16 replies to this topic

[hiker]

from today's publication...good comments tuffy and always appreciated Market Insight for January 10, 2007 VOLATILITY: TOO LOW FOR TOO LONG? By Alec Young, S&P International Equity Strategist Rebalance; don’t retreat. Financial markets are driven by what John Maynard Keynes called “animal spirits,” the most powerful being fear and greed. One widely tracked gauge of fear is the CBOE Volatility Index (VIX), which measures the market’s expectations for near-term volatility as conveyed by S&P 500 index option prices. Higher readings point to increased investor anxiety. Currently, the VIX is trading at multi-year lows, suggesting that fear is in deep hibernation. But when combined with the strength in global markets over the past three years — the S&P Global 1200 is up roughly 100% since March 2003 — many market participants are concerned that the complacency implied by the VIX is spreading, leaving global stock markets vulnerable to attack by the dreaded bear. Not likely, in the opinion of S&P Equity Strategy. We believe the reason for the complacency is less the sloth of bulls than the fact that equity fundamentals are, in a word, excellent. Liquidity is ample and inflation is low, both of which serve to depress interest rates and fuel unprecedented global M&A activity. At the same time, attractive 2007 growth prospects and low P/E-to-growth ratios are lending important valuation support to global stock markets. In this climate, investors concerned about a spike in volatility should watch for any deterioration of these fundamentals. We do not believe, however, that such an erosion is nigh. Modest portfolio rebalancing is certainly appropriate in light of recent gains. But given the difficulty of successfully timing the market — requiring both a graceful exit at the top as well as a cool reentry at the bottom — S&P Equity Strategy does not currently advise significantly reducing equity exposure. Global equity valuations are historically low, especially given healthy 2007 earnings expectations. Despite a consensus 2007 earnings growth projection of 9%, above the historical average, the S&P Global 1200 index is currently trading at a P/E of only 14.6, a 12% discount to its long-term average of 16.5. We believe conservative valuations reflect fears of a U.S. economic recession, led by a collapse of the housing sector, and the potential negative impact on global growth and corporate profits. However, increasing domestic demand in Europe, Japan, and key emerging markets (which now account for 50% of global GDP growth) is creating a macroeconomic landscape wherein the world is less dependent on exports to the United States to maintain a healthy expansion. In addition, fears of a U.S. slowdown have been widely telegraphed and are now fully discounted, we believe, in valuations, both domestically and internationally. As a result, we believe consensus 2007 global GDP and profit growth estimates are achievable and should enable continued strong equity performance. In addition, low global interest rates are supporting equity valuations by lowering both the cost of capital and the appeal of competing asset classes like fixed-income. We believe this will continue in 2007, thanks to abundant liquidity stemming from benign global inflation, historically low corporate default rates, record Chinese foreign exchange reserves, and a growing cache of petrodollars. In conclusion, S&P recommends staying with a 60% equity allocation that dedicates 40% to U.S. stocks. Specifically, we advise 34% in large-cap, 4% in mid-cap, and 2% in small-cap issues. In addition, we advise a 20% international equity allocation, with 15% in developed markets and 5% in emerging markets. Our recommended ETF portfolio can be found at www.outlook.standardandpoors.com.

[Gary Smith]

----The market has gone a long time without a 10% correction. So one is due. Sentiment is looking if not bad at least not so good. So a correction is due. Seasonality has not worked this year. So a correction is due. The trouble is the market won't obey orders or follow instructions. It just keeps doing what it want to do. It has been instructed by TA people time and again to break the 50 day MA to the downside. It just won't do it. So far. Maybe a better idea would be for traders to just follow the market and let the market tell them what to do instead of them instructing the market what to do. The market seems to take a delight in emptying out the bank accoutnts of traders who give it orders to go either up or down and then bet that the market will obey their orders. I don't really think they are the smart money for all of their sneering prattle about "joe six-pack" and "bagholders".

Charles

Just love your posts Charles and couldn't agree more. Maybe that long awaited flow out of anything and everything international and into domestic is underway. And maybe all those wolves crying large cap growth, especially large cap tech, will finally have their day in the sun.

[Jnavin]

Well, the trend was up, but I'm not sure it's up anymore: SPX bullish percentage. Not saying we don't get a test of the highs, but more than that right now might be tough.

[tuffy88]

Gary---It well could be. International has bested domestic for about 3 years. And small & value have bested tech & growth for the same length of time. Things do revert to the mean. When though. That is the question. A question I don't know the answer to. Jnavin-----The market has been in a trading range since early December, but before that going up. And for me an uptrend continues until it reaches the top AND turns down. Until then I consider the uptrend to be the trend. I never catch the top in my trading account. Hold on to the long side until it is going down. Usually 1 to 3% down from the top before I get a sell signal. I also never catch the botom. Only buy after confirmation of the uptrend is in. Usually 2 to 5% above the bottom after the next uptrend is confirmed. Try to catch the middle 80% or so of the uptrend and miss 80% or so of the downtrend. Sometimes succeed & sometimes not. But my losses are always small when I fail. In 3&1/2 years posting real time trades here have failed 3 out of 7 times. Present open trade will be profitable. QQQQ's up 17.5% and DIA's up 8.7% as of tonight. In a worst case senareo will get a fail-safe sell signal 7% below the highest close. More likley out with 5 distribution days closer to the top. Successful 5 out of 8 tries. And the successful trades have been far more profitable than the failed ones. Charles

Edited by tuffy88, 10 January 2007 - 09:11 PM.

[saltlake]

Charles, I also enjoy your posts. Just like you and Gary I also trade based soley on price. Sounds like we all have alittle different way of doing it though. I am a big fan of how Darvas traded (Darvas boxes). I also have a couple moving averages that I work with and I love trading momo stocks.

[tuffy88]

salt lake, I read Jarvas's book a long time ago as a very young man. If my memory is right in the 1950's. Never tried his method. Went in another diretion. All my efforts into my business. Let first Wellington Management, later Vanguard after Wellington joined Vanguard, watch out for my investments. Paid attention to the results, but did not try to micro-manage them. Only after I sold my business and retired that I paid much attention to investments. I was very fortunate in who I had taking care of my profits from the business for me. Charles

[securelstmile]

gladly, SS. feeback much appreciated.

SS...any opinion you have on AOB over time will be appreciated. thanks.

Hiker looks interesting, I will watch it for now, may jump on.

Look at china today.



Oh and salt, love the Darvas book. Betelguise recommened that book to me here. I tell people if you are only going to read one book on stocks read that one. It is almost all you need.