Will Markets Retreat 10 Percent -- or More?
By Prieur du Plessis Jun 18, 2009 9:00 am
Now is the time for a defensive position.
Leading markets such as Russia (+137.0%), India (+89.5%), China (+54.7%), and Brazil (+50.4%) significantly outperformed laggards such as the Dow Jones Industrial Index (+27.5%) and the S&P 500 Index (+39.9%), although all markets recorded very respectable returns. The major US indices have gained for 12 out of the past 14 weeks.
Focusing on the US, the S&P 500 Index (911) has backed off resistance at its January high (935) and is less than 5 points away from breaking down through the key 200-day moving average (906) -- broken to the upside only 2 weeks ago.
Importantly, short-term oscillators such as the rate-of-change (momentum) indicator is on a knife’s edge of giving a selling signal -- i.e. crossing through the zero line in the bottom section of the chart below. Also note the negative divergence between the Index and the ROC line -- typically this would be a warning sign that a near-term trend change will take place.
No positions in stocks mentioned.
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Reply
2009-06-18 16:29:25
Excellent
Clear and straightforward, thank you!
Considering all the conditions, we are bound to re-test the March low i.m.h.o.
I have read several reports that most of the buyers are speculative and that the average investor is still in bonds and fixed assets or cash (smart, I think, if you're not a trader).
We are at an identical juncture to the Spring/Summer of 1930, where the DOW went over the 50 day EMA, slightly over the 200 day SMA, then when the two averages converged the DOW went down and pushed below the previous low.
Sell in June and hum a tune, just don't make it "Happy days are here again".
Considering all the conditions, we are bound to re-test the March low i.m.h.o.
I have read several reports that most of the buyers are speculative and that the average investor is still in bonds and fixed assets or cash (smart, I think, if you're not a trader).
We are at an identical juncture to the Spring/Summer of 1930, where the DOW went over the 50 day EMA, slightly over the 200 day SMA, then when the two averages converged the DOW went down and pushed below the previous low.
Sell in June and hum a tune, just don't make it "Happy days are here again".
2009-06-23 13:15:20
Excellent
Eric,
I wrote to you a while ago. I think you and I may be the only ones continually comparing today's Dow to the aftermath of the October 1929 crash.
Maybe because it's difficult to find the data from 1929, but it's readily available on the Yahoo Finance charts, which is what I use. Do you have another source?
As the say, history does not repeat but it certainly rhymes, and like you, I'm looking at the 50/200 DMAs and seeing the same thing, comparing 1929 to today.
One final point, the more I hear people say this can't be another great depression, the more I think that enough time needs to pass such that people forget, in order for a repeat, whiich is where we are at right now. Even 87 year olds that I know who lived the depression, and whose thrift even today proves the impact that era had on their spending habits, when asked, tell me that they don't think anything that severe could happen again.
Also, if you want further proof that a once powerful and 'invincible' index can't go south for extended periods. take a look at Nikkei 225 from 1989 on. also on Yahoo. Over last 20 years, after topping near 40,000, that index has fallen as low as near 7100 (and stands at 9500 or so today). That's an 8--85% decline. First 3 years of that decline also reacted similarly vis a vis the major moving averages.
Thanks!
I wrote to you a while ago. I think you and I may be the only ones continually comparing today's Dow to the aftermath of the October 1929 crash.
Maybe because it's difficult to find the data from 1929, but it's readily available on the Yahoo Finance charts, which is what I use. Do you have another source?
As the say, history does not repeat but it certainly rhymes, and like you, I'm looking at the 50/200 DMAs and seeing the same thing, comparing 1929 to today.
One final point, the more I hear people say this can't be another great depression, the more I think that enough time needs to pass such that people forget, in order for a repeat, whiich is where we are at right now. Even 87 year olds that I know who lived the depression, and whose thrift even today proves the impact that era had on their spending habits, when asked, tell me that they don't think anything that severe could happen again.
Also, if you want further proof that a once powerful and 'invincible' index can't go south for extended periods. take a look at Nikkei 225 from 1989 on. also on Yahoo. Over last 20 years, after topping near 40,000, that index has fallen as low as near 7100 (and stands at 9500 or so today). That's an 8--85% decline. First 3 years of that decline also reacted similarly vis a vis the major moving averages.
Thanks!
2009-06-23 14:04:10
Excellent
Steve,
Thanks, sorry if I didn't write back before.
Look into:
Kondratiev Winter: en.wikipedia.org/wiki/Kondratiev_wave
Doug Short: www.dshort.com/
Nassim Taleb (Black Swans) and Benoit Mandelbrot (Fractals) (Google both).
I've read through a lot of these ideas and they are choherent and make sense. If they were ranting aobut the fifth column and Martian mind implants I would ignore them but these are reasoned arguments that to me make sense.
Markets are a cycle like the weather, seasons, climate, life, and otherwise. Things generally regress to the mean, but without outliers cycles become unrealistically predictable. There is stability within the chaos, and chaos within the stability. Just when we think we can predict based upon past observations and patterns, an outlier comes along and changes everything. The conditions that create the appearence of stability are the same conditions that lead to the likelihood of a change and the loss of stability.
We are talking about societies and civilizations as well as markets. Since the end of WWII we've had a pretty calm life, despite the seeming chaotic changes in technology and society. I'd like things to stay positive and not chaotic but my gut tells me we are due for some big upheavels. I can't post exact data right here right now, but just think of how many times you have heard "unprecendented" and "not since the 30's" and "worse than 1974" with regard to the markets and throw in oil, food, population, mechanized agriculture, Internet, nuclear proliferation, and cultures being turned upside down or inside out by the pace of change and stability does not seem like a realistic forecast.
Thanks for your comments! I'll go look at the Nikkei data you mentioned. I use Yahoo too because it is convenient; I've heard people criticize it but the data is the same long term. My personal feeling is that people want to believe the best and view things within the window of their experience; the macro view is harder to digest and much more frightening.
Regards,
Eric
Thanks, sorry if I didn't write back before.
Look into:
Kondratiev Winter: en.wikipedia.org/wiki/Kondratiev_wave
Doug Short: www.dshort.com/
Nassim Taleb (Black Swans) and Benoit Mandelbrot (Fractals) (Google both).
I've read through a lot of these ideas and they are choherent and make sense. If they were ranting aobut the fifth column and Martian mind implants I would ignore them but these are reasoned arguments that to me make sense.
Markets are a cycle like the weather, seasons, climate, life, and otherwise. Things generally regress to the mean, but without outliers cycles become unrealistically predictable. There is stability within the chaos, and chaos within the stability. Just when we think we can predict based upon past observations and patterns, an outlier comes along and changes everything. The conditions that create the appearence of stability are the same conditions that lead to the likelihood of a change and the loss of stability.
We are talking about societies and civilizations as well as markets. Since the end of WWII we've had a pretty calm life, despite the seeming chaotic changes in technology and society. I'd like things to stay positive and not chaotic but my gut tells me we are due for some big upheavels. I can't post exact data right here right now, but just think of how many times you have heard "unprecendented" and "not since the 30's" and "worse than 1974" with regard to the markets and throw in oil, food, population, mechanized agriculture, Internet, nuclear proliferation, and cultures being turned upside down or inside out by the pace of change and stability does not seem like a realistic forecast.
Thanks for your comments! I'll go look at the Nikkei data you mentioned. I use Yahoo too because it is convenient; I've heard people criticize it but the data is the same long term. My personal feeling is that people want to believe the best and view things within the window of their experience; the macro view is harder to digest and much more frightening.
Regards,
Eric
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