Let's begin: Research...
- Still believe that we are in a Secular Bear Market (~17yrs long). Similar times are highlighted by the red lined "flats" in the Dow long term chart at top of this series.
- We will probably experience a few cyclical bulls and bears within it. Above, are a zoomed in look at two of those Secular Bears (the flats) so you can compare history to now (bottom of group).
- Sooo, the good news? Perhaps we're halfway? Perhaps we'll hold the flat?
- Of course, we'd all prefer not to see the other type of Secular Bear...the downer (above).
- Top chart reflects typical Secular Bear Market as determined by an academic study Morgan Stanley has highlighted in the past. Second chart, from etf-corner.com, merely overlays the model to current price action to provide one possibility of "a potential future". We're currently in the green "A".
- Here's an alternate view...overlay of the "inflation adjusted" Dow now to that of the 1929 Dow and the 1989 Japanese Dow for an idea of where we may possibly be as well from dshort.com.
- Stock valuations as measured by Price to Earnings ratio never really got to solidly undervalued areas as has occurred in each Secular Bear of the past. When they do, that is the "set-up" for the next "buy and hold" Secular Bull Market.
- The only other time the 1-year change for the S&P 500 has been higher than it is now was in the 1930s. Unless the market takes off from here even faster than it did in the weeks after the March 2009 lows, 68% will likely be the peak reading of this cycle. (This doesn't mean we've reached a bull market peak, just that we likely won't see the speed of the recent move...another 12-month reading of more than 68% during this bull. If we do...and you are fortunate to ride it...you buy lunch next time we get together!)
- For the economy to move forward in a real manner vice this current government debt explosion "delay and pray" economy, it is typically led by a pick-up in either housing or autos (or both) because these are big ticket items which are usually leveraged purchases via loans which provide a money multiplier effect to the economy.
- Cash for Clunkers is over and the First Timers Housing Assist is over end of April. The government throwing free money (well, your tax dollars anyway) at these industries is ending and it was a huge part of the liquidity pump that has held things together since 2009.
- Another money pump into the economy was the purchase of gobs and gobs of Mortgage Backed Securities by the Federal Reserve...which ends end of March.
- Not to even mention that the Stimulus Act is past its peak and will be winding down over the next few months...the spending was conveniently scheduled to extend right toward the mid-term elections. My, my...what a coincidence!
- The fire hose of money into the economy is being turned off. Is the consumer ready to step up to the plate and create real demand vice these artificial props that have been in place this past year?
- By the way, for grins...the chart above is the inflation adjusted median housing price. It seems that anyone purchasing the median home since 1998 is either breakeven or negative equity. That coupled with all those folks who took out second mortgages to buy the car, vacation or SkiDoo and that's a lot of money that just vapored yet the debt remains to be serviced. My guess, most people won't be able to service it and fall to foreclosure (especially due to stubbornly high unemployment)...more hits to consumer balance sheet and bank balance sheets coming (banks currently failing at twice the rate as last year). So, in my opinion, consumer has no money to spend and banks will be in no shape to lend to consumers who are in no shape to borrow...means little potential for real consumer demand to do its normal thing to make the economy go.
- The money hoses are being turned off and now the money vacuums are slowly being turned on and aimed, by the government, into the coffers of corporations and pockets of taxpayers which will draw liquidity out of the private economy....
- Healthcare approved...Cap and Trade comeback attempt next?
- Remember...Bush tax cuts expire in JAN 2011 even if Congress does nothing...but the current leadership is still offering new tax initiatives on top of this.
- Interest rates have been going upward and Treasury auctions are starting to experience failures (ie, low demand for US debt...not good if we intend to try and keep running annual trillion dollar deficits...but I'm sure the Obama team has that all figured out...Right?).
- The game has changed significantly. Higher taxes and uncertainty are back. And that is likely to translate into market volatility, especially after a twelve month rally in stocks that brought prices back some 70-plus percent from the March 2009 bottom.
- Although, you wouldn't know it from the recent accelerated upmove highlighted below.
- OK...so how long does the recent levitation act last? Normal market? Yeah...not so much. Goldman Sachs HFT computers hard at work! All I want is a little market normalcy..."You can't always get what you want but if you try sometimes, you just might find, you get what you need." And right now, this market needs to exhale instead of just non-stop inhaling...for a few days at least.
- Go to the sidebar for the SP500 daily and weekly charts and review indicator placement to times in the past.
- Earnings season is coming up starting mid-April. Do Da Boyz sell into reports? Take 'em out back and shoot 'em...like they did in January (but then brought 'em back up)?
- Seasonality calls for November-April as the market's good times while May-October are usually rougher sledding. Noted...these are guide lines but something to be aware of.
- Even more daunting is what are the possible unanticipated changes that may spring their traps ahead? Will the Financial Accounting Standards Board grow a spine and go back to requiring mark-to-market vice mark-to-make-believe? Will oil spike even further...it's doubled from it's $35 bottom last year. Will the bond vigilantes turn away from absorbing so much US debt and force fiscal discipline upon Washington DC? Do European country blow-ups domino toward the US?
- Aaaahhh, if we only knew all the unknowns...and their timing...and their affect...BONUS!
- But, as always, its best to be cautious when caution is required...we will look back to these years as truly historic times. Disruptive change takes time to work through but we eventually get to the "new normal".
- Market has been up with no real pauses since early February but is starting to slow recently. Ordinarily, one could expect a 2-3 week consolidation or retrace followed by new highs.
- But now to some rambling thoughts....(by the way, the SP daily chart found in the sidebar to the right is a stockcharts.com chart which is basically the same as the above chart which is just from my eSignal charting software)...on to those rambling thoughts now...............
- So, questions I ask myself...What have we got left to the upside after a 77% rise in one year? Is the SP500 1180 area it? Another 5% to 1225 area? Another 35% to new all time highs (1576)? Or a healthy retracement of this upmove since last year toward mid to low 900's? Fact is that noone knows. It's your call, no one else's, since they are your chips on the table...Place your bets and take your chances. Put all the chips up? Put only some fraction of the chips up? Or take the chips off the table and sit patiently waiting for better odds. Questions all must ask and answer for themselves based upon their individual circumstances and risk tolerance.
- All I can say is history shows that in a Secular Bear, at some point you have to find peace at some profit level chosen by you and just take them and then patiently wait for your next opportunity. Otherwise you risk giving much of it back in any down move (reference the opening series of charts). It's always much easier to be wishing you were in then wishing you were out.
- For longer term investors, some potential guides...be alert when price closes below the 50DMA (red line) and consider throwing the bums out below the 90DMA (green line). (Or use obvious overbought up moves to reduce exposure / risk since you can always re-add after dips if you like.) When it comes to the 90/50 moving averages, I get especially observant at the midpoint between those 2 moving averages as that area often acts as support / resistance. Right now, they happen to be pretty darn close to one another at the 1115 area.
- I don't need to sell the top or buy the bottom to make decent returns for what I risk. Just need to take a chunk out of the middle. Some prefer to exit as the market is moving in their direction while others prefer to wait for it turn and come back some distance against them. There is no right answer all the time...it just comes down to personal preference.
- Yup, what better time to consider taking profits / reducing risk than when no one is sure as to what's next, except that the government is about to take more money away from the citizens in order to finance an expansion of the already stressed and overpriced social network..."Party Time!!!"
- As for me the trader...it's been nothing but trading this month, and very little at that, because there have been few clean "price resets" in the upmove since the February low. I am very leery of the way this market is being pushed up on low volume in a hurry (but I, admittedly, have been saying that since October of last year...no volume, no fundamentals...blah, blah, blah...no kidding...LOL!). Those types of moves can be quickly retraced. Another thing that gives me the creeps is that it has the same feel and pace as mid 2007 and similar indicator extremes for now.
- But trading is more to my liking as I prefer taking my share and not necessarily yours and his and hers and that guy's over there too. Just mine then reduce risk and wait. I prefer using this...
- ...as opposed to this.
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