Imminent and severe market correction

[nizar]

The Dow goes up, S&P500 flat. Which one is telling us the real story?

Yeh obviously the latter.
If you think flat for one day after a big run is bearish then i hope you make a killing.

 

[bean]

More on my earlier post THE TOP IS IN ????

My program is showing a small down day will turn this market.
If I entered a small down day on previous days this market has been rising my signals for the next five days remain positive.
If I enter a small down on Nasdaq the first two days drop to neutral reading and next three out a negative.
For the DOW and NYSE the first two days are still positive third is neutral four and fith are negative.

What does this show, It shows as this market has been rising its internals have been weakening.

The top may not be in of course if it rises monday.
But who can say when a top is in?
The day after!!!

Will it be a short term top or the final.
I do not know yet.

 

[Uncle Festivus]

Yeh obviously the latter.
If you think flat for one day after a big run is bearish then i hope you make a killing.

It's been flat for a few day's, while the Dow has kept going. I may be out by a few day's but will also depend on the news data out this week being less than good also.

By my calcs if the current rate of increase in the Dow since the low point in March of 11940 is continued then we are looking at a yearly return of 80%. (1180 points in 32 day's) - not sustainable I would have thought.

Also, the bar for company returns has been artificially lowered this qtr but still only shows a return of 7.4% so far, well below the double digit returns previously, but the market still deludes itself this is sufficient to keep the party going.

The last (97) of the remaining S&P500 companies are still to report this week, a couple of big names eg GM likely to report better but still average earnings. Can the momentum from the rest keep the market going another week before the interest rate decision next week? Any doubters will close out & sit on the sidelines till it's a bit clearer.

The market tells itself what it wants to hear but eventually the fundamentals take over I guess.

My 2c worth

 

[purple]

The market tells itself what it wants to hear but eventually the fundamentals take over I guess.

yeah...the issue is when does this 'eventually' happen? at the moment our May slay is quietly making the rounds, and Sydneysiders pop up with these :

"`You got bad news coming out of the world's biggest economy (US) as well as one of the fastest growing (China), which is enough to make investors anywhere pause for thought,'' said Michael Birch, who helps manage $133 million at Wallace Funds Management in Sydney. "

excerpt from :
http://www.bloomberg.com/apps/news?pid=20602005&sid=aEhZCqRDMoj0&refer=world_indices

 

[krisbarry]

Yep I am almost 100% in cash now, I hope for the love of god we get a pretty nasty correction. Anyway who said you have to be nice in this stock market game

Appears that its every man or women for that matter... for himselfor herself

 

[zed327]

I agree with you Stop The Clock but i'm to scared to jump out of AGS with the jorc due and a few other positives happening.

Just going run a tight stop loss just in case.

A correction is coming because the ASX is just so over bought at the moment, it just can't keep going straight up at this rate.

 

[Knobby22]

Yep I am almost 100% in cash now, I hope for the love of god we get a pretty nasty correction. Anyway who said you have to be nice in this stock market game

Appears that its every man or women for that matter... for himselfor herself

Good to see you guys in cash.
It will reduce the correction and force the market even higher as scared bulls try to get back in. We are in for a good year.

 

[bean]

Good to see you guys in cash.
It will reduce the correction and force the market even higher as scared bulls try to get back in. We are in for a good year.

But bulls or longterm bulls who think the market is going up and up are a good indicator if the market corrects very severly for months and months or years. Tell us when you sell. So we will know it is time to get back in.

 

[Tech_king]

I don't care if its a correction or long term, i make money from both! I am not biased at all!

 

[Kimosabi]

Interesting read from Alan Kohler

Market offers good history lesson

29th April 2007, 12:00 WST



With the Dow Jones industrial average having passed through 13,000 points for the first time during the week, the pricing of US equities versus bonds is once again at an extreme, as it was in 2000. But not in the way you think.

And if history is any guide, the allordinaries index will also hit 13,000 in a year.

At the peak of the Dow in 2000 the US equity yield was 3.2 per cent (based on a trailing price earnings ratio of 31.3 times) and the US 10-year bond yield was 6.5 per cent. Shares were obviously expensive, bonds were cheap, and so it turned out.

Now the average p/e ratio in the US is 18 times, producing an earnings yield of 5.5 per cent. The 10-year US bond yield has fallen to 4.7 per cent.

Shares are now cheap, despite the dramatic new record on the Dow, and bonds are expensive.

Much the same is true of Australia, although we are better off using comparisons with September 1987 rather than 2000, since our market didn’t really participate in the dotcom bubble, because we didn’t have many dotcoms.

But it’s a similar story. In 1987 the trailing price/earnings ratio of the Australian market was 20.4, which produces an earnings yield of 4.9 per cent. The 10-year bond yield was then 12.5 per cent.

Today the earnings yield is 6.4 per cent and the bond yield 5.9 per cent. The so-called Fed model, which is controversial, says that the two yields should be roughly equal, so while the relationship between them in September 1987 indicated that shares were very expensive (and/or bonds were cheap), the reverse is now true.

As we stand here with the Dow at 13,000 and the all ordinaries at 6141, shares are cheap.

That might seem a strange thing to say after three years of 20-25 per cent capital gains from the Australian sharemarket, and a 10 per cent gain so far this year, and with many otherwise excitable analysts getting strangely sombre.

But today’s graph — prepared by Shane Oliver of AMP Capital Markets — proposes another view via history.

Dr Oliver has matched the two low points of the market in the 1980s and 2000s — August 1982 and March 2003 — which is when the two bull markets began.

It is now equivalent to about December 1986. History never repeats itself exactly of course, but if it did, the Australian index would hit 13,000 next January — before crashing spectacularly. The point is that the sharemarket has not yet had the price/earnings multiple “blow off” that usually marks the end of a bull market.

The 1987 blow off only took the average p/e ratio to 20.4 because inflation was 8.5 per cent and the bond yield was 12.5 per cent — more than double what it is now. But that p/e was double the then 10-year average.

Now the trailing p/e is 18 times, but inflation is 2.7 per cent and the bond yield 5.9 per cent (3.2 per cent real versus 4 per cent real in 1987).

Times change, but in my view people do not. At the end of a long bull market, with abundant cash and rampant optimism, people tend to go nuts. They start extrapolating existing growth forever and price assets accordingly. So far that has not happened: share prices have merely kept pace with earnings as they are now, not what optimistic forecasters think they might be.

I’m starting to get a lot of emails from people predicting imminent doom and gloom — one confidently predicted that the market would crash last Tuesday.

In many ways it is easy for a pundit to predict the end of a bull market because if it doesn’t happen, you just change the date. No one has really lost money believing you — they just might not have made as much.

Predicting that the market will go up takes courage, because if people invest and it crashes, they lose real money and come looking for you with a half-brick. But here goes: the market is going up from here, possibly a lot. If it does, it will end in disaster. If it’s “just” another 25 per cent, that will be fantastic.

Alan Kohler publishes Eureka Report, an investment newsletter financially backed by Carnegie Wylie & Co. The views expressed here are Kohler’s alone.

http://www.thewest.com.au/default.aspx?MenuID=31&ContentID=27330

This is the graph that wasn't on the Internet Version of this article. The file size of the scanned version was too big to be readable.

 

[nizar]

I agree with you Stop The Clock but i'm to scared to jump out of AGS with the jorc due and a few other positives happening.

Just going run a tight stop loss just in case.

A correction is coming because the ASX is just so over bought at the moment, it just can't keep going straight up at this rate.

Zed - What do you mean by overbought?
XAO RSI is sitting on about 60.

Uncle - Whats wrong with 80% this year for the DOW, do you know what was the DOW return in 1986? It was about 100% for the few months before the big drop, and this would be in line with Alan Kohlers article.

 

[bean]

I have made up various programs on DOW US markets and gold etc.
The DOW has been Up, its short term trend up. I have been saying the DOW in a final blowoff. I have aslo said the NASDAQ above 2550 will be back in bubble territory. 2554 yesterday and 2557 today.
If I enter monday as a down day the NASDAQ will turn its trend to down and it doesn't have to be a big day down. If Monday is down and continues for tuesday it is set up for a 2% - 3% down day on NASDAQ tuesday.
Is the top in I do not Know but will wait for what happens monday.
It may be a short term top is in?

The DOW may rise but the NASDAQ ? The DOW may carry the NASDAQ higher?

More on my earlier post THE TOP IS IN ????

My program is showing a small down day will turn this market.
If I entered a small down day on previous days this market has been rising my signals for the next five days remain positive.
If I enter a small down on Nasdaq the first two days drop to neutral reading and next three out a negative.
For the DOW and NYSE the first two days are still positive third is neutral four and fith are negative.

What does this show, It shows as this market has been rising its internals have been weakening.

The top may not be in of course if it rises monday.
But who can say when a top is in?
The day after!!!

Will it be a short term top or the final.
I do not know yet.

Glad to see the NASDAQ did what I said it would.
The action tonight and tommorow will say if it was indeed the final top

 

[wayneL]

 

[tech/a]

Close.
But one leg to go by my count.
5920 needs to hold in this corrective move
for the final wave to play out.
Which will be a wave 5 of 5 of 5 of 5.
Pretty important top.

 

[Uncle Festivus]

Uncle - Whats wrong with 80% this year for the DOW, do you know what was the DOW return in 1986? It was about 100% for the few months before the big drop, and this would be in line with Alan Kohlers article.

The current (financial) world resembles little to that which existed in 1986, so too does any comparisons of historic data eg Kohler article (who takes any notice of media finance gurus anyway ).
All I'm saying is that the rate of change is unsustainable in the short term so combined with continuing 'soft' data, we could get a pause. But, none of the data coming out even suggests a bottom forming for a 'soft landing' scenario eg GDP, housing, consumer credit crunch etc, so as far as the US is concerned the risk is to the downside (especially since such a 'big' number has been breached). The Oz market may have a bit of life left though as it may lag due to commodities still to peak, and the super behemoth.

 

[bean]

I post the following today on the price of gold so some parts may not make full sense to everyone but the Goldys know what I'am talking about

Gold bugs you have several questions I need to give answers to
otherwise
you will start to discount what I have been saying. (The bears will
agree the bulls may still need convincing)
.
Gold and gold indexes dropped last night while the general market was
up. True
However they moved up from there lows when the market rose.
Nasdaq did not drop 2-3%. True but I did say we needed weakness and
also
mentioned the DOW still had strength and wanted to rise. The Nasdaq at
one stage was 15 point down but the was want to go higher.
The TOP IS IN - TRUE
Believe it or not it is
NYSE closed last wed 9746

I called the top Friday
Friday NYSE 9705 today 9640
S&P 500 1494 today 1486
Nasdaq 2557 today 2531

The only one is the DOW and what will be said the Dow has made a new
record.
The DOW is carrying the market.

All US markets internals are at a danger stage and dropping each day
My Nasdaq reading today is neutral the the trend next 5 days all
negative (and the negativity is increasing)
The question to ask is how longer can the DOW hold up the market.
Are the market internals positioning themselves for a “CRASH”
Yes a CRASH.. If it is indeed a ‘crash day’ then I may only pick it up
one or two days before

Gold nothing has changed it may move up if the Dow advances and the
indexes follow.
BUT remember it will fall with them as well.
US $ is it trying to rally or get traction?

I have also started to see a few gold writers come up and turn short
term bearish on gold.
Pity how they didn’t mention it a few weeks ago

 

[Smurf1976]

I'm more into investing long term than active trading so don't look at charts too much.

But from a fundamental perspective, I've been thinking of a short, sharp correction in the markets followed by a new bull market in "things" for quite a while now. "Things" as in things you can touch and hold - commodities etc.

My underlying reasoning is that historically at least, the US Fed raises rates to the point that something breaks. I'm thinking that the "something" will probably include the stock market at some point. Once that happens, the door is open for reinflation on a rather big scale IMO since it's what the Fed does best and their track record is pretty consistent in recent times.

 

[chops_a_must]

FWIW, I've gone short the DJIA.

I hope you reversed your position... or at the very least, closed it. What was your signal for a short anyway?

I don't know why anyone would think of shorting a technical breakout from a five year consolidation... but anyway.

Here's a nice article for all you scare mongerers!

Dollar Heads for Weekly Gain as Data Show Economy Strengthening

By David McIntyre and Stanley White

May 4 (Bloomberg) -- The dollar headed for the biggest weekly gain in four months against the euro as strength in manufacturing and services suggested the Federal Reserve will refrain from cutting interest rates in coming months.

The dollar was also set for a second winning week versus the yen, trading at the highest since February, as the yield spread between U.S. and Japanese two-year bonds widened to the most in three weeks. The Institute for Supply Management's index of services grew the fastest in three months in April, while manufacturing was the best in almost a year.

``The data don't support the idea the economy is falling into a hole, pricing out the possibility of the Fed cutting rates,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``The yield differential has moved in the dollar's favor.''

The U.S. currency was poised for its first weekly gain in six against the euro, trading at $1.3550 at 9 a.m. in Singapore, a rise of 0.7 percent, the biggest since Jan. 5.

The dollar traded at 120.38 yen and touched 120.47 yesterday, the strongest since Feb. 27. The currency advanced 0.6 percent from 119.63 yen in New York last week.

The yield premium on U.S. two-year Treasuries over similar- maturity Japanese bonds was 3.84 percentage points, the widest since April 16. The yield advantage was 3.79 percentage points at the end of last week.

Interest-rate futures showed 17.5 percent odds the Fed will lower borrowing costs in August, down from a 22.5 percent chance a week earlier.

Employment, Services Data

The ISM's index of non-manufacturing businesses increased to 56 from 52.4 in March, the Tempe, Arizona-based group said. Readings above 50 point to growth in services such as banking, retailing and construction, which make up almost 90 percent of the U.S. economy.

The dollar may draw added support as the improving economic data this week suggest a report on the U.S. labor market later today may beat expectations.

The U.S. economy created 100,000 new jobs in April, slower than the 180,000 jobs added in the previous month, according to the median estimate of 85 economists surveyed by Bloomberg News. The Labor Department will release the data at 8:30 a.m. in Washington today.

Payrolls in March rose more than economists' estimates. The Labor Department last month also upwardly revised data for January and February.

``We have an above-consensus expectation for a 115,000 increase in payrolls, which would add to the sense that U.S. data are holding firm,'' said Sue Trinh, currency strategist at RBC Capital Markets in Sydney. ``We no longer expect the Fed to cut rates this year. This is absolutely supportive for the dollar.''

The U.S. currency may rise to 121.50 yen and $1.35 per euro today, she said.

European Rates

Europe's single currency may head for an ninth weekly advance against the yen, the longest stretch since January 2002, on speculation European reports on services and retail sales today may reinforce expectations the central bank will raise interest rates further this year.

Royal Bank of Scotland Group Plc's services index rose to 57.6 in April, the fastest pace in three months, from 57.4 in March, a Bloomberg survey shows. Retail sales in the 13 nations that share the euro grew 2.3 percent in March after rising 1.2 percent in February, a separate survey shows.

``In Europe, the view is the economy is getting stronger and stronger,'' said Michael Thomas, head of economics and strategy at ICAP Australia Ltd. in Sydney. ``The Europeans are just about to put up rates again. The euro should continue to be stronger against the yen.''

Support for Euro

The euro may rise to $1.3700 and 165.77 yen in the next week, Thomas said. The European Central Bank's benchmark rate is 3.75 percent, while the Bank of Japan's overnight lending rate is 0.50 percent, the lowest among major economies.

The yield spread between benchmark 10-year German and Japanese bonds reached 2.60 percentage points, the widest in almost three years.

Interest-rate futures indicate investors anticipate the ECB will increase borrowing costs twice more this year. The yield on the December contract was 4.375 percent yesterday, above 4.355 percent a week earlier.

The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark since 1999.

To contact the reporter on this story: David McIntyre in Sydney at dmcintyre2@bloomberg.net ; Stanley White in Tokyo at swhite28@bloomberg.net .
Last Updated: May 3, 2007 21:04 EDT

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae5cOvziN2tE&refer=home

 

[Uncle Festivus]

I hope you reversed your position... or at the very least, closed it. What was your signal for a short anyway?

I don't know why anyone would think of shorting a technical breakout from a five year consolidation... but anyway.

Here's a nice article for all you scare mongerers!

A week early I think for that call, only made some lunch money at the top of the daily [FONT=Arial,Helvetica,sans-serif]Reverse Symmetrical Triangle[/FONT], but a day trade all the same. A week is a long time for me in these conditions .

Yes, the $US was due for a technical bounce. But, if this fails, it wont take much to take it under 80 this time.

Also - The market has been staging a seemingly unstoppable advance over the past two months, with the Dow Jones Industrial Average rising in 22 out of the past 25 sessions, its longest winning streak since 1929.

 

[Freeballinginawetsuit]

Also - The market has been staging a seemingly unstoppable advance over the past two months, with the Dow Jones Industrial Average rising in 22 out of the past 25 sessions, its longest winning streak since 1929.

Indeed, quite the opposite net effect of what was being forecast on ASF 2 months ago!.

Its not exactly 'rocket science' stating it after the fact now is it UF, and that punters will be locking in profits at some point.