Showing posts with label THE PAUSE AT THE TOP OF THE ROLLER COASTER. Show all posts
Showing posts with label THE PAUSE AT THE TOP OF THE ROLLER COASTER. Show all posts
Sunday, 28 August 2011
Thursday, 23 June 2011
How to forecast a stock-market top
4/19/2011 2:43 PM ET.
By Mark Hulbert, MarketWatch.
How to forecast a stock-market top
A Wall Street research firm is tracking four key indicators for signs that the bull market is on its last legs. Here's what to look for.
How will we know when the bull market is coming to an end?
This is a timely question, given the extraordinary crosscurrents buffeting the market. Some advisers contend that the bull is alive and well, while others assert that the bull is living on borrowed time.
For insight, I turned to Ned Davis Research, the quantitative research firm, which monitors a basket of indicators to help determine when a market top is imminent.
Nearly two years ago I turned to the company for help in answering this very question. At the time, many were convinced the rally was but a bear-market correction. But Ned Davis, upon analyzing various indicators of a potential top, concluded that the bull market had further to go.
What does Davis' firm say now?
Ed Clissold, the global equity strategist at the company, said there are worrisome signs on the horizon, but the company is giving the bull the benefit of the doubt.
In assessing when the bull might end, Clissold said, the company has identified four major categories:
Valuation
Though stock valuations aren't at such an extreme as to cause this category of indicators to flash a sell signal, there are causes for concern, Clissold said.
One of these, according to a letter Ned Davis sent last week to institutional clients, is that "profit margins on the S&P are at record highs. . . . Using data back to 1954, very high profit margins, on average, have not been bullish for stocks, because the series is very mean-reverting."
Davis also was concerned with the cyclically adjusted P/E ratio made famous by Yale professor Robert Shiller.
At the same time, however, Clissold referred to other valuation measures that suggest stocks are not particularly expensive, such as the P/E ratio based on 12-month earnings (as opposed to the 10-year average Shiller prefers).
All in all, a split decision on valuation. As Davis wrote earlier this week: "I can certainly understand the bullish stance of those who argue stocks are still reasonably priced, based upon current earnings. Yet, I don't think that presents a complete picture of potential risks. I am just providing the evidence for clients to make their own decisions."
Sentiment
This is the one category of the four that, in Davis' opinion, comes closest to yelling "sell."
Davis maintains two sentiment indices, one of which is well into the zone of excessive optimism; the other borders on that zone.
On contrarian grounds, that is worrisome.
Market breadth
This category is perhaps the most bullish, according to Davis.
"One of the key characteristics of a major top in the stock market is considerable divergences," Davis wrote, and there are few signs of that.
Davis tracks the "High Low Logic Index," which represents the lesser of new 52-week highs or new 52-week lows as a percentage of all issues traded. The index traces its roots to a metric created three decades ago by Norman Fosback.
In his book "Stock Market Logic," Fosback describes the rationale behind the metric: "Under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows -- but not both.
"As the (High Low) Logic Index is the lesser of the two percentages, high readings are therefore difficult to achieve," Fosback continued. "When the Index attains a high level, it indicates that the market is undergoing a period of extreme divergence. . . . Such divergence is not usually conducive to future rising stock prices."
Currently, according to Davis, the index is bullish, at 2.4%. At the stock market top prior to the 2007-2009 bear market, it rose to close to 6%. The only other time in recent decades the index got this high was in early 2000, right before the popping of the Internet bubble.
Interest rates
This category, like valuation, is providing some causes for concern, according to Clissold, but is not yet bearish.
The concerns derive from higher rates, which have caused some of the firm's interest-rate-trend indicators to enter bearish territory. However, Clissold said he doesn't think that these concerns yet amount to a "screaming sell signal."
One straw in the wind to look out for, he said, is the 10-year Treasury yield rising to around 4.25% -- three quarters of a percentage point above its current level.
Summing up the situation
The bottom line, according to Davis?
"There are a number of things about this market that concern me as a risk manager," he said. Still, all things considered, for now, he "leans bullish."
By Mark Hulbert, MarketWatch.
How to forecast a stock-market top
A Wall Street research firm is tracking four key indicators for signs that the bull market is on its last legs. Here's what to look for.
How will we know when the bull market is coming to an end?
This is a timely question, given the extraordinary crosscurrents buffeting the market. Some advisers contend that the bull is alive and well, while others assert that the bull is living on borrowed time.
For insight, I turned to Ned Davis Research, the quantitative research firm, which monitors a basket of indicators to help determine when a market top is imminent.
Nearly two years ago I turned to the company for help in answering this very question. At the time, many were convinced the rally was but a bear-market correction. But Ned Davis, upon analyzing various indicators of a potential top, concluded that the bull market had further to go.
What does Davis' firm say now?
Ed Clissold, the global equity strategist at the company, said there are worrisome signs on the horizon, but the company is giving the bull the benefit of the doubt.
In assessing when the bull might end, Clissold said, the company has identified four major categories:
Valuation
Though stock valuations aren't at such an extreme as to cause this category of indicators to flash a sell signal, there are causes for concern, Clissold said.
One of these, according to a letter Ned Davis sent last week to institutional clients, is that "profit margins on the S&P are at record highs. . . . Using data back to 1954, very high profit margins, on average, have not been bullish for stocks, because the series is very mean-reverting."
Davis also was concerned with the cyclically adjusted P/E ratio made famous by Yale professor Robert Shiller.
At the same time, however, Clissold referred to other valuation measures that suggest stocks are not particularly expensive, such as the P/E ratio based on 12-month earnings (as opposed to the 10-year average Shiller prefers).
All in all, a split decision on valuation. As Davis wrote earlier this week: "I can certainly understand the bullish stance of those who argue stocks are still reasonably priced, based upon current earnings. Yet, I don't think that presents a complete picture of potential risks. I am just providing the evidence for clients to make their own decisions."
Sentiment
This is the one category of the four that, in Davis' opinion, comes closest to yelling "sell."
Davis maintains two sentiment indices, one of which is well into the zone of excessive optimism; the other borders on that zone.
On contrarian grounds, that is worrisome.
Market breadth
This category is perhaps the most bullish, according to Davis.
"One of the key characteristics of a major top in the stock market is considerable divergences," Davis wrote, and there are few signs of that.
Davis tracks the "High Low Logic Index," which represents the lesser of new 52-week highs or new 52-week lows as a percentage of all issues traded. The index traces its roots to a metric created three decades ago by Norman Fosback.
In his book "Stock Market Logic," Fosback describes the rationale behind the metric: "Under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows -- but not both.
"As the (High Low) Logic Index is the lesser of the two percentages, high readings are therefore difficult to achieve," Fosback continued. "When the Index attains a high level, it indicates that the market is undergoing a period of extreme divergence. . . . Such divergence is not usually conducive to future rising stock prices."
Currently, according to Davis, the index is bullish, at 2.4%. At the stock market top prior to the 2007-2009 bear market, it rose to close to 6%. The only other time in recent decades the index got this high was in early 2000, right before the popping of the Internet bubble.
Interest rates
This category, like valuation, is providing some causes for concern, according to Clissold, but is not yet bearish.
The concerns derive from higher rates, which have caused some of the firm's interest-rate-trend indicators to enter bearish territory. However, Clissold said he doesn't think that these concerns yet amount to a "screaming sell signal."
One straw in the wind to look out for, he said, is the 10-year Treasury yield rising to around 4.25% -- three quarters of a percentage point above its current level.
Summing up the situation
The bottom line, according to Davis?
"There are a number of things about this market that concern me as a risk manager," he said. Still, all things considered, for now, he "leans bullish."
Tuesday, 2 February 2010
How to Identify Stock Bull Market Tops
Many Symptoms occur When Bull Market is at Major Top .These are given below
1. Yearly High of Stock Index much higher than Previous year’s High
2. Now of Shares hitting new High as percentage of Total Shares Climbs new peak
3. Very Fast upsurge in Stock prices and indices
4. Near unanimous view of Experts that This is Start of biggest bull in History
5. General Magazines Which Do not Care About Stock Markets in Normal time, puts bull run in Cover Story
6.New Theories to justify high prices, in 2008 we had the Decoupling Stheory
7. A Sea of New Investors enter the Stock market with Dreams of instant Rich
8.Market Stops reacting to Good News
http://nse2rich.com/how-to-identify-stock-bull-market-tops-are-sensex-nifty-near-the-top/
So these were the Symptoms.
Are we at Top of 2010 now or is This Bull market still Alive?
Are We are Still Quite Far From Bull market top?
What will be your decision?
What are your actions: staying invested, rebalancing or divesting partially or divesting totally?
But then you will be timing the market, a dangerous strategy too!
1. Yearly High of Stock Index much higher than Previous year’s High
2. Now of Shares hitting new High as percentage of Total Shares Climbs new peak
3. Very Fast upsurge in Stock prices and indices
4. Near unanimous view of Experts that This is Start of biggest bull in History
5. General Magazines Which Do not Care About Stock Markets in Normal time, puts bull run in Cover Story
6.New Theories to justify high prices, in 2008 we had the Decoupling Stheory
7. A Sea of New Investors enter the Stock market with Dreams of instant Rich
8.Market Stops reacting to Good News
http://nse2rich.com/how-to-identify-stock-bull-market-tops-are-sensex-nifty-near-the-top/
So these were the Symptoms.
Are we at Top of 2010 now or is This Bull market still Alive?
Are We are Still Quite Far From Bull market top?
What will be your decision?
What are your actions: staying invested, rebalancing or divesting partially or divesting totally?
But then you will be timing the market, a dangerous strategy too!
Thursday, 8 January 2009
THE PAUSE AT THE TOP OF THE ROLLER COASTER
THE PAUSE AT THE TOP OF THE ROLLER COASTER
There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.
· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.
· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.
But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.
The portfolio of one value investor shows what can happen when markets stumble off a cliff. In early September 1987, Walter Schloss’s portfolio was up 53%. The market as a whole had risen 42%, after a DJIA peak of 2722.42. Then in October the market fell off the mountain and the Dow lost 504 points in a single day. The market struggled back and Schloss finished 1987 with a 26% gain while the overall market made only a 5% advance. Schloss followed one of the first rules of investing – don’t lose money. Making up for lost ground puts an investor at a serious disadvantage when calculating long-term average returns.
Schloss is an experienced investor, and not all value investors will do as well in a rising market. It takes patience, “At a guess I’d say that (the value investor) should do a good 20% better than the market over a long period – although not during the most dynamic period of a bull market – if he is rigorous about applying the method,” says author John Train.
As for the hot stocks, when they take a hard hit the investor is cornered. If the stock is sold, the loss becomes permanent. The lost money cannot grow. If the investor hangs on to the deflated stock, the long trail back to the original purchase price will deeply erode the overall return.
THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):
There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.
· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.
· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.
But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.
The portfolio of one value investor shows what can happen when markets stumble off a cliff. In early September 1987, Walter Schloss’s portfolio was up 53%. The market as a whole had risen 42%, after a DJIA peak of 2722.42. Then in October the market fell off the mountain and the Dow lost 504 points in a single day. The market struggled back and Schloss finished 1987 with a 26% gain while the overall market made only a 5% advance. Schloss followed one of the first rules of investing – don’t lose money. Making up for lost ground puts an investor at a serious disadvantage when calculating long-term average returns.
Schloss is an experienced investor, and not all value investors will do as well in a rising market. It takes patience, “At a guess I’d say that (the value investor) should do a good 20% better than the market over a long period – although not during the most dynamic period of a bull market – if he is rigorous about applying the method,” says author John Train.
As for the hot stocks, when they take a hard hit the investor is cornered. If the stock is sold, the loss becomes permanent. The lost money cannot grow. If the investor hangs on to the deflated stock, the long trail back to the original purchase price will deeply erode the overall return.
THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):
- THRIVING IN EVERY MARKET
- MR. MARKET
- SUITABLE SECURITIES AT SUITABLE PRICES
- PAYING RESPECT TO THE MARKET
- TIMING VERSUS PRICING
- BELIEVING A BULL MARKET
- THE PAUSE AT THE TOP OF THE ROLLER COASTER
- MAKING FRIENDS WITH A BEAR
- BARGAINS AT THE BOTTOM
- SIGNS AT THE BOTTOM
- BUYING TIME
- IF YOU ABSOLUTELY MUST PLAY THE HORSES
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