From the bottom in late March of last year, the U.S. stock market was up nearly 75%. This was the best 12 month return ever recorded since 1950.
Nearly 96% of stocks in the overall U.S. stock market showed positive returns in that time.
It’s highly like we will never experience a 12 month period of returns like that again in our lifetime. For all intents and purposes, the one year period following the bottom of the Corona Crash was the easiest environment in history to make money in the stock market.
If you think this type of market is normal, you’re sorely mistaken. It’s not always going to be this easy.
In fact, the stock market has already stopped being so easy in 2021. While the S&P 500 just hit its 26th new all-time high this year alone (including another new high at the close on Friday), a number of stocks are currently getting crushed.
And it’s not just any stocks; it’s many of the stocks retail investors flocked to last year following the crash:
The idea that we are late in the economic and financial-market cycle is one that even most Wall Street bulls won’t dispute.
After all, when the economic expansion surpasses a decade to become the longest ever and the S&P 500 has delivered a compounded return of nearly 18% a year since March 2009, how can the cycle not be considered pretty mature?
Yet it’s not quite that simple. Huge parts of the economy have run out of sync, at separate speeds. Some indicators have a decidedly “good as it gets” look, others retain a mid-cycle profile — and a few even resemble early parts of a recovery than the end. Friday’s unexpectedly strong November job gain above 200,000 reflects this debate, suggesting we are not at “full employment” even this deep into an expansion.
And the market itself has stalled and retrenched several times along the way, keeping risk appetites tethered and purging or preventing excesses.
In the “late-cycle” category we find several broad, trending data readings: Unemploym
Complex systems are all around us.
By one definition, a complex system is any system that features a large number of interacting components (agents, processes, etc.) whose aggregate activity is nonlinear (not derivable from the summations of the activity of individual components) and typically exhibits hierarchical self-organization under selective pressures.
In today’s infographic from Meraglim we use accumulating snow and an impending avalanche as an example of a complex system – but really, such systems can be found everywhere. Weather is another complex system, and ebb and flow of populations is another example.
Just like in the avalanche example, where various factors at the top of a mountain (accumulating volumes of snow, weather, temperature, geology, gravity, etc.) make up a complex system that is difficult to predict, markets are similarly complex.
In fact, markets meet all the properties of complex systems, as outlined by scientists:
"A lie told often enough becomes the truth" - Vladimir Lenin
Imagine for a minute you lived centuries ago when people believed the earth was flat, or the earth revolved around the sun, or that planets were Gods, or that disease was angry spirits or supernatural powers. You'd have an explanation for everything ... only it would be wrong. And that "wrongness" would stand in the way of true understanding and true progress until they were discarded as falsehoods.
And so it is with the Stock Market. Let me explain.
First, let me be perfectly clear. I'm a statistician so I'm not referring to philosophical or political or gut feelings or anything other than Statistical Misrepresentations. Fact, not opinion.
I can hardly go a day without reading an article or hearing a TV pundit or someone regurgitate misconceptions that are so integrated in our minds ... we believe them to be the truth.
These misconceptions cause us to make investing mistakes because we take them as axiomatic when they are
As technicians battle over whether our "hated" seven year rally still has legs, I continue to return and ask myself "has anything truly blown up?". I do personally believe the US Dollar will continue it strength and that will continue to put pressure on commodities, dividend payers and discretionary. Financials and insurers will push higher. Can the rest of the boat survive? Are earnings guidance showing a 'rosey' picture of the future? Will Trump win? Too many unknowns for me. This post, using monthly charts, brings me back to earth. While I have no need to catch the absolute top, it gives me specific areas which need to be defined. I remain cautious and yes, have numerous short positions as well as longs. That doesn't mean, however, that I'm willing to give up just yet. I hope you enjoy-
While the technicians usually write about the short tem, I want to zoom out a little and use a monthly chart of the New York Composite ($NYA). For those who follow my webinars, we are foll
Election Day in the United States is, at last, almost here. Similar to any other major event, investors will be looking to what effect the presidential election will have on the stock market for the rest of the year and beyond. One way we can predict this movement is to analyze the historical price performance of the S&P 500 and the Dow Jones Industrial Average during past election cycles. Here we'll examine:
During presidential election years going back to 1928, the S&P 500 index has been in the positive 73% of the time (16 out of 22 years). The average price gain of the S&P 500 during election years was 7%, which trailed the 7.
This week’s EVA brings the second edition of our new Random Thoughts format. The goal with this approach is to cover several key, but often unrelated, topics in a quick overview fashion.
In this issue, we are looking at, once again, the powerful financial force known as credit spreads. Fortunately, they are not indicating financial stress at this time. We are also examining the supposed truism that this is one of the most detested bull markets of all time. Then, we wrap up with a look at the Fed’s and Wall Street’s forecasting track record (hint: both make a dart-board look good!).
As always, your feedback is welcomed and appreciated.
When the spread isn’t the thing. One of the themes this newsletter has emphasized most heavily this year has been the importance of the spread—or difference—between government and corporate bond yields. As we have repeatedly cited, when that gap is widening in a pronounced way bad things tend to happen both to the economy and financial
After writing “Here’s The Perfect Metaphor For Recent Fed Policy,” I had to pick up a copy of The Dao of Capital. Mark Spitznagel just has a unique way of looking at the markets that really resonates with me.
One thing that really jumped out at me while reading it was Spitznagel’s research regarding Tobin’s Q, (though he calls it, “The Misesian Stationarity Index”). It struck me for two reasons. First, I haven’t seen much research like this elsewhere and second, the opinions I have seen regarding it are all of a dismissive nature.
Just Google “Tobin’s Q” and you’ll find all sorts of pieces proclaiming, ‘Don’t worry about Tobin’s Q,’ and, ‘Tobin’s Q is not an effective way to time the market,’ etc. Actually, both of these sentiments are incorrect.
Spitznagel’s research published in the book shows investors should be worried about the extreme level of Tobin’s Q today for the simple fact that is a very good way to time the market.
But before I get into that I should probably explain w
While there's been so much 'worrying' over the slowdown in China, the Fed possibly raising rates and energy defaults with the weight on banks, it's still a good idea to remember a stock markets structure; or the steps it takes before a bear market takes place. The basic strategy is to pay close attention during the accumulation and distribution phases as the market shifts from buyers to sellers, or vice versa. Then, by recognizing the markup and decline phases, an investor can be appropriately long or short to make solid returns. Click image to enlarge.
Courtesy of the good folks at VisualCapitalist
Company earnings stumbled? Investors shrugged them off, sending shares higher. Economic growth was disappointing? So what.
But now that is changing.
Consider the recent trading in Apple, the world’s most valuable public company and a certifiable stock market darling. Apple announced third-quarter results on July 21 that were “amazing,” according to Tim Cook, its chief executive. Revenue rose 33 percent over the same period last year, and earnings per share were up 45 percent.
But investors seized on the fact that demand for the iPhone and the company’s new smartwatch didn’t meet expectations. Apple’s shares have lost 11.3 percent since then.
“I thought the break in Apple was a pretty big deal,” said Bill Fleckenstein, a veteran money manager at Fleckenstein Capital in Seattle. “They made all the numbers, but units were light. Maybe that is a precursor to what the entire tape is going to show us.”
The reaction to C
For day traders and swing traders, a trend day can be the difference between extreme profits and being left behind in the dust; having exited a trade too quickly. Properly identifying a trend day early in the trading session is key to sitting on one's hands and not exiting too soon whether we're trending up and getting out (not fade) if you are short the market.
Well known commodities and futures trader and President of LBRGroup, Inc. Linda Bradford Raschke points out something I feel of note right off the bat: that trend days tend to occur after the market consolidates and digests gains; or what we call a few "inside days":
When a market consolidates, buyers and sellers reach an equilibrium price level — and the trading range tends to narrow. When new information enters the marketplace, the market moves away from this equilibrium point and tries to find a new price, or “value” area. Either longs or shorts will be “trapped” on the wrong side and eventually forced to cover, a
Let’s take a moment and put the market’s current trading action into perspective. Earlier this year bullish sentiment reached levels not seen in years or even decades depending upon data source. Market volatility had also fallen to levels not seen in years as the market was steadily making new all-times highs. S&P 500 actually went 63 trading days without a 1% percent daily move higher or lower. A feat last accomplished in 1995. And it has been more than three years without a 10% or greater S&P 500 correction. This is four times the average duration of time between corrections. Not to mention the market shrugged off tensions in Ukraine, Ebola in West Africa, the rise of ISIS in the Middle East, slowing global growth concerns and the Fed slowly easing up on stimulus. Honestly the market had gotten ahead of itself and was in need of a cool-off period. More likely than not, that is what it is doing.
Yes, weak economic data out of Asia and Europe is a concern as they are major U.S. tradin
“Is the S&P in a correction or Bear market Mom?” is the question I received from my daughter last night. She’s been learning the stock market slowly over the last five or so years and I cringe at times with the questions she poses however no question is a bad question. I’d rather she come to me than blindly follow some pundit or supposed guru to $99/month subscription. After all, if he/she is so smart – why do they even need to charge for anything? Just sit back and enjoy the wealth.
While the big boys and their algorithms have their calculated strategy, this is how I explained it to her in my simple, 'laywomans' terms. In my mind big money typically buys at major supports during a correction. They sit back and salivate at an opportunity to, not buy the dip, buy buy on the cheap and define their risk.
For me, I consider the monthly 20 SMA as you can see from my prior post on the subject here.
If only a correction, one would want to see SPX bounce off of the 20month or (the line in
The ECB left its key lending rates at record low levels, and the four-week moving average for initial claims is at an eight-year low. That sounds like a pretty good setup for a stock market that worries about earnings prospects tied to a stronger dollar, loves the thought of central bank policy rates holding near the zero bound, and is anxious to see evidence the U.S. economy is gaining momentum.
Despite the setup, it has been a swing and a miss so far for the stock market, which has once again been greeted with steady, and broad-based, selling pressure.
ECB President Mario Draghi is getting a lot of blame for the disappointing price action based on reports that his presentation regarding the ECB's asset-backed securities purchase program was lacking and the impression from today's press conference that the ECB's ability to change the economic dynamic in the eurozone is also lacking.
There is some merit to the latter claim given the seeming lack of urgency to implement structural r
Markets being forward looking, I believe we're seeing a snap back ahead of this weeks Jackson Hole meeting (Aug 21-23) where policymakers will discuss at length their thinking around the labor markets of major economies, perhaps dropping clues about the path for monetary policy in the months ahead.
The spotlight will be on Janet Yellen, who will speak on Friday in her first appearance at Jackson Hole as Fed chair.
Most will recall Ben Bernanke two years ago that paved the way for an unprecedented $85 billion per month stimulus plan.
While most don't expect anything spectacular out of the Fed Chairwoman given the improvement in the unemployment rate and overall economy, I have to wonder what will happen after the air is let out of the hopium balloon. QE is still set to end in October. Tensions between Russian and Ukraine have sent yields lower. Whether there is further escalation or a resolution is yet to be seen. The economy is recovering like a limp noodle, but it is improving. S
It feels good to actually be making money on the short side for once and not struggling. Yes, leadership has evaporated with utilities being the only real strength right now with head-and-shoulders tops and double tops as far as the eye can see. Transports, financials and even oil/gas is seeing profit taking at this juncture. The Nasdaq has lost it's 100d SMA which was historically great support. Remain hedged; there will be more downside. Whether we bounce a bit first (back and fill) to bring in more sellers is an unanswered question but don't buy the dip.............not yet.
This weekend I focused on the LARGER, long-term picture of the stock market to make it overall easier for my brain to comprehend.
I should explain that I trade based on 80% technicals (fibonacci combined with chart patterns) and only about 20% fundamentals but my trading style is to buy at a support rather than a breakout. This became my personal preference after having been "shook out" of breakouts once too many times over the years. This style is not for everyone but buying at support, I feel my downside risk is more c
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