With the 500 index at the top of the trading range and bonds testing support, please see instructions below.
Game Plan…Extra tight stops, to protect the past couple of weeks gains.
Will let the stop-loss harvest for us… if it happens. With high yields breaking resistance (see this post) and reflecting nice relative strength, stocks have at least a 50/50 chance of moving higher.
Hi Chris- yes I did see that post. Thought it was insightful. Considering the big picture (deleveraging, credit crisis, deep recession, unemployment, housing deflation, general disinflation, overvalued stocks, shady accounting, chronic unemployment) over the next couple years, I think we may be in for more disconnects, but it will be more likely on the downside with a huge overcorrection to reset the market at very low P/E rations and high dividend yields like it has been historically before new secular bull markets occur.
Did you happen to see the 70 year dow update on dshort this week? If not check out his site and scroll down and look for “Dow battles 70-year”
For long-term followers, this would be the key perspective the patterns would suggest are important. For long-term investors we suggested to sell8 days before the highs in late April, due to the monster rising wedge and 61% fib level…they have been safely in cash since then, other than those conservative that picked up a PFF.
Sir John taught me pretty well with the fundamentals, as you and others have shared, some disconnects have taken place of late….last year and last how many? To me, like 10 years. Sir John said “at best, the market would be flat for up to 20 years!” That go my attention…at least we are half way home for the buy hold and hope investors.
Appreciate your viewership and contributions,
Chris – I appreciate your talent and success. That is why I visit your page. I sold ZSL (short Silver) on your recomemndation a couple weeks ago – will be watching what happens from here. Although I am open to opportunities, I am not really a trader since I don’t have the time and energy, so I would prefer to buy and hold based on somewhat longer term trends taking into consideration all factors, including technicals – a more holistic approach. I agree that bearish/bullish are emotional states (perceptions) that wall street likes to manipulate to their benefit.
Any updates to your thoughts on the market this morning? Interesting spike up – looked to be an attempt to shake out the bears and possibly draw in some bulls.
If the studies are correct, prices will end up going down and we will adjust.
The trades I have shared on dshort and my blog are up over 50% since the first of March, without me putting in one minute towards whether the economy is good or bad.
Being bullish or bearish are nothing more than emotional states of mind, they are not strategies. I am about solutions for the world we live in.
The strategy I use is called TB&M, which stands for Tops, Bottoms and No Middles. This strategy has allowed us to increase portlio values, regardless of market direction.
There are currently a couple interesting posts at Calculated Risk concerning economic trends at Calculated Risk (Regional Fed Surveys and ISM update) and Mish’s Global Economic Trend Analysis (Duke CFO Survey). I would paste the links but the webpage will not let me so do a google if interested.
All – Market action this week may largely be dictated by triple-witching on Friday (tomorrow/sept. 17). Wall Street has a vested interest in keeping the market elevated through tomorrow so that options expire with the S&P500 in the 1100-1130 range. The economic data released this week has not been good and may have normally popped this rally’s bubble, which was built on hope that the economy is not sliding, if not for big Wall Street firms propping things up, which is possible at these low volumes and is apparent by market action. The question is what will happen Monday morning – I guess if you are still long it might make sense to make sure your stop losses apply to the pre-market because there could be a big gap down (there have been a number of recent big price gaps up that have not been filled). The rally off March 2009 lows was built on green shoots and the expectation of a V-shaped recovery. This certanly is not happening now but the V is still priced into the market. At best we have economic growth that is stalling, but as noted above some of the leading economic indicators indicate the economy is much worse off and recent data supports this more and more. In the very short term these technical indicators may be relevant to traders, but I would not be long an overvalued and overbought market with deteriortaing economic conditions that history has shown investors are prone to flee in droves. Each turn of the market off support or resistance in the last couple months has been big and has occurred pre-market. Before the economic data are completely clear, the market will be moving. History strongly suggests much lower prices are to come given economic trends and conditions.
For anyone who didn’t buy at the 9/1 low, if resistance is broken to the upside, I would get a “ticket to ride” the 500 with a stop on a break below the top line of the range.
We are in unique times for sure!
Sir John used to say, the 4 most dangerous words in investing are, “it’s different this time!”
High yields peaked and stared turning down in 1998 and stocks didn’t, I thought, they lost their edge as a leading indicator. They were spot on, just early.
Different this time? I don’t know!
One possible change between this and previous occasions when HY bonds lead equities: super low rates and the chance of QE2 pushing them lower. So the spread between Treasuries and junk could increase (a sign of risk aversion), but junk could stll gain, just less than Treasuries.
Even some of the most dubious junk issuers have been able to roll debt over the last year at lower rates. So now they have lower debt servicing and are perhaps a little less dubious.
I’ve been thinking the same thing since late last year, and I’ve come to the conclusion that the market and prices have a pretty significant disconnect from the macro conditions right now. I’m not sure exactly what’s causing this disconnect, but I agree with Chris that you really have to respect the patterns, as they seem to be right more of the time than the fundamentals.
In terms of the disconnect, I see some factors that may be contributing. None are huge factors on their own, but I think in combination they might be the reasons for the disconnect I’m seeing:
– low volume contributing to the distortion
– trading desks/programs making up a very significant chunk of that reduced volume
– people wanting to believe that the market should always go up, and placing their bets accordingly (self-fulfilling prophecy)
At some point, I’m waiting for things to come back into line, but as I alluded to earlier, I’ve been waiting now for some time 🙂
Agree with you per the fundamental reports look weak. Couple of thoughts…Sir John often said, don’t worry about what you know, its built into the markets already and secondly, prices usually lead fundamentals. With this in mind, when using patterns, which are based upon price, you just have to go with it, until the patterns suggest something different.
High yields post reflects upside breakouts, from a price and pattern perspective is a plus.
Long-term falling resistance is in place about 5% above current prices, that must be watched.
Gary, Chris is not saying to buy now, he’s saying to protect gains you’d have made if you’d bought a couple of weeks ago when he recommended to. He’s pointing at potential resistance in the pattern that might indicate a reversal, which would mesh with what you’re saying, but he’s got a low-risk bet going that it’ll keep going up, as suggested by *many* other related issues which have broken resistance already.
With the broader economy showing clear signs of a slowdown (for example, ECRI and CMI indicies), I don’t see how a meaningful rally can be sustained here. Risk is high to be entering in long equity positions. Look forward to your response.