Bearish Information

[LargoWinch]

Re: Bearish Information Is the bear market over?

I remain ~50% positioned to gain from equity market strength, but I have no conviction that I shall make any money.

That is why you are our warrior out there Jim!

A 50% long bet on selected equities? That is quite "gutsy" to say the least. I hope all will go well for you.

As for me, I keep adding to my cash position, (over 55% now - see my post soon under your thread) that despite my long investment horizon of 30+ years. I simply cannot find any value in this market...

[Jim Nickerson]

Re: Bearish Information Is the bear market over?

Thank you Jim, I appreciate your insight. I enjoy reviewing your allocation as well as your bearish/bullish threads.



Regarding the above comment, you once told me that "volatility was wearing you down". I could not agree more.

You certainly have balls to trade this market (crowd cheering in the background).

I've not been trading for a while in here, Winch. I'll get around to updating how one ituliper is invested in a while. Mike Burk's, who posts Saturdays on safehaven.com, report today shows the lack of support that the rally from 11/20 has had with regard to some breadth indicators (report not there on safehaven as I write, but should be today). It isn't important whether his call for the market to be down next week turns out correct or not, but I think it's important that there are not significant volumes to support the recent upmoves.

Volatility has "decreased" if one can make that statement based on the absence of 300-point moves in the DJI for 9 days in a row (one day did go to 298.76). Breadth indicators I follow have been overbought and I think are subject to becoming oversold--though that doesn't have to happen for the equity markets to move higher from where they ended 12/12/08.

I remain ~50% positioned to gain from equity market strength, but I have no conviction that I shall make any money.

[LargoWinch]

Re: Bearish Information Is the bear market over?

Thank you Jim, I appreciate your insight. I enjoy reviewing your allocation as well as your bearish/bullish threads.

If my total portfolio loses a bit more, then I am nearing the frame of mind to say screw the markets and get out of them close to entirely.

Regarding the above comment, you once told me that "volatility was wearing you down". I could not agree more.

You certainly have balls to trade this market (crowd cheering in the background).

Re: Bearish Information

I dunno Jim...you must be OK. i'm at the stage it isn't worth getting out

[Basil]

Re: Bearish Information Is the bear market over?

Here's a piece by Peter Brimelow in which he discusses R. Russell's and the Aden sisters' opinions.

http://www.marketwatch.com/news/stor...0D2D427D1DA%7D


The essence of those referenced in the article is all rather bullish, and the piece was put up today, 12/11/08, before the markets headed down and before the Senate failed to come to the rescue of automakers.

To my reckoning, the recent bullish upmove has been stymied, and the markets got overbought regarding breadth, and further I think they will retreat to some level of being oversold, though they do not have to do that.

I think the markets remain too volatile and are very treacherous.

I'm thinking that whenever the bear market is over, articles will be written stating "this bear market will never be over."

The Aden sisters are interesting, and have done well over the years. But they did not get this one right. Hulbert is somewhat disingenuous in how he cites them. I read their entire newsletter the other night. They are hopeful, but also wary, and have in past months mentioned the possibility of going down into the lower 7000s before finding real support.

It is difficult to know which side to be on here. But with most sentiment looking for a strong close and a Santa rally, and blah, blah, blah that will make the market go up, it seems to me that we may be ready for a whole new round of heartbreak. It is nonetheless worth noting that several PM stocks were green today, so if things do turn green next week, they may shine quite bright.

[Jim Nickerson]

Re: Bearish Information Is the bear market over?

Agreed.

What is your view on crude oil Jim? It seems to be a sticky issue (no pun intended) that no one dare to touch... (see GRG55's latest clip in the video section).

Winch, I seldom, though not never, look at videos put up here. I own some USO, currently down 23%, so my money thought it was a buy even when higher, wrong! I also own some refiners that are even worse off. Though I am long some stuff, I have no conviction it will go up more than it has, unless I were to sell it. I am convinced if I sell, things will go up, and were I to buy more long, things will go down, and I cannot place my bets on being seriously short a lot of stuff now--though I opine that for some coming days in here, short may be the way to be positioned.

If my total portfolio loses a bit more, then I am nearing the frame of mind to say screw the markets and get out of them close to entirely.

[LargoWinch]

Re: Bearish Information Is the bear market over?

I'm thinking that whenever the bear market is over, articles will be written stating "this bear market will never be over."

Agreed.

What is your view on crude oil Jim? It seems to be a sticky issue (no pun intended) that no one dare to touch... (see GRG55's latest clip in the video section).

[Jim Nickerson]

Re: Bearish Information Is the bear market over?

Here's a piece by Peter Brimelow in which he discusses R. Russell's and the Aden sisters' opinions.

http://www.marketwatch.com/news/stor...0D2D427D1DA%7D


The essence of those referenced in the article is all rather bullish, and the piece was put up today, 12/11/08, before the markets headed down and before the Senate failed to come to the rescue of automakers.

To my reckoning, the recent bullish upmove has been stymied, and the markets got overbought regarding breadth, and further I think they will retreat to some level of being oversold, though they do not have to do that.

I think the markets remain too volatile and are very treacherous.

I'm thinking that whenever the bear market is over, articles will be written stating "this bear market will never be over."

[Jim Nickerson]

Re: Bearish Information

From Abelson, Barron's 10/11/08 [subscription] http://online.barrons.com/article/SB...olumns&page=sp

One of these stalwart seers is Albert Edwards, of Société Générale. Albert has been predicting an investment "Ice Age" for what seems like an ice age, complete with a brutal recession and a stock market collapse to match. In early September, he sounded the alarm on an imminent "meltdown" of the economy and the equity markets (there's an obvious meterological dissonance in a meltdown occurring in an Ice Age, but this is no time to be picky about incompatible metaphors).

Albert's own forebodings so unnerved him that he chose to surrender contented bachelorhood for marital bliss. When he isn't spreading gloom and doom or becoming a groom, he writes a sprightly and incisive global market and economic commentary.

In his latest epistle, he confesses to having been tempted to recommend a bit of buying in expectation of a bounce, but then wisely resisted the temptation because of the increasingly grim economic and profits data.
He doesn't rule out the possibility of a sharp bear-market rally of perhaps as much as 22%, but that would be merely an interruption of the inexorable downtrend that he believes will carry stocks down 70% from their peaks. That means, if he's right, we're not all that much more than halfway through the misery.

Like Albert, Fred Hickey, feisty proprietor of the High-Tech Strategist and valued member of Barron's Roundtable, has been resolutely bearish for quite a spell on the economy, on his special investment turf -- the techs -- and on the market as a whole. Fred's a tough hombre, and he has shrugged off his share of ragging by the abundant population of loud louts during that late and unlamented stretch when euphoria gripped Wall Street and spilled over into Main Street.

Rather than brood, Fred turned his unyielding negative stance to good use by buying puts and selling them, for the most part propitiously, all the while adding to his gold stake. Inevitably, Fred was much too early in his downbeat assessment of stocks like Research in Motion and Apple, and it cost him; but he doughtily kept both in his cross-hairs and has reaped the handsome rewards when the two erstwhile highfliers went down like a stone in this year's cataclysmic crash.

We chatted with Fred late last week, and he was resolute that we were on a collision course with a classic capitulation that might see a four-digit drop in the Dow -- which came perilously close on Thursday -- that would likely create a short-term market bottom that could hold at least for a few months.

[Jim Nickerson]

Re: Bearish Information

I'm surprised that you follow Hulbert. I remember his writing back in 2007 and he sounded like permabull. Now he sounds like permabear. Maybe he should be considered a contrarian indicator?

Regarding Swenlin, he issued a bottom call on 9/19 to reverse it now on 10/3. I don't know him enough to trust him.

I would pay more attention to Faber as his track record is amazingly accurate (maybe except for being a bit early in his predictions). He sees no end in sight for the bear market. But even then he sees a powerful (10-20%) bear rally till 2009:
http://www.nakedcapitalism.com/2008/...lan-likes.html

It my opinion that Hulbert looks at a lot of things by virtue of the data he collects that other "pundits" cannot address. I find much of what he gets posted that's free to me to be interesting. I don't make any market decisions based on his writing, but often what he puts forth either confirms or doesn't the feelings I have about where the market might be going.

Swenlin puts up some sort of comment about every two weeks and as I've written I think he is objective about what he puts up.

From http://www.decisionpoint.com/ChartSp...19_bottom.html he wrote:

Our indicators and price action suggest strongly that we are beginning a rally that should last at least a couple of weeks. I also think that this week's deep low needs to be retested, and I am not convinced that a retest will be successful. My cycle work projects that a 9-Month Cycle low is due at the end of October -- about the time a retest would take place -- and cycle forces could take us to a new price low.

Bottom Line: While we continued to be buffeted by one crisis after another, the best thing we can do is "stay on instruments" (keep our eyes on the charts). At present, the charts say the rally is likely to continue, albeit not at the current rate of climb. At the end of the day, we are still in a bear market, and we should expect that the rally will fail before prices can break out of the major declining trend channel.

My Emphasis.

I think Swenlin's disclaimer that has appeared on every note he has written is worth everyone's remembering when anyone makes predictions whether using technical analysis or any other methods.

Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.

I haven't seen anyone make calls that are always correct; it doesn't happen.

Perhaps better judgement on Swenlin's part would have led to leaving out "strongly" in the first paragraph.

As far as trust, I don't trust anyone as having the capability to tell me how I should invest my money, so that I never lose any of it.

[friendly_jacek]

Re: Bearish Information Re. Short term bounce.

He still made the best call last Fall as far as the markets topping out.

That call was not difficult. A lot of analysts made that call. Our EJ made that call in July 07 and iterated in Dec 07.
Even I figured out easily that 2007 was a topping year. Now, how much money I made from that is a whole different issue though that deals with nerves of steel and big cojones (or lack thereof).

[friendly_jacek]

Re: Bearish Information

I'm surprised that you follow Hulbert. I remember his writing back in 2007 and he sounded like permabull. Now he sounds like permabear. Maybe he should be considered a contrarian indicator?

Regarding Swenlin, he issued a bottom call on 9/19 to reverse it now on 10/3. I don't know him enough to trust him.

I would pay more attention to Faber as his track record is amazingly accurate (maybe except for being a bit early in his predictions). He sees no end in sight for the bear market. But even then he sees a powerful (10-20%) bear rally till 2009:
http://www.nakedcapitalism.com/2008/...lan-likes.html

[Jim Nickerson]

Re: Bearish Information Re. Short term bounce.

Here is a bit of manna for all you technical analytical buffs, of which I am one, with regard to possible short and intermediate termed equity market moves. http://www.safehaven.com/article-11459.htm by Mike Burk.

He discusses an indicator and concludes with the second paragrah below.

The good news is:
• We are probably near a tradable rally.


Every time the indicator has hit an extreme near its level of last Monday there has been a short rally and a lower index low, usually about 6 weeks later.

Intermediate Term
Last Monday there were 1170 new lows on the NYSE and 593 on the NASDAQ. On Friday as all of the major indices were hitting new lows the number of new lows had fallen to 678 on the NYSE and 398 on the NASDAQ. Any of those numbers is high enough to imply a high likelihood of a retest.

Money supply (M2)
The chart below was provided by Gordon Harms. The headlines tell us that central banks world wide have been dumping large amounts of money into the system yet it has not appeared in M2.

Conclusion
The market is oversold and due for a relief rally which should be followed by a retest of last Friday's lows or lower lows reached early next week.
I expect the major indices to be higher on Friday October 10 than they were on Friday October 3.

I wouldn't get too wrapped up in his weekly calls being correct; some are and some aren't. He still made the best call last Fall as far as the markets topping out.

For me to make sense out of his Conclusion, I think " next " should have been written as "last."

[Jim Nickerson]

Re: Bearish Information Re: Lack of Capitulation

Hulbert 10:55PM Monday after 700+point DJI drop.

http://www.marketwatch.com/news/stor...DAE7EBF6298%7D



Sentiment data I follow also suggest that the degree of bearishness in the AAII and II sentiment polls (for last week) were not more bearish than earlier this year when markets were higher (at their then bear market lows) in March and July. I glean the same from the put/call ratios I follow.

I got an email last night from a guy who was panicked. I expect whatever panic he had at the close on Monday was significantly assuaged by the close today. Had today been another down day half as bad as Monday, many people still long (while wishing severely they weren't) would be closer to the point of thinking "I cannot stand this anymore, calling my broker and telling him to get me out."

Personally, I don't think the final bottoms in the equity markets are in place, but that is purely my opinion that governs my being in mostly cash.

Were I truly convinced that the market had to go lower, I would be positioned to profit from that, but the volatility is too much and changing directions too quickly.

I believe Hulbert's 4-bullet points are valid observations in signifying the lack of capitulation amongst individuals supposedly smart enough to run newsletters.

The sentiment data are in for last week's AAII and for probably the weekending 9/26/08 for II. Despite the SPX being 140-160 points lower than at the last nadirs of bullish sentiment in the two polls mentioned, they both show more bulls and and fewer bears than in mid-July to early August.

I mentioned the failure so far for put/call ratios and call sentiment as reflected in the ISE sentiment indicator ( http://www.ise.com/WebForm/viewPage....rue&menu0=true ), which follows net calls of small investors, to reflect the fear generally shown near market troughs to fellow iTuliper jk . He "wondered" if it might not be a reflection of the ban on short-selling of the various 800 stocks that have fell under that rule. That might suffice to explain the lack of bearishness reflected in these data. However that would not explain the similar lack of bearishness reflected thus far in the II and AAII data--though this coming weeks's reports may show some significant fear as they would reflect this weeks very shart losses.

Here is an exerpt from Carl Swenlin discussing are the current conditions a "Buying Opportunity?" from 10/3/2008 http://www.decisionpoint.com/ChartSp...003_value.html

In my September 19 article I said: "Our indicators and price action suggest strongly that we are beginning a rally that should last at least a couple of weeks. I also think that this week's deep low needs to be retested, and I am not convinced that a retest will be successful." As it turned out, there was no rally and the expected retest and failure encompassed one of the worst one-day declines in history.

From top to bottom the S&P 500 Index has dropped nearly 30%, but as usual we can't turn on financial news without hearing somebody assert that this is now the "buying opportunity of a lifetime". I wish it were, but in my opinion it is not. For it to be that great a buying opportunity stocks would have to have extraordinary fundamental value, and that kind of condition has not existed for over 20 years.

Based upon 2008 Q2 GAAP earnings the P/E of the S&P 500 is about 21, which puts it slightly above the normal P/E range of 10 to 20, meaning that stocks are very overvalued (the exact opposite of being a bargain). To demonstrate, the chart below displays the S&P 500 in relation to its normal P/E range going back to 1925. The S&P 500 is the heavy black line, the red line shows where the S&P 500 would be if it had a P/E of 20 (overvalued), the blue line is if the P/E were 15 (fair value), and the green line represents a P/E of 10 (undervalued).

I have applied red arrows to identify the periods where stocks were truly undervalued, sometimes mouth-wateringly so -- truly buying opportunities of a lifetime. As you can see, current prices are very overvalued, and possibly near the selling opportunity of a lifetime. To those who think this is the time to buy, I must ask, based upon what? Clearly, prices can rise even when stocks are overvalued, but current economic fundamentals makes that outcome a long shot.





As for our market outlook, the next chart puts the decline in perspective. Prices are deeply oversold, as are many of our technical indicators, so it is reasonable to expect a rally to clear this condition; however, we are in a bear market, and I have no reason to believe that the recent lows are the final bear market lows. There is a 9-Month Cycle trough due around October 22, and it is possible that it arrived early at the recent lows. Otherwise, we should probably look for a bounce followed by a retest of the lows in late-October.





My view of the financial crisis is that it is going to last a long time, and that there will be no easy fix, even if we had some really smart people trying to solve the problem, which we do not. Three weeks ago most congress persons had no more awareness of the problems we are facing than the man on the street. How much confidence do you have that the very people who caused the problem are suddenly going to become smart enough to fix it? In my opinion, they are only going to make it worse.

Bottom Line: Stocks are way overvalued and the economic outlook is dismal. The only long exposure that should be considered is on a short-term basis when the inevitable bear market rallies occur.

I emphasized the bold red because I agree with it.

I emphasized the bold blue, because the breadth indicators I follow also show a very oversold market in equities (these indicators can get more oversold), but at some point my opinion is the equity markets have to bounce.

[Jim Nickerson]

Re: Bearish Information Re: Lack of Capitulation

Hulbert 10:55PM Monday after 700+point DJI drop.

http://www.marketwatch.com/news/stor...DAE7EBF6298%7D

ANNANDALE, Va. (MarketWatch) -- Nine-tenths of one percentage point.


That is the sum total of how much the average short-term stock market timer lowered his recommended stock market exposure in the wake of Monday's record-setting stock market plunge.

Therein lies a tale that is not encouraging.

Let me start by reviewing the data.

The Hulbert Stock Newsletter Sentiment Index (HSNSI) represents the average recommended stock market exposure among a subset of short-term market timing newsletters tracked by the Hulbert Financial Digest. As of Monday evening, the HSNSI stood at minus 36.1%.

As of Friday night, in contrast, the HSNSI stood at minus 35.2%.
So despite a 7.0% drop in the Dow Jones Industrial Average ($INDU: Dow Jones Industrial Average $INDU 10,850.66, +485.21, +4.7%) and an 8.8% drop in the S&P 500 index (SPX 1,164.74, +58.32, +5.3%) , with this latter loss the biggest ever for this index except for the 1987 crash, the HSNSI barely moved.


The reason this is not an encouraging turn of events: We're not seeing capitulation. As contrarians remind us, major market bottoms typically are accompanied by sheer panic.

At such times, investors want out, no matter what the cost. They have no time for a rational discussion of the pros and cons of investing in the stock market. They instead are consumed by their emotions; terror is a good description of their frame of mind.




Contrast this picture of capitulation with the comments we read Monday evening in some of the emails sent to subscribers from the editors of some of the market timing newsletters we receive.

• "I think we are close to a bottom."
• "I missed this down move, but it's a bit late to go bearish."
• "So far, it still looks like a bottom."
• A tanking market will force [Congressional] action. [Here are] stocks for the snap-back rally."

In a full-scale capitulation, these are not the kind of comments that we'd be seeing.

To be sure, the HSNSI is significantly negative, at minus 36.1%. And if the only data point we had to work with was the HSNSI's current level, contrarians would have to conclude that it is bullish.

But we have more than one data point. One particularly telling one is where the HSNSI stood in early July. It got as low as minus 42.9% then, or more than six percentage points lower than where it stands today.
This means that the average short-term market timer was more scared then.

If this bear market ends in the way that contrarians believe it will, fear and panic will be at their most extreme levels at the bottom.

What about the CBOE's Volatility Index VIX 39.39, -7.33, -15.7%) ? It skyrocketed Monday, closing at 46.72, close to an all-time high for this index. The VIX is often referred to as an investor fear gauge, so this indicator might be interpreted as supporting the notion that a bottom was seen Monday.

I wish I could be more confident, however. In econometric tests of the VIX versus other sentiment measures such as the HSNSI, the VIX consistently came up short. So I am not inclined to put too much weight on the VIX's otherwise stunning rise.

Note carefully that in those econometric tests that I ran on various sentiment indicators, the HSNSI had its greatest forecasting power at the 3-month horizon. That suggests that the discouragement that contrarians are feeling right now has relatively short-term market significance.

The bottom line? A powerful snap-back rally is of course possible, but -- at least on the basis of newsletter sentiment -- that rally doesn't appear likely to be any more successful than the other bear-market corrections that the market has experienced over the past year.

Sentiment data I follow also suggest that the degree of bearishness in the AAII and II sentiment polls (for last week) were not more bearish than earlier this year when markets were higher (at their then bear market lows) in March and July. I glean the same from the put/call ratios I follow.

I got an email last night from a guy who was panicked. I expect whatever panic he had at the close on Monday was significantly assuaged by the close today. Had today been another down day half as bad as Monday, many people still long (while wishing severely they weren't) would be closer to the point of thinking "I cannot stand this anymore, calling my broker and telling him to get me out."

Personally, I don't think the final bottoms in the equity markets are in place, but that is purely my opinion that governs my being in mostly cash.

Were I truly convinced that the market had to go lower, I would be positioned to profit from that, but the volatility is too much and changing directions too quickly.

I believe Hulbert's 4-bullet points are valid observations in signifying the lack of capitulation amongst individuals supposedly smart enough to run newsletters.