NYSE and the status of world markets

[divs4ever]

i find the UK and South Korea charts surprising , could they have been accidentally swapped

just asking

cheers

 

[Gunnerguy]

Yep starting to get worried here. Spent the weekend reading and looking at charts. I’m a long term ‘buy and hold’ 27 years buy and hold but with some trend index in and out. Country and thematic Index ETF’s. Went 25% cash in July 2021, yes missed a bit, but now 40% cash after some selling in Friday. I can’t afford ‘to loose what I got’ with living expenses and Ms.GG wanting to build a house.
Yes so far not a large drop in the big picture. Portfolio is only down 3% over the past 3-4 months. Portfolio has a Beta of about 0.7 but if markets tank 20% I can’t afford it (I’m retired).
Learnt about options ( and traded and did well) the last 10 months so considering buying ASX200 March/April puts at 6900 to reduce the pain if it happens.
Buying insurance tomorrow.
Gunnerguy

 

[qldfrog]

Yep starting to get worried here. Spent the weekend reading and looking at charts. I’m a long term ‘buy and hold’ 27 years buy and hold but with some trend index in and out. Country and thematic Index ETF’s. Went 25% cash in July 2021, yes missed a bit, but now 40% cash after some selling in Friday. I can’t afford ‘to loose what I got’ with living expenses and Ms.GG wanting to build a house.
Yes so far not a large drop in the big picture. Portfolio is only down 3% over the past 3-4 months. Portfolio has a Beta of about 0.7 but if markets tank 20% I can’t afford it (I’m retired).
Learnt about options ( and traded and did well) the last 10 months so considering buying ASX200 March/April puts at 6900 to reduce the pain if it happens.
Buying insurance tomorrow.
Gunnerguy

I bought this insurance 2w ago put at 7450 or so march april and doing well so far

 

[Dona Ferentes]

Consecutive days of losses, savage selling in the final hour of trade, and the reversal of intraday gains are all worrying signs on global markets.

It’s the way markets are falling that’s really worrying

Consecutive days of losses, savage selling in the final hour of trade, and the reversal of intraday gains are all worrying signs on global markets.

www.afr.com

Ursa Major or the Big Dipper??

we will see if some of the adages are true this afternoon or soon after ...... especially

Amateurs open markets, Professionals close them

 

[DaveTrade]

The Death of 60/40: A History​

By Tim FortierJanuary 13, 2022

Last week I introduced the idea that the traditional 60/40 Portfolio, a common approach among investors, was no longer going to serve investors as intended in the coming years.

But in order to understand the future, we must first understand the past…

Model portfolios that adhere to a specific asset allocation have often been used by investors because of their ease of implementation.

The 60/40 Portfolio consists of 60% allocation to diversified equities and a 40% allocation to a broad basket of bonds.

The reason many people will invest in both stocks and bonds is that they are often non-correlated, meaning, stocks often zig while bonds zag.

While the relationship isn’t constant, combining two or more non-correlated assets into a portfolio results in a better portfolio than just either alone.

Due to the imperfect correlations between stock and bond returns historically, the 60/40 model has enjoyed decades of success at providing investors with strong absolute returns and suitable protection in a down market.

Historical returns

Dating back to 1926, the 60/40 Portfolio has enjoyed an annualized return of 9.1%. Its best year (1993) saw returns of 36.7%, while its worst year (1931) experienced a loss of 26.6%.

Over those 95 years, only 22 years saw the portfolio decline in value. The returns combined with relative stability have made the balanced portfolio ideal for retirees.

In fact, it has been cited that the concept of the 4% safe withdrawal rate can be attributed to studies done using portfolios similar to the 60/40.

The problem with long-term annualized returns is that they mask shorter periods where market returns can be less meaningful. By definition, for there to be an “average” there must be returns both above and below the average.

While recent returns have fared even better, with an annualized return of 11.1% during the past decade, it should be noted that the strategy does display sensitivity to starting equity valuations and economic regime changes.

For instance, during the “Lost Decade,” the period between 2000 and 2009, the strategy provided a much lower annualized return of 2.3% (before inflation).

This period was characterized by high starting stock valuations, the dot.com bubble and crash, and finally the real-estate and credit crash.

During this period, an investor attempting to supplement living expenses from their portfolio by liquidating 4% a year would have eaten into principal well before the next decade of higher returns was experienced.

It’s worth pointing out that as investors we don’t get to choose the sequence of returns that we experience. More commonly referred to as “sequence risk,” a degree of luck is involved.

For instance, a person who retired in 1982 (right before the single greatest period of annualized returns) had a much better experience than another person who may have retired in 2000, right before “the lost decade,” all else being equal.

You might say there is luck in the stars because often this important factor is determined by when you are born!

You may be asking yourself what I mean by the term economic regime. As a simple example, imagine that the global economy is defined by four regimes, each of which combines a growth axis with an inflation axis.

A period of accelerating growth in combination with rising inflation might be termed an inflationary boom, while a combination of accelerating growth with falling inflation might represent a disinflationary boom.

On the other side of the axis, a period of slowing growth, combined with rising inflation, is often termed stagflation, while a period of decelerating growth concurrent with falling inflation is a deflationary bust.

One of the problems with the ubiquitous 60/40 Portfolio is that it is really only suited to one of the four economic regimes that an investor is likely to experience over a typical long-term investment horizon.

While it flourished in the disinflationary growth period experienced from 1981-2000, a 60/40 Portfolio proved relatively ineffective during the stagflationary regime of the 1970s as demonstrated below.

The average annual return during the 1970s was 6.12% before inflation (and included one large drawdown of nearly 28% between 1973-1974).

During the period 1982 -2000, the portfolio’s average annualized return was 15% and included only one negative year.

Why did this strategy perform so well in the 1980s but not the 1970s?

Simply, interest rates respond predictably to inflation. When inflation is expected to decline, interest rates will soon follow, which causes bond prices to rise.

From 1981 to 2000, we experienced falling inflation, falling interest rates, and economic growth. Hence, an allocation toward fixed income and equities performed quite well because both were rising at the same time.

Bonds like declining inflation, while stocks like benign inflation and strong growth.

When considering any investment strategy it is critical to consider the economic regime in which the strategy will be operating. No investment exists in a vacuum and will be influenced by a myriad of market forces.

Thus, when choosing an investment strategy it is extremely important to consider both the current and expected economic regime.

 

[DaveTrade]

 

[DaveTrade]

If we look at a Heikin-Ashi chart it is clear that momentum to the downside is still increasing making me think that the support zone on my chart above will be reached.

 

[Smurf1976]

If we look at a Heikin-Ashi chart it is clear that momentum to the downside is still increasing making me think that the support zone on my chart above will be reached.

I suspect you're right.

Momentum is to the downside but I don't expect an actual crash simply because far too many people are calling for one. Everyone from regular commentators on YouTube through to mainstream non-financial newspapers are trying to call it and that's not what tends to happen at a real market top. Too many bears around in the mainstream calling for the end of life as we know it etc.

My guess - down to the support zone, then we get a decent rally that'll reassure everyone that everything's fine, nothing to worry about, all those warnings were just the merchants of doom. Once everyone's convinced of that, the actual top will be imminent.

Just my

 

[ducati916]

I suspect you're right.

Momentum is to the downside but I don't expect an actual crash simply because far too many people are calling for one. Everyone from regular commentators on YouTube through to mainstream non-financial newspapers are trying to call it and that's not what tends to happen at a real market top. Too many bears around in the mainstream calling for the end of life as we know it etc.

My guess - down to the support zone, then we get a decent rally that'll reassure everyone that everything's fine, nothing to worry about, all those warnings were just the merchants of doom. Once everyone's convinced of that, the actual top will be imminent.

Just my

Agreed @Smurf1976

Look at the extremes:

The bounce, probably will start after 1030am. The open will probably be weak.

I do think however the TOP is in. This is a bounce. Nothing else.

Until the Fed pivots, the market is cooked.

jog on
duc

 

[Jeda]

I suspect you're right.

Momentum is to the downside but I don't expect an actual crash simply because far too many people are calling for one. Everyone from regular commentators on YouTube through to mainstream non-financial newspapers are trying to call it and that's not what tends to happen at a real market top. Too many bears around in the mainstream calling for the end of life as we know it etc.

My guess - down to the support zone, then we get a decent rally that'll reassure everyone that everything's fine, nothing to worry about, all those warnings were just the merchants of doom. Once everyone's convinced of that, the actual top will be imminent.

Just my

Your is very valuable

 

[DaveTrade]

Will the Next “Big Recession” Start on Wednesday?

The S&P, Dow, and Nasdaq Composite plunged this morning as Wall Street’s no good, very bad January got worse. Bulls – the few that remain – were left seeing red today across virtually every sector and industry. Few stocks were spared in the selling.

All three major indexes have descended beneath support at their December lows as a result, led lower by the tech-heavy Nasdaq Composite.

And with a critical Federal Open Market Committee (FOMC) meeting coming up this week, the market could face yet another significant test as the Fed continues its fight with inflation.

Goldman Sachs analysts released a note over the weekend suggesting that Fed Chairman Jerome Powell may have a few hawkish surprises in store for traders in his post-meeting remarks.

“Our baseline forecast calls for four hikes in March, June, September, and December,” said Goldman economist David Mericle.

“But we see a risk that the FOMC will want to take some tightening action at every meeting until the inflation picture changes. This raises the possibility of a hike or an earlier balance sheet announcement in May, and of more than four hikes this year.”

This goes completely against commentary provided last week by Wall Street banks, the majority of which expected a dovish announcement from Powell in response to the market’s sudden downturn.

But now, midway through a rough earnings season (in terms of both profits and forward guidance), the Fed has been forced into even more of a “damned if you do, damned if you don’t” situation.

In March, the Fed will clearly be hiking rates into either:

A. Stagflation, which would undoubtedly cause a market meltdown. Or…

B. A rate hike-driven recession, which would potentially reduce inflation by not only raising rates but cooling red-hot economic demand as well.

Option A would be bad. Option B could be catastrophic. Both would wound bulls severely in 2022.

The small-cap Russell 2000, which some analysts view as a good indicator of the health of the US economy (myself included), has officially entered a bear market as of this morning. The index is down 20% from its November high, which was also the index’s all-time high.

The S&P, by comparison, is down roughly 10% from its all-time high. The Russell 2000 typically leads the other indexes when bear markets occur. Analysts from Jeffries pointed to the small-cap index as evidence of recessionary fears (and a future S&P bear market), courtesy of the Fed.

“We think the market is now thinking the 'R-word.' Why else would the Russell 2000 be down as much as it has been?” asked Jeffries strategist Steven DeSanctis.

“Investors see an aggressive Fed pushing the US economy into a big slowdown or even a recession over the next year.”

And so, when the January FOMC meeting wraps up this Wednesday, the market could face a true “make or break moment.” If it becomes clear that Powell is intent on sparking a recession to stop inflation, major pain could be waiting for bulls on the other side of the meeting, likely dragging each major index (and the Russell 2000) to even lower lows in the process.

 

[DaveTrade]

A picture of the Russell 2000 to go with the above post. As you can see the Russell is currently bouncing off support as are a number of other index's and stocks, the next couple of days will show us if this is a dead cat.

 

[DaveTrade]

MARKETS IN TURMOIL​

By Mike ReillyJanuary 24, 2022

You fell for it didn’t you? The scary headline… works every time.

I wrote that headline to save you the trouble of turning on your TV or following your favorite fear-monger. You’re welcome.

Let me sum it up for you – the bulls are currently in trouble.

There’s not a lot to be optimistic about right now. Especially if you’re holding a bunch of long positions in growth areas like Tech and Communications.

Last week, I explained how we were seeing a rotation within equities – not out of equities.

The narrative coming into last week was rotation out of growth sectors and into more cyclical areas like Financials, Energy, and Industrials…

Which makes sense – cyclical stocks tend to do well in a rising interest rate environment where growth areas such as Technology can struggle.

Markets took on a very different tone throughout last week.

Here are a few of the major indices… none are holding up under the pressure. The DJIA broke support and below its 200 moving average.

Transports are struggling to hold key levels…

The S&P 500 index broke previous support…

Keep in mind, we had already seen small-cap growth (IWM) fail on its attempted breakout and collapse below previous support levels.

And here’s the NASDAQ, which has begun breaking down in December, with over half of its constituents down more than 20% off their recent highs.

Up until now, it’s been high growth stocks getting slammed – just look at Tech.

But now, the biggest question entering this week is – what do the bulls have left to hold on to?

I think the only things left supporting the Bullish argument are Treasuries and Commodity prices.

This chart may be one of the most-watched and most important charts on the planet right now. The 10-Year has to hold 1.75%.

And to be clear, it’s holding that area, so we haven’t seen a failed breakout in 10-Year Treasuries…

Yet.

Can Treasuries hold? If they can, what does this look like?

Well, I’d expect Value stocks around the world are doing well. Financials are doing well, as are other cyclical areas of the market. And that is what we have been seeing, up until now.

To be clear, we have not seen a break-down in the 10-Year Treasury – if we do, we’ll have to adjust our thinking.

That was the Bullish argument, but what’s the Bearish argument for equities? Particularly if the 10-Year yield breaks down?

It’s likely the selling pressure that was contained to growthy areas, such as Technology, spills over and begins to hit value/cyclicals. We’d expect to see Financials (specifically banks) fail, Energy sells off, as do Industrials and Materials. Bonds are getting bought in that environment, Gold probably catching a bid, as does the Japanese Yen.

Understand this, markets are fluid.

Markets tell you what they’re going to do – not the other way around.

We have to adjust to markets, markets will never adjust to us.

 

[DaveTrade]

A closer look at the 10yr Bond yield mentioned in the previous post;

 

[DaveTrade]

Because a lot of people on this forum trade the Australian market, I'm post the Aus 10yr Bond Yield charts;

 

[DaveTrade]

Don't "Buy the Dip" Just Yet

Stocks fell this morning after enjoying a massive afternoon surge in the trading session prior. Yesterday, the major indexes initially plunged before reversing, closing slightly higher following an afternoon rally.

And while rampant dip-buying certainly contributed to the bullish reversal, it was a single put seller that sparked the historic momentum shift. At around noon EST, the mysterious put seller appeared, flooding the market with puts. This caused dealers to suddenly pivot from selling S&P futures to buying them via a negative gamma feedback loop that forced an intraday short squeeze as shorts rushed to cover their positions.

Nobody knows who the put seller was. It may have been a hedge fund trying to make some money back before bailing on some losing S&P long positions. Or, it could have been an institutional dip buyer looking to catch the selloff low.

Regardless, stocks reversed again this morning and headed lower once more. The put seller did not return. And, if the S&P doesn’t descend below yesterday’s low, the put seller will have effectively tagged the selloff low to perfection (thanks mostly to the fact that they were responsible for jolting stocks higher).

However, if the S&P does fall below yesterday’s low, the put seller could be in big trouble. Selling puts is a bullish strategy. The put seller would be sitting on a huge loss if the S&P retraces significantly. And, if he/she tries to buy to close those puts to avoid further losses, we could see the market whipsaw lower in epic fashion as puts crowd out calls.

So, even though yesterday’s afternoon rally was a good sign, it’s not necessarily confirmation that bulls are out of the woods just yet.

“I don’t think it’s done,” remarked SoFi’s head of investments strategy, Liz Young.

“This [...] is a digestion process of a new environment that we’re not conditioned for.”

The “new environment” being a rate hike-hungry Fed, which will provide guidance to investors tomorrow afternoon following the January Federal Open Market Committee (FOMC) meeting.

“If you are trading this market, we continue to advise caution,” said DataTrek founders Nichola Colas and Jessica Rabe.

“Clarity on Fed policy will not come until Wednesday’s FOMC meeting, and even then, commentary from the Fed and Chair Powell may be insufficient to calm investors.”

During the initial Covid crash in February 2020, the S&P gave investors a “head fake” when it rallied 10% from trough-to-peak after plunging over 15% in the 6 trading days prior. Many analysts thought the bottom had been reached.

But a few days later, the S&P retraced and fell another 30%. Does a similar fate await equities this time? It’s not out of the question. In fact, these types of “dead cat bounces” often occur in the middle of prolonged selloffs. Bulls just can’t seem to help themselves when they see a sizable dip.

And usually, that dip buying works out. When it doesn’t, however, it only contributes to additional pain once those bulls eventually capitulate.

For that reason, buying into the teeth of the current dip may not be the wisest move, tempting as it may seem. Traders might at the very least want to wait until Fed Chairman Jerome Powell’s post-FOMC press conference tomorrow afternoon, which is shaping up to be a true “make or break” moment for stocks.

 

[DaveTrade]

NYSE BULLISH PERCENT​

​

January 25, 2022 ~ Bill Spencer​

This Recent Change Is: A reversal from an X-column to an O-column.

Date of Change: January 20, 2022.

Number of Days Since Previous Change: 22.

Interpretation: The market should now be considered weak in the short term as well as weak over the intermediate- to longer-term.

******

And the beat goes on...

After spending just 22 days in a column of X’s, the NYSE BPI on January 20th flipped to a column of O’s.

This was the shortest stay in an X-column since the period from February 10 to February 26 when this indicator spent just 16 days in an X-column before flipping to O's.

The flip came on January 20, and over the subsequent two trading days the BPI managed to fill four additional boxes and to extend this newest bearish O-column into the "48 box."

Let me explain what that number means...

The New York Stock Exchange Bullish Percent Index (NYSE BPI) is what technicians call an "oscillator." It can move up and down between zero percent and one hundred percent.

What the BPI displays, at any moment in time, is the percentage of stocks trading on the New York Stock Exchange that are currently on point-and-figure Buy signals on their own respective price charts.

The more stocks on Buy signals, the more justified we are in considering the market to be strong. The fewer stocks on buy signals (which is the same as "the more stocks on Sell signals) the more justified we are in considering the market to be weak.

Right now, out of a possible 100 percent, just 44% of NYSE stocks are on Buy signals. By contrast, consider that in February of last year that number got as high as 76%.

Let's go deeper...

For a particular stock to go on a Buy signal, there has to be a lot of buying of that stock. So much so that the price (driven higher by that buying pressure, a.k.a "Demand") is able to penetrate above a historical resistance level.

Deeper still...

A resistance level is a price where, experience has shown, sellers of the stock will step in and distribute their shares. Those sellers/bears will distribute/sell so much of the stock at that price that they are able to overwhelm the buyers/bulls -- thus stopping the upward price movement in its tracks.

So when a stock's price, after failing to get past that resistance price so many times, is able -- finally -- to break above it... that means that the bulls/buyers are strong enough, or have enough conviction, that they overwhelm the bears. The bulls keep buying until the bears run out of shares to supply... or, defeated, throw in the towel and step aside.

Often, those former bears, realizing the truth of the old maxim "if you can't beat 'em join 'em" become bulls themselves. They begin buying, adding even further upward pressure to that stock's price.

The foregoing applies as much to support levels as it does to resistance levels.

A support level is a price where, experience has shown, buyers of the stock will step in and begin to accumulate shares. Those buyers/bulls will accumulate/buy so much of the stock at that price that they are able to overwhelm the sellers/bears -- thus stopping the downward price movement in its tracks.

So when a stock's price, after failing to fall below that support price so many times is able -- finally -- to do so... that means that the bears/sellers are strong enough, or have enough conviction, that they overwhelm the bulls. The bears keep selling until the bulls run out of cash to buy with... or leave the arena.

Often, those former bulls become bears themselves.

Most of the buying and selling these days is carried out by computers working with algorithms that automatically buy or sell once particular, pre-set support or resistance levels have been pierced. This phenomenon is one of the things that makes technical analysis and technical trading so reliable.

The point of all this is: Buy and Sell signals on price charts are a very big deal.

The NYSE BPI is shown on this page in point-and-figure style. This chart will not switch from an X- to an O-column unless the chart can fill three O-boxes. And it won't switch from an O- to an X-column unless it can fill three X-boxes.

There are about 2,800 stocks traded on the NYSE. Six percent of 2,800 is 168. So 168 separate stocks would have had to have put in Sell signals for that January 20 switch to have occurred.

That's a lot of selling of a lot of stocks.

There's more...

Notice also that the current O-column has gotten lower than the previous O-column. This means that more stocks are participating in the current down move than participated in the previous one.

In fact, if you follow the current lowest O to the left (the dotted red line), you'll see that the last time the NYSE BPI was this low was back in May of 2020. (The '5' where the dotted line ends means the fifth month of the year -- May. Calendar years are marked along the bottom of the chart.)

The market will not be considered "oversold" until the BPI falls below 30%. So we still have a way to go. But as you can tell from looking at the right hand side of the chart, the BPI has been putting in one lower high and one lower low after another. The market is clearly in a sustained downtrend.

This downtrend has been a feature of the market/BPI since last February. The reason you didn't see it reflected in the Dow or the S&P is because those indices are dominated by a handful of gigantic firms, mostly tech. The Apples and Facebooks and Googles were advancing higher and dragging the averages with them.

But, again, the NYSE represents 2,800 tickers. It's a much more realistic picture of the "internal" stock market. And based on that view of the market internals, there has been more and more weakness "under the hood."

None of this means you should sell out of all your bullish positions and go to cash. It does mean that, if you aren't hedging your bullish bets with, say, 10% of your account devoted to bearish position, you should consider doing so.

If you're not ready or able to sell stocks short, you can always buy put options which will gain in value as the underlying asset -- as stock or sector ETF or even an ETF that tracks the market -- falls in value.

Now is the time to start laying in some dry powder against the day (which will come; it always does) when the market forms a true tradable bottom. On that day, you'll want to be able to swoop in and grab shares of companies that look good at prices that look even better.

And speaking of time, the NYSE BPI is not really a device for timing the market. That's not its primary purpose. It's a barometer of risk. And right now it's telling us that risk is to the bulls. So act accordingly.

 

[DaveTrade]

 

[DaveTrade]

Why This Morning’s GDP Report Was “Fake News”

Stocks opened higher this morning following a wild bout of premarket trading, in which futures plummeted alongside Chinese equities before surging in response to newfound economic optimism. Fourth-quarter Gross Domestic Product (GDP) in the US leaped 6.9% year-over-year according to the Commerce Department. By comparison, economists expected an annual increase of just 5.5%.

“The Q4 GDP report was a nice upside surprise in a string of recently underwhelming economic data points,” said Glenmede’s vice president of investment strategy, Mike Reynolds.

It was a huge “beat” to be sure of it, but not necessarily great news for bulls as the bond markets priced in a potential 5th rate hike this year. The yield curve collapsed, too, as the spread between short-term and long-term Treasurys slimmed dramatically.

Perhaps the most concerning GDP data point, however, had to do with product inventory. Despite stories about bare shelves across the country, Q4 saw the second-largest inventory restocking level in history. This trend won’t hold moving forward, which could severely limit GDP readings in 2022.

Jefferies economists Thomas Simons and Aneta Markowska, on the other hand, believe heightened inventories are here to stay.

“The silver lining in today’s report is that the supply side of the economy is starting to catch up to demand, as evidenced by the large inventory build in Q4,” the Jefferies economists wrote.

“Although inventory levels are still low, they have clearly inflected, which should begin to take pressure off inflation fairly soon.”

The market just endured a disappointing earnings season. If we’re right (and the Jeffries economists are wrong like they were about inflation), GDP growth should slow in Q1 of this year as inventory levels remain restrained. That will only make the Fed’s already tough decision even more difficult.

Overall, Q4’s GDP number was certainly impressive, but it was driven primarily by a near-historic increase in inventories. This suggests that, sadly, Q4 2021 may have been the peak for the US GDP for quite some time.

On Wall Street, though, the dip-buying rhetoric has come back in full force as analysts eschewed the Q4 GDP report’s details in favor of its far more palatable headline number.

“We believe it’s now time to take advantage of the pullback opportunity and put sidelined funds to work in favored sectors,” explained Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

“This is the type of market where longer-term opportunities often present themselves.”

Traders called Wall Street's bluff shortly around noon, however, as the major indexes all gave up the majority of their morning gains. The tech-heavy Nasdaq Composite even flipped negative on the day in response to rising rate hike expectations.

So, as is usually the case, it’s probably a good idea to wait before buying into the current dip. Until the S&P is able to put together a few positive trading sessions in a row, it stands at risk of plunging further. And with key support at the October lows lingering nearby, a breakout lower could result in another rapid downturn, no matter how many times Wall Street urges investors to buy back in - something most banks did back on January 10th, just a few days prior to the S&P falling over 7%.

 

[DaveTrade]