Source: stockcharts.com
It is obvious that the US markets are in a bull market. The 13-year resistance levels of around 1565 were blown through like a hot knife through butter recently. The discipline of Technical Analysis demands that we acknowledge this very significant development as outright bullish, and trade accordingly. There is a strong case for the development of a new bull market – one that could last for several years. It is my intention to play that bull market for all I can, just as I traded the sideways market over the past 13 years via appropriate trading techniques.
However, at this juncture it appears that at least some level of speculation has entered into the markets.
Beyond the sentiment indicators mentioned on my last BNN appearance (see last weeks blog), there are a couple of other signals for investors to heed when deciding if now is the time to invest new money in the ever-rising US stock market. According to Bloomberg, NYSE margin debt hit $380 billion by the end of March. That’s pretty much the same level of margin debt that investors committed in July 2007 ($381 billion).
Meanwhile, Barclay’s US High-yield bond index just hit an all-time low yield of below 5% (i.e. new high in price). It would appear that both equities and corporate debt – even the lowest quality debt – is priced for perfection. I continue to be longer termed bullish, but cautious in the near term. The longer it takes for a significant correction to appear on the markets, the more significant that correction will likely be.
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I was reading an article from marketwatch on stock picking and those trying to get returns from the market. It was very sobering. This paragraph by Daniel Kahneman was particularly poignant,
Nobel economist Daniel Kahneman uses similar gambling imagery: “50 years of research” proves the stock-picking skills of fund managers are “more like rolling dice than like playing poker.” Most underperform. The few winners rarely repeat.
Its true Dave–most of us dont outperform. I do post my performance on the ValueTrend and have managed to outperform (I actually began my equity platform officially in 2007, although that was under a different firm so I have only 4 years “publishable” data), but I’m fully aware that could change at any time. Where the real value of a good manager (not a median skill level type) may be is in meeting a clients risk tolerance goals. For example, one of my “claims to fame” in 2008/09 was my adherence to my rules of both asset allocation and in some of the seasonal / technical work I do. Thus, my downside was limited in the 2008/09 crash. Even if we hadnt outperfromed markets thereafter, most of my clients took huge comfort in their lesser volatility during the bear market. So…my beleif is that everyone’s a long-term bull during a bull market, but when things get sour many investors can have a change of heart. A good manager who has risk controls may offer that comfort level of less volatility as a primary benefit, rather than outright outperformance at the cost of higher volatility.
Thats just a seat-of-the-pants observation of investor behaviour from some 24 years of dealing with the common neurosis of the investing public.
BONDS ARE FOR FOOLS?
I AM ALWAYS AMAZED AT THIS TIME OF THE YEAR TO READ THAT: “XLE IS BREAKING UP AND OUT OF A LARGE BULLISH SYMETRICAL TRIANGLE (WITH XOM AND CVX ON BULLISH ASCENDING TRIANGLES CHARTS) AND THAT BONDS ARE FOR FOOLS… WITH TLT BREAKING DOWN THROUGH THE 200 DAY MOVING AVERAGE DOWN TO AT LEAST $109.00 TO COMPLETE A HUGE HEAD & SHOULDER TOP”. INVESTING IS A TOUGH BUSINESS AND SEASONALITY IS RANDOM AT TIMES!
agreed!