Archive for the ‘Stocks - U.S.’ Category

What Does A Stock Market Bottom Look Like?

Thursday, September 3rd, 2015

History Helps With Flexibility

Since the S&P 500 recently completed a very rare period of V-bottoms, it is easy to visualize and understand the “rapid bottom and push to new highs” case for stocks. Recency bias tells us we may have pushed other historical examples to the side.

Humans Act In Similar Ways

Since it is important we remain flexible and open to all outcomes, the charts below can help us with the “what if stocks do not bottom for weeks or months” scenarios. The charts below can also help us better identify patterns and candlesticks that may appear during a correction and subsequent bottoming process.

1990 - “U Can’t Touch This”

In 1990, MC Hammer was near the top of the charts. Stocks were on the lower end of the charts, peaking in July and then making a series of lower lows before finding a bottom.

1994 - “All I Wanna Do”

Sheryl Crow reminded us to stop and smell the roses. The stock market smelled nothing like roses, making a low in early April. Equities did not turn up convincingly until mid-May.

1997 - “Staring At The Sun”

U2’s big 1997 hit required respect for your corneas. Stocks also required a “look away” period, dropping significantly between mid-March and mid-April. Several “green days” were mixed in for confusion purposes.

1998 - “Time Of Your Life”

Green Day’s 1998 hit would later be used in the final episode of Seinfeld. Stocks told a story about nothing, correcting in an up and down manner for almost three months.

1999 - “Cowboy”

In 1999, a guy from Detroit said he “wanted to be a Cowboy”, which seemed a bit odd. Stocks were dealing with an odd fear about computers crashing at midnight on December 31. Many countertrend rallies were fully retraced before a final low was made.

2004 - “Are You Gonna Be My Girl?”

A band named Jet asked an age old question. Stocks were a mess, making three lower lows during an established daily downtrend.

2005 - “Beverly Hills”

Weezer’s song about Jed Clampett’s stomping ground seemed to fit well with the still inflating housing bubble. Stocks found “a low” in March before making “the low” in April.

2006 - “Crazy”

Gnarls Barkley had many of us sports fans wondering if things were amiss with the spell checkers. “Crazy” fit right in with housing prices. Rather than dropping for five minutes and then going on to make a new high (see 2013-2014), the S&P 500 followed a more traditional “bottoming process” path.

2010 - “Back Against The Wall”

In 2010, Cage The White Elephant could have been singing about the European Central Bank or Greece. The bottoming process looked eerily similar to 2006.

2011 - “On The Floor”

In 2011 a guy named “Pitbull” did a duet with Jennifer Lopez. Pitbull would eventually land in a Dr. Pepper commercial on the beach (he looked about as comfortable as Richard Nixon on the beach). Anyway, I digress. Stocks spent a good part of the year “On The Floor” and did not bottom until October.

Most Recent Comments Via Twitter

Tuesday, September 1st, 2015

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

Will The Fed Spook The Markets In September?

Monday, August 31st, 2015

Fear Of Waiting Too Long

With interest rates hovering near zero, the Federal Reserve is in a difficult spot. Even if the Fed raises rates in September, they still have two problems on their hands:

  1. Very limited supply of policy bullets if the economy goes south.
  2. A 0.25% hike would still leave a tremendous amount of inflation-tempting liquidity in the financial system.

But Inflation Is Low, Right?

Yes, it is. The issue is not where inflation is today, but where it may be down the road. The longer the Fed waits to start draining liquidity from the system, the higher the odds inflation will begin to pick up down the road. Even if they raise rates in September that would hardly represent a significant change to future inflation risks.

How Concerned Are The Markets?

Is the current pullback in stocks different than recent V-bottom pullbacks (i.e. October 2014)? The answer is provided in this week’s stock market video.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Investment Implications - Bulls Need To Prove It

Our market model began reducing risk on July 24. The model will only consider increasing our exposure to stocks if the hard evidence can begin to improve. A good start for the stock market bulls would be to clear and hold above the 2001 to 2032 range on the S&P 500.

Another and more detailed look at V-bottom odds can be found in this August 21 analysis.

What Is The Hard Data Telling Us Now?

Friday, August 28th, 2015

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Most Recent Comments Via Twitter

Thursday, August 27th, 2015

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

Similar Model Readings In A Bull Market

Wednesday, August 26th, 2015

It Is Not That Simple

Before you look at the charts below and say “hey this is easy…now is the time to buy”, keep in mind the first two charts show similar CCM Market Model readings within the context of a bull market. The same model readings were present numerous times between October 2007 and March 2009 (a bear market). Nothing says 2015 cannot flip into a bear market, which means we have to remain open to all outcomes (good and bad).

If The Evidence Improves…

The blue arrows show similar CCM Market Model readings (2003-2007) to what we have seen in the past few days. During a bull market with more conviction than the current bull market, low model readings were followed by impressive gains in stocks, telling us to keep an open mind about bullish outcomes in 2015.

This Chart Is Probably More Like 2015

The last few years of the current bull market have been fueled by record low interest rates and have featured somewhat tepid conviction and confidence in central planners. Notice in 2010 and 2011 during “crisis periods”, bottoms tended to be a multi-month process rather than the sharp reversals between 2003 and 2007.

Compare and contrast how long markets remained in a weak technical state in the two bull markets; compare the number of blue arrows before a rally was successful. The recent clustering of blue arrows speaks to waning confidence in the economy and central planners (investors are more skeptical). The higher degree of skepticism may also result in a much harsher bear market the next time around. People may be willing to run for exits much faster in 2015 than they were in October 2007. The million dollar question is “when could that process begin”. It may have already started; it may not start for several years.

How Can This Help Us?

We are currently in a bull market until proven otherwise, meaning the bull market analysis remains relevant for now. The present day readings of the CCM Market Model simply tells us to be ready to redeploy cash if/when the hard evidence begins to improve. There is no need to guess or anticipate. If a sustainable rally occurs, the evidence will improve. If a sustainable rally does not occur, the improvement in the evidence will be muted/contained.

The difference between the bull markets (2003-2007/2009-2014) and the low readings found in early 2008 is the hard evidence began to improve significantly during the bull markets, which was not the case in 2008. Therefore, as always, the hard evidence, price, charts, and model will continue to guide us. If we see enough improvement, we will take action. If we do not, we will remain patient.

What Do 1987 And Monday Have In Common?

Tuesday, August 25th, 2015

Today’s post can be found on See It Market.

Most Recent Comments Via Twitter

Tuesday, August 25th, 2015

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

V-Bottom, Bear Market, Or Correction?

Saturday, August 22nd, 2015

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Clients: Video Will Be Up Late FRI/Early SAT

Friday, August 21st, 2015

After a volatile week, we want to keep you informed.