Posts Tagged ‘market cycles’

Bob Bronson on the Chicago Fed National Activity Index

Bob Bronson on the Chicago Fed National Activity Index 

Courtesy of Doug Short 

Earlier today I posted some charts on the Chicago Fed National Activity Index (CFNAI). A few hours later I received an email from Bob Bronson, a market historian whose theory of market cycles — the Bronson Asset Allocation Cycle (BAAC) — I featured a few months ago.

The email included the annotated chart below with the following comment:

"While Doug Short, who does excellent work, may be reluctant to draw any conclusions from the down sloping all-data linear best-fit line, with the addition of the currently much more negatively sloped midline (line arrows) of the high-low volatility envelope, we’re prepared to claim that the sharply deteriorating growth rate combination pattern clearly shows the U.S. economy is still in the grip of an an ultimately deflationary economic Supercycle Bear Market Period Winter, which we quantify both fundamentally and technically and forecasted more than 12 years ago. Track record and explanatory documentation are available on request from Bob Bronson."

Bob, thanks for the kind words. Yes, I’m somewhat reluctant to make a double-dip recession forecast. However, I do see it as a distinct possibility. I’ll be tracking this index over the next several months, and I’ll occasionally revisit your visual forecast to see how the numbers compare.  


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The Question “Are Stocks a Screaming Buy Relative to Bonds?” Creates False Premises

The Question "Are Stocks a Screaming Buy Relative to Bonds?" Creates False Premises

Courtesy of Mish

Josh Lipton writing for Minyanville is asking the question Are Stocks a Screaming Buy Relative to Bonds?

Dr. Ed Yardeni of Yardeni Research takes one side of the debate and says "stocks are cheap" according to a model, now dubbed the “Fed’s Stock Valuation Model”.

I am quoted in the article, taking a different view of course, but I want to add to the thoughts I expressed in the article.

First a few snips from Lipton’s article …

Certainly, by employing some basic measures to compare the relative value of stocks and bonds, equities appear attractive. Dr. Ed Yardeni of Yardeni Research made the case this morning that stocks seem cheap and bonds seem expensive according to a simple model that compares the market’s earnings yield to the US Treasury bond yield.

Yardeni first started studying this model after seeing it mentioned in the Federal Reserve Board’s Monetary Policy Report to the Congress dated July 1997. The strategist dubbed it the “Fed’s Stock Valuation Model” (FSVM), and that’s what it’s been called ever since.

During the week of August 13, Yardeni says, the forward P/E of the S&P 500 was 11.8. The forward earnings yield, which is just the reciprocal of the P/E, was 8.5%. The 10-year Treasury bond’s yield is 2.60% this morning. So its P/E, which is the reciprocal of the yield, is 38.5.

According to the FSVM, that means stocks are 64.8% undervalued relative to bonds.

James Swanson, chief investment strategist at MFS Investment Management, agrees that stocks now look cheap relative to bonds and that, as an asset class, equities boast more opportunity for investors looking ahead.

In short, the stock market is now priced for an economic future that Swanson thinks remains unlikely. “This only makes sense if the world is going into a deflationary scenario,” the strategist says. “Otherwise, this is a mispricing.”

Yes, stocks might look cheap relative to bonds, but that’s because the economic outlook remains bleak. Mike Shedlock, a well-known registered investment adviser for Sitka Pacific Capital Management, argues that the economy is already mired in deflation, a dangerous downward spiral in prices that will prove lethal for corporate profits.

"Why are Treasury yields low?" Shedlock asks. "It’s because the economy is in recession."

Furthermore, Shedlock argues that investors are ultimately best advised


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The Bear Market and Depression: How Close to the Bottom?

When discussing Robert Prechter, reactions can be strong, ranging from the extreme of hero worship to the other extreme of complete skepticism.  So while Robert Prechter has a cult-like following of Elliott-Wavers, others (such as Damien of Wall St. Cheat Sheet) seriously ask whether he is certifiably insane.  My own thoughts are mixed, with conclusions pending. – Ilene 

The Bear Market and Depression: How Close to the Bottom?

By Elliott Wave International

Robert Prechter thinks about markets and wave patterns, and goes back to the 1700s, the 1800s, and — most tellingly for our time now — the early 1900s when the Great Depression weighed down the United States in the late 1920s and early 1930s. With this large wash of history in mind, he is able to explain why he thinks we have a long way to go to get to the bottom of this bear market.

Here is an excerpt from the EWI Independent Investor eBook, in which Robert answers the question: How close to the bottom are we?

* * * * * 

Originally written by Robert Prechter for The Elliott Wave Theorist, January 2009

Some people contact us and say, “People are more bearish than I have ever seen them. This has to be a bottom.” The first half of this statement may well be true for many market observers. If one has been in the market for less than 14 years, one has never seen people this bearish. But market sentiment over those years was a historical anomaly. The annual dividend payout from stocks reached its lowest level ever: less than half the previous record. The P/E ratio reached its highest level ever: double the previous record. The price-to-book value ratio went into the stratosphere, as did the ratio between corporate bond yields and the same corporations’ stock dividend yields.

During nine and a half of those years, from October 1998 to March 2008, optimism dominated so consistently that bulls outnumbered bears among advisors (per the Investors Intelligence polls) for 481 out of 490 weeks. Investors got so used to this period of euphoria and financial excess that they have taken it as the norm.

With that period as a benchmark, the moderate slippage in optimism since 2007 does appear as a severe change. But observe a subtle irony: When commentators agree that investors are too bearish, they say so to
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Investor Psychology Cycle – Are We “There” Yet?

Investor Psychology Cycle – Are We “There” Yet?

Courtesy of Prieur du Plessis at Investment Postcards from Cape Town 

As the pendulum swings between greed and fear, investors typically become over-enthusiastic during bull markets and over-despondent as the bear’s growl grows louder.

It stands to reason that in order to be a successful investor, it is important to distance yourself from the herd mentality and to take objective decisions based on fundamental reasons.

The typical behaviour of investors is linked to the so-called investor psychology cycle, as illustrated below.

Before seeking to apply the cycle to the present stock market situation, let’s consider a short definition of each of the stages.

Contempt: According to the cycle, a bull market typically starts when a market is at a low and investors scorn stocks.

Doubt and suspicion: They try to decide whether what they have left should be invested in a safe haven such as a money market fund. They have burnt their fingers with stocks and vow never to invest again.

Caution: The market then gradually starts showing signs of recovery. Most investors remain cautious, but prudent investors are already drooling at the possibility of profit.

Confidence: As stock prices rise, investors’ feeling of mistrust changes to confidence and ultimately to enthusiasm. Most investors start buying their stocks at this stage.

Enthusiasm: During the enthusiasm stage, prudent investors are already starting to take profits and get out of the stock market, because they realize that the bull market is coming to an end.

Greed and conviction: Investors’ enthusiasm is followed by greed, which is often accompanied by numerous IPOs on the stock market.

Indifference: Investors look beyond unsustainably high price-earnings ratios.

Dismissal: As the market declines, investors show a lack or interest that quickly turns to dismissal.

Denial: Then they reach the denial stage where they regularly affirm their belief that the market definitely cannot fall any further.

Fear, panic and contempt: Concern starts to take a hold and fear, panic and despair soon follow. Investors again start scorning the market and once again they vow never to invest in stocks again.

In order to determine where in the stock market cycle we find ourselves, the challenge is to identify the prevalent stage of the psychological…
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Basic Technical Patterns: The Foundation of Common Pattern Identification

Pharmboy’s latest chapter in his TA eBook – Chapter 7! - Ilene 

Links for previous chapters:

1. Understanding Market Cycles: The Art of Market Timing (Chp. 1),

2. Dow’s Theory of Markets (Chp. 2),

3 & 4. Fundamental vs. Technical Analysis and Types of Technical Trading (Chps. 3 & 4).

5. Stock Charting Basics: How to Read & Understand Stock Charts (Chp. 5 here.) 

6. Using Moving Averages for Long and Short Trades (Chp. 6)

Basic Technical Patterns: The Foundation of Common Pattern Identification

Courtesy of Pharmboy of Phil’s Stock World 

History tends to repeat itself, and trend lines, triangles, and other patterns do work in TA.  Charts show the collective opinions of all market participants for that day, month, or whatever timeframe that is used.  Charts are direct evidence of the trader’s beliefs and feelings, and each movement reflects a bit of human emotion (or at least it did before speed trading – HAL9000).  So, it should be no surprise that patterns repeat themselves over and over.

In Figure 1 below, typical up trends and down trends are shown.  These zigzag patterns are seen all the time, but why do they form?  Let’s say someone bought a stock at a certain point.  If that stock went up, but pulled back to the original purchase price, they will often think that it’s an opportunity to buy more at their original price, thus adding to their position.  This is also the same for shorts when they are able to short a stock at the same price they shorted previously. Then why do peaks form? People sell (or cover) to take profits.  Obviously, any increase in selling will pull the stock back.  Those who bought at a lower level may start buying again.  This repeats and repeats until 1) there is no more stock left for people to buy, or 2) there is too much supply and not enough buyers.  On a larger scale, this is how bull and bear markets begin and end.

Figure 1  Typical up and down trends.

The following basic chart…
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Bearish Sentiment At 22-Year Low

Bearish Sentiment At 22-Year Low

Courtesy of Adam Sharp’s Bearish News

The latest sentiment reading by Investors Intelligence shows a disturbing trend. Only 15.6% of financial newsletters are currently bearish on equities.

Last time the bearish indicator was this low was April 1987. A few months later (Black Monday) the DJIA dropped 21% in a single day:

In other words – when everything seems peachy — watch out. Turns out that peaks and troughs in investor sentiment are pretty good contra-indicators. Bullish sentiment tends to peak as bubbles are near their top, and vice versa.

From the revamped and newly Bloombergesque Business Week:

Bull standing on pile of coins, snorting

Pessimism about U.S. stocks among newsletter writers fell to the lowest level since April 1987, six months before the equity market crash known as Black Monday, following the biggest rally in the Standard & Poor’s 500 Index in seven decades.

The proportion of bearish publications among about 140 tracked by Investors Intelligence fell to 15.6 percent yesterday from 16.7 percent a week earlier. Sentiment has improved since October 2008, when the financial crisis drove the figure to a 14-year high of 54.4 percent. After plunging 38 percent in 2008, the S&P 500 has risen 25 percent this year.

This is not to say markets wont’ run again in 2010. Irrational bull markets can last much longer than you’d think. The momentum they build up is impossible to fight. Gotta wait for that to break before getting seriously short. Example – After the bearish-sentiment index bottomed in 1987, the market rallied another 14% before crashing.

Smart investors like Bill Fleckenstein have been highlighting the credit bubble since the mid-1990’s. And today markets are more irrational than ever. Government intervention is preventing market cycles from proceeding like never before.

Industries like housing, banking, and commercial real estate have become completely dependent on government support. Their future (and that of our currency) depend on whether our leaders will extend or end this support. It’s a ludicrous, manipulated market.

So far America’s leaders have repeatedly demonstrated that they have zero tolerance for economic pain. Their support for the financial markets seems unlimited, no matter the long-term cost. I don’t see that changing without something drastic hapenning – another huge round of bailouts, a shift in the political landscape, or something…
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Zero Hedge

Koch Brothers Now Supporting "Often Confused" Hillary Clinton

Courtesy of ZeroHedge. View original post here.

Authored by Eric Zuesse,

On July 20th, a Republican U.S. Senator lost his main financial backers for having urged Republicans to vote for Donald Trump instead of for Hillary Clinton.

The Koch brothers speak with their words, which can’t be trusted, but they also speak with their money, their investments, which are always honest expressions of their actual beliefs and desires. This time, the Kochs spoke with their money, just a da...



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Phil's Favorites

Honeywell Cuts Guidance, Boeing Gives 60-Day Notices

Courtesy of Mish.

This week, Boeing announced layoffs and Honeywell cut guidance. This was expected given my July 17 article Honeywell Internal Email Shows Airplane Boom Time Over, More Layoffs Coming.

Boeing Gives 60-Day Notices

Please consider Boeing Employees Receive 60-Day Notices As Possible Layoffs Loom.

Sixty-day notices of “possible layoffs” were handed out to Boeing employees on Friday, a company spokesperson announced.

Details of exactly how many employees received such notices have not been released. However, spokesperson Je...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Gasoline Prices Around the World: The Real Cost of Filling Up (Bloomberg)

The price of gas is on the rise again—up five percent globally in the last three months. But cost per gallon alone doesn’t give a complete picture of how big a bite gasoline takes out of an average driver’s paycheck. We ranked 61 countries by three economic measures to see who has the most affordable gas, and who feels the most pain at the pump.

BofA Trading Tops Estimates as Moynihan Vows Deeper Cuts (Bloomberg)

Bank of America Corp. posted higher profit in each of...



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Chart School

World Markets Weekend Update: The Global Rally Moderates

Courtesy of Doug Short's Advisor Perspectives.

The global rally in equities Moderated last week. The average gain of the eight indexes on our world watch list was a respectable 0.41%, down from the previous week's steroidal 3.87% average. Hong Kong's Hang Seng was the top performer with a 1.41% advance. At the other end, the chronic laggard Shanghai Composite fell 1.36%.

A Closer Look at the Last Four Weeks

The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. We've also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the compara...



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ValueWalk

Relypsa Inc (RLYP) Soars On Galenica Bid

By Jacob Wolinsky. Originally published at ValueWalk.

Relypsa Inc (NDAQ:RLYP) — to be acquired by Galenica AG (VTX:GALN) for $32 per share in cash is soaring this morning up about 58 percent at the time of this writing in early morning. On the other hand shares of Galenica are down on the announcement by about 8 percent. What are the details of the deal? Here is what the sell side analysts are saying about the pharma news.

Relypsa Inc (NDAQ:RLYP) bid – analysts react

Cantor Fitzgerald

Relypsa will be acquired by Galenica for $32 per share, a 59% premium over the last closing price. We have thought that Relypsa would likely be acquired at some point, given the opportunity to grow Veltassa to be a significant commercial brand, ...



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Kimble Charting Solutions

Doc Copper going to peak again at 200 Day moving ave?

Courtesy of Chris Kimble.

Doc Copper is often viewed as a leading indicator, for global growth or lack of.

The 200 day moving average is often viewed as the line in the sand to determine if an asset is in an up or down trend.

Is Doc Copper climbing above its 200 day moving average a good or bad sign?

Below looks at Doc Copper over the past decade with the 200 MA applied.

CLICK ON CHART TO ENLARGE

Copper peaked in 2011 and since, has continued to create a series of ...



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Digital Currencies

Demystifying the blockchain: a basic user guide

 

Demystifying the blockchain: a basic user guide

By Philippa Ryan, University of Technology Sydney

Companies around the world are exploring blockchain, the technology underpinning digital currency bitcoin. In this Blockchain unleashed series, we investigate the many possible use cases for the blockchain, from the novel to the transformative.

Most people agree we do not need to know how a television works to enjoy using one. This is true of many existing and emerging technologies. Most of us happily drive cars, use mobile phones and send emails without knowing how they work. With this in mind, here is a tech-free user guide to the blockchain - the technology infrastructure behind bitcoin...



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OpTrader

Swing trading portfolio - week of July 18th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Mapping The Market

No wonder Saudis are selling as much as they can!

Courtesy of Jean-Luc

We are getting much more energy efficient – no wonder Saudis are selling as much as they can! Who wants to be the one with trillions of dollars of oil in the ground unwanted:

http://arstechnica.com/science/2016/07/the-amount-of-energy-needed-to-run-the-worlds-economy-is-decreasing-on-average/#p3

...

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Biotech

This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again

By 

Excerpt:

After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.

...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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