Perishabull Posted July 31, 2014 Report Share Posted July 31, 2014 Did US equity markets top on 24th July? (from my blog) US equity market comparison There is a very clear disconnect between the NASDAQ 100 and the Russell 2000 spanning July. This next chart is S&P500, with Australian dollar, Euro, and AUD/JPY (futures markets); [/ Very clear divergence between these markets with a top made on the 24th July. The NASDAQ 100 looks like the candidate to short. Link to comment Share on other sites More sharing options...
Perishabull Posted July 31, 2014 Author Report Share Posted July 31, 2014 John Hussman article from Zerohedge; "John Hussman: "Make No Mistake - This Is An Equity Bubble, And A Highly Advanced One" In case someone needs a beyond idiotic op-ed on the state of the market, we urge them to read the following stunner from USA Today (which is simply a syndicated piece from the Motley Fool, complete with Batman style graphics). Beyond idiotic because in addition to quoting the perpetually amusing Stony Brook assistant professor, Noah Smith, who has never held a job outside of academia and is thus a credible source on all things markety (to wit: "The value of a financial asset is the discounted present value of its future payoffs, and when the discount rate -- of which the Fed interest rate is a component -- goes down, the true fundamental value of risky assets goes up mechanically and automatically. That's rational price appreciation, not a bubble." And by that logic under NIRP the value of an asset is... what? +??) it says this: "Stock prices correct all the time. But what's important to remember is that a correction isn't a bubble." Yes, a correction is not a bubble: it is the result of one, and usually transforms into something far worse once the bubble pops.Entertaining propaganda aside, for some actually astute observations on the state of the market bubble we go to John Hussman, someone whose opinion on such issues does matter.Selected excerpts from:Yes, This Is An Equity Bubble http://www.zerohedge.com/news/2014-07-27/john-hussman-make-no-mistake-equity-bubble-and-highly-advanced-oneMake no mistake – this is an equity bubble, and a highly advanced one. On the most historically reliable measures, it is easily beyond 1972 and 1987, beyond 1929 and 2007, and is now within about 15% of the 2000 extreme. The main difference between the current episode and that of 2000 is that the 2000 bubble was strikingly obvious in technology, whereas the present one is diffused across all sectors in a way that makes valuations for most stocks actually worse than in 2000. The median price/revenue ratio of S&P 500 components is already far above the 2000 level, and the average across S&P 500 components is nearly the same as in 2000. The extent of this bubble is also partially obscured by record high profit margins that make P/E ratios on single-year measures seem less extreme (though the forward operating P/E of the S&P 500 is already beyond its 2007 peak even without accounting for margins).Recall also that the ratio of nonfinancial market capitalization to GDP is presently about 1.35, versus a pre-bubble historical norm of about 0.55 and an extreme at the 2000 peak of 1.54. This measure is better correlated with actual subsequent market returns than nearly any alternative, as Warren Buffett also observed in a 2001 Fortune interview. So if one wishes to use the 2000 bubble peak as an objective, we suggest that it would take another 15% market advance to match that highest valuation extreme in history – a point that was predictably followed by a decade of negative returns for the S&P 500, averaging a nominal total return, including dividends, of just 3.7% annually in the more than 14 years since that peak, and even then only because valuations have again approached those previous bubble extremes. The blue line on the chart below shows market cap / GDP on an inverted left (log) scale, the red line shows the actual subsequent 10-year annual nominal total return of the S&P 500.All of that said, the simple fact is that theprimary driver of the market here is not valuation, or evenfundamentals, but perception. The perception is that somehow theFederal Reserve has the power to keep the stock market in suspended andeven diagonally advancing animation, and that zero interest ratesoffer “no choice” but to hold equities. Be careful here. What’sactually true is that the Fed has now created $4 trillion of idlecurrency and bank reserves that must be held by someone, and becauseinvestors perceive risky assets as having no risk, they havebeen willing to hold them in search of any near-term return greaterthan zero. What is actually true is that even an additional yearof zero interest rates beyond present expectations would only be wortha roughly 4% bump to market valuations. Given the current perceptionsof investors, the Federal Reserve can certainly postpone the collapseof this bubble, but only by making the eventual outcome that much worse.Remember how these things unwound after 1929 (evenbefore the add-on policy mistakes that created the Depression), 1972,1987, 2000 and 2007 – all market peaks that uniquely shared the sameextreme overvalued, overbought, overbullish syndromes that have beensustained even longer in the present half-cycle. These speculativeepisodes don’t unwind slowly once risk perceptions change. The shift inrisk perceptions is often accompanied by deteriorating marketinternals and widening credit spreads slightly before the major indicesare in full retreat, but not always. Sometimes the shift comes inresponse to an unexpected shock, and other times for no apparent reasonat all. Ultimately though, investors treat risky assets as riskyassets. At that point, investors become increasingly eager to holdtruly risk-free securities regardless of their yield. That’s when themusic stops. At that point, there is suddenly no bidder left for riskyand overvalued securities anywhere near prevailing levels.History suggests that when that moment comes, thefirst losses come quickly. Many trend-followers who promised themselvesto sell on the “break” suddenly can’t imagine selling the market10-20% below its high, especially after a long bull market where everydip was a buying opportunity. This is why many investors who think theycan get out actually don’t get out. Still, some do sell, and whenthose trend-following sell signals occur at widely-followed threshholds(as they did in 1987), the follow-through can be swift." Link to comment Share on other sites More sharing options...
drbubb Posted August 1, 2014 Report Share Posted August 1, 2014 It could be ! Tony Caldero has now labelled SPX as a provisional (green) Wave-iii high*. *(btw, a w-iii high, means a hgher w-v high later, then: "Le Deluse!" And this w-iii peak might be followed by a 10-20% Correction. Following are two posts from my Diary wherein I was anticipating a possible high = (1) Long term technical indicators : "Helpful" or "Pesky" ? The "Fed Race Track" ... update ... shows SPX battling a tough resistance level, as Gold has made a nice "bullish" Reverse Head-and-Shoulders formation. The "Early warning signal", LQD-to-TLT ... update Looks like there's another warning signal. You may think this has given false signals, until you see: RUT / Russell-2000 ... update ... which represents the broader market. If the latest signal is correct, it is a good time to be alert to further downside, = Link to comment Share on other sites More sharing options...
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