IMPAIRED SOURCES OF INFORMATION ARE INCORRECTLY CREATING CONVICTION THAT WE ARE IN A BEAR MARKET
It is important to keep this one fact in mind when making any observations with regards to the financial markets at present: The predominant factor influencing thinking in the global markets currently is past pain. The current generation of market participants, be they retail investors, fund managers, analysts and journalists have only known struggle in the markets. This type of foundation for the stewards of capital and popular thinking with respect to investing creates unusually adverse reactions to downside volatility in asset prices. A vicious cycle then ensues of fearful headlines, commentary and opinions reinforcing the already existing negativity, which spirals into a black hole of irrational thinking. Against this type of backdrop you very simply have to approach information as if it is emanating from an impaired source. Otherwise, you have no chance to make the most beneficial decisions necessary to create outperformance, as you are mentally blending into unintelligible chaos. In order to discover some clarity and perspective I want to again turn to a source that too few investors bother with: The quarterly chart for the Dow going back 100 years. This chart was discussed most recently in January. Here is the chart provided in the above article: (click to enlarge) If this 16% pullback from peak to trough in the Dow is to be considered a bear market, then what would be call these? 1983 Q4 - 1984 Q2 Dow falls 17%. One year later the Dow is 24% higher at a new all-time high. 1987 Q4 Dow falls 41%. One year later the Dow is 34% higher. The Dow would be at new all-time highs in Q3 1989. 1990 Q3-Q4 Dow falls 22%. One year later the Dow is 35% higher at a new all-time high. 1997 Q3-Q4 Dow falls 16%. One year later the Dow is 31% higher at a new all-time high. 1998 Q3 Dow falls 21%. One year later the Dow is 40% higher at a new all-time high. 2015 Q2 - Present Dow falls 16% from peak to Q3 2015 low. The above are secular bull market corrections that are invariably mistaken for the start of new bear markets. Every single one of the relatively short-lived corrections listed above were accompanied by discussion of various factors leading to the start of a bear market or complete conviction that a bear market had already started. The current correction is the first of this secular bull market. To believe that we are in a bear market is to believe that all of the above highlighted corrections were bear markets, as well. Additionally, to believe we are in a bear market is presumptive,...
3 CHARTS POINTING TO AN IMPORTANT LOW IN THE OFFING
A refresher course for the trajectory points listed in the charts below: Trajectory points are simple angles that are prevalent in the markets. Trajectory points that existed decades ago still exert their influence today. They don't go away. Trajectory points act as a simple guide post for the markets, working best when used with other tools, both fundamental and technical. click chart to...
A DOW CHART GOING BACK 90 YEARS THAT PROVIDES BULLISH CALM
If you were to look at any multi-year chart this weekend, much like every other individual performing the same function, you would have no choice but to arrive at a bearish conclusion. If you were to look at any fundamental data points, much like every other individual performing the same function, you would also have no choice but to arrive at a bearish conclusion. In other words, the present market environment is painting as bearish a picture as it ever has during the entirety of this secular bull market. The fact that there is a singularity taking place along the same line of negative thinking doesn't legitimatize the prevailing psychology. In fact, it should cause investors to question it profusely. In a market environment that is presently blanketed in bearish sentiment there is only one course to take. In the spirit of profuse questioning of the prevailing negative psychology I decided to forget about daily chart looking back over the past several years, instead focusing my attention on nearly 100 years of data. The question I want to answer is has there been precedent in the past for a new bull market (the current secular bull started in 2013, marked by a new high in the S&P 500) to reverse course into a bear market after just two years? The answer in the chart below is based on only two long-term secular bull markets. The secular bull from 1955-1965 and the secular bull from 1982-2000. Both of these secular bull market were preceded by a decade plus long consolidation, much like we experienced in the S&P 500 from 2000-2013. click chart to enlarge Much like the secular bull market of the 90s, which experienced multiple macro shocks from Asia, Russia, Mexico etc. this current bull market is not immune from sympathizing with the plight of emerging market difficulties. That sympathy should not be confused with similarity. There are no similarities between the Chinese, Brazilian or Russian economies and the U.S. economy presently. The dips in the U.S. equities continue to be buys, with a special focus on technology and financials, as they will continue to lead the markets forward. ...
THE MOST IMPORTANT CHART FOR 2016 ZENOLYTICS EDITION
Being that there is an abundance of pessimism in today's equity market, it is only natural that we should review the scope of that pessimism relative to the past. The chart below displays the 200 day moving average for the combined put/call ratio only. I have noted previous circumstances of gloom as reflected in a dramatically increased moving average during the calendar year. 2015 marks the fourth greatest increase in the combined put/call ratio since 1996, which is as far back as my put/call ratio chart goes. The other instances of a dramatic increase in the put/call 200 day moving average took place in 2001 (+22%); 2011 (+14%); 2002 (+14%). This year the 200 day moving average of the put/call has increased 10%. In 2001 and 2002 the pessimism was justified coming off the bursting of the technology bubble. We were in a recession. There was a prevalence of systemic risk. The Federal Reserve plunged the liquidity sword deep into the bowels of the economy by taking the Fed Funds rate from 6.5% in 2000 to near 1% in 2003. This is by no means the economy of today. The Fed is confident enough in the economy to be on the path towards a normalization of interest rates. There are no pockets of dramatic overvaluation. There is no extension of balance sheets into the stratosphere. The consumer has not concentrated assets in any particular class, as they are still afraid of purchasing real estate and think by touching stocks they will get contract AIDS. In the meantime technology has recaptured its spot at the top of the market food chain. For the time being, mega-cap technology is creating a disproportionate amount of the gains in the Nasdaq Composite and Nasdaq 100. As investors become less fearful of every dark shadow they will inevitably open up to opportunistic investments with greater upside causing the market breadth groupies to squirm back into their respective holes. Financials also have stable footing going forward as earnings growth within an increasing rate environment should drive share prices higher over time. Large financial companies have been hell bent on keeping their balance sheets conservative leaving room for increasing earnings growth as confidence prevails. There are a ton of other factors. I've discussed them before and will continue to discuss them in the months ahead. Secular bull markets don't top on fundamentals, but rather when psychology reaches a euphoric tipping point. There is only misery in this bull market and that's a great thing. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information...
5 CHARTS REVEALING THE HOW AND WHY OF A RALLY TO NEW HIGHS INTO YEAR END
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4 CHARTS DEMONSTRATING BOTH DESPONDENCY AND HOPE FOR THE WEEK AHEAD
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5 CHARTS DEMONSTRATING A MARKET THAT IS GETTING READY TO RIP DURING THE SECOND HALF OF THE YEAR
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5 CHARTS REVEALING THE DIARY OF AN ODD MARKET
By no means should this current market be considered sane. In fact, it is quite odd. It is odd because following a relatively strong year for the major averages in 2014, January is off to a completely nauseating start. According to well substantiated Wall Street lore, January is supposed to be a time of minting money following strong performance in the previous year. If January continues at its current pace, it will mark the second year in a row that Wall Street has been thrown a screw ball instead of a slow pitch in January. While last year's malfeasance during the month proved to be benign in nature, there is a substantial possibility that this January has much more nefarious intentions in mind. Allow me to demonstrate via the following 5 charts: click chart to...