The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today.
Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey. Estimates ranged from 50.9 to 59.
The Conference Board’s measure of present conditions decreased to 19.4, the lowest since February 1983, from 25.2.
“Recovery in our largest export market — the euro area — appears to have stalled,” Mervyn A. King, governor of the Bank of England, told a committee in Parliament.
There were disappointing economic reports from other European countries as well Tuesday. French consumer spending on manufactured goods in January experienced its worst decline in two years in part because of the end of a cash-for-clunkers program, while Italian consumer confidence fell this month to its lowest level since July.
Belgium’s business sentiment indicator was flat this month instead of the increase that analysts had expected.
A Contrarian Indicator?
Mark Hulbert at MarketWatch thinks that consumer confidence is a contrarian indicator on the basis It’s darkest before the dawn.
According to the Conference Board’s "Present Situation Index," which measures how consumers are feeling about the economy right now, they are even more pessimistic today than they were at the depths of the 2007-2009 bear market. In fact, as analysts have been quick to point out, you have to go back several decades to find another occasion when consumers were this glum about the economy.
Here’s one thing to remember before we get too dejected by this news, however: The last time that the Present Situation Index was as low as it is now was at the end of 1982 and early 1983. Coming as it did at the beginning of a two-decades-long bull market, that was a great time to get into stocks.
As Nathan Rothschild famously once said, the time to buy is when the blood is running in
Market Sentiment: Is It Really at Bullish Extremes?
Courtesy of Elliott Wave International
At EWI’s Q&A Message Board, readers ask us dozens of questions daily. Here’s an interesting one that several subscribers have recently asked:
In Bob Prechter’s Elliott Wave Theorist, Short Term Update and elsewhere, you say that market sentiment is very bullish right now, which historically has indicated a market top. Is the sentiment really that bullish? I get a different feeling when I look around."
Elliott wave analysis is very visual; we’re all about charts. And often, a single look at a well-made chart can instantly show you what’s really been going on. Take a look at this chart from the December 2 issue of our Mon.-Wed.-Fri. Short Term Update:
In the words of Steve Hochberg, the Update’s editor:
We see the bears’ retreat in the CBOE Volatility Index (VIX), which has dropped sharply the past three days to where it is nearly as low as it’s recent November 25 extreme of 20.05. We see it in the 10-day average of NYSE daily volume, which is at its lowest point since the bear-market rally started in March. And we see it in today’s release of the most recent Investors Intelligence Advisors’ Survey. The above chart shows the percentage of stock market bears, which has contracted to 16.7 percent… There are fewer bears now than at the October 2007 stock market peak and still fewer than at the June-July 2007 top in the NYSE a/d line.
By itself, a sentiment extreme — whether pessimistic or optimistic — is not a guarantee of a market reversal. (Nothing is, really: Financial markets exist in the world of probabilities, not certainties.) But couple sentiment measures with a longer-term Elliott wave pattern, and now you have a leg to stand on.
*****
Elliott Wave International has extended their "downloading deadline" for their free 42-Page eBook, How You Can Identify Turning Points Using Fibonacci. The eBook, created from the $129 two-volume set of the same name, is now available free until December 7, 2009. Go here to download your free eBook.
With each passing day the number of people that think the bottom is in, earnings will keep improving, and even a correction is unthinkable keeps rising. Here are a pair of interesting headlines moments apart on Bloomberg.
U.S. Stocks Climb to Extend Biggest Quarterly Rally Since 1998
U.S. stocks rose, extending the market’s biggest quarterly rally in a decade, as the government said the economy shrank less than estimated in April through June and earnings at Nike Inc. beat estimates. Oil and metals gained as the dollar slumped, while Treasuries retreated.
“A lot of people would be looking for a pullback, but we’re going to see improving fundamentals in the base economy, and with that higher earnings,” said William Dwyer, chief investment officer at MTB Investment Advisors, which manages $13 billion in Baltimore.
Today’s gains came after the U.S. Commerce Department said the world’s largest economy shrank at a 0.7 percent annual rate from April through June, less than the previous estimate of 1 percent and the median economist projection of 1.2 percent. Gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.
The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said.
U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said in an interview in Kuala Lumpur yesterday. The U.S. economy isn’t likely to experience a “double-dip” slowdown even as that remains a risk, said the professor emeritus of management in the Graduate School of Business at Stanford University.
I would be curious as to what William Dwyer, chief investment officer at MTB Investment Advisors was saying in 2008. Regardless, the idea that stock can keep rising forever even as the fundamentals of the economy are horrible, and the only game in town is government spending is rather remarkable.
As for the double-dip, I think one is coming. The not so robust alternative is flatline stagnation and extremely slow growth for 5 years or more.
Just moments after the above headline appeared, we saw this:
Inquiring minds are once again reading excellent commentary by John Hussman. Please consider Strenuously Overbought.
Last week, we closed out our modest "anti-hedge" in index call options, which we have carried in the Strategic Growth Fund during recent months, and we moved back to a fully hedged investment stance. I should note that we are not “calling” or “predicting” a market decline in this particular instance. Rather, we are tightening of our defenses because the overall conformation of evidence we observe here has generally not been followed by an acceptable return/risk profile, on average.
My discomfort about strenuously overbought and moderately overvalued conditions overlaps with skepticism about the U.S. economic “recovery,” which appears to be nothing but an artifact of government spending, while intrinsic economic activity remains weak. Stimulus induced “strength” is unlikely to propagate because, as I’ve noted before, economic recoveries are invariably led by expansion in debt-financed forms of spending such as gross domestic investment and durable goods. These classes of spending tend to lead other forms of economic activity by nearly a year, and it is difficult to expect this in an environment of heavy continued deleveraging pressure. Rather than abating, foreclosures and mortgage delinquencies are setting further records (pressured even more by continued net job losses), and we have now hit the point where Alt-A and Option-ARM resets are beginning (after a lull in the reset schedule since March). We know that post-crash markets feature partial recoveries followed by a very extended period of sideways movement. To expect an entirely different result in this instance – to assume that this is a typical post-war recovery and that everything is back to normal – seems hopeful to say the least.
The percentage of bullish investment advisors now rivals that seen at the 2007 peak. Stocks are strenuously overbought. The S&P 500 is overvalued to the extent that we now expect just a 6.6% annual total return over the coming decade (a level that except for the period since the mid-1990′s has corresponded more to bull market peaks than bases for sustained advances). Historically, such combinations of overbought, overvalued, overbullish evidence have generally been unrewarding, so we don’t even need to consider special cases.
• The market has gone nowhere over the last three trading days despite what was being construed on bubblevision as unrelenting good news (home prices, house sales, consumer confidence, durable goods orders, Bernanke’s reappointment) — any other time in the last five months, these “green shoots’ would have turned the equity screens green. Could be a sign that a lot of good news is already being discounted.
• While it is often reported that over 70% of S&P 500 companies beat their 2Q earnings estimates, only 46% did so meaningfully. Not only that, but only 23% significantly beat their top-line revenue projections. See page C2 of the WSJ (The Rally Revenue Forgot).
• Leading stocks have been seeing reduced trading volumes of late.
• VIX futures and the put/call ratio on the S&P 500 have shot upwards in the past few sessions.
• The ECRI leading economic indicator fell 0.4% in the latest week, the first decline in six weeks and only the second falloff in the past eighteen.
• Sentiment is far too bullish — to an extreme level. A sentiment index quoted in today’s NYT business section is now 89% bullish, the same as it was in October 2007; at the March lows, it was sitting at 2%. See Some Once-Bullish Analysts See an End to Market Rally on page B1 of the Monday NYT.
• Corporate insiders sold nearly 31 times more stock than they bought in August (TrimTabs data) — the long run average is 7x and it was 2x at the lows (apparently a heck of a buying opportunity at that time).
• Small-cap stocks are down for back-to-back weeks and Chinese equities are on a four-week losing streak. Finally, the market has turned in the precise same 50% advance over the same 117 time period that it enjoyed coming off the 1929 lows — that rally ended despite all the hype at the time and the market lost more than 50% in the ensuing year.
• Of course, there are the negative seasonals too — since 1950, the S&P 500 is down 1% in September, on average, and has declined twice as often as it has rallied during the month.
This is a re-post from an article we wrote for TheStreet.com:
The rally off the March 8th lows has been nothing but spectacular. In hindsight, it’s clear that investors overreacted to the downside, but as stocks surge more than 50% it’s time to begin pondering whether the current rally is a bit ahead of itself. Contrary to my bottom call on March 8th when I said it was time to invest in risky assets (a full history of my 2008/9 calls can be found here including our 2008 crash call and March 8 buy call), now is the time to put on your risk management cap on as a number of various threats begin to pop up across the market. I recently turned near-term bearish on stocks due to 2 primary reasons: sentiment & seasonality.
1) Sentiment – As I often say, psychology drives markets. After months of skepticism regarding the rally we are finally beginning to see an overwhelming amount of bullishness. This is a screaming contrarian indicator. The latest consumer confidence readings showed a marked jump to 54.1 and bullish sentiment among fund managers has soared to its highest level since 2003:
The latest Merrill Lynch fund managers survey shows an extraordinary jump in optimistic sentiment. The survey makes up the current psychology of 204 portfolio managers running over $550B in assets. The report shows a 63% jump in sentiment since July and the highest reading since November of 2003.
After months of short squeezes and failed market declines this optimistic sentiment has begun to eat into one of the fuels of this rally: short sellers. Recent short sales data shows the lowest readings since the market tanked in early February. As we lose the short sellers we lose an important driver of higher prices.
Perhaps most important has been the enormous shift in analyst estimates. After turning bearish in early June, I reversed the position in early July for one reason – earnings. My analysis led me to believe that estimates were far too low primarily due to the fact that analysts were not accounting for cost cuts. The estimates have been outrageously low, but now as the consensus begins to believe in a full blown recovery the
Continuing along the theme of canaries in the coal mine: I am taking a look at the VIX. Like with my sentiment charts of the CPC, CPCE, and BPSPX, we should see volatility make a low (confidence make a high) around the P2 top.
I had actually not updated my VIX counts for a couple of months and had only been watching it peripherally. Imagine my surprise when I looked at my chart and saw that it broke the long term down trend line, and on top of that, it is now using it as support!
Very ominous for the bulls. My count also already has a bottom in the VIX. And if you think about when that bottom was made, it was in the middle of the strongly trending part of Wave 3 of A. After that, there was been a lot of volatility. The absolute price has stayed in some bands and has been "stair-stepping" up, but there has been a lot of "chatter" in the bands.
I think this is another "X" on the P2 top checklist. So far we have:
- X – VIX Low
- X – BPSPX (and other bullish indicators) at higher highs than 2007 peak
- X – CPC at uber-bullish levels
- X – Investor Sentiment above 80%
- X – Economists declaring "end of the recession"
- X – Analysts upgrading everything
- X – "Speculative Leader" indices showing weakness / bearish divergence
- – Clear end count for P2
…. And almost on that last one. Things are certainly in place. [Click on charts for larger views]
Interesting Day [Aug. 24], and a potentially important day. Today could be Primary 3 Day!. But instead of me putting up a bunch of charts, counts and indicators of the major indicies (which everybody else is doing and probably better than I would anyways), I wanted to look slightly off the mainstream. Such as last night with A Look At Some of the Asian Markets. I want to look at some more canaries in the coal mine.
Financials
And these guys are another canary. Albeit not a very original one. Because everybody watches / trades financials. But most do not do it from a big picture perspective. BAC was a 5-bagger if you picked it off the very bottom in about 5 months. People trade and gamble with financials, people are very emotional and hopeful about them.
This alone should tell you that financials are just another casino play right now. Just like the SSEC (108% off the bottom). Most financials are multi-baggers and the XLF and BKX are up over 100%. And you can sit there and tell me it is because they are healthier or that the strongest have survived …. BS. I still maintain that finanicals are volatile garbage and are the cancer of the economy. And these moves do nothing to dissuade my opinion that this is just speculative casino gambling in these stocks.
And much like the SSEC (a huge casino index), which peaked earlier this month, the casino nature of financials should show weakness ahead of the rest of the markets also. BKX and XLF still made higher highs with the rest of the markets, but good old Goldman Sachs has not been. Did the Goldman Sachs "reign of terror" end on Aug 6th? Stay tuned to find out.
[click on charts for larger images]
Sentiment
Just another look at charts I have shared a few months back. BPSPX notched over the long term resistance line, which is exactly what we expected it to do at the end of P2. So that is another "X" on the checklist for evidence of a P2 top.
Next is a look at the CPC. Option investors were already in uber-bullish territory. And then…
Here’s the REAL DEAL NO BS Situation with Europe (Warning What Follows is EXTREMELY BAD).
The media is rife with misrepresentations and analysis of the EU. Here’s the real deal.
The ECB is tapped out. Having provided over €1 trillion in funding via LTRO 1 and LTRO 2, taking on over €700 billion in PIIGS debt putting its own solvency at risk, it simply cannot launch another LTRO scheme for th...
"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident...And yet none of this conduct has been punished in any significant way."
~ Charles Ferguson, Inside Job
"I know that my retirement will make no difference in its [my newspaper's] ca...
The S&P 500 got off to weak start and, after retracing a modest morning rally, spent most of the day in the shallow red with an intraday low of 0.63%. But in the last seven minutes of trading, the index recovered enough to a make a small gain of 0.14%. This is the fourth advance, the first was Monday's 1.60 surge, but the last three have ranged from 0.05% to 0.17% with today's close near the high of the miserly three-day series.
The index is now up 5.02% for 2012, which is 6.93% off the interim closing high.
From an intermediate perspective, the S&P 500 is 95.2% above the March 2009 closing low and 15.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
TIF - Tiffany & Co., Inc. – A surprise earnings miss and a reduced full-year profit and sales forecast from luxury jewelry retailer, Tiffany & Co., took some of the luster out of its shares today, with the stock trading down 8.5% at $56.55 as of 11:50 a.m. in New York. Options activity on Tiffany this morning suggests mixed sentiment on the st...
RealNetworks, Inc. (NASDAQ: RNWK) today announced that it has reached an agreement with the Washington State Attorney General over discontinued e-commerce practices. In accordance with the settlement agreement, RealNetworks has committed to:
Discontinuing the use of pre-checked boxes for purchases of RealNetworks subscription products; Spelling out more clearly the material terms of RealNetworks product offerings; Offering online cancellation of subscription offerings; Enhancing RealNetworks customer support guidelines regarding cancellation. Statement from Thomas Nielsen, President & CEO of RealNetworks:
"About two years ago, the Washington State Attorney General's Office contacted us regarding concerns they had with some of our e-commerce practices.
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...
First we'll go to the technicals. Back in mid April I had opined a 'bear flag' formation was being created. [Apr 17, 2012: Potential Bear Flag Forming] But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs. This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market. Generally a bear flag will resolve relatively quickly but the longer...
Despite the fact that U.S. equities are well-positioned and well-supported to go up, once again it is the headlines out of Europe—especially Greece—that are scaring off investors. Some are saying that it is now likely (and even desirable) that Greece will default on all its sovereign debt, withdraw from the euro, and severely devalue its domestic currency (Drachma?). This will allow them to operate a balanced budget while pumping cash into growth initiatives, rather than suffer the ravages of Germany-mandated austerity.
Some say, so what? Greece makes up only about 2% of the Eurozone’s overall economy. Nevertheless, you might say that t...
Markets died and then rallied to flat again as European leaders “prepared contingencies” for a possible Grexit
Markets died hard and fast earlier today as major indexes registered as much as 1.5% of losses after news that Euro zone officials were unofficially “preparing contingencies” for a Greek exit from the Euro. Unofficial statements were not enough to keep markets down however, as major indexes rallied back to flat levels by the end of the day.
So the world continues to wait on Europe, as the SPDR S&P 500 ETF (NYSEACA:SPY) gained .05%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:...
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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.
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Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
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In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(