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Back in April and May, it looked like the economy was falling apart, the euro was going to come unglued, and stocks were going to plunge. Sentiment was extremely bearish and volatility was jumping. Now in August, you can’t find a bear anywhere on Wall Street! Me? I continue to be worried about the likelihood of a sharp market decline this fall for several reasons which I share with you below. Words: 495
So says Mike Larson (www.moneyandmarkets.com) in edited excerpts from his original article*.
Larson goes on to say, in part: According to the new party line, the economy is back on track, the European debt crisis has been deftly handled by a couple of ECB and EU policymakers, and stocks are set to soar to infinity and beyond! A key measure of investor fear and market volatility — the VIX — just sank to the lowest level in five years! The Dow Jones Transportation Average Index [That being said,] have you checked out the activity in the Dow Jones Transportation Average? The average tracks the performance of “real economy” stocks like truckers, shippers, railroads, and more. You can see in the chart below that it topped out in March and has made a series of lower highs ever since then.
If you’re a bull, that’s not what you want to see. You want to see the Transports “confirm” any high in the Dow Industrials. So far it’s not happening. The Russell 2000 Index How about the Russell 2000 Index? It’s a benchmark for smaller capitalization, more domestically focused stocks. I keep hearing about how the U.S. economy is supposedly doing better…but if that’s the case, why is the Russell lagging the advance in the Dow Industrials or the S&P 500? Why isn’t it rocking and rolling? That’s another divergence that calls into question the recent rally.
Industrial Metals Then there are other indicators of global economic activity…like charts of key industrial metals such as copper, zinc, and aluminum. These metals were barely able to pick themselves off the mat in June and July – and now their charts are rolling over again. The Baltic Dry Index The Baltic Dry Index, a benchmark for global freight shipping rates. It tends to rise and fall with economic expansions and contractions. As you can see below, after a brief rise in the spring, the index is rolling over again. It’s closing in on February’s low, which itself was the worst reading since the 2008 depths of the Great Recession!
My Conclusion I’m a flexible guy. You have to be in this kind of market environment. If the latest actions by the Europeans and the U.S. Fed do somehow manage to re-inflate equities, commodities, and the like, I’ll play along for a while with investments to ride that rally…. The market signals I follow…,however, suggest this move isn’t all it’s cracked up to be. If anything, it’s at increasing risk of falling apart in the coming weeks.
*http://www.moneyandmarkets.com/3-things-to-watch-for-as-we-head-into-the-fall-50302 (To access the above article please copy the URL and paste it into your browser.)
Related Articles: 1. Marc Faber: We Could Have a Crash Like in 1987 This Fall! Here’s Why
Marc Faber has stated in an interview* on Bloomberg Television that “I think the market will have difficulties to move up strongly unless we have a massive QE3 (something Faber thinks would “definitely occur” if the S&P 500 dropped another 100 to 150 points. If it bounces back to 1,400, he said, the Fed will probably wait to see how the economy develops)….. If the market makes a new high, it will be with very few stocks pushing up and the majority of stocks having already rolled over….If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.” Words: 708 2. Goldman Sachs’ Leading Indicators Signal Steep Market Crash Ahead
Goldman Sachs reports their Global Economic Indicators (GLI) show the world has re-entered a contraction and…is predicting a market crash worse than that of the early 90′s recession and one slightly less than the sell-off at the turn of the millennium. [Below are graphs to support their contentions.] Words: 250 3. Harry Dent Sees Dow 3,000; Seth Masters Sees Dow 20,000! Who’s Most Likely Right?
Harry Dent, the financial newsletter writer and CEO of economic forecasting firm HS Dent, has one of the most bearish calls on stocks we’ve heard in a while. Appearing on CNBC yesterday, Dent explained the demographics-driven thesis behind his Dow 3000 call. 4. Charles Nenner: Dow to Peak in 2012 and Then Decline to 5,000!
Charles Nenner has been accurately predicting movements in the liquid markets for more than 25 years, and his most recent cycle analysis predicts that the current stock market rally is going to last through Q2 and then begin a major descent in 2013 – with the Dow eventually reaching 5,000! Read on to learn how Nenner’s unique system works and what he forecasts for commodities, currencies, bonds, interest rates and more. Words: 400 5. Fractal Analysis Suggests Dow Could Drop to 6,000 in 2012 and Gold Take Off Like In 1979
6. Ignore Guru Opinions: 66% Get It WRONG More Than 50% of the Time! Here’s How They Compare
Can experts, whether self-proclaimed or endorsed by others (publications), provide reliable stock market timing guidance? Do some experts clearly show better intuition about overall market direction than others? [NO is the answer to the first question and YES to the second. Let us explain how we came to those conclusions.] Words: 360 7. Black-Scholes “Volatility Smile” Suggests S&P 500 Could End 2012 15% Higher – Here’s Why
According to all sorts of financial media, the end of the fiscal world as we know it is about to occur. All rational individuals surely would come to the same conclusion, right? Wrong! For the past 3 years, the “world has been ending” according to nearly every publication. The market however, simply does not agree with this prognosis. Throughout the past 3 years, despite the negative headlines, the markets have rallied over 50% in wave after wave of briefly interrupted momentum. Given this continuous counter-intuitive bullish onslaught, and according to the volatility smile and the current positioning of money in the options market, I believe it is entirely possible for the S&P 500 to end the year…up 15% from its current price. [Let me explain.] Words: 829 8. Fitzpatrick: Consumer Confidence Double-Top Suggests Stocks Could Plunge
Looking at the charts we…[see] a very strong double-top formation – very similar to what we saw back in 1980….[which suggests] that we are headed all the way back down again, possibly even to the lows that we saw in 2011….This is likely to weigh on equities. Words: 291 9. The Bulls vs. the Bears: Which Direction are Stock Prices Going?
We are continuing to see ongoing pessimism among individual investors about the short-term direction of stock prices [but if you are a contrarian you should bet on a continued rise in stocks despite the continued sense of unease. Let’s take a look at a few charts that tell the story.] Words: 510 10. CITI’s “Investment Clock” Is at 8 O’clock – Here’s What That Means
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