I'm going to try to post weekly updates on Monday or Tuesday. My updates will be based on my research and take on the financial markets. I was considering doing my own "weekly financial market update thread" but since someone started this thread for 2016, I'll post here for now:
My current take on the market is that it is on what I call a sell signal. I know, stunning technical lingo there.
Quite simply, I'm seeing negatives across the board on the indicators.
I've been on this sell signal and hence, my trading accounts have been in cash, since around December 10.
There has been virtually no accumulation in the markets since then save some weak, low volume attempts at bounces.
This market is currently dominated by distribution days ( down days on heavier volume than any preceding up days)
The Dow is off about 1350 points since the sell signal.
You may think the decline has been alot and it’s a good time to buy, but it will probably only be a technical bounce and not a fundamental (valuation) bounce. Technical bounces ( dead cat) always happen, but buyer beware.
A few fun facts:
It's always constructive to analyze several market indexes as opposed to just the DJIA to get a good idea of the internals and true health of the market. So let's:
The value line index which is a good representative of whole stock market is down 20%. This index is already in a bear market as the official definition of a bear market is one which is down 20% or more.
The new NYSE is coming down to correction lows and actually starting to pierce them.
The new NYSE index is coming down to correction lows:
http://www.marketwatch.com/investing/index/nya/charts
I’m hoping for a repeat of 2010 or 2011 where the market attempted to rally a few times then kept testing the lows. In both of these years, the market went through a somewhat scary correction in the latter half of the year. A few times when it tried to go back up, it would fall again, almost testing the lows and eventually, the markets recovered and went higher continuing the multi year bull market. However, in both of those years, if you'll remember, QE operations were in full force by the fed to prop up the market and continue its advance.
In 2015 and now, we do not have QE operations. We have, basically, the opposite : Fed tightening. More on that below.
More tell tale signs of potential financial woe: Big down week on the nasdaq last week. we have to look at this as what I’d call a broken “right side” meaning the chart of the nasdaq was trying to set up constructively, but has , at this point, failed.
The S&P 500 is coming into some support levels and has held up a bit better than some of the other indexes I've mentioned. It’s about to test it’s support levels of the big correction that happened late fall of last year. Always remember though, a support level can be pierced so quickly and brutally you wouldn’t believe it….aka 87 crash.
The good news: have not had a bear market in 60 years without an inverted yield curve. An inverted yield curve being where the , 1 year rate on treasuries is above the 10 year treasury bond rate.
There is no inverted yield curve at the present not yet at least.
However, interest rates are artificially suppressed now due to QE. I think we WOULD have an inverted yield curve without these QE operations ( money pumping into the markets and economy).
SENTIMENT (bulls/bears) is a good way to measure where we may be in a correction or a rally. It's a ratio of how many investment advisors are bulls to how many are bears. Currently, it's a bit bearish, but perhaps not “bearish enough” certainly not where we’ve seen it in stock market bottoms. Historically, when sentiment gets to extreme bearish levels, bear markets or big corrections are often reaching a bottom.
There are a few things that are arguing for a recession possibility. The ECRI weekly leading index is below the zero base line. If it gets near -10 we’d be at recession territory.
Industrial production year over year number: We never see a recession without this number going negative. It just went negative on the last report for the first time in many years. The next report on this number comes out Friday. We’ll see if the negative trend ( increasing ) continues in this important economic gauge.
We haven’t had a bear market in quite some time (2008). The good news is alot of this correction may have already taken place. Or this could be a ‘rotational correction’ meaning big money is just moving from certain sectors to others.
These are the Conditions for a Major Bear Market. Usually at least two or more of these are present before we enter a recession and "bear Market"
* Extreme deflation
* Rising inflation
* Inverted yield curve - fed tightening
* Overvaluation
All we have now is the fed tightening. The other criteria are (thankfully ) not being met. I'll repeat the possibility of this being an ‘artificial yield curve’ due to the massive QE we've seen since the meltdown in 2008/09.
Summary
No stock set ups: stocks are not creating constructive 'patterns' which is what technical traders use to buy stock breakouts.
Cash is king! : I think trying to catch a falling knife could get you cut if you're a stock trader. Long term investing in mutual
funds is most likely fine if you've got decades before retirement.
Fed tightening: See above