“[M] day job for the last almost 30 years has been to look at money managers, who usually have a model that looks at past performance and projects it into the future. Every hypothetical performance model I have ever seen looked absolutely awesome. I can’t say that I’ve seen a thousand of them, but it is not an exaggeration to say that I’ve seen more than a few hundred… well, maybe many hundreds. And then I have observed the performance of those models after I have seen them. Bluntly, it makes me skeptical of all models—including the ones that I build myself.” John Mauldin
Risk: The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don’t trade. (Jesse’s Americain)
Quarter-end rallies occur due to the “window-dressing” activities of fund managers. If the rallies are needed but don’t materialize that means there will be unfulfilled selling that will spill into the early part of the next month. (derived from John Thomas)
Valuing the U.S. Stock Market (Dan Ferris, 12% Letter):
There are three ways to think about the valuation of the stock market as a whole.
The first is by price-to-earnings ratios. The stock market doesn’t get super-cheap until the whole thing is trading for well under 10 times earnings. Major stock market bottoms occur when the whole market is around seven times earnings.
Right now (July 6/ 2011), the entire stock market is around 18 times earnings. That’s not super-expensive, but it’s not anywhere near cheap.
The second way to think about the overall stock market is to check the overall dividend yield. Right now, it’s 1.8%. Stocks aren’t truly cheap until it’s around 5% or more, so stocks are expensive by this measure, too.
Finally, there’s the ratio of the stock market to the overall economy, as measured by GDP. The market isn’t really cheap unless it’s below 80% of GDP. Right now, the overall stock market is worth around $16.9 trillion. GDP is around $15.02 trillion. So the stock market is around 112% of GDP.
Bull Market (Recovery) Phases:
Looking at what sectors are thriving can tell us where we are in bull bear cycle.
Here’s a simple list of the phases of the cycle. We can follow along with the industry sectors that tend to do better during those times…
The False Breakout: This occurs in a maturing trend. Prices consolidate, but with one last push they break out. Within 3-4 days the breakout fails. Prices reverse (Smith Barney, Technical Focus).
Trading and Scalping: (by me) Money flow indices (Chaikin Money Flow and Money Flow Index) come off peaks, confirmed by MACD crossover is a sell signal and vice versa. Accumulation and Distribution does not have to confirm.
Following the trend of the spread of emerging-market corporate bonds: Inside the bond market, whose expertise do we find particularly valuable to track? The emerging-market traders. That’s where the best opportunities are… and where you’ll find the smartest investors. … We specifically track bond buyers trading emerging market corporate industrial bonds. … We use a basket of industrial-oriented companies because their bonds are widely traded, their businesses are well understood, and their numbers are typically clear and easy to compare with similar businesses. … We use emerging markets because we’ve found they’re the best indicators of value across the world’s markets. When these bonds become attractive, you’ll almost always find great value around the world. When these bonds become expensive, you likely find little opportunity anywhere else either. … You value emerging-market bonds by comparing their yields to U.S. Treasury bonds of a similar duration. (This) is frequently expressed only as a “spread” – meaning the difference in yields between emerging makers and the U.S. Treasury. … (The trick is:) They tend to trend strongly – either narrowing (becoming more expensive) or widening (becoming cheaper.) Markets around the world tend to be bullish when the spread is trending lower, (and) bearish (as) emerging-market bond spreads increase. Stansberry Research
SIA Black List: (We track companies) with more than $10 billion in market cap. And we define an “outrageous price” as more than 10 times sales. … We don’t count every company in this list. We exclude certain businesses you would normally value solely based on assets. … We track the total number of companies that fit the “10 and 10” criteria each month. … When the market is attractive or near a bottom, you’ll typically find almost no companies on this list. At the bottom in October 2002, for example, only three stocks made the list. And at the bottom in March 2009, it was a list of one. … On the other hand, when the number of stocks on the 10-and-10 list rises to more than a dozen, investors have begun to lose their minds. … At the last stock market peak (October 2007), we found 14 stocks on our list. … (Also,) looking back at the list we had at the October 2007 peak, any one of those 14 companies proved to be an excellent candidate for shorting. A year later, they were all lower. The average fall was 45%. Stansberry Research
Peter Schiff was right to call for the 2008/2009 crisis, but lost his clients money in 2008 anticipating inflation.
Sy Harding’s Seasonal Timing Strategy (STS) calls for a sell signal on April 20 if the MACD is on a sell signal already, or as soon after April 20 as the MACD gives a sell signal. It calls for a similar buy signal in the fall.
Elliott Wave Gold Update XXIII
Alf Field (retired) – Jim Sinclair is on board with these targets.
- Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
- Major TWO down from $1015 to $699, say $700 (a decline of 31%);
- Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
- Major FOUR down from $3,500 to $2,500 (a 29% decline);
- Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)
Market Tops and Best of Breed (or, They’re Shooting All the Generals):
… Benchmark stocks for the leading sectors; the companies traders call “the generals”. … Goldman Sacks (GS), Apple (AAPL), Freeport McMoRan (FCX), and Google (GOOG) … the financials ETF (XLF). … When the charts for the stock prices of the best run companies in the most profitable industries are rolling over like the Bismarck, you know that it is time to bail out. … John Thomas
Since 1987, circuit breaker levels for the Dow Jones Industrial Average (DJIA) which determine how far the market has to fall to halt trading activity are set at 10%, 20% and 30%. Current DJIA circuit breaker levels for the 4th quarter 2009 are as follows:
Level 1 Halt
Requires a 950-point drop in the DJIA before 2 p.m. and will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later unless there is a level 2 halt.
Level 2 Halt
A 1,950-point drop in the DJIA before 1:00 p.m. will halt trading for two hours; for one hour if between 1:00 p.m. and 2:00 p.m.; and for the remainder of the day if at 2:00 p.m. or later.
Level 3 Halt
A 2,900-point drop will halt trading for the remainder of the day regardless of when the decline occurs.