3 Things Worth Thinking About

3 Things Worth Thing About (Volume 6)
August 28, 2014
By Lance Roberts

(Excerpts from the article are posted below)
The full article can be found at this link
http://bit.ly/1rDS1Jy

THE MISSING INGREDIENT
By the time the markets began to soar in 2007, there was a whole universe of ETF's from which to choose. Once again, the mainstream media pounced on indexing and that "buy and hold" strategies were the only logical way for individuals to invest. Why pay someone to underperform the indexes when they are rising. Then came the crash in 2008.
Today, we are once again becoming inundated with articles bashing financial advisors, money managers, etc. for underperforming the major indexes during the Fed induced market surge. It is once again becoming "apparent" that individuals should only be using low-cost indexing strategies and holding for the "long term." Of course, the next crash hasn't happened yet.
My point here is this. There is a "cost" to chasing "low costs." I do not disagree that costs are an important component of long-term returns; however there are two missing ingredients to all of these articles promoting "buy and hold" index investing: 1) time; and, 2) psychology.

 However, the real goal of any investment advisor should not be to "beat the index" on the way up, but to protect capital on the "way down." It is capital destruction that leads to poor investment decision making, emotionally based financial mistakes and destruction of financial goals. It is also what advisors should be hired for, evaluated on, and ultimately paid for as their real job should be to remove the emotional biases from your portfolio management.

BIGGEST SUPPORT OF THE BULL RUN IS FADING
 No, I am not talking about the inflow of liquidity from the Federal Reserve's ongoing QE program, although it too has been a major source of support for asset prices, but rather the decline in corporate share buybacks.

Share buybacks have grown by $1.56 Trillion since 2011, but those repurchases peaked during the first quarter of this year at 159.28 billion before sliding back to $120.21 billion in Q2. The risk for the markets here is that with the Federal Reserve reducing the flow of cheap liquidity, and potentially raising borrowing costs in 2015, two of the major supports of the markets will be removed.
This will leave the markets depending on the underlying fundamental drivers of the markets which are by no means cheap.

 

THIS WON'T LAST

Both stocks and bonds can not be right. While stocks have risen to new all-time highs in recent days, bond yields have fallen toward the lows of the year. As shown in the chart below, there has historically been a correlation between interest rates and the financial market from a risk on/risk off indication.

It makes some sense given that when the markets have a preference for risk, asset allocations are shifted from bonds to equities and vice versa. As the demand for bonds falls, and the demand for stocks rise, yields rise. However, the current decline in yields, amidst a very low volume ramp-up in stock prices, suggests that the demand for safety is outweighing the demand for risk.
If historical correlations reassert themselves, the deviation between stock prices and bond yields will be corrected and likely not to the favor of the bulls.
Art Cashin summed this concern up well noting that this week is historically a very light trading week with a mild-upward bias. He also noted that the 1929 high was made the day after Labor Day.
"Thin markets can be tricky ... Stay wary, alert and very, very nimble."

 This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

 

Short Term Trend Forecast

Short Term Forecast
The last forecast made on Aug 20th stated:

- Forecast cycle tops and bottoms are (+/-)

1) Bottom Aug 21 +/-
2) Top Aug 22-25 +/-
3) Bottom Sept 3rd +/-     An anniversary date

Following cycles has been good to use as a guide or as a potential future road map, but, other tools must always be used for confirmation of any forecast cycle trends.  

COMMENTS

If you have been following these forecasts, you will know that the Aug 7th +/- forecast low was accurate and a nice rally occurred into the August 12-25 +/- forecast window.  

August 21st +/-  was another forecast low, but, due to the momentum of the rally we only had a mild down day on August 22nd.   The market then resumed the rally into the August 22-25 +/- window.  This is where the market did loose momentum as the cycles suggested.

The next Short Term Forecast date is September 3rd +/-.  Coming up is the Labor Day three day weekend and generally the stock market has been positive going into a Holiday weekend, but, lets see what happens this time with short term cycles pointing down into September 3rd +/-.

UPDATED FORECAST

- Forecast cycle tops and bottoms are (+/-)
1) Bottom Sept 3rd +/-     An anniversary date

2) Top September 15th +/-

Since cycles do not distinguish between trading days and calendar days, the cycle dates may come out on Holidays or weekends.  So the dates suggested that do fall on such days are to be used as a window.   So, as always, other tools must always be used for confirmation of any forecast cycle trends.  All forecast dates will still be noted with a "+/-" because the cycle dates are not always as perfect as we would like them to be.  Although they have been pretty accurate.  

 

Intermediate Term forecast 

The downward pressure of the Intermediate Term Cycles helped the DJIA drop 700 points into the Aug 7th short term forecast date.  From the Aug 7th bottom the market displayed a thrust of momentum that suggests that the market can go higher.  

Intermediate term cycles are currently pointing down into August 2014 - September 2014 +/- and there is another short term bottom forecast on Sept 3rd, although it is probable that the bottom was made on Aug 7th.  The next Intermediate Term Forecast is for a top October 2014 +/-.  A chart was posted on August 24,2014 showing the stock market corrections at the end of QE1 in 2010 and at the end of QE2 in 2011.  The third grey area goes out to October 2014 where the Fed announced the QE tapering should be ending.
Here is another chart showing the same thing...

Is it a coincidence that the QE tapering is scheduled to end in October 2014 and the Intermediate term cycles forecast a top in October 2014 +/- ?

The only fly in the ointment is shown on the chart posted on July 15th titled "2014 January Barometer".  The chart shows weakness going into September 2014.

If any changes are made to the Short Term or Intermediate Term Forecasts, a new posting will be made. 

So keep following JustSignals using Twitter or Follow By Email.   

Just submit your email address in the box on the Blog homepage

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

 

DJIA vs the Fed

StockTiming.com by Marty Chenard

DJI versus the Fed. ...

This is an update of last week's long term DJI picture.   It is worth keeping in mind as the Fed goes all out in trying to make sure QE money is there long enough for the economy to catch on by itself.

Here is the problem:  From a cycle stand point, the DJI is overdue for making a downside move toward its lower (expanding wedge) support.  The Fed is under the belief that they can erase economic ebb and flows by throwing enough money in the mix.

Who knows how long they can pull this off?    At some point, the differential between where the market is and should be will be too wide too hold up.   No one knows where that is at this point, and the Fed thinks that it will never get there.  

This is the predicament the Federal Reserve is in now.   They want to keep pumping in money until the economy can function on its own without QE money, but they are running out of time due to where the DJI is in its cycle.

                        This chart shows the DJI plotted in a semi-log format.

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

Robert Shiller on StreetSmartPost

StreetSmartPost by Sy Harding, with several insightful observations

Why you should not ignore what Shiller is Saying

Saturday, August 23, 11:45 a.m.

Robert Shiller, Nobel laureate in economics, had an article in the New York Times last weekend, and followed it up with an interview on CNBC Tuesday. Some of his comments:

"There’s something bizarre going on."

"The U.S. stock market looks very expensive right now. . . . . . The CAPE 10 P/E ratio is at 25, far above its 20th century average of 15.21, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999, and 2007. Major market drops followed those peaks."

I will interrupt with an observation:

The fact that the current market valuation level was exceeded three times in those extreme bubbles of the last 130 years, has some believing that until overvaluation reaches those extremes again there is little risk.

It might be well to realize that there have been not three, but 25 bear markets over the last 113 years (as far back as my data goes). Their average decline was 36%. The average of the worst ten was 50%.

So the real story is that market valuation is now much higher than at the peak of 22 of the last 25 bear markets. That is, 88% of the time a bear market began with market valuation at the current level or lower. That is almost 9 to 1 odds against higher prices.

Click on the following link to read the full article at StreetSmartPost
http://bit.ly/1wwm4VA

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

Correction or Bear Market ?

This was posted on dshort.com 

By

Also see:

Brad Lamensdorf - Lamensdorf Market Timing Report

"Indicators are Cued Up for a Bear market" 

August 2014 (pdf at link below)

http://bit.ly/YRCXuW

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

Short Term Trend Forecast

Short Term Forecast
The last forecast made on Aug 6th stated:

- Forecast cycle tops and bottoms are (+/-)

1) Bottom August 7th +/-  
2) Top August 12-25 +/-     (This may turn out to be a trading range with a top around Aug12-19 +/- and a bottom around Aug 21 +/- and a final forecast top around Aug 22-25 +/- all within a possible trading range)
3) Bottom September 3rd +/-     A special anniversary date and these type of dates are very interesting to watch.

Following cycles has been good to use as a guide or as a potential future road map, but, other tools must always be used for confirmation of any forecast cycle trends.  

COMMENTS

The Aug 7th forecast low was accurate.  The advance decline oscillator bottomed below -400 and turned up and the volume oscillator was below -100 with rising bottoms.  This is what you would like to see in these indicators at or near a bottom.

The next forecast date is Aug 21st for a forecast low.

UPDATED FORECAST

- Forecast cycle tops and bottoms are (+/-)

1) Bottom Aug 21 +/-
2) Top Aug 22-25 +/-
3) Bottom Sept 3rd +/-     An anniversary date

Since cycles do not distinguish between trading days and calendar days, the cycle dates may come out on Holidays or weekends.  So the dates suggested that do fall on such days are to be used as a window.   So, as always, other tools must always be used for confirmation of any forecast cycle trends.  All forecast dates will still be noted with a "+/-" because the cycle dates are not always as perfect as we would like them to be.  Although they have been pretty accurate.  

  

Intermediate Term forecast 

The downward pressure of the Intermediate Term Cycles helped the DJIA drop 700 points into the Aug 7th short term forecast date.  From the Aug 7th bottom the market displayed a thrust of momentum that suggests that the market can go higher. 

Intermediate term cycles are currently pointing down into August 2014 - September 2014 +/- and there is another short term bottom forecast on Sept 3rd, although it is probable that the bottom was made on Aug 7th.  The next Intermediate Term Forecast is for a top October 2014 +/-.

The only fly in the ointment is shown on the chart posted on July 15th titled "2014 January Barometer".  The chart shows weakness going into September 2014.

If any changes are made to the Short Term or Intermediate Term Forecasts, a new posting will be made. 

So keep following JustSignals using Twitter or Follow By Email.   

Just submit your email address in the box on the Blog homepage

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

Short Term Trend Forecast

The last forecast made on July 21st stated:

- Forecasted cycle tops and bottoms are (+/-)

Top        July 23-26 +/-    (Very accurate forecast !)

Bottom August 7th +/-     (Today is August 6th and as of today the forecasted cycle top of  July 23-26 was perfect and it took advantage of the 700 point drop in the DJIA - Note that this date was originally forecasted in the July 8th blog posting)

Following cycles has been good to use as a guide or as a potential future road map, but, other tools must always be used for confirmation of any forecasted cycle trends. 

UPDATED FORECAST

- Forecasted cycle tops and bottoms are (+/-)

Bottom August 7th +/-
Top August 12-25 +/-     (This may turn out to be a trading range with a top around Aug12-19 +/- and a bottom around Aug 21 +/- and a final forecasted top around Aug 22-25 +/- all within a possible trading range)
Bottom September 3rd +/-     A special anniversary date and these type of dates are very interesting to watch.

Since cycles  cannot distinguish between trading days and calendar days, the cycle dates may come out on Holidays or weekends.  So the dates suggested that do fall on such days are to be used as a window.   So, as always, other tools must always be used for confirmation of any forecasted cycle trends.  All forecasted dates will still be noted with a "+/-" because the cycle dates are not always as perfect as we would like them to be.  Although they have been pretty accurate.  

  

Intermediate Term forecast 

            UPDATED 

So far the downward pressure of the Intermediate Term Cycles have helped the DJIA drop 700 points so far.

Intermediate term cycles are currently pointing down into August 2014 - September 2014 +/-.   

These cycles will continue to be watched for any possible changes in the forecast.   

 

Several of the current posts have hinted that a drop may be occurring 

June 5th - Barron's Confidence Index vs S&P500

July 8th - Advance Decline Oscillator & Volume Oscillator

July 15th - SPY vs the High Low 10DMA

July 15th - January Barometer

July 17th - Risk On Risk Off

So keep following JustSignals using Twitter or Follow By Email.   

Just submit your email address in the box on the Blog homepage

 

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results

Netflix Chart

Netflix Weekly Chart 

 Courtesy of eSignal

In 2012 the green lines indicate a positive divergence.  While price made a lower low the indicator made a higher low.

In 2014 the green lines indicate a negative divergence.  While price is making higher highs the indicator is making lower highs.

This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions. 
Past performance is not indicative of future results.