9 replies to this topic

[nimblebear]

Market Profile Theorems Michael Painchaud, founder and research director Seattle Dow Jones Industrial Average: 10200 S&P 500: 1094 Nasdaq: 1767 Mr. Painchaud has the distinction of being one of the few strategists who accurately predicted the bull market that began in Oct. 2002. He also has the (possibly dubious) distinction of being one of the most-bearish strategists on the Street this year. His partial basis for both outlooks: his research of investor behavior, specifically the stock trades of insiders at about 5,000 U.S. companies. WHERE STOCKS ARE NOW • Dow: 12556.08 • S&P: 1430.73 • Nasdaq: 2502.82 Before the bull run began in 2002, these insiders were buying shares of their own companies, signaling early confidence in the market at a time when stocks were unloved. Late in 2006, according to Mr. Painchaud's research, those same insiders were selling, a warning sign for 2007. "There's an information flow in the marketplace…that comes from the company level, bubbles up through the analyst community and is reflected coincidentally or thereafter in the relative strength of the markets," he says. "Invariably, what one sees is that, at the very time insiders become more negative, the analyst community is either still increasing its bullishness or maintaining a high level of it. But they tend to follow." And despite what he calls "excessive bullishness" on Wall Street, he now sees signs that analysts are starting to come around to the caution already displayed by insiders. "You're not seeing the increases in earnings estimates you saw at the beginning of 2006," he says. Mr. Painchaud doesn't look at insider behavior alone; he makes sure it matches up with the prevailing economic conditions, including inflation and interest rates. Unfortunately, he says, all seem to point in the same direction: a significant slowdown in the economy and earnings in 2007. Maybe "significant" is the wrong word. "Ugly" might be more apt: Mr. Painchaud thinks inflation will stay surprisingly strong, keeping interest rates high and leading to a recession and a 20% to 30% correction in stocks by year-end. "Some people would call it 'stagflation,'" he says. It is worth noting that Mr. Painchaud has made bad calls before, and very recently: He predicted the S&P would fall roughly 18% in 2005 and 8% in 2006; instead it gained about 3% and 14%, respectively. * * *

[dcengr]

Lonely is the right word.. maybe endangered is better.

Full article here

Rare Bears
Very Few Strategists
See Stocks Down in 2007;
Here Are Their Stories
January 13, 2007

Bears seem to be an endangered species on Wall Street.

Sure, most strategists expect earnings growth and the economy to slow in 2007. And they don't expect stocks to set the world on fire; the consensus view is that the Dow Jones Industrial Average and the Standard & Poor's 500-stock index will each gain 7% this year, according to a late-2006 BusinessWeek survey of 80 strategists.

But many of those forecasters have been dialing up their optimism in the weeks since that survey. Citigroup's Tobias Levkovich, for example, boosted his year-end target for the S&P 500 from 1400 to 1600.

And the sheer number of strategists expecting stocks to rise swamps the number of those expecting a decline. In a year-ending survey of 87 money managers by Russell Investment Group, just 12% said they expected the market to fall in 2007. Only 1% expected a 10% decline. Just nine of the 80 strategists surveyed by BusinessWeek expected the S&P 500 to end the year lower, and one of those was Mr. Levkovich, who has since defected from the bear camp.

So who are these lonely bears, and why are they bucking the consensus? We talked to a few of them about their views. In a nutshell, they see stagflation, or something much like it, on the horizon. Stagflation is a cocktail of inflation and economic stagnation, a perfect storm of nastiness that is poison to stock prices, as it was in the 1970s.

So far this year, there have been few signs that this will come to pass. The economy looks stronger than expected, commodity prices are tumbling and the dollar is strengthening. Interest rates are creeping higher, however, and expectations of a Federal Reserve rate cut are evaporating. Meanwhile, earnings forecasts are drifting lower, according to Thomson Financial. All are potential red flags for stocks.

And the bears are sticking to their forecasts. After you read their views, share your own.

Edited by dcengr, 15 January 2007 - 01:59 PM.

[PorkLoin]

Maybe "significant" is the wrong word. "Ugly" might be more apt: Mr. Painchaud thinks inflation will stay surprisingly strong, keeping interest rates high and leading to a recession and a 20% to 30% correction in stocks by year-end. "Some people would call it 'stagflation,'" he says.

It is worth noting that Mr. Painchaud has made bad calls before, and very recently: He predicted the S&P would fall roughly 18% in 2005 and 8% in 2006; instead it gained about 3% and 14%, respectively.

Hi Nimblebear -- well, the dude isn't afraid to make fearless forecasts, eh? The last two years being up 17% versus his predicted down 26% is a wide spread, though. That's gotta be an "ouch."

It's possible, I guess -- the US could go into a recession while the rest of the world on balance drove energy prices up, a big part of such possible inflation IMO, but we're 1/26 through the year already and it ain't exactly happening yet.

Debt creation/liquidity/foreign buying of US stocks: I think that has to really cool off before we go down hard like he's saying.


Best,

Doug

[jawndissedi]

Bears are not very lonely on this board. Didn't I see half a dozen people post short trades on Thursday and Friday -- did anyone go with (i.e., initiate new longs) the upside breakout?

[eminimee]

Can someone please show me a chart of this upside breakout please?..Someone mentioned the "valid" breakout on the q's earlier & I'd like to see a chart of that too.
I rode most of the move off the recent lows but I can't see the breakout unless you are talking about the new highs on ndx....but it has run into longer term resistance.
http://stockcharts.com/c-sc/sc?s=$NDX...9666&r=4149

[dcengr]

That same link I posted had a discussion area where Joe Six Pack could join the discussion...

Its not pretty if you're a bear.

J6P is bearish

[Woody]

Can someone please show me a chart of this upside breakout please?..Someone mentioned the "valid" breakout on the q's earlier & I'd like to see a chart of that too.
I rode most of the move off the recent lows but I can't see the breakout unless you are talking about the new highs on ndx....but it has run into longer term resistance.
http://stockcharts.com/c-sc/sc?s=$NDX...9666&r=4149

XLK Daily shows a well defined pattern....

http://stockcharts.c...4194&r=5533.png

[Gary Smith]

That same link I posted had a discussion area where Joe Six Pack could join the discussion...

Its not pretty if you're a bear.

J6P is bearish

Most everywhere I read I see consensus returns for stocks in 2007 to be in the 7% to 8% range. While a case can certainly be made by the bears that this is a very complacent consensus, I haven't seen many bulls arguing that the consensus will err on the low side and stocks will surprise to the upside in the 20% range. Plus, 7% to 8% is pretty muted in light of historical returns in the 10.06% area and taking into consideration the Wall Street strategists making such forecasts have a bullish bias.

[dcengr]

That same link I posted had a discussion area where Joe Six Pack could join the discussion...

Its not pretty if you're a bear.

J6P is bearish

Most everywhere I read I see consensus returns for stocks in 2007 to be in the 7% to 8% range. While a case can certainly be made by the bears that this is a very complacent consensus, I haven't seen many bulls arguing that the consensus will err on the low side and stocks will surprise to the upside in the 20% range. Plus, 7% to 8% is pretty muted in light of historical returns in the 10.06% area and taking into consideration the Wall Street strategists making such forecasts have a bullish bias.

Oddly enough, that was the consensus for last year before we had our 15%+ run up.

[pdx5]

In 2006 SPX earnings are up aprox 17%. In 2005 SPX earnings were up double digits. In 2004 SPX earnings were up double digits. In 2003 SPX earnings were up double digits. Will 2007 earnings be up double digits? That is the 64 million $ question. No one knows for sure, ofcourse. But there was no housing contraction in 2003, 2004, 2005 and beginning of 2006. So a lot will depend on how fast the housing sector recovers in 2007. Another stat to keep in mind is that 7 of the last 8 housing contractions were followed by a recession on the average 22 months after the contraction began. So, the economic factors are at a fork in the road. The next big move will be significant in whatever direction it takes.