Jump to content



Photo

The TURKEY phase of the Market


  • Please log in to reply
8 replies to this topic

#1 dTraderB

dTraderB

    Member

  • Traders-Talk User
  • 5,893 posts

Posted 26 November 2019 - 10:13 AM

Good read here, could be stopped out of a few VXX LONG positions today. 

 

Later. 

Technically Speaking: Turkeys, Markets & A “Revision Of Belief”

Written by Lance Roberts | Nov 26, 2019 

In a market that is excessively bullish, and overly complacent, investors are “willfully blind” to the relevant “risks” of excessive equity exposure. The level of bullishness, by many measures, is extremely optimistic. 

bullish-sentiment.jpg

Not surprisingly, that extreme level of bullishness has led to some of the lowest levels of volatility and cash allocations in market history.

AAII-Stocks-Cash-Ratio-112519.png

Of course, these actions must have a supporting narrative. 

Stocks To Be Propelled Higher In 2020: U.S. equity strategist, David Kostin said:

“We expect the current bull market in US equities will continue in 2020. The durable profit cycle and continued economic expansion will lift the S&P 500 index by 5% to 3250 in early 2020.”

The Great Rotation: JP Morgan analyst Nikolaos Panigirtzoglou said:

“Given this year proved to be a strong year for equity markets, helped by institutional investors, then we should see retail investors responding to this year’s equity market strength by turning [into] big buyers of equity funds in 2020. This suggests 2020 could be another strong year for equities driven by retail rather than institutional investors.”

This is an interesting turn of sentiment considering that just a month ago headlines were plastered with “recession” fears. 

Despite the “narrative,” and the “prima facie” evidence you shouldn’t “Fight The Fed,” the current detachment of prices from valuations, and the deviation of price from long-term norms, are concerning. 

CAPE-5 is a modified version of Dr. Robert Shiller’s smoothed 10-year average. By using a 5-year average of CAPE (Cyclically Adjusted Price Earnings) ratio, it becomes more sensitive to market movements. Historically, deviations above +40% have preceded secular bear markets, while deviations exceeding (-40%) preceded secular bull markets.

CAPE-5-Deviation-SP500-112619.png

Also, as I noted in Monday’s missive on “Investing vs Speculation:”

“Regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.” – Jason Zweig

The chart below is the 3-year average of annual inflation-adjusted returns of the S&P 500 going back to 1900. The power of regression is clearly seen. Historically, when returns have exceeded 10% it was not long before returns fell to 10% below the long-term mean which devastated much of investor’s capital.

SP500-Reversion-To-The-Mean-112019.png

Not surprisingly, when the price of the index has deviated significantly from the underlying long-term moving averages, corrections and bear markets have not been too distant.

 

Combining the above measures (volatility, valuation, and deviation) together shows this a bit more clearly. The chart shows both 2 and 3-standard deviations above the 6-year moving average. The red circles denote periods where valuations, complacency, and 3-standard deviation moves have converged. 

SP500-VIX-PE-Technical-112619.png

While the media continues to suggest the markets are free from risk, and investors should go ahead and “stick-their-necks-out,” history shows that periods of low volatility, high valuations, and deviations from long-term means has resulted in very poor outcomes.

Lastly, there has been a lot of talk about how markets have entered into a new “secular bull market” period. As I discussed in “Which Secular Bull Market Is It,” I am not sure such is the case. Given the debt, demographic and deflationary backdrop, combined with the massive monetary interventions of global Central Banks, it is entirely conceivable this is more like the 1920-29 advance that led up to the “Great Depression.” 

Regardless, whenever the RSI (relative strength index) on a 3-year basis has risen above 70, it has usually marked the end of the current advance. Currently, at 75, there is little doubt the market has gotten ahead of itself.

SP500-Quarterly-MarketChart-112519.png

No matter how you look at it, the risk to forward returns greatly outweighs the reward presently available. 

Revision Of Belief

Importantly, this doesn’t mean that you should “sell everything” and go hide in cash, but it does mean that being aggressively exposed to the financial markets is likely not wise.

It reminds me much of what Nassim Taleb once penned in his 2007 book “The Black Swan.”

“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interests,’ as a politician would say.

On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey.

It will incur a revision of belief.”

turkey-taleb.png

Such is the market we live in currently.

It has become a “Turkey” market. Unfortunately, like Turkeys, we really have no clue where we are on the current calendar. We only know that today is much like yesterday, and the “bliss” of calm and stable markets have lulled us into extreme complacency.

You can try and fool yourself that weak earnings growth, low interest rates, and high-valuations are somehow are justified. The reality is, like Turkeys, we will ultimately be sadly mistaken and learn a costly lesson.

 

https://realinvestme...ision-of-belief


Edited by dTraderB, 26 November 2019 - 10:14 AM.


#2 alexnewbee

alexnewbee

    Member

  • Traders-Talk User
  • 1,342 posts

Posted 26 November 2019 - 10:28 AM

http://www.zerohedge...t-chaos-october

 

Most of all I like this comment from our good GS. Really happy, that these guys are taking care of peoples money! clapping.gif

 

qte

The storm clouds are looming and disaster could strike at any time.  This is one of the most critical times in the history of our nation, and most Americans are completely unprepared for what is going to happen next.

unqte

 

Pls note, it was published 21st of Sept 2019, days before the low.

By the way, even I there at that time was saying - market was going up!


Edited by alexnewbee, 26 November 2019 - 10:36 AM.

"we do G.d's work" Lloyd Blankfein

#3 12SPX

12SPX

    Member

  • Traders-Talk User
  • 854 posts

Posted 26 November 2019 - 11:02 AM

Great articles, I think its about common sense, once you get up to the way it is now a smart person will have some stops on, especially when you go so long without a -2% pullback!!



#4 blustar

blustar

    blustar

  • Traders-Talk User
  • 5,436 posts

Posted 26 November 2019 - 01:24 PM

There will be a day of reckoning, but I don't see it yet to any great degree (maybe another 20% bear or less into late this spring or early summer), perhaps late year 2020 to first quarter 2021 could see a 40% debacle.  VST, I see a top today and a pull back into Wednesday to near 3098/99 SPX.. A move to above 3150 by Dec 5 now seems to be in the cards, I think, and then a 6.8% pull back into Dec 13 to near 2936. Higher prices into March/April seems likely to me to near 3240 from there.



#5 robo

robo

    Member

  • Traders-Talk User
  • 1,125 posts

Posted 26 November 2019 - 01:57 PM

Looks like it's almost time....  I need to see VXX stop going down on the 2 hour chart before placing a bet...

 

Moving sideways for now.....

 

https://stockcharts....889&a=702753221

 

 

I agree with some of this. Best to watch both of these....  not very long..... I remain flat!

 

On the lookout for panic selling in the metals sector to add to position

 

 

Stock market update: crash potential


Edited by robo, 26 November 2019 - 02:04 PM.

“There is only one side to the stock market; and it is not the bull side or the bear side, but the right side”   Jesse L. Livermore


#6 12SPX

12SPX

    Member

  • Traders-Talk User
  • 854 posts

Posted 26 November 2019 - 02:14 PM

Yea a bull bear argument, so far the bulls have been totally right as bears calls here for the last few weeks have been so wrong.  Is getting extreme thats for sure!!  



#7 robo

robo

    Member

  • Traders-Talk User
  • 1,125 posts

Posted 26 November 2019 - 02:37 PM

Yea a bull bear argument, so far the bulls have been totally right as bears calls here for the last few weeks have be.

 

 

 

I agree.... The trend remains up, on the 2 hour and the daily, and VXX down....  I'm not going to fade the trend... I will wait for the 2 hour to turn first then I will look things over and I  might place a bet.... I agree with the Smart Money dude on this one....( Link above)  Doesn't mean I will be correct. 

 

Bottom Line - The trend remains up, and nothing else matters to me and my trading system....

 

https://stockcharts....889&a=702759972

 

https://stockcharts....312&a=702760313


Edited by robo, 26 November 2019 - 02:43 PM.

“There is only one side to the stock market; and it is not the bull side or the bear side, but the right side”   Jesse L. Livermore


#8 robo

robo

    Member

  • Traders-Talk User
  • 1,125 posts

Posted 26 November 2019 - 02:53 PM

"Yea a bull bear argument, so far the bulls have been totally right as bears calls here for the last few weeks have been so wrong.  Is getting extreme thats for sure!!"

 

LOL.....  Ok..... Many of these trading systems have been "WRONG" for sometime now.....

 

Tuesday  2:00: Daily     LOLR     STS Up        Up          Down 5/2      7/0         0/7 STS SELL Confirmation at 2 PM

 

https://twitter.com/...erp|twgr^author


“There is only one side to the stock market; and it is not the bull side or the bear side, but the right side”   Jesse L. Livermore


#9 dTraderB

dTraderB

    Member

  • Traders-Talk User
  • 5,893 posts

Posted 27 November 2019 - 01:27 PM

Almost 100% short in my risk portfolio

 

Loss so far is just under 32K

 

but, thank you, NQ, for saving the month of November trading: $43K profit so far.  Make that 43.7 K.... closing my NQ longs (12 lots) and winding down.... 

Will be off until Monday, monitoring the market, but hopefully not trading until Sunday evening.