Replies to post #9164 on Sector Investing

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Amateur Weekend Stock Market Analysis (12/18/10)

http://www.amateur-investor.net/Weekend_Market_Analysis_Dec_18_10.htm

Bullishness is running at rather extreme levels right now and many are forecasting a banner year for 2011. However there are some signals that suggest another correction is coming sooner than later. The Volatility Index (VIX) dropped below the 16 level on Friday and since late 2007 when it has reached this level (points A) corrections have followed. The longer term upward trend line (white line) from the March 2009 low is trending towards the 1150 level so an eventual 100 point pullback to this area is certainly not impossible.



Meanwhile for those that follow John Hussman he recently talked about 5 conditions that have occurred over the past few weeks.

1) S&P 500 more than 8% above its 52 week Exponential Moving Average
2) S&P 500 more than 50% above its 4 year low
3) Shiller P/E greater than 18
4) 10 Year Treasury Yield higher than 6 months earlier
5) Investor Intelligence Advisory: Bullishness > 47%, with Bearishness < 27%

Since the mid 1960's when all "5" of these parameters have coincided with each other the market has gone through a correction of varying magnitudes. I made a simple plot of all these occurrences (green bars) in the chart below. Some of these occurrences have been followed by substantial sell offs such as the early 1973 Top, October 1987 Crash, Early 2000 Top and late 2007 Top. Meanwhile with the most recent Signal there have now been "3" Signals generated in 1the past 2 months. The last time we saw "3" Signals occur in 12 months or less was back in late 1999 and early 2000 which was followed by a major Top in March of 2000.



The table below shows all of the Hussman Signals and the initial drop in the S&P 500 after each Signal and what followed.

 
 Hussman 		l 			 
 Signal 	Initial 	      # of 	 
 Date 	 Peak 	Low  % Drop   Weeks 	 
 Dec-72   120 	101   -15.8    26    Jan 73 to Oct 74 Low was -48.3% 
   
 Aug-87   338 	216   -36.1     9    Saw All-Time-Highs 2 Yrs later 
  
 Jul-98 	1191 	923   -22.5    12    Followed by New All Time Highs 
  
 Jul-99 	1420   1234   -13.1    13    Followed by New All Time Highs  
  
 Jan-00 	1476   1325   -10.2 	8    Rose up to 1553 in March of 2000 which was then followed by a 50% Drop before bottoming in October of 2002 at 769  
  
 Mar-00 	1553 	1339  -13.8     3    Total Drop from March 2000 High to October 2002 Low was -50.1% 
  
 Jul-07 	1556 	1371  -11.9 	5    Rose up to 1576 in October of 2007 which was then followed by a -57.6% Drop before bottoming in March of 2009 at 667 
  
 Jan-10 	1151 	1045   -9.2 	4    No Further Drop which was eventually followed by a Higher Highs 
  
 Apr-10 	1220 	1011  -17.1    10    No Further Drop which was eventually followed by a Higher Highs 
  
 Dec-10 	  ? 	  ? 	 ?      ?

Meanwhile for those that follow the Hindenburg Omen one of those was triggered this week as well. Now if we look at the Hussman Signals that coincided with a Hindenburg Omen there have only been 5 other occurrences in the past. In 4 out of the 5 occurrences major sell offs followed in 1973, late 1987, early 2000 and late 2007 as they all exceeded 35%. Meanwhile the July 1998 Signal only saw a 22% correction.



Hussman Signals coinciding with Hindenburg Omen Signals

 
 Hussman HO 					 
 Signal 	Signal 		     Initial  # of 	 
 Date 	 Date 	 Peak 	Low  % Drop   Weeks 	 
 Dec-72 	Jan-73   120 	101   -15.8    26 	Total Drop from January 1973 High to October 1974 Low was -48.3% 
  
 Aug-87 	Sep-87   338 	216   -36.1 	9 	1987 Crash...was eventually followed by a New All Time Highs 2 Years later. 
  
 Jul-98 	Jul-98 	1191 	923   -22.5    12 	No Further Drop which was eventually followed by New All Time Highs 
  
 Jan-00 	Dec-99 	1476   1325   -10.2 	8 	Rose up to 1553 in March of 2000 which was then followed by a 50% Drop before bottoming in October of 2002 at 769  
  
 Jul-07 	Jul-07 	1556   1371   -11.9 	5 	Rose up to 1576 in October of 2007 which was followed by a -57.6% Drop before bottoming in March of 2009 at 667 
  
 Dec-10 	Dec-10    ? 	 ? 	 ? 	?

What these Signals mean is that a correction of 10% or more has a high probability of occurrence as we move into 2011 and that it's not a good time to be chasing the market higher and taking new positions to the Long Side.

[ReturntoSender]

Amateur Weekend Stock Market Analysis (12/18/10)

http://www.amateur-investor.net/Weekend_Market_Analysis_Dec_18_10.htm

Bullishness is running at rather extreme levels right now and many are forecasting a banner year for 2011. However there are some signals that suggest another correction is coming sooner than later. The Volatility Index (VIX) dropped below the 16 level on Friday and since late 2007 when it has reached this level (points A) corrections have followed. The longer term upward trend line (white line) from the March 2009 low is trending towards the 1150 level so an eventual 100 point pullback to this area is certainly not impossible.



Meanwhile for those that follow John Hussman he recently talked about 5 conditions that have occurred over the past few weeks.

1) S&P 500 more than 8% above its 52 week Exponential Moving Average
2) S&P 500 more than 50% above its 4 year low
3) Shiller P/E greater than 18
4) 10 Year Treasury Yield higher than 6 months earlier
5) Investor Intelligence Advisory: Bullishness > 47%, with Bearishness < 27%

Since the mid 1960's when all "5" of these parameters have coincided with each other the market has gone through a correction of varying magnitudes. I made a simple plot of all these occurrences (green bars) in the chart below. Some of these occurrences have been followed by substantial sell offs such as the early 1973 Top, October 1987 Crash, Early 2000 Top and late 2007 Top. Meanwhile with the most recent Signal there have now been "3" Signals generated in 1the past 2 months. The last time we saw "3" Signals occur in 12 months or less was back in late 1999 and early 2000 which was followed by a major Top in March of 2000.



The table below shows all of the Hussman Signals and the initial drop in the S&P 500 after each Signal and what followed.

 
 Hussman 		l 			 
 Signal 	             Initial  # of 	 
 Date 	 Peak 	Low  % Drop   Weeks 	 
 Dec-72   120 	101   -15.8    26    Jan 73 to Oct 74 Low was -48.3% 
   
 Aug-87   338 	216   -36.1     9    Saw All-Time-Highs 2 Yrs later 
  
 Jul-98 	1191 	923   -22.5    12    Followed by New All Time Highs 
  
 Jul-99 	1420   1234   -13.1    13    Followed by New All Time Highs  
  
 Jan-00 	1476   1325   -10.2 	8    Rose to 1553 then Dropped 50% 
   
 Mar-00 	1553 	1339  -13.8     3    Total Drop was -50.1% 
  
 Jul-07 	1556 	1371  -11.9 	5    Up to 1576 followed by -57.6% Drop 
  
 Jan-10 	1151 	1045   -9.2 	4    Followed by a Higher Highs 
  
 Apr-10 	1220 	1011  -17.1    10    Followed by a Higher Highs 
  
 Dec-10 	  ? 	  ? 	 ?      ?

Meanwhile for those that follow the Hindenburg Omen one of those was triggered this week as well. Now if we look at the Hussman Signals that coincided with a Hindenburg Omen there have only been 5 other occurrences in the past. In 4 out of the 5 occurrences major sell offs followed in 1973, late 1987, early 2000 and late 2007 as they all exceeded 35%. Meanwhile the July 1998 Signal only saw a 22% correction.



Hussman Signals coinciding with Hindenburg Omen Signals

 
 Hussman HO 					 
 Signal 	Signal 		      Initial  # of 	 
 Date 	 Date 	 Peak 	Low  % Drop   Weeks 	 
 Dec-72 	Jan-73   120 	101   -15.8    26 	Total Drop was -48.3% 
  
 Aug-87 	Sep-87   338 	216   -36.1 	9 	1987 Crash then Up! 
  
 Jul-98 	Jul-98 	1191 	923   -22.5    12 	Followed by New Highs 
  
 Jan-00 	Dec-99 	1476   1325   -10.2 	8 	Rose to 1553 then-50%   
  
 Jul-07 	Jul-07 	1556   1371   -11.9 	5 	Rose to 1576 then-57.6% 
  
 Dec-10 	Dec-10    ? 	 ? 	 ? 	?

What these Signals mean is that a correction of 10% or more has a high probability of occurrence as we move into 2011 and that it's not a good time to be chasing the market higher and taking new positions to the Long Side.