The S&P has topped !

Has the S&P topped and headed for a sharp correction?

  • yes

    Votes: 58 30.5%

  • no

    Votes: 59 31.1%

  • I don't know / I don't care / I don't like you

    Votes: 73 38.4%
  • Total voters
    190
I've already mentioned on this thread I am permabear-biased, there is no need to re-iterate this.

On a MoM basis I don't disagree that current situation is "normal", however the economic climate is not healthy, there are dangers which are being completely ignored and the indices are in record no-downside territory. That's when you sell, not when you buy.

Given that the economy is going nowhere, a sideways/insecure market would behoove the current business climate. Given that we have had a rising market, I'm bearish. Note that my vision has been mostly true for European equities which is what I trade the most anyway.

Also the average S&P 500 multiple is above the historical mean, so if you're a buy & hold kinda guy this is not the moment to be buying unless you expect a lot of inflation, nor is it really a stock bubble (neither was 2007 by the way). It's a macro-economic bubble, which will have to be drained to get on a sustainable recovery path. I will certainly be buying after that happens. It's only because I am somewhat bullish on the US as a society/country that I am not saying that the USD will go to 0, but will instead deflate.

http://www.multpl.com/

Given that there is and will be no real inflation, you see that, bar the 1990's, the current run-up in P/E is historically quite significant given that there are no real dips and continuous runups have historically also not been much longer than the current one. You can also see you really don't need a drastically high P/E for a crash to occur or a bear market to commence. P/E is obviously in a downtrend, and if it continues this downtrend over the next years by not breaking above 27, we will most likely see something around the range of 5 - 9. Since I expect deflation to occur before a real recovery can begin, I will become a real bull again (if ever) when the bubble is properly deflated.

I'll get a little spiritual here, but what being bearish or bullish really comes down to at this point is whether you believe that monetary and/or fiscal policy can and will influence the economy or that the economy will on the long run ignore policy. Nobody can disagree that without the FED and fiscal stimulus, the current rally would not have been sustained past April, perhaps not even past 2009 or earlier. However I don't think it's likely for policy to sustainably influence the general direction of an economy, unless it is really effective policy which is absolutely in line with the psychological/animal spirits wishes of society. The outlook towards the future, anger towards the FED and congress among the public could hardly be worse. If the unemployment rate had been recovering at even nearly the pace it fell, I might doubt that maybe the policy is effectively helping the economy, but alas, there are no signs of life and the recovery is purely financial in nature. A financial recovery isn't more than an idea and it will always be brought back to reality.

Rate hikes in a bull market will create a bull market dip, yet not stop a bull market. Rate drops in a bear market will create a bear market rally, but this is not sustainable. The economic trend simply is down, stock prices aren't going to convince me everything is fine and dandy.

I'm writing this partly to get my thoughts in line, by the way and perhaps someone will find it useful ideas. I know I won't convince any very convinced bulls.

Edit: I forgot to respond to your point that "there have been much larger upmoves during the past 20 years". That's an insane argument, 20 years is not representative for the full history of the stock market and we all know where these very strong upmoves during the past 20 years got us. Such behaviour of the financial markets is exactly what caused the continuous crashing.
 
Quote from Locutus:

I've already mentioned on this thread I am permabear-biased, there is no need to re-iterate this.

On a MoM basis I don't disagree that current situation is "normal", however the economic climate is not healthy, there are dangers which are being completely ignored and the indices are in record no-downside territory. That's when you sell, not when you buy.

Given that the economy is going nowhere, a sideways/insecure market would behoove the current business climate. Given that we have had a rising market, I'm bearish. Note that my vision has been mostly true for European equities which is what I trade the most anyway.

Also the average S&P 500 multiple is above the historical mean, so if you're a buy & hold kinda guy this is not the moment to be buying unless you expect a lot of inflation, nor is it really a stock bubble (neither was 2007 by the way). It's a macro-economic bubble, which will have to be drained to get on a sustainable recovery path. I will certainly be buying after that happens. It's only because I am somewhat bullish on the US as a society/country that I am not saying that the USD will go to 0, but will instead deflate.

http://www.multpl.com/

Given that there is and will be no real inflation, you see that, bar the 1990's, the current run-up in P/E is historically quite significant given that there are no real dips and continuous runups have historically also not been much longer than the current one. You can also see you really don't need a drastically high P/E for a crash to occur or a bear market to commence. P/E is obviously in a downtrend, and if it continues this downtrend over the next years by not breaking above 27, we will most likely see something around the range of 5 - 9. Since I expect deflation to occur before a real recovery can begin, I will become a real bull again (if ever) when the bubble is properly deflated.

I'll get a little spiritual here, but what being bearish or bullish really comes down to at this point is whether you believe that monetary and/or fiscal policy can and will influence the economy or that the economy will on the long run ignore policy. Nobody can disagree that without the FED and fiscal stimulus, the current rally would not have been sustained past April, perhaps not even past 2009 or earlier. However I don't think it's likely for policy to sustainably influence the general direction of an economy, unless it is really effective policy which is absolutely in line with the psychological/animal spirits wishes of society. The outlook towards the future, anger towards the FED and congress among the public could hardly be worse. If the unemployment rate had been recovering at even nearly the pace it fell, I might doubt that maybe the policy is effectively helping the economy, but alas, there are no signs of life and the recovery is purely financial in nature. A financial recovery isn't more than an idea and it will always be brought back to reality.

Rate hikes in a bull market will create a bull market dip, yet not stop a bull market. Rate drops in a bear market will create a bear market rally, but this is not sustainable. The economic trend simply is down, stock prices aren't going to convince me everything is fine and dandy.

I'm writing this partly to get my thoughts in line, by the way and perhaps someone will find it useful ideas. I know I won't convince any very convinced bulls.

Edit: I forgot to respond to your point that "there have been much larger upmoves during the past 20 years". That's an insane argument, 20 years is not representative for the full history of the stock market and we all know where these very strong upmoves during the past 20 years got us. Such behaviour of the financial markets is exactly what caused the continuous crashing.
More...

To be blunt, if you continue with these ideas you will never be a successful trader. You can call my ideas "insane" and be cynical about the world but honestly so what; I've built my trading instincts over several decades and I trust them now.

Your ideas seem all over the place.
 
You seem to think you're smarter than the bears but your only arguments are:
-Stock prices have gone up dramatically and the last time you looked they were still rising
-Record earnings

Sounds like 2007/2000. Both factors have no predictive value for future prices. ;)

Anyway, I don't think one should go short right now per se, but buying at this point seems dumb. If I had long positions I'd sell on peaks and buy back on the first possible quick dip most likely, but then I'd have to be bullish to have long positions in the first place. (I had them until a few weeks ago by the way, posted about some positions on this forum as well)

Edit: Trading on these ideas would be an obvious mistake. I don't (or try not to) trade on these ideas, but I keep them in the back of my mind because it is what I think is likely to happen. I'm also not cynical about "the world", I'm mostly cynical about the policy decisions being taken by pretty much all monetary authorities (EU, US, China, don't know enough about Japanese policy to have an opinion).
 
Quote from Locutus:

I've already mentioned on this thread I am permabear-biased, there is no need to re-iterate this.

On a MoM basis I don't disagree that current situation is "normal", however the economic climate is not healthy, there are dangers which are being completely ignored and the indices are in record no-downside territory. That's when you sell, not when you buy.

Given that the economy is going nowhere, a sideways/insecure market would behoove the current business climate. Given that we have had a rising market, I'm bearish. Note that my vision has been mostly true for European equities which is what I trade the most anyway.

Also the average S&P 500 multiple is above the historical mean, so if you're a buy & hold kinda guy this is not the moment to be buying unless you expect a lot of inflation, nor is it really a stock bubble (neither was 2007 by the way). It's a macro-economic bubble, which will have to be drained to get on a sustainable recovery path. I will certainly be buying after that happens. It's only because I am somewhat bullish on the US as a society/country that I am not saying that the USD will go to 0, but will instead deflate.

http://www.multpl.com/

Given that there is and will be no real inflation, you see that, bar the 1990's, the current run-up in P/E is historically quite significant given that there are no real dips and continuous runups have historically also not been much longer than the current one. You can also see you really don't need a drastically high P/E for a crash to occur or a bear market to commence. P/E is obviously in a downtrend, and if it continues this downtrend over the next years by not breaking above 27, we will most likely see something around the range of 5 - 9. Since I expect deflation to occur before a real recovery can begin, I will become a real bull again (if ever) when the bubble is properly deflated.

I'll get a little spiritual here, but what being bearish or bullish really comes down to at this point is whether you believe that monetary and/or fiscal policy can and will influence the economy or that the economy will on the long run ignore policy. Nobody can disagree that without the FED and fiscal stimulus, the current rally would not have been sustained past April, perhaps not even past 2009 or earlier. However I don't think it's likely for policy to sustainably influence the general direction of an economy, unless it is really effective policy which is absolutely in line with the psychological/animal spirits wishes of society. The outlook towards the future, anger towards the FED and congress among the public could hardly be worse. If the unemployment rate had been recovering at even nearly the pace it fell, I might doubt that maybe the policy is effectively helping the economy, but alas, there are no signs of life and the recovery is purely financial in nature. A financial recovery isn't more than an idea and it will always be brought back to reality.

Rate hikes in a bull market will create a bull market dip, yet not stop a bull market. Rate drops in a bear market will create a bear market rally, but this is not sustainable. The economic trend simply is down, stock prices aren't going to convince me everything is fine and dandy.

I'm writing this partly to get my thoughts in line, by the way and perhaps someone will find it useful ideas. I know I won't convince any very convinced bulls.

Edit: I forgot to respond to your point that "there have been much larger upmoves during the past 20 years". That's an insane argument, 20 years is not representative for the full history of the stock market and we all know where these very strong upmoves during the past 20 years got us. Such behaviour of the financial markets is exactly what caused the continuous crashing.
More...

I am bullish but I love your post. I adjusted PE ratios my own way for the economic cycle (PM me if you are interested in more info), and find that the market is cheap relative to the stage of the cycle. Hint: Not all cycles are 10 years in the length as suggested by Shiller.
 
Quote from noddyboy:

I am bullish but I love your post. I adjusted PE ratios my own way for the economic cycle (PM me if you are interested in more info), and find that the market is cheap relative to the stage of the cycle. Hint: Not all cycles are 10 years in the length as suggested by Shiller.
More...

Well, no, I'll agree that it's impossible to predict the economy with any form of real certainty (i.e. it's always dependent upon human nature which is not 100% predictable. That's what makes it interesting!), and I agree that cycles do not h ave a fixed timespan and can be interrupted for whatever reason by external events.

However, an additional point to the previous post is that we have had three major bear markets (one isn't on the chart I think), this being the fourth. All bear markets have bottomed out at a P/E between 5 and 10. You obviously think this time will be different, I don't. The only reason it might have bottomed out at 15 would be that the peak was so much higher, but to be realistic it's kind of impossible for P/E to be in a long-term uptrend (i.e. the next high will be higher than 2000 and the next low will be higher than 2008...it doesn't work like that).

To put it more simply, EVERY time P/E has been above or at ~25, it has led to a major bubble burst which has gone all the way down to P/E 5-10.

Alan Greenspan actually had a good qualitative observation, saying that he found current propping-up policy unwise because animal spirits need a period of adjustment/rest/whatever he called it (don't remember) before going into the next boom. V-shaped recovery out of such a pickle doesn't work. I would quote it but I can't find the interview online. You see this very well in the historical chart. There has never been a bust with a V-shaped recovery and I don;t think there ever will be.

And to re-iterate, I am not terribly short at this point. I sold some calls because Put/Call dipped below 0.6 which is nearly always an intermediate-term top.

Edit: Could you explain briefly which phase of the cycle you believe the economy to be in and what the phases are?
 
Quote from Locutus:

I wonder if this is a common human trait and what causes it and how to prevent it. Some talk about "shorting the pullback" and so forth. Of course shorting pullbacks is nice if you are really good at it historically (who is?), but even if you are expecting a quick pullback why not just go long ahead of the pullback anyway?

Even if there is a pullback then you'll still come out ahead and the other scenario is that there is no pullback. Isn't shorting pullbacks sort of against your own conviction then and a bad risk:reward ratio?
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"You can make money on a bad trade, lose money on a good trade, but will make more money in the long haul making good trades....."


The recovery WAS not self sustaining, thats a fact, if it were, there wouldn't have been QE2....

But on the flip side, earnings/economic numbers good , market moves higher, earnings/economic numbers bad, market moves higher on the back of continued stimulus..... Heads you lose, tails you lose...

Fed wants the market up, it has to go up..... But there is always the what if scenario, like the end of the first stimulus... You pick tops put a short in, if it moves against you take a small loss, if it moves your way add to the position, the real problem is when you feel we have more room to the down side and the market pops massively on the back of more stimulus, you get caught.....

It just a bad time for bears...... You just have to get the fuck out of the way and go long other Sectors/ Instruments/Markets......
 
Quote from Tsing Tao:

where did the op go? did he blow up?
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You should be nicer to your beary friends here at this forum. After all it's thanks to people like me and the OP that the market can still rise ;) Without any bears any market will stall or decline.
 
You know what- its almost fruitless to analyze this kind of market using our conventional methods of the last 20 years. The lack of major players, the government manipulation has totally changed the game. One of my best signals in the past was when Prudential would start buying big late in a move. They were one of the best bet againsts in the game. But sadly, they aren't playing anymore, or at least not noticeably. Nor are many others who at least gave the game some balance. Now, if Goldman and Morgan are buying at the same time, and a couple of the big hedge funds are going that way, good luck being short, even when every indicator, piece of news, and logic would normally dictate that short should be the right side. Even this morning, I was going to comment that the market had a chance of selling off because the ppt wasn't working on a fed holiday, but magically, exactly at 930 this morning, the futures bounced off the low of 1282.75 and just picked up 3 points on nothing. The guy who is posting his astrological thread is just as valid as anything else. For me, I will continue to hedge off selling options against futures and just continue to play this like a bookie and not get involved in trying to figure out which way its going, because after 250 s&p points in a few months without any meaningful pullback in between, something isn't kosher- real people take profits after such a move, robots and sovereign states with an agenda don't.
 
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