And until something goes uncontrollably wrong – like interest rates creep up. I pointed out in my last post that Consumer Discretionary trendy boutiques looked a bit wobbly on a relative basis (see Someone is going to be very wrong on the American consumer). I had previously pointed to analysis from Ed Yardeni that forward margin estimates were rolling over (see Earnings headwinds in 3 charts). The stock market is already seeing the terminal phase of the fast money and the margin clerks selling pressure. He plans on taking things one day at a time by watching how market internals develop in the reflex rally. It is a good time to be old because they are going to print a lot of money. All told, there is a good chance earnings will actually shrink this year. There is just so much to talked about and it’s impossible for me to write it on my blog. Despite these warning signs, my base case scenario does not call for a full-blown bear market, but a correction much like the experience of 2010 or 2011. The chart below shows a stylized depiction of where different countries are in their economic cycles, while there may be a few minor quibbles about the exact positions, the key takeaway here is that the US is in the mid-cycle phase of an economic expansion and a recession, which is the major catalyst for a bear market, is not on the horizon.
18) If you want to have $1,200 in 27 months, how much money must you put in a savings account today? Assume that the savings account pays 14% and it is compounded monthly (round to the nearest $10). In the past few weeks, I have also been writing about how the stock market price trend is looking extended and short-term momentum appears wobbly. While new highs are generally interpreted bullishly as they are signs of surging momentum, momentum factors have not been working lately and the ATH could be seen as warning signs for bulls. However, I don’t expect that the SPX will break through to new highs in the short run for several reasons. Short candidates are easy to find, but as noted above, the opportunity set on the long side is quite constrained. Using the same techniques of measuring relative strength, I went looking for signs of market leadership to measure where the market believe the pockets of economic strength are.
Every year is the same. Same way if you want to trade say the S&P mini or Nasdaq mini or any YM mini you will see pullback based methods work best. You will want to identify what these are and see how the market has moved. This would be a huge market moving event one way or the other. Of the 13 prior occurrences in Paulsen’s study when stocks became overbullish, 6 also marked times when the stock market was significantly overvalued, as represented by one standard deviation above average. Baidu, Inc. (BIDU) – Shares of Baidu, Inc. broke above resistance located at $80 on Tuesday. Now labor is being added faster than output, and with large companies like McDonalds, Wal-Mart Stores, Inc. and Target announcing pay increases, unit labor costs are likely to increase further. Citigroup Inc (C:NYSE) – Citigroup stock was showing signs of a rebound Wednesday. He is waiting for the bounce to see how the market behaves as stock prices strengthen after the likely two week rally that is typical of the partial two-component buy signal from the Trifecta Bottom Model.
My analysis was based a study done by James Paulsen of Wells Capital Management, Such conditions typically see a price reversal in the next few months (see How to make your first loss your best loss). Most of the investment theses we have reviewed over the past several months can at best be described as late-cycle opportunities, with valuations that often ignore historical economic sensitivity. If you are looking to invest in the foreign exchange business yourself you need to have an idea about the market and you need to be aware of the best hours when you should be trading. We think the market is too high if earnings have, in fact, peaked for the cycle, and we have reduced our net exposure by adding more shorts. At the bottom of the cycle, firms cut labor faster than output. Indeed, forward EPS continues to fall as Earnings Season gets into full swing.