dog sprints way ahead pulling the owner, while at other times it falls way behind having to be dragged. At other times it walks along with with the owner and then quickly dashes ahead or falls behind. Meanwhile the owner steadily walks. The comparison being the dog is the stock market's value while the owner represents the market's earnings.
I thought it was a pretty good metaphor except the author forgot to mention that sometimes the dog falls way behind and takes a massive dump.
I think the metaphor is along the lines of the market gradually trending up within a channel as you mention in your post.
Buy, hold, and rebalance folks have one approach. You people tend have another. Personally, I want to buy when the market is below the 200 DMA, the further the better. I like being able to buy assets at distressed prices. I plan to never sell my equity holdings unless they exceed 55-60% of my portfolio. I acknowledge my personal situation may be unique and not suitable for others.
I would add that the dog on the leash that took a dump in 2008-2000 was a Great Dane-Mastiff mix on a VERY long leash, while the dump we have experienced this summer was from a poodle on a medium leash.
I bet you never knew you could have a metephor that describes aspects of your work and the work of your wife, huh?
everyone loves scatological metaphors! XD
Anon 6:31 If you are a value investors this is a great opportunity to put money to work. free cash flow yields for many companies are at very strong levels with share prices not currently recognizing this (by a large margin).
Many "investors" don't see this because they are really speculators that dictate their decisions based on price action, without checking under the hood at the intrinsic value. I suspect many people are more focused on short term price movements (CNBC) as opposed to value based investments because it takes hard work, and a contrary nature to execute.
Let's face it, most "investors" feel safer in a crowd, which is why so many underperform the index.
Good post.
I attended a Schwab conference Tuesday. The three presenters (representing well-heeled wealth management partners) did their thing. Then, the tirades came forth...
I have never seen investors so irate at government, low (no) interest rates decimating retiree income, higher taxes at the state and local level, insurance premium increases, etc. Instead of the usual platitudes and generic investment inquiries, there was HATE vented.
I was suprised that more than a few (myself included) do not qualify for social security benefits because of our defined public benefit pension, even though in other jobs we paid into the system generously.
Over and above discussing portfolios, folks are expressing their rage against largesse and what they perceive to be a screwing of those who saved instead of spending into oblivion, letting someone else pay their way.
It was my experience that retirees usually conversed primarily about their health and bowel movements. No longer!
T
hopefully the conversation will go back to health and bathroom issues soon! ahem
Sunday Morning Coffee, The Big Picture of the Week...How about Thursday's Turds...seems like an intriguing investment theme...everybody has gotta go.
Is this stock/fund a floater or a sinker?
Something for everyone...retirees, dog owners etc.
I've read several articles referring to the same idea that anon 6:31 does - the idea is that corporate profits are huge. Companies are leveraging high unemployement as a way to keep costs down. Obviously, they're not hiring.
I was catching up on reading on the train this morning; Jeremy Grantham has referred to corporate profits as obscene (or some word like that) and says they're unsustainable. He believes the market is above fair value, of course.
I wish I had been reading him longer; perhaps there was some point in history at which he did not think the market was above fair value!
Btw, this one will make 11 comments already today. I'd say the RandomRoger Volatility Index is relatively high.
SD yesterday's comment total was an outlier due to many comments not being market related.
although maybe not a measure of investor frustration?
Perhaps it's better to use a 10 day moving average?
Anon 6:31 here. Technically challenged or I'd post links!
Authors were Jeremy Siegel and Chuck Carnevale at advisorperspectives.com and Arne Alsin at seekingalpha.com if anyone wants to search. There is a general value bent to their strategies.
Apologies for sending readers away, Roger.
Can somebody explain in an easy to understand way what happened yesterday?
All I know is that the major central banks have cut the costs of borrowing U.S. dollars. Apparently this action will ease the pressure for foreign banks to sell assets, which I take to be sovereign debt. So on a foreign bank's balance sheet, they increase their liabilities, but at the same time increase dollars on the asset side. In theory I guess it would cushion the lower value of sovereign debt up to a certain point? What happens if the amount of U.S. dollars is insufficient? Who gets left holding the bag?
What are the mechanics of the process? What for example does a foriegn bank use as collateral to borrow U.S. dollars from the Fed?
Hopefully someone can provide a simple explanation.
Please note: Jeremy Siegel will always, always, ALWAYS recommend buying stocks. ALWAYS. That's why I kinda stopped reading him a few years ago. if you see his name, just substitute "buy equities" in your mind.
SD,
How do you feel about establishing an asset allocation and letting its drift dictate buying/selling?
Well, that's kinda what I do. I'm an indexer. I evaluate my allocation twice a year. If something has gotten too big or small, I'll make changes.
"The market can get healthy again in any number of ways but it appears to be a long way from there now."
I'm reminded of a post by Barry R. from 2009.
http://tinyurl.com/ko9jmd
As has been said, a bear market will wear you out instead of scare you out. Meanwhile, I enjoy reading your blog Roger and the comments, especially today's.
Hi Roger: Back on 10/28 the S&P closed for the 2nd day above its 200 day sma. I seem to recall u said u had technical problems so didn't buy in. The next day it fell below, so I am guessing u avoided the "whipsaw". Now as we approach the 200 day sma again, I am wondering if your process is the same of if it has changed?
Thanks, Len
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