It seems to me he is just another talking head swaying in the wind.
The truth be known, instead of saying we have a very rare event (or “historic event” as some other talking heads have worded it), they could just as easily have said that we have emerged from a period of historically low volatility, at least for a brief period of time. But I guess that is a lot less sensational
I changed my hedge from short VWO on tuesday to short SPY, because I was afraid emerging markets would Rally harder then US Markets.
I am Back Short VWO, since it had a nice bounce.
Reasoning:
300k Hedge Short on VWO (with 300k small caps Long) because earnings specsy drift down (I could go flat, but where is the fun in that).
Hedge with VWO because Emerging markets are in bad shape (Dollar strength, Carry trades Need to be unwind and sooner or later
the fed has to rise, e.g. more Dollar strength.
So I hope now US small cap do better then emerging markets, and I can squese out some Alpha out of this.
Somebody mentioned the performance of value stocks. I bring here some remarks I made at Seeking Alpha, maybe they could be helpful.
Value has been under performing growth on a consistent basis over the last few years. The combination of value and quality somewhat alleviates that down performance as it allows you to pinpoint those stocks that are being punished without much of a reason. But value itself is being dismal.
Such down performance over the last few years has a lot to do with the low interest rates environment. Equity markets sell earnings growth and the low growth environment we have witnessed these years has made growth companies more attractive and, hence, money has pursued them.
Also, value metrics dispersion is reduced at market tops. That’s why it becomes increasingly harder to ride multiples expansion, which is the biggest reason of out performance for value stocks. I tend to think about this as a spring. The amount of energy contained in the spring when value metrics dispersion is bigger is higher and then value tends to outperform. It’s pretty obvious that’s not the case in this market. P123 provides you with tools to assess exactly this.
The fact that growth has been outperforming during the last years lends itself to a quite brutal reversal. It’s consistently happened along history and will take place once again. Most of the returns to be made over the next years will take place in the short side shorting expensive growth low quality of fundamentals stocks.
A market top is far from the point where one should try to outperform the market. Market tops are akin to when young people run their cars towards a cliff to prove manhood. Those are the moments when risk is higher as prices are too elevated and the risk/reward ratio reaches its worst point in the investment cycle.
I would not be much concerned about the track record over a few months and would not raise an issue because of that. Value tends to outperform growth over periods that span decades. Anomalies can persist over six months, eighteen months, thirty six months and even sixty months. It’s not unheard of.
The reason why I still believe value to beat growth over the long term is due to behavioral biases. I do believe that value investing is the only discipline that works over the long term as its foundations are rooted in human beings flaws and those do not tend to change over time.
I am sure this must have been debated before but I am honestly curious about this. I recall that somewhere in the forums it was explained but, whatever, here it goes: how is the blended estimates number calculated? I ask this because both CY and NY are going down and the blended combination is displayed as going up.
Andreas - the problem is that companies tend to use this type of market to write off the skeletons in the closet, as they have an excuse to clean house while blaming it on China. It is a “get out of jail free card” as one would say in monopoly. I would not be surprised at all to see lower earnings.
23 Nations Around The World Where Stock Market Crashes Are Already Happening
In Part 3 of this series, I will discuss the 1) risk of deflation in the world and US economy, 2) how central banks are losing control, 3) the threat of currency devaluation, and on a positive note, 4) the fact that there are no signs of an imminent recession in the US at this time. Also, I’ll discuss the positive benefits of a market collapse (yes, there are several).
These articles, like all of my Intelligent Value Alert newsletters, are now free to the public. I have also made our most recent, proprietary Intelligent Market Risk Analysis (IMRA) from the Member’s area available to the public. This page summarizes the technical aspects of the markets and helps determine our exposure. This system told us to ease out of the market starting back in late June, avoiding the downturn entirely. We now hold 100% cash and are ready to deploy it, perhaps as soon as this weekend, in the appopriate investments.
Cheers! I enjoyed both of your articles. I look forward to the third installment. Keep them coming. It was also encouraging to see the 8-year chart with the S&P uptrend and your analysis that the uptrend is still intact. Do you beleive we have seen the bottom, at least for now?
Unfortunatly, I was unable to access this section of your web site. It required a password.
I think one of the most timing-rules-reelvantthings I’m learning, from the latest declines and others, is that the extreme institutionalization and technological-ization (Is that a word?) of the market is changing the game. More and more money is moving pretty much at the same time in response to fewer and fewer (human and/or automated) decision makers. That’s why I, once an advocate of market timing (something those ho joined p123 lately and didn’t see my posts from years back) turned very sour on the practice.
Speed and concentrated decision making are not an obstacle when the declines are tied to objective fundamentals (hence the reason why the standard SP estimates-based timing rules worked in 2001 and 2008). But haven’t and can’t work when the declines stem from sentiment and/or anticipation of not-yet-objective but-widely anticipated fundamentals.
That’s why two R23G models I recently introduced are addressed to risk. I don’t think we can time the market, but I do think we can do good things to position ourselves to withstand what happens.
The combination based on facts, not forecasts, works very well for me. I don’t believe in economic forecasting.
I am using a combination of different momentum, trend, vola, and fundamental models here on P123 all with different variations. 8/12 models timed the market down-turn correctly. Only 2 out of 12 are still fully invested in equities which are an unemployment-based model, and the other a S&P 500 EPS model (will soon flag risk-off market). Overall, the book is only 35% long equities (net of short ETF), 35% bonds/rates, 5% other alternative ETF, remainder cash (if long & short ETFs are netted out).
Has anybody noticed that the S&P500 had a “Death Cross” (SMA50 crosses from above to below SMA200) late in August. Nobody in the media or at P123 seems to care. Since end of August the S&P500 is another 4% down. This is the 33rd DC since 1950. I have analyzed market performance after a DC for 32 prior DC events.
There are lots of interesting patterns emerging from my analysis, but the main message is: It is prudent to be out of the market for 2 months after a DC, because there is a 60% probability of the market being lower than what it was at the time of the DC .
I use the SP500 ‘death cross’ as one indicator. I use SP500 EPS trend in combination with it. I got out of the market, for the couple of ports that use it, a little over a week ago.
You and I are going to have to disagree fundamentally on whether market timing is possible. Not only is it possible, but it is easy if you take the time to learn the techniques. I am not expressing an opinion; in this post I’ll provide objective, empirical evidence to support this statement.
The vast majority of fundamentally oriented analysts have the same attitude as you; I know I also did for my first 25 years. I just sucked up the losses sticking with fundamentals from the time I started in this business as an equity analyst with Drexel Burnham Lambert in Beverly Hills in the early 1980s.
However, when a major health problem limited me to working from home 12 years ago, I launched my value-oriented newsletter that included model portfolios. It was very successful from the start, but I soon discovered that my individual-investor subscribers would cancel en-masse’ whenever there was a downturn. To deal with this challenge and at the prompting of a mentor, I dedicated myself to learning technical analysis.
I implemented a market timing system, which I call the Intelligent Market Risk Analysis (IMRA) into my newsletter back in 2006, and it was a very timely decision. This rules-based system told me to to exit the market in October 2007 and then signaled to issue a significant MARKET UP signal to subscribers on March 9, 2009. The timing was perfect to catch the upturn. When combined with my P123-based quantitative value systems, my small-cap model portfolio produced a return of 1600%, and my large-cap portfolio logged a 700% return that year.
Closer to present, on June 28, 2015 I published a free newsletter titled, ‘Big Change Coming to the Market This Week ,’ and notified p123 members of its location in another post. I placed tight stops on all of my model portfolio stocks and gradually exited the market through last July.
In that free newsletter, I demonstrated a simple, three-indicator analysis that is run on a monthly basis to identify major market turning points. This system is so simple anyone can benefit from it. It uses a 10-month simple moving average, the MACD, and my proprietary settings on an indicator I call the ‘Market Risk Oscillator.’ In that newsletter, I showed that MACD had already rolled over, but the other two indicators were not there yet. However, it appeared that a MARKET DOWN signal was imminent, and I warned readers.
That situation has changed now. All three indicators have rolled over and the system is signaling that a bear market has begun. Here is the current chart, which I published in this past Sunday’s newsletter:
Here is a close-up of the indicators for the last 1.5 years:
In testing on the TradeStation platform, working with Tobias Berr, we found that using the S&P 500 index starting in Jan 1960, this simple system has 100% winning trades and turns every $100 invested into $2,102. Max drawdown is less than 10%. It does not use shorting and simply goes to cash when these three fundamental rules signal a significant downturn is beginning. My Intelligent Market Risk Analysis, which I use for the newsletter model portfolios is more sophisticated and uses weekly signals. It produces even more powerful results.
Market timing IS possible, and it doesn’t have to be that difficult. The decision to use it or not to eliminate big drawdowns makes a world of difference in both your wealth and peace of mind. I know this is easier said than done, but all it requires is a dedication to learning TA, the same as the dedication you devoted to studying fundamental analysis. Or you could just use a simple system like the one I displayed above to keep you out of the big downturns.
Just to back up my appeal with objective data, there was recently an interesting article by Mark Hulbert published on MarketWatch.com in which he summarizes an academic study of thousands of recommendations made on the CNBC TV show “Talking Numbers.” The focus of the study was a thousand pairs of recommendations made between November 2011 and December 2014. The result isn’t even close. Read the article here or the actual study on SSRN here.
I would say, ‘best of luck out there,’ but we can take chance and randomness out of the equation by applying thoughtful technical analysis to supplement our p123 quantitative systems. As I recommended to subscribers back in late June, the best advice is to go to cash now. However, we don’t have to sit out the market selloff in cash. I will be picking some robust ETFs for members in my newsletter’s weekend (Oct. 4) portfolio updates that will profit from the coming bear market.
.