Showing posts with label Bullish Trends and Significant Corrections. Show all posts
Showing posts with label Bullish Trends and Significant Corrections. Show all posts

Friday 9 February 2018

The stock market is officially in a correction... here's what usually happens next

The stock market is officially in a correction... here's what usually happens next

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.

But the pain lasts for 22 months on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline is 30 percent for bear markets.

The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years.


The S&P 500 fell officially into correction territory on Thursday, down more than 10 percent from its record reached in January.

If this is just a run-of-the-mill correction, then we are looking at another four months of pain, history shows. If the losses deepen into a bear market (down 20 percent), then it could be 22 months before we revisit these highs, history shows.

"The average bull market 'correction' is 13 percent over four months and takes just four months to recover," Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said in a Jan. 29 report.



Source: Goldman Sachs

But the pain lasts nearly two years on average if the S&P falls at least 20 percent from its record high — past 2,298 — into bear market territory, the report said. The average decline in a bear market is 30 percent, according to Goldman.



The last week of stock market drops has taken the S&P 500 into correction territory for the first time in two years

Stocks remain in an upward bull market trend, the second longest in history.

S&P 500 corrections and bear markets since WWI



Source: Goldman Sachs

Evelyn Cheng CNBC



https://www.cnbc.com/2018/02/08/the-stock-market-is-officially-in-a-correction--heres-what-usually-happens-next.html?__source=Facebook%7Cmain

Thursday 15 January 2015

How permanent are trends?

Wall Street's judgment has been influenced by past trends more than by any other single factor related to security values.

The avowed object of people in the market is to anticipate future developments, and the past is held to have no significance except as it aids in such anticipation.

Yet in practice it is almost the universal habit to base forecasts of future happenings on a projection of past trends.

This is notoriously true of both the professional's and the public's view of market prospects.

Nearly everyone is optimistic (or "bullish") because the market has been enjoying a spirited advance and pessimistic (or "bearish") after a decline.

In the same way, an industry or a company which has grown in the past is almost always expected to keep on progressing; those which have been on the downgrade are expected to get worse and worse.


Momentum

It is true that every established trend has a certain momentum, so that it is more likely to continue for at least a while longer than it is to reverse itself at the moment of observation.

But this is far from saying that any trend may be relied upon to continue long enough to create a profit for those who "get aboard."

Rather extensive studies which we have made of the subject lead us to conclude that reversals of trend in every part of the financial picture occur so frequently as to make reliance on a trend a particularly dangerous matter.  

There must be strong independent reasons for investing money on the expectation of a continuance of past tendencies, and the investor must beware lest his weighing of future probabilities be unduly influenced by the trend line of the past.

Can money be made on balance by following the trend of the general market?  This subject is too complicated and controversial to admit of our treating it her with out own selection of statistical evidence.

But it is appropriate to point out (a) that playing the trend is the standard formula of stock market trading by the general public and (b) that the general public loses money in the stock market.


Industrial groups

The public has a similar tendency to speculate in those industrial groups which have established the best market records in the recent past.  It is easy to show that this naive effort to exploit a historical trend is dangerous.

The trend of industry profits is no more reliable than that of industry prices.

Using earnings as a percentage of invested capital, between 1939 and 1947  we find that the average of the five best industries declined from 24.6% to 17.7%, whereas that of the five poorest advanced from 4.2% to 18.5%.

War conditions and their aftermath, of course, have played an important part in bringing about this extraordinary change in the relative position of prosperous and non-prosperous industries.

There are many unexpected reasons for the changed performance; the important thing is that performance trends do change and investment values with them.


Benjamin Graham
The Intelligent Investor

Tuesday 15 June 2010

Sideway Trends



























When the price of an asset, e.g. a stock moves sideways, it is difficult to trade on momentum and apply the trend-following techniques because a trend reverses shortly after it is established.

Once a sideways trend is identified, one can profit by investing long or short once a stock price touches the lower or upper trend line.

(Another strategy is also to write/sell options to collect premiums.)

Sideways trends can persist for a long time.  Nevertheless, it is also important to know how to stop such a short-term trading technique when longer-term trends return.

Those with long-term goals may or may not wish to incorporate the above short-term trading techniques for a small portion of their selected good quality stocks which are in obvious sideway trends.  However, always remember to buy low, that is, at prices that are closer to the lower price boundary.

Saturday 29 May 2010

Investors learned the lessons of the recent recovery a bit too well

COMMENTARY
May 27, 2010, 5:00PM EST

The Sun Also Sets
Investors learned the lessons of the recent recovery a bit too well

By Roben Farzad

Who could blame an investor today for feeling a tad nostalgic for the Panic of 2008? There was a simplicity to the thing. It was such a brutal and impartial rout—slaying just about every asset class—that it made you want to swear off all markets forever. There was comfort to be found in stashing a shoebox full of $50 bills in the freezer. No paperwork. No jabberwocky from your broker. Just the reassuring face of Ulysses S. Grant juxtaposed with your cold, raw fear.

By March 2009, with U.S. stocks at 1996 levels, equities had returned less than Treasuries over the previous 10-, 20-, and 30-year periods—debunking the equity-risk premium so central to Econ 101. Until, of course, the market reversed course and surged 80 percent in 13 months, reminding investors that it was at least theoretically possible to make money in equities. That change of mood edged out fear just in time for the 2010 edition of the credit crisis, an international production that began with Greece's near-collapse and soon spread to Portugal, Ireland, Italy, Spain, and beyond. The Standard & Poor's 500-stock index has now fallen 12 percent in a month, its first official correction since the new bull began last spring.

Corrections are routine and even healthy events; they come along about once every 11 months on average and wring out the excesses and false expectations that rallies inevitably bring. "To the extent that current worries squeeze long positions, extinguish optimism, or even lead policymakers to pursue courses of action that are more supportive—not more punitive—for markets, the selloff may be creating more favorable entry points for investors to buy into a still recovering global economy," writes Stuart Schweitzer, global markets strategist for JPMorgan Private Bank, in a May 24 note to clients. That may all turn out to be true—provided investors don't panic, rush for the exits, and help turn a routine recovery into the second leg of a double-dip recession.

If the lesson of March 2009 is that the sun comes up—the most brutal selloff is just a prelude to the next rally—then the lesson of the recent runup is that the sun can shine too brightly, blinding us to boulders in the road. And then it can set.

With payrolls still slack and credit still tight, the contours of these peculiar economic times are becoming apparent. Last year's snapback is not going to bring a garden-variety, V-shaped recovery. Instead, investors are again having to confront the messy unfolding of a long and overly generous credit cycle, global in nature and marked by a spate of bank and business failures. How the economies of the world digest it is anyone's guess. When the next leg up begins, though, it will mark a critical milestone for a stock market that still needs to rally by almost half to revisit its 2007 high. Getting there despite profound economic challenges is going to take some hard traveling.

"In the U.S., we have no living precedent for this," says Donald Luskin, chief investment officer at strategy firm Trend Macrolytics, whose search for domestic parallels to this credit crisis took him all the way back to 1907. "We have had a living laboratory for it in Japan for the past 15 years. But in the U.S., we're all attuned to the little upticks in metrics that don't necessarily inform much." In other words, we seek auguries where there are none by comparing traditional business cycle statistics such as payrolls and housing starts to once-in-a-lifetime lows from late 2008 and early 2009. Luskin predicts the market will be range-bound for at least five more years as companies and consumers shed debt. "This is not a particularly bearish view," he says. "It's just the expansion-less, low-return world we're now in."

Luskin's unenthusiastic outlook—which contrasts with the prevailing optimism among Wall Street strategists in a May 25 Bloomberg survey—brings to mind the "new normal" paradigm coined last year by Bill Gross and Mohamed El-Erian at Pimco, the bond giant. The idea is that a bitter confluence of deleveraging and reduced consumption and employment will necessarily bring a long period of low growth and low returns. In the absence of a healthy consumer, the neo-normalists point out, there is no other driver to magically propel the economy.

All of which is reasonable—and has largely been ignored amid a recent rush to riskier, less stable sectors at the expense of large-cap companies. This rush was less than rational; if returns are negligible and credit is tight, one would have expected investors to move into big, stable equities that pay dividends. But they didn't, even though the private equity feeding frenzy and promiscuous lending that made small-cap company buyouts all the rage a few years back are long gone. Small companies today are less likely to be self-financed and far more likely to be dependent on volatile-rate bank debt (assuming it is offered to them at all). Even so, the S&P's small-cap index has returned 3.6 percent so far this year—almost 10 points better than the 5.8 percent loss registered by the S&P 100 (the bluest of blue chips, including IBM (IBM) and ExxonMobil (XOM)). Going back to the market's low last spring, the excess return is hardly inconsequential: 90 percent for small stocks, vs. 50 percent for the mega-caps.

The lesson? The financial conflagrations of the past three years did not signal a permanent flight to quality. Appetite for the high-risk/high-reward trade is alive if not well. The resurgence of large-cap equities has, again and again, been exaggerated. According to Leuthold, a Minneapolis fund management firm, small-cap stocks now sell at a "very fat" valuation premium of 20 percent relative to large caps, an all-time record disparity. Nobody seems to care that Johnson & Johnson (JNJ), with a $165 billion market cap and impeccable financials, pays a 3.62 percent dividend—more than 10-year Treasuries. AT&T (T), the country's largest phone company, an inveterate booster of its dividend over 26 years, yields almost twice that, but its shares have badly lagged the broader market this year. All this as banks believe they are doing you a favor by advertising 1 percent for your cash.

To some, any case for U.S. stocks—small, large, whatever—is also exaggerated. Pimco is now lumping the U.S. together with Japan, France, Spain, and Greece in what it calls a sovereign debt risk "ring of fire"—an ignominious league of nations that will increasingly have problems paying their debts. That association would suggest a lot more downside for U.S. shares, whose aggregate 4 percent drop so far in 2010 is but a sliver compared with the S&P Euro Index's 12.5 percent plunge.

Everywhere you look in the U.S. and Europe is another investing dead end. Together, they make the case for aggressive allocation away from developed markets and into emerging markets—yesteryear's financial basket cases turned today's paragons of growth. According to the International Monetary Fund, the developing world has catapulted itself from 18 percent of global GDP in 1994 to 31 percent last year, with its share still gaining at the expense of Japan, Western Europe, and the U.S.

That sort of growth means it is now far too prudish to allocate a mere 10 percent of one's portfolio to developing powers such as Brazil and India. "U.S. investors should move from a U.S.-centric worldview and toward a larger allocation to emerging market economies," says John West of Research Affiliates, an index strategy shop, also of Newport Beach. "They don't face the hurricane-like headwinds of deficit, debt, and demographics that developed markets, including the U.S., do." Since the market's low, the MSCI Emerging Markets index has shot up 77 percent—20 full percentage points better than the S&P 500. Not that no one has noticed: Emerging-market stock funds have consistently taken in multiples of their U.S. counterparts for five years. And while the U.S. and Europe have swooned in the past month, the emerging markets have fallen 15 percent, a resilient showing for a category that has historically been incapable of handling contagion. West thinks that investors in emerging markets amid this global risk realignment will be disproportionately rewarded over the coming decade.

If you don't have the stomach for increasing volatility, you might just take the old advice to sell in May and go away. Or you might park your dollars in gold, which is trading at an all-time high and is certain to go higher, unless it doesn't. Or you might go to cash, which the Federal Reserve is deliberately pegging at all-time low yields, guaranteeing that inflation eats away at what you have.

The sun will rise again, but in the meantime, no one is saying anything about sleeping well tonight.

Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international finance.

http://www.businessweek.com/magazine/content/10_23/b4181064685899.htm

Thursday 27 May 2010

Dow slipped below 10,000

US stocks fall as China reviews holdings
May 27, 2010 - 7:06AM

Wall Street staged yet another late-day reversal on Wednesday to end lower as news suggesting China was reassessing its euro-zone debt holdings pushed investors into profit-taking mode.

The Dow slipped below 10,000, with the late turnaround in stocks showing investor psyche remains fragile, and investors are inclined to sell strength in this volatile rumor-driven market.

The Financial Times said representatives of China's State Administration of Foreign Exchange, which manages the reserves under the country's central bank, has been meeting with foreign bankers in Beijing in recent days to discuss the issue.

What you need to know

"There is still nervousness out there. Yesterday's turnaround does not mean the market correction is over or that investors are confident about the direction of European policy or the success of European policy," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

The S&P 500 has fallen more than 10 percent from a closing high on April 23, putting the benchmark index into correction territory.

Large-cap liquid holdings, including Microsoft Corp and McDonald's Corp, led the Dow lower as the software giant's stock dropped 4.1 per cent to $US25.01 and the fast-food restaurant operator lost 2.7 per cent to $US66.01. At the same time, Apple Inc, which shed 0.5 per cent to $US244.11, managed to surpass Microsoft to become the second- largest company in market cap behind Exxon Mobil Corp.

The Dow Jones industrial average dropped 69.30 points, or 0.69 per cent, to 9974.45. The Standard & Poor's 500 Index fell 6.08 points, or 0.57 per cent, to 1067.95. The Nasdaq Composite Index lost 15.07 points, or 0.68 per cent, to 2195.88.

Late-day volatility has been a hallmark during the recent slide on Wall Street, with investors quick to pull the trigger at the slightest provocation. On Tuesday, Wall Street staged a furious rally toward the end of trading to reverse initial declines of more than 3 per cent.

"It really seems like the same old thing," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.

"This is the kind of intraday volatility that we will be seeing continuously."

Earlier in the session, data showed sales of new US homes hit their highest level in nearly two years in April as buyers rushed to take advantage of an expiring government tax credit.

The Dow Jones US Home Construction Index added 0.3 per cent, while the PHLX Housing Sector Index edged up 0.2 per cent.

Luxury home builder Toll Brothers Inc gained 0.8 per cent to $US20.78 after it said its quarterly loss narrowed from the previous year.

Elsewhere on the economic front, orders for durable goods rose in April to their highest level since September 2008.

Volume was solid, with about 12.44 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq -- well above last year's estimated daily average of 9.65 billion.

Advancing stocks outnumbered declining ones on the New York Stock Exchange by a ration of about 3 to 2, while on the Nasdaq, nearly five stocks rose for every four that fell.

Reuters

Wednesday 10 February 2010

Protection During a Stock Market Correction? Advice to Survive a Bear Market Crash

Protection During a Stock Market Correction?
Advice to Survive a Bear Market Crash
Feb 9, 2010 Kurtis Hemmerling

When stock market prices correct, or even go into a bear market, how can one hedge against it?

The stock market has three basic cycles: bull, bear, and consolidation.

Bull Markets Precede a Stock Market Correction
The stock market is driven by growth. Companies are aggressively fighting for the same piece of investment dollar. Large double or even triple digit growth attracts long term investors who want to build for the future. At this stage the market climbs – often rapidly.

The Market Corrects or Consolidates
If the stock market continued to push upwards, the price of the average share would far exceed any reasonable valuation. That is why the market must correct itself and deflate. A fall of up to ten percent is considered a correction only.

The Exchange Crashes and Turns Bear
If the growth bubble is too large, or if sentiment is particularly sour based on economic events, the stock market may fall in excess of ten percent. At this point it is dubbed a ‘bear market’. The prices are in a severe downturn where negative sentiment rules the trading patterns.

Really, the stock market is a pattern of growth, bubble, burst. And then it starts all over again.



Read more at Suite101: Protection During a Stock Market Correction?: Advice to Survive a Bear Market Crash
http://investment.suite101.com/article.cfm/protection-during-a-stock-market-correction#ixzz0f6KrMI8d

Sunday 24 January 2010

Crashes, corrections and bear markets cannot be predicted exactly

Nobody can predict exactly when a bear market will arrive (although there's no shortage of Wall Stree types who claim to be skilled fortune tellers in this regard).  But when one does arrive, and the prices of 9 out of 10 stocks drop in unison, many investors naturally get scared.

They hear the TV newscasters using words like "disaster" and "calamity" to describe the situation, and they begin to worry that stock prices will hurtle toward zero and their investment will be wiped out.  They decide to rescue what's left of their money by putting their stocks up for sale, even at a loss.  They tell themselves that getting something back is better than getting nothing back.

It is at this point that large crowds of people suddenly become short-term investors, in spite of their claims about being long-term investors.  
  • They let their emotions get the better of them, and they forget the reason they bought stocks in the first place - to own shares in good companies. 
  • They go into a panic because stock prices are low, and instead of waiting for the prices to come back, they sell at these low prices. 
  • Nobody forces them to do this, but they volunteer to lose money.

Without realising it, they've fallen into the trap of trying to time the market.  If you told them they were "market timers" they'd deny it, but anybody who sells stocks because the market is up or down is a market timer for sure.

A market timer tries to predict the short-term zigs and zags in stock prices, hoping to get out with a quick profit.  Few people can make money at this, and nobody has come up with a foolproof method. 

Monday 14 September 2009

Bullish Trends and Significant Corrections

  • Bullish Trends and Significant Corrections
    June 19, 2009 - Non-Client Version

    We were recently asked by a client, "If you see signs of a possible new bull market, why are we still sitting on so much cash?" It can be answered by using a fence analogy. We have been taking some smaller positions while maintaining a relatively high cash position in order to play both sides of the fence:


The Far Side Of The Fence: If stocks move lower,

  • Our smaller positions reduce risk during a correction, and we have cash on hand to invest during/after a correction. If the bear market resumes (anything is possible), we have less exposure to losses with some cash on hand.
  • Numerous asset classes have had significant moves off the March 2009 lows.
  • Even markets which have a positive trend, correct from time to time.
  • Corrections, within the context of an uptrend, can be significant.
  • If a correction is orderly, we can use cash to enter markets at lower levels.
  • If the correction is not orderly and a resumption of the bear looks more likely, cash and smaller positions enable us to better manage risk. If your investments lose 12%, but you have 50% of your account in cash, the loss to your account is 6%.
  • As our strategy dictates, we gradually make the transition from a bear market portfolio to a bull market portfolio, and remain aware we could be wrong about bullish outcomes. If we are wrong, we stop the transition and reverse course gradually.

The Near Side Of The Fence: If stocks continue to move higher,

  • We have an opportunity to participate.
  • In the 2007-2009 bear market, markets came down rapidly with little in the way of countertrend moves, which means it is possible a similar situation may occur on the way back up – a rapid climb with little in the way of significant countertrend moves (which is what has happened so far during this rally). It is possible those who wait for a significant correction, will only get that opportunity from much higher levels. A significant correction is coming - the question is from what levels (now or later).
  • In early June, numerous asset classes “broke out” above resistance levels which can offer a lower risk entry point since what was resistance becomes support.




http://www.ciovaccocapital.com/sys-tmpl/fencesitting/