Bullish Information

[Jim Nickerson]

Re: Bullish Information Re. Richard Russell

http://dowtheoryletters.com/ Subscription

8/17/07

The next chart is a daily chat of the widely-followed S&P 500. Note as of yesterday's close, the S&P came down almost to its previous March low. The market has become severely oversold, and was way overdue for a good rally. However, It's possible that a rally will simply form a right shoulder in what could be a huge head-and-shoulders pattern. That doesn't have to be, but I'm going to watch closely for this possibility.

A word about the rapidity of this decline. It's been surprisingly fast. Where ever this market is going, it's going in a hurry. Just a guess, but I had thought that this decline would last until at least October. If that's going to happen, the market will have to slow its descent in the form of a few good rallies, in other words, the market will have to "stretch out" its rate of decline.

[Edit JN:Sorry I could not import the $SPX stockcharts.com daily 1-year chart that he referenced. You can check out the chart at stockcharts.com.]

What Russell is pointing out is the technical possibility of a rally here to form the right shoulder of the pattern.

Such a move would not negate the possbilities of new lows later this year.

[Jim Nickerson]

Re: Bullish Information Re. Mark Hulbert

Hulbert posted this Friday morning well before the markets opened at 9AM EDT 8/17/07

http://www.marketwatch.com/news/stor...C6997DCB220%7D

For those few of you who are not among the 18 million or so readers who have emailed me in recent days to remind me of how wrong I was, I argued then that the odds favored the market rallying, not falling further. See July 25 column

About the only thing I can say in my defense is that the jury is still out: I concluded the column by writing: "Odds favor that the market ... will trade at new all-time highs sometime in the next three months."

So, technically, we won't know until Oct. 25 that my prediction was wrong. And though new highs look awfully far off right now, I continue to believe that the odds favor a higher market over the next three months. Newsletter editors are significantly more pessimistic today than then, increasing the odds that already existed then that the path of least resistance for the market is up.

Consider the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term market timing newsletters. As of Thursday night, the HSNSI stood at minus 11.3%, which means that the average market timer that is part of the HSNSI is recommending that his clients allocate 11.3% of his equity portfolio to actually going short.

To put this consensus recommendation into perspective, consider that the lowest the HSNSI got to during this year's late-February-early March correction was 17.4%, or nearly 30 percentage points higher than where it stands today. Yet, despite the HSNSI being so much lower now than then, the Dow Jones Industrial Average is nearly 800 points higher.

This is very revealing. Usually sentiment rises and falls more or less in tandem with the market itself, with advisers becoming more bullish as the market rises and more bearish as the market falls. When sentiment trends significantly deviate from this general pattern, it means that advisers have become unexpectedly bullish or, as in the current case, exceptionally bearish.

That's good news from a contrarian point of view, since bull markets thrive on the kind of skepticism we are seeing right now.

Another historical contrast that puts the recent sharp drop in the HSNSI into perspective is with how it behaved following the top of the stock market in March 2000, just as the Internet bubble was bursting. When, several weeks later, the market was 10% below its high, the HSNSI was actually higher than where it stood at the top.

No one knew at the time, of course, whether that 10% decline constituted a mere correction or, instead, was the beginning of a multi-year bear market. But, in light of the stubborn bullishness that was being exhibited at the time by advisers, contrarians believed that we indeed were at the beginning of a major bear market.

They were right, needless to say.

Yet it is for the very same reasons that led them to be right then that contrarians today believe the recent decline is just a correction within a long-term bull market.

[Tet]

Re: Bullish Information Re. Mark Hulbert

Hulbert posted this Friday morning well before the markets opened at 9AM EDT 8/17/07

http://www.marketwatch.com/news/stor...C6997DCB220%7D

I would imagine we see a pretty quick 1,000 point gain on the DOW, probably quicker than the 21 trading days it took for the quickest 1,000 point gain the DOW has had. Market still has ten trading days to give the cows a little gain on their 401K's by the end of the month or that might create the herd heading in the wrong direction. Should be interesting.

[friendly_jacek]

Re: Bullish Information

Check the shape of Baltic Exchange Dry Index (BDI).
Note, this is a leading and not lagging indicator:
http://www.investmenttools.com/futur..._dry_index.htm

[bart]

Re: Bullish Information

Check the shape of Baltic Exchange Dry Index (BDI).
Note, this is a leading and not lagging indicator:
http://www.investmenttools.com/futur..._dry_index.htm

Indeed - it does tend to lead.

[Jim Nickerson]

Re: Bullish Information

Indeed - it does tend to lead.

Good point, f-j, and very nice confirmation, Bart.

Bart, it seems that a week or so ago you expressed some bullish sentiment that the market run-up was not done, and I believe I agreed with you--I have no vague recollection of which thread. Right now I still think the equity market's runs up are not done--how high? I have no idea.

Do you have an opinion?

[bart]

Re: Bullish Information

Bart, it seems that a week or so ago you expressed some bullish sentiment that the market run-up was not done, and I believe I agreed with you--I have no vague recollection of which thread. Right now I still think the equity market's runs up are not done--how high? I have no idea.

Do you have an opinion?

I do have an opinion of course... :eek: ... and it remains the same. There's still a bounce or two left... but my real answer is that I mostly remain on the side in stock markets. It has more to do with the whipsawing and wild volatility not being compatible with futures and my style than anything else.

Lately I've only been trading yen, soybeans and natural gas... and am only holding a natural gas long right now.

[jk]

Re: Bullish Information

Yet, despite the HSNSI being so much lower now than then, the Dow Jones Industrial Average is nearly 800 points higher.

duh. i thought the idea was to buy low and sell high. thus if the dow is higher, shouldn't a useful buy/sell indicator be lower? i.e. you want an indicator to tell you to sell as the price gets higher. hulbert apparently admires those "analysts" who downgrade a stock after it's dropped 50%.

[Jim Nickerson]

Re: Bullish Information

duh. i thought the idea was to buy low and sell high. thus if the dow is higher, shouldn't a useful buy/sell indicator be lower? i.e. you want an indicator to tell you to sell as the price gets higher. hulbert apparently admires those "analysts" who downgrade a stock after it's dropped 50%.

I took his point to be that after the recent highs, once the markets fell away from them, there was no persistence of bullishness. It seems to be his opinion that a significant top will be marked by persistent bullishness amongst the newsletter writers even as the markets decline, and since that has not yet occurred, a "final" top still lies ahead.

[friendly_jacek]

Re: Bullish Information

duh. i thought the idea was to buy low and sell high. thus if the dow is higher, shouldn't a useful buy/sell indicator be lower? i.e. you want an indicator to tell you to sell as the price gets higher. hulbert apparently admires those "analysts" who downgrade a stock after it's dropped 50%.

HSNSI is a contrarian indicator. Remember, smart money is the opposite of dumb money. 85% of market players are dumb money. HSNSI is the indication where the herd is going. So, if the herd in now extremely selling , smart money should be buying. The only problem is if this is a beginning of big recession, buying may not smart (long term).

[DemonD]

Re: Bullish Information Re. Another Nickerson observation.

I probably have read iTulip everyday for the last 16 months, and based on "feel" and perhaps poor recollection, I would say in the past week to 10 days there has never been as much bearishness on the site as in this time.

With regard to MM funds there might have been some panic even when there has been no serious evidence of money market funds being in trouble so far.

Some, seemingly young, guys have been worrying they have missed the Ka, and what to do about the Poom? I have "felt" a certain amount of serious worry.

I think there has been a peak--so far--here in bearishness.

Jim, as a "young guy" (is 30 still young?!?), I don't feel like I've missed the Ka. I think it's probably going on right now, and we've got more to the downside as more and more companies and hedge funds cannot service their debt and margin calls. I've seen too many statements from loan and banking industry people claiming this is the "tip of the iceberg" that I'm inclined to believe what EJ has said... that risk is polluted systemically.

So you can count me among the bearish, with my actions backing up my words.

One more thing jimbo: Take a vacation man! Go outside, ride a bike, take a walk, a hike, get drunk, take your wife to a movie or something. As much as I love learning about money and finance and using this knowledge to increase my personal wealth, it can skew your perspective staying on the computer all day.

Starting a week from today I'll be off-line for a week, I'll be in a place where money - be it gold, paper dollars, numbers in a bank account - have absolutely no value. Now I'm not saying you should join a commune or something, but even the most internet- and tech-loving among us know that we need to unplug ourselves. Even if it is in the self-interest of learning more about finance and the economy. Like maybe you can go to Disneyworld, and just see who's going there nowadays or something. Are there as many Germans in orlando as there were in the Canyons of AZ and UT?

Maybe take some of your increased wealth from t-bills or whatever and buy a super spiffy tent and go camping. Just don't lose sight of the forest because you can't see through the trees!

[Jim Nickerson]

Re: Bullish Information Re. Another Nickerson observation.

Jim, as a "young guy" (is 30 still young?!?), I don't feel like I've missed the Ka. I think it's probably going on right now, and we've got more to the downside as more and more companies and hedge funds cannot service their debt and margin calls. I've seen too many statements from loan and banking industry people claiming this is the "tip of the iceberg" that I'm inclined to believe what EJ has said... that risk is polluted systemically.

So you can count me among the bearish, with my actions backing up my words.

One more thing jimbo: Take a vacation man! Go outside, ride a bike, take a walk, a hike, get drunk, take your wife to a movie or something. As much as I love learning about money and finance and using this knowledge to increase my personal wealth, it can skew your perspective staying on the computer all day.

Starting a week from today I'll be off-line for a week, I'll be in a place where money - be it gold, paper dollars, numbers in a bank account - have absolutely no value. Now I'm not saying you should join a commune or something, but even the most internet- and tech-loving among us know that we need to unplug ourselves. Even if it is in the self-interest of learning more about finance and the economy. Like maybe you can go to Disneyworld, and just see who's going there nowadays or something. Are there as many Germans in orlando as there were in the Canyons of AZ and UT?

Maybe take some of your increased wealth from t-bills or whatever and buy a super spiffy tent and go camping. Just don't lose sight of the forest because you can't see through the trees!

I am on vacation now for 4 weeks with 5 to go. DemonD, 30 is young and I consider you way, way, way ahead of the curve as to where I was at your age. I didn't even know there were curves.

[DemonD]

Re: Bullish Information

Jim, I thought you were retired? How can you take a vacation from retirement?

But what I meant about "vacation" was a vacation from itulip, from computers, from the internet. Unplug for a weekend, or at least a day for starters. Maybe go fishing? Somewhere where your cell phone doesn't even get reception.

just a suggestion.

[lb]

Re: Bullish Information Re. Another Nickerson observation.

I am on vacation now for 4 weeks with 5 to go. DemonD, 30 is young and I consider you way, way, way ahead of the curve as to where I was at your age. I didn't even know there were curves.

30 is the new 40. My curves keep growing

[Jim Nickerson]

Re: Bullish Information

Jim, I thought you were retired? How can you take a vacation from retirement?

But what I meant about "vacation" was a vacation from itulip, from computers, from the internet. Unplug for a weekend, or at least a day for starters. Maybe go fishing? Somewhere where your cell phone doesn't even get reception.

just a suggestion.

DemonD,

When I was 30, I was a resident. It was not until I was 38 that I first became acquainted with computers--about 1979. I suppose you grew up with computers, and whereas I in my wildest expectations could at most have 34 more years to screw with computers, the internet, and whatever else might evolve, you in your wildest dreams at most may have 70 more years to screw with these same innovations.

When I worked, for most years 12 hour days including reading and preparation for cases to be operated were not uncommon. I figured by the time I had practiced 25 years it equated to 37 for those of my professional ilk who were truly laid-back.

Already, I am retired for 13-14 years and during this time I've done most things I never got to do when I worked--because working to me meant working. Actually there are damned few things now that I enjoy in the way of entertainment or social activity, because I have done all that seemed interesting to me.

What I like about trying to be an investor is the challenge, and that today it is possible to do so without much face-to-face contact with anyone. The internet provides about as much social contact as I desire with a few exceptions. I don't pay attention to investing totally because I have to, but moreso because I do enjoy it.

Don't worry about me and a cell phone because I don't own one and probably never will. Wife has one.

Probably during your lifetime you will have spent much more time screwing with computers than I will have.

Plus if I did not visit iTulip everyday, those days would be days without sunshine, and I would have no potential feel of the what seemingly concerns those who post on iTulip.