Bearish Information

[Jim Nickerson]

Re: Bearish Information Re. Market history

Richard Russell, dowtheoryletters.com 12/29/06 noted some interesting market history that he attributed to Growth Fund Guide.

Russell wrote, "My friends at Growth Fund Guide (a really excellent advisory out of Rapid City, S.D.) notes in their latest report that since the 1890s, every '56-'57 two-year period has seen an important decline (examples, 1946-47, 1956-57, 1966-67, 1976-77). Some of these declines have started in a '56 year and others have started in a '57 year, but there has never been a two-year '56-'57 period when the market has not experienced an important decline. Six of these declines were more than 35% (the largest was the 49.1% decline of 1936-37) and three of the declines were mild or below 19% -- there was one decline in 1896-97 of 17.8%, one in 1926-27 of 16.7% and one in 1996-97 of 13.3%."

As I understand what he wrote, it seems conflicted in starting with " '56-'57" while citing examples from many periods not in the "50's. I guess that is a typo. Interestingly they did not cite 1986-1987, seems I recall an "important decline." in that period too.

Also Russell, "Growth Fund Guide follows the dividend multiple (price times the dividend) for the S&P 500 going back to the mid-1800s. For instance, the price/dividend ratio for the S&P was a fat 35 at the 1929 high, and you know what happened after that. In February 1966 the price/dividend ratio was a high 34 and a long bear market followed. In August of 1987 the price/dividend ratio was a high 38, after which came a market smash."

Russell wisecracks, "So what's the price/dividend today? It's a record high 57, but never mind, it's possible that "this time it's different," and there'll be no negative aftermath following the current extreme overvaluation."

From last Saturday's Barrons the SPX was 1418.30 and dividends were 25.67, that equals 55.25 ratio.

Not to worry if one is bullish, most everyone is, and someday something will happen in the market where "this time it's different" will be correct.

Price to dividend can be looked upon as the number of dollars that one must invest to gather $1/bonar in dividends. For some years I have tracked the weekending yield of the SPX. I derived the number I use to represent the price/dividend ration by the formula 1/yield = pricie/dividend.

My numbers show the record price/dividend levels as having been reached several times around March 24, 2000 high and the retest of that high in Sept, 2000 at which times the ratio went over 90. If my numbers are correct, the notation by Russell that 57 is a record high is incorrect. According to my tracking of price/dividend ratio, it went above 58 in June, 1997, and after that was always higher than 57 until it went below 57 the weekending 7/19/02.

So were past to be prelude, then the current levels of the price/dividend ratio could go much higher as they did in the 1998-2000 equity markets bubble. I can't argue Russell is wrong about measures over 35 being high by whatever are his standards, but based on market behavior for the last 10-12 years, mid-30's numbers are low.

[Jim Nickerson]

Re: Bearish Information Re. Equity Markets

1/1/07 James West
http://www.financialsense.com/fsu/ed...2007/0101.html

West wrote, "Over the last two weeks there were several new developments in the major indexes in terms of COT data. What I found interesting is that in the Dow Jones, commercials were buyers and larger-traders were sellers. This is a classical bearish COT setup. For the Nasdaq 100, however, both commercials and large-traders were sellers while small-traders were the ones buying (or short-covering). Interestingly enough the small-trader buying does not end there, in the Russell 2000 index commercials were relatively flat over the last two weeks, as large-traders were big sellers…so that only leaves the small-traders to do the buying. This same sort of pattern reappears once more in the S&P 500, as large traders were sellers commercial buying was relatively minor, meaning that small-traders were doing most of the buying in the market.
The point that I am getting to is that small-traders are entering the stock market, while commercials remain largely negative for most markets, excluding the Russell 2000. On top of all that, the stock-market has been on a relentless rally for the past 5 and-a-half-months.
I am now largely bearish on the stock market, and would not be surprised to see a strong sell-off materialize in the early part of 2007. I am looking for an intermediate-term top but not so sure about it being a longer-term top, just yet."

[Jim Nickerson]

Re: Bearish Information Maund on gold and silver.

http://www.safehaven.com/article-6660.htm

Clive Maund 1/7/07 "Bottom Fishers Beware"

This guy I think is generally worth reading. This article covers gold, silver, HUI, copper, oil and US Bonar.

If one is invested in any of these items, I think this article is important.
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edit: 1/10/07 11PM

Tonight on safehaven.com in a note dated tomorrow 1/11/07, Maund appears to me to be making an "emergency" change in direction of the bearishness noted above in this post 4 days ago. http://www.safehaven.com/article-6681.htm In this link, he notes, "...evidence has begun to appear that a possibly dramatic reversal to the upside may be close at hand."

He references the $HUI and $WTIC in his comments, whereas 4 days ago he was mentioned gold, silver, HUI, copper, WTIC, and the bonar.

In all of his charts from 1/7/06 the indicators were RSI's and MACD's. In this perhaps "emergecy" note of 1/11 he has switched to variations of stochastic oscillators--with which I personally have no familiarty. Whatever he is seeing in these indicators in addition to his "all-important MSI" indicator (Maund Subscriber Index), he suggests the "possibly dramatic reversal to the upside" may be near. When I make my own assessment of the charts he used on 1/7/07 using the RSI and MACDs, I think they all still look negative.

Interesting too, in his chart on WTIC dated 10-Jan-2007, it notes the closing oil price was down .09 today, when in fact it was down 1.62. I have to assume his interpretation based on the erroneous change in oil he shows for today would be different as would the STOchastic indicators had he used the correct closing price for WTIC today. What happens at stockcharts.com for reasons beyond my understanding is they have some difficulty getting the final $WTIC data into their database until perhaps 9-10PM each day.

So I do not know what to make of Maund's issuing a reveral 4 days after he was rather bearish, especially when part of his chart arguments was in error.

[Jim Nickerson]

Re: Bearish Information Re. looks at periods with few corrections.

2007: The Return of the Bear BY FRANK BARBERA, CMT 1/9/06

http://www.financialsense.com/Market...2007/0109.html

Barbera said among a lot of other interesting observations, "Never, and I mean NEVER, have we seen a four year bull run extend outward without at least a 10% decline somewhere in the mix. That is the challenge we face in 2007, as I will end with this final chart showing 100 years of the DJIA and a final Time Span chart--this time, a Time Span that tracks 10% corrections in the Dow. In the past 100 years, we have now gone the longest period of time – thru today, a total of 959 trading days in which the DJIA has not seen a pull back of at least 10%. That has never happened before with this current streak easily dwarfing the prior long dated runs on 839 days in 3/30/1994, 806 days ending on 10/13/87, and 772 days ending on 6/09/53."

Barbera looks a lot of moves in the market in terms of how long certain behaviours have existed. Pretty interesting stuff, and I thought worth the time to read his research.

[Jim Nickerson]

Re: Bearish Information Re. Schilling what's ahead in 2007?

http://www.forbes.com/guruinsights/2...apbox_inl.html

A Dozen Reasons To Worry
A. Gary Shilling, Insight 01.10.07, 1:05 PM ET

I foresee 12 investment themes, seven of which are likely to unfold in 2007, while four will probably work but maybe not until next year.
-- Housing prices will collapse.
-- The Fed will ease when house prices collapse; meanwhile, the yield curve will remain inverted.
-- U.S. stock prices will fall, perhaps below the 2002 lows, in the midst of a major recession.
-- China will suffer a hard landing due to domestic cooling measures and U.S. recession.
-- Weakness in U.S. and China will spread globally, dragging down economies and stocks universally.
-- Treasury bonds will rally.
-- The dollar will rally, but only after the recession becomes global.
-- Commodity prices will nosedive.
-- Maybe global and chronic deflation will commence in 2007.
-- Maybe U.S. consumers will start a saving spree, replacing their 25-year borrowing and spending binge.
-- Maybe deflationary expectations will become widespread and robust.
-- Speculative areas beyond housing may suffer in 2007.

Discouraged bear because at the moment at least the equity markets keep going up like the Energizer Bunny?

Shilling's piece may provide the impetus not to capitulate to bullishness if there is anyone who hasn't already. Worth reading I believe, is short.

[Jim Nickerson]

Re: Bearish Information Re: Failure of money creation?

January 11, 2007
A Mind Is A Terrible Thing To Waste
by Doug Wakefield

"...as we start 2007, if you are not sure how much of your future is tied to closet indexing, I strongly encourage you to get outside of your "cocoon" and start asking the question, "How did we make money in 2006?" While procrastination and denial have proven beneficial to the non-thinker over the last three years, let me remind us that not all three-year periods look the same. And if one believes that the boys at mission control can print their way out of any mess, one must contend with how ineffective their actions were in stopping the market decline from 2000 to 2002.

It is data such as these that to me provide the biggest argument against there being a plunge protection team, though perhaps from end of '99 to end of '02, they did not have their 'chute quite together just yet.

[bart]

Re: Bearish Information Re: Failure of money creation?

January 11, 2007
A Mind Is A Terrible Thing To Waste
by Doug Wakefield






It is data such as these that to me provide the biggest argument against there being a plunge protection team, though perhaps from end of '99 to end of '02, they did not have their 'chute quite together just yet.

Yikes... I really have a problem with this. Not only does Mr. Wakefield only use M3 and disregard credit, he also ignores the valid and proven concept of time lags between the creation of money and its impact on an economy.
Additionally, but he also ignores all the hot money Fed and Treasury and Commercial Banking items, which includes repos and TIOs.

Just taking commercial banking repos and adding Fed permanent repos for example, and associating them with the Dow or S&P shows a correlation of about .87 (1.0 is perfect) since 2000.

I don't know that I'd call what goes on the "PPT" but that lack of correlation he's trying to show is not based on full facts.
I do agree with him however on the general area of M3, even in spite of me being the first one to put it back together again and the huge jumps in my web site hits - it is only one monetary factor amongst very many.

[Jim Nickerson]

Re: Bearish Information Re. John Hussman--Hazardous!

1/16/07
http://hussmanfunds.com/wmc/wmc070115.htm

Hussman's weekly comments for week beginning 1/16/07.

Using the criteria below Hussman recounts the market's behavior using the DJI when the at weekly closing the following conditions existed.

"Overvalued S&P 500 price/peak earnings greater than 18


Overbought S&P 500 at a 4-year high, and at least 5% higher than its level 6 months earlier


Overbullish Investors Intelligence percentage of bullish advisors above 53%


Yield pressure 3-month Treasury yield higher than its level of 6 months earlier"

This is a nice summary of previous market behavior back to 1965 when the 4 criteria above were present.

If you are mildly to wildly bullish, his points are worth one's congnizance.

If you are bearish, perhaps there is hope to be gained from his review of past periods of performance.

Good stuff, I believe.

[Jim Nickerson]

Re: Bearish Information Re. 4-yr. Market Cycle Lows

January 20, 2007
The Trend is still up, Sentiment is High, but Change is in the Wind
by Tim Wood

http://www.safehaven.com/article-6736.htm

At present and contrary to popular opinion, the long-term work continues to suggest that the 4-year cycle low is still ahead of us. I know that most people are of the opinion that the 4-year cycle low occurred at the June/July 2006 lows. Those that were looking for the 4-year cycle low last October are all pretty much now also in the camp that the 4-year cycle low occurred at the June/July 2006 lows.

In spite of the Dow theory non-confirmation and the statistical quantifications surrounding the 4-year cycle, which are not discussed here, the public remains very bullish and completely oblivious to the current market risk. One measure of this sentiment comes from the Investor Intelligence data. Below is a weekly chart of the Industrials along with the weekly Investor Intelligence readings in the upper window. We have just completed the 222nd consecutive week with this reading either at or above the 50% level. When this indicator is at the 50% level it means that there are just as many bulls as there are bears. When this indicator is at 75% it is telling us that there are 3 times as many bulls as there are bears. The point here is that optimism among investors ebb and flow with market cycles. For example, since the inception of the Investors Intelligence data every 4-year cycle low has occurred with extreme pessimism. All the while, 4-year cycle tops are made with extreme bullishness and optimism. So, it is a fact that most people are the most bullish at or near a top and that most people are the most bearish at or near a bottom. Please understand that just as with non-confirmations sentiment data does not yield buy and sell signals, but rather serve as an indication of the overall environment. Let me also add that since the inception of the Investors Intelligence data back in the 1960's there has never been a period of such persistent bullishness. Even during the bull market of the 1990's and into the 2000 top this level of consistent bullishness was not seen. At 222 consecutive weeks at 50% or more we are indeed at record bullishness. What this amounts to is that this entire 4-year cycle advance has occurred with the plurality of bulls over bears and that has never occurred before.

The danger here, as I see it, is that we now have far too many people on one side of the boat. When the decline into the 4-year cycle low does begin and this sentiment begins to shift, the herd will run to the other side, it's only human nature. With this level of consistent/persistent bullishness there is an awful lot of weight that will be running to the other side, which could exacerbate the move into the 4-year cycle low.

I could write Wood has got to be wrong, this time it's different, but I won't write that.

[Jim Nickerson]

Re: Bearish Information Re: Hussman's take.

http://hussmanfunds.com/wmc/wmc070122.htm

1/22/07

As of last week, the Market Climate for stocks was characterized by unfavorable valuations, moderately favorable market action on the basis of prevailing price trends, but also an overbought, overbullish condition that has historically been associated with returns below Treasury bill yields. Add to that the fact that T-bill yields themselves are higher than they were 6 months ago, and we have a relatively rare syndrome that has almost invariably been associated with deep short-term market losses. That's not a forecast of what will happen in this particular instance, but it's about as close as you'll ever see me come to an outright warning about potential risks.

JN emphasis.

[Jim Nickerson]

Re: Bearish Information Re. Marc Faber on financialsense.com

http://www.financialsense.com/Experts/2007/Faber.html

This is a 45 minute interview of Faber by Jim Puplava, which I found interesting because my impression of Faber is that his thinking tends to lie outside that of so many opinions presented in the main stream media.

I made some notes while listening to Faber's comments.

The DJI is down 34% from its 2000 highs when measured in Euro's. It is down 50% when measured in gold.

Faber believes that few assets in the world are inexpensive presently. He said he had been selling things and has a lot of cash, I don't think he gave a percentage of cash.

With regard to the uncorrected moves for the Dow from its 03/2003 low and of the markets since July, 2006 he said, "Something big is going to happen one of these days." If any doubt, the "big" is expected to be down.

He believes if one is inclined to be buying anything now, that whatever it is will probably be cheaper in 3-6months--though he did not specifically include or exclude precious metals when he said that.

He thinks anyone buying long bonds now should realize that in so doing one expects that inflation over the next several decades will average 2% or so, and that is probably as wrong as anyone who sold bonds in the early 80's thinking inflation would average 10-12% over the next several decades.

With regard to markets topping out because of credit diminution, he suggested one should be looking at the emerging markets and, as I took it, for the American financial sector to turn down first. He noted that credit growth, and I think the reference was to the world, has stopped accelerating.

With regard to all paper currencies, he saw none as safe from inflation as all the CRB's are printing away. PM's seem to be the safe play, and several times throughout the interview he made similar comments that PM's relative to all other financial assets seem to be least overpriced. He also conjectures that for 2,3,4 months the dollar may be headed higher.

Further, that when the US Fed starts to lower rates, that long bond rates may not follow but rather rise.

I think it is worth listening to Faber's comments, I did twice.

Two things I am choosing to watch after listening to Faber are EEM and XLF.

Looking at the chart of XLF the things I see are that since the retest of the June bottom in July, the strong up move has been accomplished on decreasing volumes, the RSI is trending down since October as is the MACD. Perhaps a double top could be forming.

Nothing is so clear to me in looking at EEM. Most notable to me is there has been a large volume spike since the first of this year. Perhaps some sort of a head and shoulders top could be forming.

[Jim Nickerson]

Re: Bearish Information Re. Gold, commodities, US$

http://www.safehaven.com/article-6724.htm

January 19, 2007
Up, Down or Sideways - a Strategic Review
by Clive Maund

In conclusion, gold and silver will retain the potential to break out upside to begin new uptrends whilst the support for gold at $600 remains unbroken and silver remains above the upsloping trendline in force from its June low, and the breakouts will be signaled by gold rising above $660 and silver above $15.20. As many readers will no doubt be aware, there have been a lot of false breakouts over the past year thought to be due to market manipulators deliberately targeting chart followers. This means that a greater margin of error must be allowed to avoid being the victim of engineered whipsaw moves such as we saw in September when the HUI index staged a false breakout at the opening of the Las Vegas Gold Conference, before going on to plunge, and again with the false upside breakout at the very start of this year that was followed by a dramatic reversal. On the downside, failure of gold's support at $600 and Silver's up sloping trendline will open up the risk of a plunge back to their respective long-term uptrend support lines, which could be dramatic. As things stand, this is considered the more likely scenario, due to the deterioration in commodities as a whole, and the strengthening of the US dollar, which is thought likely to confound its many bears by rising off of its long-term key support level.

This article is a pretty good assessment of where PM's, commodities, and bonar might be headed.

[Jim Nickerson]

Re: Bearish Information Re. SPX and GDX

Tim Ord 1/24/07 http://www.decisionpoint.com/TAC/ORD.html

Ord's technical analysis, which to me is rather esoteric--which doesn't mean it could not be correct, suggest a sell signal has occurred on the SPX, at least as I am understanding him. Actually today's action (1/25/07) seems to strengthen his arguments as I see it. For what it is worth today was a "key-reversal day" on the SPX. He also presents a chart of the SPX McClellan Oscillator and points out the presence of a major bearish divergence, which in the time period he shows has been a good indicator.

Using GDX to assess the gold market, based on a potential head and shoulders topping formation, he suggests that 40 is resistance to upward movement of GDX, and he suggests the head and shoulders top has a downside target near 32 for GDX. For the XAU the 32 for GDX equates to the 115 range for XAU. It is not apparent as to how the arrives at the downside target of 32. Whether it is true or not, he states, "Seasonality for gold is also bearish from late January into mid March. Thursday 1/25, GDX hit 40.1 and then closed down a dollar from that point, so at the moment that is a failed attempt of breaking out.

Interestingly, Richard Russell yesterday (1/24/07) wrote

I've been watching GDX, which is a gold stock ETF, and if you have no position in the gold shares this might be a good time to make your first move. GDX is interesting because aside from the "biggies" in gold shares that it holds, GDX includes many smaller and more speculative gold mining stocks. I notice that RSI is trending higher -- also that MACD is in a bullish pattern. GDX closed about its 50-day moving average today. You could do worse than establish an initial position in GDX here. Confession (disclosure) -- I bought some GDX this morning a few hours after the opening of the market. If GDX breaks out to new highs, I'll add more if it can close at 41 -- and I'll double up if GDX goes can close at 43.

If one looks at a intraday chart for GDX for Wednesday 1/24/07, several hours into that day, GDX bottomed at 38.34 then closed up nicely. Russell is either a genius or lucky on his short-term timing of that buy. Russell appears to be bullish on GDX. A close above 43 would put GDX at its highest since it began trading back in mid-may.

[Jim Nickerson]

Re: Bearish Information Re: Shanghai Stock Exchange

Russell 1/31/07

...and my main comment is that this is "stocks gone wild." China is in a stock-buying super-frenzy with people mortgaging their homes, taking out loans, doing anything and everything to get in on that wild ride on the Shanghai Exchange. From below 1000 in June of 2005, the Shanghai Composite has tripled to a current 3000. The Composite has gone parabolic and RSI is massively overbought. MACD is up in the bleachers, and the histograms are now trending down. The price of the composite is an astounding 36% above its 40-week moving average.

If you're looking for international trouble, you might start looking here. The Shanghai Exchange is on fire, and it's hard to know what to expect next. What would a stock crash in China mean? It would have worldwide implications, and it would be deflationary, particularly for commodities. By the way, the Chinese authorities are now actively warning the populace about over-speculating ("irrational exuberance"?)

Russell writes each day's comments using the previous day's charts. One can look at the Shanghai market action at stockcharts.com using symbol $SSEC. The weekly chart he discussed on his website did not include the 4.9%% drop Wednesday (-6.19% on the DJ CBN China 600 Index at online.wsj.com) . The current daily chart looks dreadful to me.

If I could stick it out being long to book a 200% gain in 18 months, I would hope I was wise enough to lock in the profit and look for a better time to get back in a market. I went to Shanghai once, and I not recall any trees growing so high into the sky that one could not see the tops. Perhaps the global warming has changed that and trees do grow and grow and grow, but I doubt it.

[Jim Nickerson]

Re: Bearish Information

January 30, 2007
China And The Crash of '29
by Paul Lamont http://www.safehaven.com/article-6810.htm

The Hong Kong Index and Straits Times (Singapore) Index wave forecasts from Elliotwave.com imply harsh "C" waves down with losses greater than 50% over the next few years. After this major correction, these Asian indexes would complete sideways trading roughly a decade long. Our contrarian analysis also indicates that the U.S. dollar will have a sharp rally during this period. Few investors, foreign or domestic, would be willing or able to invest in these markets at that point. At the market bottom, fearful investors would be scrambling for cash. At that point, we will go against the emotional crowd once again, by advising the purchase of certain undervalued Asian indexes. But in the meantime, asset preservation with cash is the correct strategy.