Wednesday Oct 10 2012 8:12 AM CST
Mark Hulbert suggests the bear market began yesterday. I have noticed two other letter writers that make the same claim.
In another sign that the smart money set is selling art this auction season, investment banker Herb Allen and his family are planning to auction off a Claude Mobnet painting of a water lily pond for between $30 M and $50 M next month in New York.
Wed oct 10 2012 Page B2 WSJ
Note the incredibly wide spread of the expected sale price. Recall that the most energetic part of a social mood often comes at the end of the sequence, this would be a perfect example. The upshot of the article is that buyers believe works of name artists will hold up during uncertain economic times. The reality that the number of buyers for such works will shrink making bid prices far less certain. But this is a perfect metaphor for my suggestion regarding the stock market the next couple of months. I admitted that higher prices may well lie ahead but it would take perfect timing to profit. Since Sept 18 we have had nothing but market gyrations.
If you can't beat 'em join 'em as Steve Balmer announces MSFT will become more of a hardware and on line company. After the Zune fiasco and numerous failures at taking over the next great thing in on line by purchasing companies, this is typical top of the market thinking.The recent plunge for RIM and Nokia point up how difficult long term success is in the cellphone business. With Google and Amazon able to make money on selling content for tablets, they can sell the tablet cheap. This is not the case for MSFT. It is also interesting that Ballmer specifically mentions partnering with Dell. Dell has collapsed from 18 to under 10 this year. And in another irony, GM is leasing a building formerly occupied by Dell in Austin, TX. Dell pulls back as Apple expands in Austin.
I have been reading Robber Barrons. The post Civil War period was marked by investors losing fortunes in the technology of that day-railroads. The parallel with investing in high tech 100 years later, since 1965, is simply amazing. The problem then was too much competition that lowered prices to zero profit levels. There were for example five competing rail lines from New York to Chicago. In similar fashion Dell, Accer, HPQ all make low profit laptops. MSFT's tablet lies ahead, now that the price competition has really heated up.
At any rate, a $70 drop in Apple has the NASD down. All are worried about earnings reports as Cummins, CAT, and Deere report lowered expectations.
The summation index clings to its uptrend but at the moment remains above its MAs.
We exited stock positions on Sept 18. At that time we stated there was probably more upside but the risk reward was not worth it. We thought markets would be too volatile to successfully navigate. The swings since have validated that prediction. We have noted a two week cycle for TLT and GDXJ. If anything short term predictions will become even more difficult to make over the next two months.
I doubt Mark Hulbert predicted the onset of the Bear Market for all to see on Marketwatch. That would be too easy. But he could only be off by a couple of months, not a bad guess considering we are years up off the March 2009 low. The better bet may be to have plenty of cash to start scaling in positions that will profit from a prolonged downside move. Hulbert was right that the 1973-74 bear market started fron a market confident high in January 1973. That market action of a prolonged bear is our model for what I expect in 2013-2014. By January the election results will be out of the way and the various bets on what the market would do given who wins will be exhausted. Then we will have a better view of what is likely to happen. In my view that is a market top.
I chose some risky short term options on TLT and GDXJ which are frankly not working out. Both stocks are stalled; time decay is the enemy of options. I have been clear on the risk involved and have no regrets.
The election has many speculating how the outcome will affect the markets. Actually the speculation on how the election affects the markets is what is affecting the markets!
Markets are quiet and flat as I write at 7:489 AM CST Wednesday October 10 2012. It may be that there has been enough unsettling news and exits from the market to begin a rally.
GDXJ Hourly Chart Last Two Months
GDXJ has pulled back to its 200 bar MA on the hourly chart. At bottom MACD has dipped to what may well be a higher low compared to the last two bottoms. At any rate GDXJ is over sold enough to suspect a rally may be around the corner. Since no one expects it and Mark Hulbert has declared the Bear Market may have begun, this would be a logical thing to happen, if one takes a contrary view of things.
Now compare GDXJ with the overall market itself.
Just eye balling the above two graphs one can see similar lows. Again since no one expects a rally and there is plenty of gloom and doom - bad earnings, throw in the towel on Apple, the never ending woes of Europe, this would be a good time for a rally to happen.
The Dollar via UUP
As GDXJ and SPX kiss their 200 bar MAs to the downside, UUP does just the opposite to the upside. This is what we would want to see and it is happening. So each inversely correlated market has moved to an extreme. Now things might get interesting. this has pushed option values which expire a week from Friday to near nothing on lots of near term plays. An explosion to the upside would catch many off guard.
Thanks for reading TMP.