In a previous post, I had addressed the technical issues of why I believe the market has about 14-18% more room to go up before we see another correction. Now I would like to address the fundamental characteristics. Everyone is looking at their calendars, its May. They are looking at their charts seeing the indexes scraping the roof. They are scratching their heads and wondering when there will be a 10% correction. Even notable bloggers like www.tradertim.blogspot.com are flogging themselves wondering why they cant make money on the IWM puts nowadays. Behind the scenes, brokerages like TDAmeritrade are reporting that retail investors are sitting on the sidelines and waiting for what is to come next. Probably a lot of retail traders were ruined during the May 2006 correction and did not want to repeat the episode. (by the way, AMTD will be purchased in the future. notice how its gained 16% since the earnings call?) While I have heard people talk about the stock market, no one here has mentioned the bond market. The only talk about the oil market has been over in the energy futures section. Everyone is constantly talking about getting short and buying puts. When I look at the charts of the ten year yield, it appears to me that this might fall off a cliff pretty soon. I mean, if the yield was to be analyzed like a stock then I would have to say thats a large head and shoulders on the weekly with the target interest rate at 4.1. Then there is the oil market. I was under the impression that oil will probably go much higher from here. I was thinking that this was just a large correction in the course of the macro bull run for oil. However, there was a slight turn of events last week. Oil has retraced exactly 50% of its fall from the Summer of 2006 and now it seems to be turning lower. It did not break through 67 dollars which is a very bearish turn of events. There is a small head and shoulders that is developing and the neckline is about to be broken. As for the puts and short interest, they keep flying off the shelves. The put/call ratios and isee #s illustrate a market in which there is still a lot of bearishness. My point is this. Bull markets are fueled by low interest rates, low oil and bearish spirit. Next week will be a pivotal point. Bernanke's speech will directly effect interest rates. If the ten year yield breaks through 4.6, then the target price for the h/s becomes 4.1 Oil appears to be at a pivotal point too along with the $GPX. If Oil cannot go higher then 67 dollars, then I see it going to 38 dollars in the future. As for the bearishness and puts, its so there as illustrated by the high open put interest for May on the IWM. On messageboards like these, you almost always see inferences to 1999 when the market is gapping up. Its important to note the full extent of the rise back in 1999. The S&P500 had gone up 65% in the course of a year. The Nasdaq100 had gone up over 400% in the course of a year. When looking at today's indexes, the Nasdaq 100 is only up 31% since its low in 2006. The S&P500 is only up 23% since its low in 2006. While these are great numbers, its hardly 1999. China appears to be in a 1999-2000 like bubble. However, you must take into account the key component of the rise, growth. In 1999-2000, I did not quite see the same growth in the United States as I do in China right now. In 1999, I didnt see huge buildings going up and brand new highways paved across the nation. The GDP change in the US in 1999-2000 I believe was anywhere from 4-5%. In China, the numbers are over 10%. Many people, including myself, questioned the rise of Google from the 80s to the current level. We still had the picture of the tech bubble in our head and believed that Google was just another tech bubble. Indeed, I was witness to the old Excite building in Mountain View go from a populated brand new thriving office building to an empty lot with a "for lease" sign hanging out front. You have to ask yourself. Was the United States in the same growth mode as China during the tech bubble? Was Excite in a different growth mode then Google? I guess it was different that time with Google then it was for Excite. I have a famous comparison of American Airlines and Delta. It was 2003, all over CNBC was talk about American Airlines going bankrupt. The stock of the company fell down to 3 dollars. It was pure panic. Then we saw American Airlines skyrocket after that. Then Delta Airlines came along with the same story. Everyone thought it would be no different this time around and piled into the trade. Shortly afterwards Delta announced that it was going bankrupt. Millions of dollars were lost that day amongst traders who thought and believed it wouldnt be different on the second go round. So if your sitting there waiting for the indexes to tank back down because we have hit May, it might be just different this time around. The next large correction in the S&P500 may not be until it strikes 2200. Then that will be the time go short.
I knew google was not a bubble stock and I knew airlines were a buy. I told tradertim months ago the markets would go higher and now he finally concedes he was wrong in spite of all his funny harts and trendlines. About time.
Hi IMO opinion SPX is arrived. We all noted during friday's session a strong reaction when 1510 has been touched. I can imagine a break of 1510 and probably an assault to 1518 but will be hard to see new max before a substantial retracements from actual levels best, PS I attach a daily ES chart with fibo extensions for your consideration......
believe what you want mr scott. #1 put to call overall is not high. yesterday were all .80's which is low and the last 1 mon th its averaged about .085 or so which is not high.you're looking at idnex put to call ratios which are always above 1 #2 total margin has soared to all time highs at $330 billion or so. #3 you're forgetting the market is already at the pt of being 1 of the longest bull markets in history and were at the pt of the longest time ever without a 10% correction. #4 world markets are in parabolic spikes rarely seen in history and could reverse and crash at any pt. #5 the economy is slowing fast and it looks like the last leg of bulls economic argument strong employment has topped#6 mutual fund cash levels are at all time lows at 3.8%#7 the little guys not coming back as most are overleveraged and overextended like never before. the ones that have money are happy getting 6% on a 1 year cd.#8. oil could easily spike to $100 here with any hurricaines or mid east conflict. #8 ITS JUST TIME FOR A CORRECTION AFTER AN ALMOST NONSTOP 2500 PT 9 MONTH RUN . AND MOST IMPORTANTLY ALL THESE BOARDS OF WERE THE MARKETS GOING ARE CLOGGING ET AND GETTING BORING.
Hi John, Let me address the issues you brought up: 1) The put/call ratio is actually pretty high, even at the close on Friday which was .83. Before the 2006 correction, the put call ratio was at times under .7 and sank to as low as .32. Before the February correction, the put/call ratio was down to below .7 in December. During the late 90s and 2000, the put call ratio was never that high getting down to .3 at times. By todays standards, .8 is pretty high. It does appear that the put/call ratio has spent a good amount of time over 1.0 YTD and the ISEE #s hit an all-time history low during the February correction. Those numbers do not indicate a market top, but a market bottom. In 2002, the put/call ratio hit a notable high on October 2002 at 1.36 and then the market rallied for the entire period of 2003. The ISEE#s also hit notable lows. In February, the put/call ratio was at 1.7 and intraday even higher then that. There is no time in the history of the market where the put/call ratio ever got that high. Im looking at the $CPC by the way and use the ISEE for confirmation. 2) As for margin debt, there are many factors and explanations to explain it. First, inflation. Using a simple inflation calculator on the internet, you can see the 273 number in March of 2000 equates to about 313. I am sure this inflation calculator takes into consideration government stated figures. When I go to a McDonalds, it costs me roughly double what it cost me in 2000. A large coffee at a gas station costs $1.50, gas costs over 3 dollars a gallon. Then there are other explanations such as the stock market is larger then when it was in 2000. Simply put, the market is different, its larger, there is more liquidity and just because the margin debt reached a number that was reached in 2000 (7 years ago) does not mean anything. However, I will tell you what is very relevant to the margin debt issue. That is the year over year change. In 2000, the margin debt was 78% greater then it was the year before. Thats a huge increase. In comparison, we are just 24% greater then we were last year. Even large increases in margin debt do not exactly mean the market has topped though. For example, from 1997 to 1998 there was a 40% increase in margin debt. From 2003-2004, a 33% increase. 3) The length of bull run is a non-issue. In July 1982 the S&P 500 was at 107. Five years later, 318. 1992 was 408.14. Five years later 954. In 2000, it topped out at 1500. Thats 20 years of a bull market right there for you. These markets dont have a calendar or a stopwatch. They dont care how long the last bull market was. They will keep running until they decide that they are done. 4) The countries of the world are in a parabolic growth mode not ever seen in history. Let me tell you how bad Russia used to be. My buddy's father was a scientist and they gave him an apartment in a housing project stuffed with many people. The heat worked sporadicly and so did the electric. Sometimes they had to heat the apartment with the shower. Thats what was given to a scientist in the old days of Russia. You have billions of people in the world just waking up to the concept of growth. 5) The United States growth rate does not matter anymore. The world is more concerned with the growth rate of foreign countries. 6) Mutual fund inflows are down 30% from last year. Now does the retail investor sell at market bottoms or do they sell at market tops? When does the retail investors usually throw their money into the market? The answer is that retail investors usually pull their money out at market bottoms and put their money in at market tops. 7) The little guys not coming back is a good sign. They will be back later on when they will be forced into the market because its doing so well. 8) Mid-east conflict is very doubtful. The US Congress will not allow it and will pull funding for it as they are doing now. Oil did not get above 67 dollars a barrel which is a bearish sign. It tells me that this recent oil rally was just a reaction to a big dip like we see in stocks all the time. There is a reaction rally of 50% of the dip and then it continues lower from there In 2000, the Wilshire 5000 hit 14991.68 which was the high for that year. Then it was all down hill from there and since then it has formed a huge cup like structure. Most chartists use these trend channels for the last few years believing that the market will continue up the channel, but what they dont see is the total structure since 2000. One of the reasons why the market corrected in February is because the total market was reaching a resistance point. Now that resistance is broken. What happens to resistance when it is broken? It becomes support. We are now at a market bottom. We are on the new floor. Using formulas for this large 7 year cup that are commonly found on the web, I can tell you that this next bull run will be the following: 14828-7273= 7921 7921+14828= 21735 The Wilshire 5000 target is 21735 before any major correction is likely (or 43% higher from here). For those who scratch your head and wonder why the market isnt following up the same trend channel, you need to set your Wilshire chart back to 2000. Of course, the index is breaking through the trend channels. The market is escaping out of the dreaded cup that its been trapped in for the last 7 years. By the way, believing in a specific time when a index or stock will correct doesnt work. I tried that concept with Mastercard. When it doubled from 40 to 80, I thought no way this could go much higher. Then when it hit 100, I thought it not wise to buy back in because its probably at a top. Then it hit 138 recently. Timing the market is an evil where you will lose money or opportunities in the end. Your opinion on when the market corrects isnt valid. What is valid is the trend. The trend is up and the market is breaking out to new highs. It will probably go much higher from here.
mr scott you believe what you want. the world markets have parabolic growth simply because of never seen before money growth. the growth of the world is an illusion and built on the greatest credit buildup in world history that is one event from a blowup. you say the rest of the world could care less about us growth? ok my friend its still 1/2 the worlds consumption. your arguments are no differnt than i heard screamed in 1999. just like now in 1999 all we heard is things were great as far as the eye could see. oh i guess the pathetic 1.3% gdp or the platry 88k jobs added mean nothing. OH AND WE'LL SAVE THE 50 MILLION UNINSURED AND 25 MILLION ILLEGAL ALIENS WHO'LL DESTROY ARE HEALTH CARE SYSTEM AND COST US TRILLION's OF $'S FOR ANOTHER DAYS DISCUSSION. OH THATS RIGHT CHINA WILL FINANCE IT. ALL IT TAKES IS ONE CHAIN OF EVENTS TO UNRAVEL EVERYTHING. oh yeah if the economy's of the world keep growing like this $150 oil is near
1. The markets are being goosed by "money pump". 2. The markets will continue higher until there is a perception that the money pump is being reigned in... probably from some inflation concern. 3. We will all ultimately be the poorer for it.
I'll leave you guys tonight with these final notes. There are reasons as to why the employment number came in low and here is the main reason. Since the start of the year, my company has been cost cutting. It seems like many of the departments that were populated full of employees seem now at half the 2004-2005 levels. Everything is now being scrutinized on my expense reports. Overtime for non-exempt workers there is now non-existant where as before they were happy to pay 30-50 hours of overtime to anyone who threw it down. You would think this company I work for is having hard times. Actually, quite the opposite. They have been reporting record profits not ever seen before. The reason for the cost cutting is the expectation that something big is about to happen soon so they want to be prepared. Well, when was the last time something happened and you expected it. These companies will start spending again, but they are going to wait until they know what will happen in 2006. They are employing less people now because they want to be prepared. It will pick up again in time. The next week is pivotal because of two factors: 1) Oil 2) Interest rates Both these factors are CRITICAL to the total market. The Fed will make a decision about the interest rates. As for oil, that animal is controlled by an entirely different force. It did not make it over 67 so I can only conclude that the last 3-5 months was a reaction rally. As for hurricanes, storms, outages, middle east conflicts etc. Where are they? The US Congress has made it clear that it will not fund any more middle east wars. So now its only up to one small group of people we call the Fed. Folks, in 2000 we went into the toilet and have been in the toilet until now. That toilet is on the charts. Its a rounded bowl. Now its time to exit out of the toilet and back to business again. Let me also give you this quote that I found dated July 12th, 2002 in a famous blog newsletter. This was written by Adam Hamiliton of the Zeal newsletter: "Bear markets typically evolve in three phases. First, the market declines 20% or so but everyone believes it is just a âcorrectionâ in a primary bullish trend and no one is concerned. Second, as the decline continues, investors on the periphery of the markets (ie, not mainstream long mutual fund holders) gradually grow fearful and selling pressure intensifies. Each successive major rally fails and new interim lows are carved out. Finally, in the horrific capitulation phase, mainstream investors have reached the outer limit of their pain tolerance and patience and clamber to sell at any price and vow to never, ever even think about owning those infernal stocks again." "My guess is that we are well into the second phase now, but I imagine that a flattening or even shrinking broad money supply, which we havenât seen at any time during this bear market bust so far, could make things a whole lot worse in the coming year." S&P500 close as of July 12, 2002= 921.39 S&P500 actual low reached Oct 10, 2002= 768.63 Adam was right only in the short term, the index did move lower. Here is another thing to think about. The AAII sentiment numbers: http://www.aaii.com/ Only 28% are bullish while the majority is bearish and the rest neutral. When has the individual investor ever been right?
Mike, you type too much Up and up and thats where the market is headed Go long on the good stuff GS, AAPL, MA, ...