Historically, March’s performance slips in post-election years Tempestuous March markets tend to drive prices up early in the month and batter stocks at month end. Julius Caesar failed to heed the famous warning to “beware the Ides of March” but investors have been served well when they have. Stock prices have a propensity to decline, sometimes rather precipitously, during the latter days of the month. March is the end of the first quarter, which brings with it Triple Witching and an abundance of portfolio maneuvers from The Street. March Triple-Witching Weeks have been quite bullish in recent years, DJIA up 9 of the last 11. But the week after is the exact opposite, DJIA down 19 of the last 29 years—and frequently down sharply for an average drop of 0.5%. Notable gains during the week after for DJIA of 4.9% in 2000, 3.1% in 2007, 6.8% in 2009, and 3.1% in 2011 are the rare exceptions to this historically poor performing timeframe. Normally a decent performing market month, post-election year payments to the Piper take a toll on March as average gains are trimmed significantly. In post-election years March ranks: 5th worst for DJIA and Russell 1000; NASDAQ is 4th worst while S&P 500 and Russell 2000 are the best at 6th worst. In 11 post-election years since 1973, NASDAQ has advanced just five times, most recently in 2013 (+3.4%).
Let's face it, this tapeworm economy is set up so that those who stand to lose the most when the bubble bursts are those who work, spend wisely, save, and carry all the slugs on their shoulders. But let's also face that most people are oblivious to the time bomb that could go off at any time; oblivious to the fact that the money in their pocket, their federal-reserve-bank NOTES (IOUs), or their money automatically deposited as a packet of pixies into their bank accounts, is debt-based and that the only way a debt-based economy can increase its debt-based money supply or increase economic activity is for more and more people to sign on the dotted line and create more and more debt (money). What happens when people stop signing on the dotted line, stop not only creating debt but stop growing debt? The whole thing collapses. In 2008 the federal government had to step in to save the stupid system by signing on the dotted line for trillions of dollars of debt; 5 to 10 under Bush, 10 to 20 under Obama and probably 20 to 40 Trillion under Trump. Not only that, but for the first time in history, the Federal Reserve Bank, who loans this debt-based money to the federal government at interest, started to buy the very debt instruments that secure their own loans. Once we thought the government was the borrower of last resort, "but economist now know" that we can sustain the bubble in this crazy land of Oz under a new system where the very bank handing out the debt-based money buys the very bonds issued to secure that debt. How many I wonder have a clue about how tenuous this situation is; how a slightly disruptive breeze will blow down the house of cards? And now, we have a huge generation, the Baby Boomers, in the process of retiring. Retirees don't take on debt. They don't buy real estate, they sell it, they downsize, they don't borrow for cars, they don't need new furniture, and their income tax payments go down. Main stream media says, "there is no debt bubble" and "stay diversified, you'll be fine". Right.
Demographic economist, Harry Dent famously called the 90s boom but has since become very bearish and for some time now. He has been criticized because he's been calling for a (needed) crash, like the boy who called wolf, but to his chagrin the fed steps in and props things up for a bit longer with its quantitative easing and bond buying program. Nevertheless, his reasoning seems sound and if there is one take-away, it is this, don't "invest" for the long term and trade shorter term.
I read a lot of his stuff. Just a matter of time before the big players start pulling in the profits which in turn will trigger a much needed correction. The VIX has been bouncing like crazy, making some weird moves lately.
I don't know man, Dent is a clown. Called for a crash for years and then turned BULLISH in December. LOL. He is bullish now and yes has been right for 3 months. However after being bearish for years and flipping bullish AT THE TOP lol, his crash call may be right haha http://markets.businessinsider.com/...st-10-days-ago-is-suddenly-bullish-1001616771
He makes a living selling books and newsletters so him and others like Peter Schiff, tend to get sensational. The December article's title is a bit sensationalized too, saying he "suddenly went bullish". He is still a longer-term bear based on the demographics. And Snuff, aren't you being a little sensational too, calling him a "clown"? I have a hard time forecasting a week ahead....a year ahead, forget about it.
Wouldn't being a long-term bear and then all of a sudden flipping to a bull just mean that you've re-evaluated based on new evidence and changed your mind? Sometimes admitting defeat is the best way to start making money again. If you stay hard-pressed saying "the market will crash, the market will crash, the market will crash", you remain biased an unable to see what may be differences from when you first decided you thought the market would crash.
Yeah, everything you say is true in general, but with regards to Harry Dent, I'm not sure it was fair for that article to say that Dent "flipped" bullish when Dent deals with generational trends and is still bearish. That's like me putting on a swing trade for a 20% gain and then closing out along the way because it corrects 2%. Dent did not flip bullish. Dent just got caught trying to sensationalize, by saying "time is up, sell now", in order to sell more of his books and newsletters. So then he had to cover those tracks. If he'd just stick to his time frame, very long term, it'd be hard to argue his point of view.
S&P 500 P/E Ratio Crosses Above 22 Mar 1, 2017 Keep in mind that as stocks keep rallying here, valuations are rallying as well. The 12-month trailing P/E ratio for the S&P 500 just crossed above 22 today. That’s 5.5 points above the index’s average P/E of 16.56 going back to 1954. Below is a chart showing the S&P’s trailing 12-month P/E over this 60+ year time frame. We’ve provided dates for previous highs that were reached.
Still one of my favorite documentaries on the history of money is Bill Still's....The Secret of Oz. L. Frank Baum's book the "The Wizard of Oz" was a children's book with an underlying theme about the battle for who controls the money supply. The people of the time (turn of the last century) understood that theme. The 1939 movie (post Federal Reserve Act and Income Tax Act) removed much of the monetary reform symbolism. People now are for the most part dumb and dumber on the politics of our money supply.
Insider Sentiment Posted by lplresearch There are so many different measures of stock market sentiment that it can make your head spin. Some are surveys such as the American Association of Individual Investors (AAII) Bull-Bear survey, which tells us how individual investors feel about stocks, and the National Association of Active Investment Managers (NAAIM) survey, which tells us how money managers are moving actual dollars. Flows data, the derivatives markets, and the VIX measure of implied (future) S&P 500 market volatility can help gauge fear levels in the markets. Valuation metrics like price-to-earnings ratios are also sentiment measures, showing how optimistic (or pessimistic) market participants are about an investment. Still others look at market value relative to economic indicators, corporate balance sheets, or even relative to the amount of margin debt investors hold (which we will tackle in a future blog). There are many other sentiment measures, but the one we want to focus on today is insider sentiment: that is, what corporate executives are doing with their own company’s stock. Thanks to our friends at Ned Davis Research (NDR), we have access to a measure of what these insiders are doing that can be used as a sentiment gauge. The theory is that the people who know their companies best are smarter buyers and sellers. Figure 1 shows the NDR insider score* is quite negative now, implying that more insiders are selling than buying. Is this cause for concern? Perhaps, but the numbers in Figure 2, which show S&P 500 performance when NDR’s insider score is in their bullish (buying) zone, the bearish (selling) zone or neutral, should help ease concerns. As you can see, stocks fare better when the reading is positive. However, the weakness following negative readings has historically been minimal. This indicator does suggest stocks need a pause. But when we look at sentiment measures broadly, we do not see excessive optimism that can lead to big near-term corrections. Remember, negative sentiment, which is not difficult to find across the universe of sentiment indicators we watch, can be a positive contrarian signal. As LPL Research Chief Investment Officer Burt White and Market Strategist Jeffrey Buchbinder noted in this week’s Weekly Market Commentary: “Our analysis of investor sentiment reveals signs of increasing worry. From a contrarian perspective, this could be a positive sign.” So while insider sentiment does suggest some nervousness, and we may get a pickup in volatility after an unusually calm period, we would not be alarmed by this one indicator. Look for more from us on sentiment here in the coming weeks.
Is This The Start Of A Bigger Correction? Posted by lplresearch Is This The Start Of A Bigger Correction? After the first 1% drop in 109 trading days on Tuesday, many are wondering if this is finally the start to a market correction. Crude continues to weaken, small and midcaps are weak, and previous leaders like financials are pulling back as well. The S&P 500 Index might be less than 2% away from the recent peak, but many other sectors are showing weakness under the surface. For starters, one of the main reasons the S&P 500 could be due for a 5% correction is it has simply been so long since we’ve seen one. In fact, the last 5% correction was right after Brexit—some nine months ago. Looking at the data, the S&P 500 hasn’t been more than 5% away from its all-time high for 185 trading days, one of the longest streaks ever. Per Ryan Detrick, Senior Market Strategist, “The S&P 500 has gone a long time being within 5% of its all-time high, but here’s the catch—these streaks can continue for much longer than most expect.” Some other things to remember: Going back 20 years, March and April have been two of the strongest months (April ranks number one and March number three), decreasing the odds that a major correction could start now. Over the past 11 years, the return during March and April has been positive 10 times, with the only loss being less than 1%, in 2015. When the S&P 500 has made a new high at some point during the month of March (like it did this year), the entire month of March has closed lower only once going back 60 years (higher 15 out of 16 times with the only loss coming in 2015). March is down 0.6% currently this year, so this will be close with about a week to go. Since 1928*, when new highs have been made in March, the month of April has been higher 75% of the time (15 out of 20), with the worst monthly return down only 3.1% in 2000. Be sure to read Getting Technical With “Green-Tinted” Signals for more on why we think any pullback could be relatively modest and would be a buying opportunity.
“Worst Six Months” May Halt Trump Rally From our Seasonal MACD Buy Signal on October 24, 2016 through yesterday’s close, DJIA gained 13.4%, S&P 500 climbed 9.2% while NASDAQ was up 9.6%. At their respective high closes on March 1, 2017, DJIA was up nearly 16% and S&P 500 and NASDAQ were up over 11%. Either at yesterday’s close or the highs, this performance is above long-term averages. The long-term track record of our Seasonal Switching Strategy, which is based upon the “Best Six Months”, has a solid track record of outperformance with potentially less risk compared to a buy and hold approach. Since 1950, DJIA’s average annual gain has been 8.3%. Over the same time period, DJIA has lost an average 1.1% during the “Worst Six Months,” May through October, and gained an average 9.2% during the “Best Six Months,” November through April. Detractors are quick to point out that there have been positive “bad” months and negative “good” months. This is absolutely true as there is no trading or investment strategy that works 100% of the time (even the best will report a trading loss every once and a while). In post-election years, the worst performing year of the four-year cycle (page 130, STA17), there have been some nasty selloffs. Most recently in 2001 when DJIA fell 17.3%, S&P 500 dropped 15.6% and NASDAQ plunged 31.1% during the worst months. Barring another “once-in-a-generation” bear market and financial crisis, the double-digit gains of 2009 are not highly likely this year. And with the Fed clearly in a tightening cycle, a repeat of 2013’s quantitative easing fueled gains are also unlikely.
DJIA Nine-Day Losing Streaks Mar 28, 2017 Yesterday may have been a moral victory for the bulls as the DJIA rebounded well off of its early lows, but at the end of the day, it still finished down for the eighth straight day. It was also the first day of the losing streak where the DJIA never traded in positive territory on an intraday basis. It’s still early today, but the DJIA is currently on pace to open modestly in the red once again, and if those declines hold until the end of the trading day, it will be the first time the DJIA has been down for nine straight trading days in over 39 years. A large percentage of people working on Wall Street today weren’t even alive the last time the DJIA had a nine-day losing streak. The table below lists the ten prior nine-day losing streaks that the DJIA has seen in its history going back to 1896. For each streak, we list the magnitude of the decline in the first nine days, how many trading days the losing streak lasted overall, as well as how the DJIA performed over the following week and month. The longest losing streak the DJIA has ever had was fourteen trading days, which was back in 1941. Like the current period, the DJIA’s decline during the initial nine days back then was very muted (1.51% compared to about 1.9% now). Interestingly enough, of the ten prior streaks where the DJIA was down for nine straight days, more often than not (six times) it went down for a tenth day as well, and half of the time (five times) it went on to decline for at least an eleventh day. Looking at returns going forward, the DJIA’s average one week change following the ninth straight day of losses has been a gain of 0.2% (median: -0.2%), while the average one month return has been a gain of 2.0% (median: +1.6%). If you are looking for the market to snap back quickly from here after nine straight days of declines, it is generally not the norm.
Up 5% Heading into Quarter End Mar 30, 2017 With a gain of 5.78% so far in the quarter and just one trading day left in it, the S&P 500 is on pace for a pretty solid quarter. Given the gains we have seen, it’s ironic that all quarter long investors have been bombarded on a near daily basis with headlines proclaiming an end to the rally. A 5%+ gain is 5% gain. Looking ahead to the final day of the quarter, we wondered how the market tends to close out the quarter following a strong run. Do investors keep buying or take profits. To shed some light on that question, we looked at every quarter during the current bull market where the S&P 500 was up 5% or more heading into the last trading day of the quarter to see how it performed on the final day. Even though we only looked at the current bull market, we found plenty of quarters that met the criteria. During the 32 quarters so far in this bull market, the S&P 500 was up over 5% QTD heading into the last day of the quarter just under half of the time (15 quarters). Looking at the results, there’s a pretty convincing case to be made that traders don’t continue piling into the market. Of the fifteen quarters we looked at, the S&P 500 was down on the final trading day of the quarter 12 times for an average decline of 0.39%. Perhaps it’s due to investors rebalancing out of some of their winning asset classes and into losing asset classes, but during the current bull market at least, there hasn’t been a lot of buying to be found on the last day of a quarter where the S&P 500 was already up 5%.
Market Exodus: Movement of Your Portfolio! Sell Passover Much like the ancient Jew’s passage out of Egypt and the rousing words of the prophet Robert Nesta Marley, springtime and the Passover holiday are often an excellent time of year to consider major portfolio moves. Some may remember the old saying on the Street, “Buy Rosh Hashanah, Sell Yom Kippur.” Though it had a good record at one time, it stopped working in the middle of the last century. It still gets tossed around every autumn when the “high holidays” are on the minds of traders as many of their Jewish colleagues take off to observe the Jewish New Year and Day of Atonement. The basis for the new pattern, “Sell Rosh Hashanah-Buy Yom Kippur-Sell Passover,” is that with many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum. Actual stats on the most observed Hebrew holidays have been compiled in the table here. We present the data back to 1971 and when the holiday falls on a weekend the prior market close is used. It’s no coincidence that Rosh Hashanah and Yom Kippur fall in September and/or October, two dangerous and opportune months. We then took it a step further and calculated the return from Yom Kippur to Passover, which conveniently occurs in March or April, right near the end of our “Best Six Months” strategy. Perhaps it’s Talmudic wisdom but, selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times. While being long Yom Kippur to Passover has produced 60% more advances, averaging gains of 6.9%. It often pays to be a contrarian when old bromides are tossed around, buying instead of selling Yom Kippur – and selling Passover. From Passover to Yom Kippur DJIA averages just 1.3% and is littered with nasty declines.
Margin Debt: Worry or Overblown Anxiety? Posted by lplresearch New York Stock Exchange (NYSE) margin debt is back in the news, as levels reached yet another new all-time high in February 2017 of $528 billion. Margin debt is viewed as a potential contrarian indicator; when margin debt is high, this suggests investors are potentially over-leveraged and therefore too bullish. Per Ryan Detrick, Senior Market Strategist, “Many have speculated for several years now that high margin debt would lead to lower equity prices, but it hasn’t yet proved to be a useful market signal. In fact, margin debt first broke out to new highs in April 2013, and we’ve been hearing since then that this is a potential warning sign. For those scoring at home, the S&P 500 Index has been up nearly 70% since then.” The figure below shows margin debt as it relates to the S&P 500 Index. As you can see, the two are highly correlated and margin debt looks more coincident than leading. In other words, the two tend to move in the same direction at the same time, so margin debt levels have not been a good predictor of future movements in the index. Viewing margin debt by itself isn’t telling the full picture, however. Yes, the total value of margin debt may be higher now than at the 2000 and 2007 peaks, but the entire stock market’s value is also much higher. To get a more apples-to-apples take on this, we use margin debt as a percentage of the Wilshire 5000 (market capitalization of the total U.S. stock market). This ratio currently sits at 2.2% versus the 2007 peak of nearly 2.5%. In fact, margin debt as a percentage of the overall stock market value has trended in a range over the last 10 years and currently sits near the midpoint of that range, which is not particularly worrisome at this point, in our view. Last, we’ve seen many analyze margin debt as a percentage of the U.S. economy (gross domestic product [GDP]), but we don’t think this is relevant. The reality is that the U.S. has become much more productive and profitable for a given level of economic activity, and thus, using historical GDP data won’t tell an accurate story.
