-->Hallo, hier ist Steve`s neuster Update:
A popular argument amongst stock market bulls over the past couple of years has been that there is a huge pile of cash sitting in money market funds and bank deposits destined to come flooding into the stock market at some point. In fact, there is apparently now more 'cash on the sidelines', relative to the total market value of all publicly-traded shares, than there has ever been. This has got to be a major positive for the stock market, right?
Wrong! For one thing, as Paul Kasriel points out in a recent commentary, the amount of cash being held by the public relative to its total assets is still well below the long-term average and the trend is clearly towards a higher cash/assets ratio (refer to Chart 2 in the above-linked article).
For another thing, major trends in the financial markets never begin as a result of the public deciding to shift its investment focus. The public is always late to the party, only shifting its focus from one investment class to another after the new trend has become firmly established. Putting this another way, the public is slow to react to trend changes. The public will only become interested in an investment after a bull market has been well and truly confirmed and it will only start to lose interest in an investment after a bear market has been established. So, those who are arguing that stock prices will be driven substantially higher as a result of households channeling a significant chunk of their cash holdings into the stock market are effectively putting the cart before the horse. First of all the bull market must be in place, then the public will come.
Despite the huge amount of cash on the sidelines, it is very likely that the public will reduce its exposure to the stock market over the next 12 months. Major bear markets don't end until stocks have become under-valued and stocks won't become under-valued, or even fairly valued, until after the public has capitulated. This capitulation phase will probably begin shortly after last October's lows are decisively breached.
The Bull Case
As far as the short-term is concerned a legitimate 'bull case' can be made. However, this bull case does not revolve around 'cash on the sidelines' or low interest rates or high productivity-growth or the successful conclusion to the Iraq war, it revolves around the willingness of people to take-on additional risk. A legitimate investment case cannot be made for the stock market at this time because valuations remain way too high, but if enough people become less risk averse then prices can certainly move sharply higher in the short-term. Another way of saying this is that prices can move higher if enough people are willing to embrace a far more rosy view of the future than an objective analysis of the evidence would otherwise warrant.
As mentioned in previous commentaries, there are clear signs that people ARE becoming less risk averse. One such sign is the upward trend in the NASDAQ100 Index (NDX) relative to the Dow Industrials Index since last October's low (out-performance by the over-hyped large-cap tech stocks relative to the more staid Dow stocks is a sign of increasing speculation). As long as the uptrend in the NDX/Dow ratio is intact (see chart below), bearish bets on the stock market aren't likely to pay off in a big way. Note that the NDX/Dow ratio did move lower for about 3 weeks during late-March/early-April, but there was a sharp up-tick in the ratio last week.
Another sign that the speculative juices are starting to flow more freely and that there is less attention being paid to downside risk is the performance of the semiconductor sector. The semiconductor stocks, as represented by the Semiconductor Index (SOX), are amongst the most absurdly over-priced stocks in the market, but over the past few years they've tended to be the major beneficiaries of speculation during those periods when 'future expectations' have been ramping higher. As the following chart shows, the SOX broke upward out of its consolidation pattern last week. This chart looks very bullish, although note that the chart also looked very bullish in early-March last year just prior to the SOX losing two-thirds of its value in the space of 7 months.
The Bear Case
In the medium-term the bear case revolves around valuations, debt levels, sentiment and the longer-term trends, but in the short-term one of the best reasons NOT to be bullish is that so many others ARE bullish. Furthermore, although price action has been reasonably positive over the past 6 weeks the level of optimism in the market is disproportionately high. For example, the S&P500 Index has made progressively lower peaks since last August. Sentiment, however, has become progressively more bullish at each peak, a point that is illustrated by the below chart of the TSI Index of Bullish Sentiment (TIBS). Note that sentiment is more bullish now than it was at the November peak and was more bullish in November than it was at the August peak. At the same time, the S&P500 has moved from 963 at the August peak to 939 at the late-November peak to 894 now. This is classic bear-market action.
Even though sentiment is overtly bullish and, importantly, far more bullish than the price action would seem to warrant, it doesn't mean the market won't move higher in the short-term. It does, however, strongly suggest to us that the risk/reward ratio is poor as far as trading the market from the long side is concerned.
Current Market Situation
When we take into account the above-described bull and bear cases we come to the conclusion that the market is neither likely to make much upside progress nor much downside progress over the next several weeks. It will struggle to move much higher because so many people are already positioned for an up-move, but given the increasing willingness to take-on risk it is probably not about to drop back down to the October lows.
In last week's Interim Update we noted that with the gold price at around the $325 level the S&P500 Index in terms of gold would hit the top of its major downward-sloping channel if the S&P500 traded up to about 910. The following chart of the S&P500 in US$ terms shows that the top of the major channel currently lies at around the 920 level. So, the S&P500 is going to run into substantial resistance in the 910-920 range. This is another reason to be unenthusiastic about the market's near-term upside prospects.
Bond Update
Crashes are very rare events in the financial markets, but on those rare occasions when a market does experience a bona fide crash it's amazing how often it happens 54-56 calendar days from the day of a major peak. A typical crash pattern involves an initial decline from a major peak, a rebound to a lower peak, a drop to support defined by the low made during the initial decline, and then the break below that support. The break below support prompts a rush to exit and this, in turn, causes the price to 'crash'.
The reason we are mentioning the 'c' word at this time is that a potential crash pattern is unfolding in the bond market. Bonds made what might prove to be a major peak on 12th March, dropped sharply into 21st March, and have since been rebounding. If they drop below their 21st March low at some point over the next 2-3 weeks then a crash would be a distinct possibility. Note that 6th May (coincidentally, the date of the next FOMC Meeting) is 55 calendar days from the 12th March peak.
Below is a 1-year chart of the T-Bond price. A daily close below 109.50 would break support defined by both the 21st March low and the uptrend-line that has been in place since last October.
We are not forecasting a bond market crash over the next few weeks. Most of the time when markets appear to be following a crash pattern they manage to remain above support. For example, a crash pattern appeared to be in progress in the bond market last October-November, but rather than crashing the bond price held support and went on to make a new high a few months later. Also, substantial bond market weakness at this time would not be consistent with our current stock market view (it would take persistent stock market strength to force bonds below support). However, if the T-Bond price has dropped to around 110 by early May we will start taking the prospect of a crash very seriously.
Die charts fehlen hier.
Trotzdem
Grüße
ch.
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-->Saville hat ja wieder einiges auf den Punkt gebracht.
>Most of the time when markets appear to be following a crash pattern they >manage to remain above support. For example, a crash pattern appeared to be in >progress in the bond market last October-November, but rather than crashing >the bond price held support and went on to make a new high a few months later.
Nachdem die Inflationsraten aufgrund des schwachen Dollars alles andere als positiv zu sehen sind´, wird die FED ihre Handlungen eher auf eine Stabilisierung der Zinsen beschränken. Zinssenkungen sind damit vorerst aus der Diskussion verschwunden. Die FED muss jetzt Staatspapiere in noch größerem Umfang zurückkaufen, als dies bisher der Fall war. Vor allem müssen sie die fehlenden Investitionen aus Japan ausgleichen. Wenn es nach diesem Muster abläuft werden die Zinsen langsam steigen, aber von den Interventionen immer wieder nach unten gerissen werden. Ähnlich wie es die BOJ beim USD/JPY gemacht hat.
Man darf gespannt sein wie sich die Herren von Zeit zu Zeit über die Effektivität des Bondmarktes äussern werden.
Vermutlich wird man aber erst langsam handeln, den im Moment wirken sich die steigenden Zinsen positiv auf die Inflationserwartungen der Marktteilnehmer aus, was durchaus gewollt ist. Die beste Zeit um massiv zu intervenieren wird wohl sein, wenn der Nasdaq seinen oberen Wendepunkt gefunden hat.
Alles spricht im Moment dafür, dass wir uns zwischen 1050-1150 im NDX-100 seitwäörts bewegen werden. Wenn die Bullenquote dann nicht abnimmt werden wir bis Herbst bestimmt unter 1000 gehen.
Deshalb werde ich die Chance sollte sie den kommen nutzen um ab über 1100 im NDX-100 nach ca. 9 Monaten Abstinenz ein paar langlaufende PUT Optionen einzusammeln. 70 % meines kommenden PUT Engagements werde ich im US-Raum machen. Den DAX, den ich sonst bei den Short-Spekulationen deutlich höher gewichtet habe werde ich jetzt erstmals niedriger gewichten.
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