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The Mark Of A Bear (Market)
Submitted by Lance Roberts via STA Wealth Management,
In this past weekend's missive "Market Bounces, Now Execute Sells," the long consolidation process that began early this year finally resolved itself. Unfortunately, the resolution was to the downside as market stresses from China, the threat of rising interest rates and ongoing economic weakness finally overwhelmed the seemingly impervious bullish sentiment.
While the now "official correction" was not a surprise, and is something I warned of repeatedly over the last several months, it is possible that this is more than just a "buy the dip" opportunity. As I stated last Tuesday:
"Is this something more than just a simple correction? The honest answer is that no one really knows. The bulls are "hoping" that the worst is over and that the current bull market will resume its upward trend. However, there is ample evidence suggesting that something else may be afoot from slowing domestic and international growth, collapsing commodities and falling inflationary pressures."
But the underlying fundamental and economic data have been weak for some time, yet the market continued its unabated rise. The Bulls have remained firmly in charge of the markets as the reach for returns exceeded the grasp of the underlying risk. It now seems that has changed. For the first time since 2007, as we see initial markings of a potential bear market cycle.
The first chart below shows the long-term trend of the market
The bottom part of the chart is the most important. For the first time since 2000 or 2007, the market has now registered a momentum based "sell" signal. Importantly, this is a very different reading that what was seen during the 2010 and 2011 "corrections" and suggests the current correction may be more significant.
The chart above is also confirmed by numerous other indications that also support the "mark of the bear."
Importantly, notice that during the 2010 and 2011 corrections, which were ultimately halted by rapid interventions by the Federal Reserve, "sell signals" were never triggered. Currently, those signals have been triggered at levels that have only been witnessed during more severe bear market corrections.
Fed To The Rescue?
The problem for the Federal Reserve is the negative economic impact from a loss of confidence and decline in the "wealth effect" resulting from a significant market decline. During the previous two episodes where shorter-term indicators signaled investor caution, it was shortly met by Central Banker's interventions to stem a more pervasive decline. In 2010, then Fed Chairman Ben Bernanke stated the Fed's goal of using monetary policy to inflate assets prices to spur consumer confidence. With the market once again triggering an important "sell signal" will the Fed opt to move forward with a further tightening monetary policy? Or, are we on the verge of the next intervention?
Important Numbers To Watch
In my earlier missive "Previous Warnings," I detailed some very important levels for investors to watch for.
"What is critically important is that the market rebounds, and holds, above 2026 by the end of this week to keep the bull market advance alive. A failure will likely lead to a test of the long-term moving average at 1825 or a 14% decline from the peak. However, such a decline from current levels, and at this late stage of the cyclical bull rally, would likely blossom into a full-fledged bear market of 20% or more. In other words, if the market fails to hold support at 1825, the decline will be substantially worse as witnessed in both 2000 and 2008."
The markets did rebound last week, as expected, but failed to follow through this week. The current decline sets the market up for a retest of the recent lows at 1867. Critically, a failure to hold those lows will not only break the bullish trend that started in 2009, but will likely create a "rush to sell" that could drive markets to substantially lower levels.
The risk of such a decline, as stated previously, is at some point the erosion of portfolio collateralization will reach levels that "margin calls" become a substantial risk.
"While 'this time could certainly be different,' the reality is that leverage of this magnitude is 'gasoline waiting on a match.' When an event eventually occurs, that creates a rush to sell in the markets, the decline in prices will reach a point that triggers an initial round of margin calls. Since margin debt is a function of the value of the underlying "collateral," the forced sale of assets will reduce the value of the collateral further triggering further margin calls. Those margin calls will trigger more selling forcing more margin calls, so forth and so on."
It is at those levels that the "wheels come off the cart" leaving investors little opportunity to exit the markets.
What If I'm Wrong
Could I be wrong? Absolutely. With Central Banks globally "at the ready," there is a real possibility that markets could be surprised by what happens next. I think there is a greater than even chance that the Federal Reserve balks at raising rates in September, and mentions remaining accommodative for as long as necessary, sending the markets into recovery mode.
If the market should re-establish its bullish trajectory, it will simply be a function of re-allocating risk back into portfolios at that time.
Yes, you will miss a small portion of the recovery, but such a "miss" will be far less of a consequence than a potential 20-30% correction if the markets fail.
Remember, our job as investors is NOT to try and beat some random benchmark index, but to grow our savings in a manner that conserves our principal over time.
The reality is that the majority of investors are ill-prepared for an impact event to occur. This is particularly the case in late-stage bull market cycles where complacency runs high. As Dr. John Hussman concluded recently:
"If you're taking more equity risk than you can actually tolerate if the market goes south, setting your portfolio right isn't a market call - it's just sound financial planning. It's only fun to be reckless if you also turn out to be lucky. Market conditions are now more hostile than at any time since the 2007 peak. If you want to be speculating, and you can tolerate the outcome, then you're not taking too much equity risk in the first place. But it's one or the other. Can you tolerate a 40-55% market loss over the next 18 months or so? If not, take this opportunity to set things right. That's not the worst-case scenario under present conditions; it's actually the run-of-the-mill historical expectation."
The discussion of why "this time is not like the last time" is largely irrelevant. Whatever gains that investors have garnered during the recent bull market advance will be wiped away in a swift and brutal downdraft. However, this is the sad history of individual investors in the financial markets as they are always "told to buy" but never "when to sell."
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Fed To The Rescue?
Don’t worry; the PPT will be coming any minute now...
https://www.youtube.com/watch?v=voM7T1cd20w
[Watch between 6:00 and 6:58]
Well, Dow Jones just went below 16,000.... and there goes S&P 500 almost below 1900.....
Back above 16000 ... PPT pwning U now homies ....
Euro rallying yet again. and nobody, not even Tyler says anything
Meh, what part of all fiat will go to zero don't people understand?
Waaahoooo!!!!
The PPT came through!!!
The S&P lost only 3% today!!!
[It would have lost 3.5% without them...]
I have been reading "tragedy and hope" I suggest all of you check it out. Very long but what we are seeing right now is almost exactly like what we saw post WWI.
1st edition 1966. You're late to the party, Hans. Read faster. Read everything you can get to understand Marxist philosophy and techniques, but unlike Marxists, check out what happened to every socialist utopia that bought into Marxism. This is what you need to know. They have a cookbook. Know everything about NAFTA; its a most relevant case study.
Read everything by the Trilateral Commission, the Bilderbergs and the UN. Read C. Wright Mills. For whats coming to us, read 1984, The Phoenix Program by Valentine, and Writings From Prison by Sands. Learn what the NSA, CIA, FBI and US administrations have been doing in Belfast, 1960 - present.
Know everything you can get about the chefs all the most criminal and powerful current politicians, activist lawyers and Messican Corte Suprema intestinal bacteria studied under. There is your history and your prognostication.
Help us Obi-Ben Yellen, you're our only hope.
My broker just called me again discussing "strategy" regarding my large cash position.
Hang up on him.
Even better ... ask him where his money is at ....
Either he/she will say nothing and be off the phone in 10 seconds because his cash is parked too.
If he/she says in the market here you should have enough information here that they will be getting off the phone in 10 seconds because you have them freaked.
If he/she says "I don't have much to invest" ... time to get a new broker.
Ask him if he can get you a good price on heavy weapons.....
You have a broker?
Exactly what I was thinking. In fact, in "modern finance" bankers/financiers/brokers are nothing but overcompensated useless middlemen between the computer/printer (where money is now created) and the producer/consumer in the real economy.
My god man, time to cut out the fucking middlemen!!!!
If not for the monopoly exchanges, this would have been done long ago.
Yeah - and he's the best...!!
https://www.youtube.com/watch?v=sxNxSzDFW6g
Just moved, guy across from me in apt is a broker. Told him i was all inverse funds, PMs and just got some miner stocks and he looked at me like i had 3 heads. Said i should let him invest some for me. Looked hurt when i laughed. Passed him today and he looked like someone had inserted large object in the wrong end.
might I suggest you ask him his thoughts on EDZ, SCO, or perhaps SQQQ if he is the conservative type?
When the SHTF you can only pray that these trades clear for cash in the end.
Yes, I wanted to play games with him, but I could literally see his grin through the phone when I told him my strategy. I guess he was smart and just doing what his boss told him to do and the boss did what his boss told him to do aso., since they get paid for that and have wife and kids to support aso. Even in the greatest crisis everyone does what is in ones best interest and everyone has respect for that, assuming it is not illegal.
When to sell out and where to go with it...big question. I don't think they put in Bail in stuff here just for kicks. Wanted togo to real estate with it but not sure it will have fallen enough by then. might have to go to PMs even though i am almost done there. Credit markets locking up is whatscares me.
Ask him if he has a spot price for a gold bar.
Keep your powder dry. If we entered a Bear market, and I think the odds are strongly in favor, it will be a great time to buy 6-12 months from now.
The Nikkei reached its all time high in 1989.
It has never returned.
Grab your 15k hats !
15k, 14k...shit this is just like the movie Airplane. Now arriving: Gate 8, Gate 9, Gate 10...
A bear that is also an airplane:
http://cdn.airplane-pictures.net/images/uploaded-images/2014/2/15/365305...
nothing another $20 Trillion of money printing won't cure or this time it is differnet in that it is actually a FULL ON CONSPIRACY UNLIKE ANY IN HISTORY! All countries have abbregated any responsible fiscal policy!
Mr. Yellen is like a mountain man killing bears with a knife. No need to worry, bear's are circus pets now.
http://www.cnbc.com/2015/09/01/the-bull-market-is-over-louise-yamada.html
The bull market is over: Louise Yamada
The market turmoil continued Tuesday as weak data out of China pushed all major U.S. indices down more than 2 percent. The S&P 500, Dow Jones industrial average and Nasdaq composite have now fallen a respective 6.5, 9.5 and 1 percent year to date, and according to one renown technician, the move may have signaled the end of one of the longest-running bull markets in history.
Looking at a chart of the S&P 500, Louise Yamada noted that momentum has been declining for four months, which by her work, is a "classic" sell signal.
"This is suggesting to me that we are looking at a bear market," said Yamada said Tuesday on CNBC's "Futures Now." Yamada noted that the last two times the market saw a similar shift in momentum were in January 2008 and June 2000.
At this point, the S&P 500 is already 10 percent from its May all-time high, but for Yamada, it's about to get a lot worse. "We could certainly see the S&P test its 2009 uptrend at 1,800," said the founder of Louise Yamada Technical Research Advisors.
"If the 1,800 level were to be breached, I think we could go all the way back toward 1,600 which is the breakout point through which the market moved in 2013," she continued. "In a normal technical concept, it's nothing more than a pullback to the breakout, but it would be a 24 percent decline [from the peak], which would hurt if people didn't protect themselves."
Yamada doesn't see the sharp selling coming in one swift move. Instead, she believes the market could see bounces and the overall decline will happen over the course of a number of weeks to months.
In the meantime, Yamada has a simple message for investors: Tread carefully.
"Lighten positions in stocks that are beginning to become fragile."
Top News
Stocks plunge in worst September start in 13 years
If the Dow tracked oil, it would be THIS bad
The bull market is over: Louise Yamada
As stock market plummets, five places to hide
Volatile market crosses into a 'different world'
Cramer: Is this the 2011 collapse all over again?
How to play the stock plunge:
David Darst Where experts are finding safety ................
CNBC, what's wrong with you?
Whhoaaaaa! CNBS had someone on that uttered "bear market". Damn
Pull up. Pull up.
Mt. Reality looms.
Wi Tu Lo
Yu Too Long
The problem is just starting and I expect the FED will do the only thing they know how to do and throw money at it. It won't have the effect they would want and would likely make things worse.....
(Market)?!?!? LOL!
Stairs up Elevator down, im glad i got out with just a 4% loss, I'm out the market for a while, until this settles
Welcome back.....
Janet has a new weapon:
https://vimeo.com/70266394
Yellen needed to break the bullish trend now, BEFORE starting to blip up rates. Now when the Fed raises rates and the markets are flat (due to secret continued massive Fed intervention), everyone will be relieved and grateful.
Cool theory, too bad we live in the real world and the FED is impotent
Who is BTFD now?
:)
Kevin of course.
Crashed and burned, Maverick, crashed and burned.
Sorry, misread "bullish sentiment" as "bullshit sentiment" there for a sec.
They should use real dollars for a more sobering picture.
Y'all be bear-baitin'!
Well, they cleared the shorts last week, so I wonder what will fuel the rocket to the moon this time..... I know we open 200 pts or more green and have a 400 pt day tomorrow... I can dream about limit down cant I?
F*cking tea-leaves f*ck off. Technical analysis is for people who wear power balance wrist bands and go to homeopathists. All this nonsense about "ehh, if it holds above this level then it will go up and if it's below this other level then it will go down", how dumb can you get?
Finally...I've been waiting for good entry point to get long Pets.com, Netscape, and AOL.
http://www.kitco.com/news/2015-09-01/The-U-S-Fed-s-Looming-Rate-Hike-Nee...
The U.S. Fed Needs To Raise Rates For Possible QE4
By Daniela Cambone of Kitco News
Tuesday September 01, 2015 09:45
NEW YORK ( Kitco News) -- As markets digest the recent central bank meeting in Jackson Hole, Wyoming, one market participant says that the U.S. Federal Reserve has ulterior motives to push up an interest rate hike.
Keith Fitz-Gerald, chief investment strategist for moneymorning.com, noted that the central bank needs to raise rates to allow for a potential fourth round of quantitative easing. 'The Fed wants desperately to raise rates not because there is inflation but in the event they have to do QE4,' he said in an interview with Kitco News. The central bank has held short-term rates near zero since December 2008; the impending end of that era may be around the corner."
Fitz-Gerald acknowledged that it is counterintuitive to think they would raise rates to print money, but said it is the only option the central bank has.
'When you take off the rose-colored glasses and you get past the illusion of prosperity they try and create, it makes sense,' Fitz-Gerald said. 'Right now we have a zero interest rate policy -- the Fed can't do anything else if it has to -- what that tells me is that things are so difficult that they may have to resort to more money printing down-the-line and raising rates gives them the opportunity to do that.'
After months of speculation surrounding a September rate hike, the Jackson Hole Symposium showed a more concrete direction for an interest rate hike. The consensus from the gathering of world central bankers is that the Fed should begin tightening monetary policy with rate hikes as early as mid-September. Fed Vice Chair, Stanley Fisher, added to the speculation by noting that the Fed wouldn't need to see inflation pick up to justify a rate hike.
As for the September timing, Fitz-Gerald said it would be 'totally irresponsible.' Citing a weak China, a downbeat consumer, lackluster data and an America public that has been 'absolutely eviscerated,' Fitz-Gerald highlighted this is the wrong time to raise rates. 'They missed the window yet again,' he said.
On the topic of gold, Fitz-Gerald said investors should be looking at the yellow metal. Gold is off the 6-week high it hit in August on concerns over China's weak economy and stock market volatility, but Fitz-Gerald said investors need it in their portfolios. "No investor today can afford to be without gold - gold is not necessarily an inflation protector like everybody thinks it is but definitely correlated to interest rates," he said.
;)