All my variations of the short term bottom indicator triggered for the last 3 days running (May 5,6,9), all of them giving their strongest (but still short term) bullish signal. They think the next month will be positive. Average index result +3.28% after a month. YMMV. So far it looks like each of them will offer another signal today, but a weaker version. No peeps at all from the major bottom detector.
Just an update.
My short term bottom detectors fired again with similar maximum strength Thursday May 12, so to recap the output from the short term bottom detectors:
Up to 2022-04-29: silence
2022-05-02 very weak signal from one variant
2022-05-03 silence
2022-05-04 medium strength signal from all variants
2022-05-05 strongest possible short term bottom signal, all variants
2022-05-06 strongest possible short term bottom signal, all variants
2022-05-09 strongest possible short term bottom signal, all variants
2022-05-10 medium signal from all variants
2022-05-11 medium signal from all variants
2022-05-12 strongest possible short term bottom signal, all variants
2022-05-13 silence
2022-05-16 silence
So, if this all had any meaning, with hindsight it looks like Thursday was the day to buy, for a hold up to a month.
Of course with hindsight it’s also clear from a simple index chart that Thursday was the lowest lately.
The only “added value”, if any, is that this signal thinks it likely that the market will be higher soon, not a continuing fall.
Speaking of market timing, one bad way to do it is to listen to talking heads.
But I thought I’d post this anyway:
"Global equities are heading towards a “last hurrah” starting in the second half of this year. On Tuesday [May 10], BCA Research’s Chief Strategist Global Investment Strategy, Peter Berezin, issued a special alert that we are tactically upgrading global equities to overweight. After tactically downgrading in late February, we now see the current level of stock prices as offering enough upside to warrant an overweight position."
I got the message May 12, S&P 3930.
This is from the Bank Credit Analyst, an independent research outfit since 1949.
They are very, very good. Though of course not perfect.
I was a subscriber for many years, the biggest single source of inspiration in the annual “no new decision portfolio” posts I used to do.
To the extent that their analysis has a theme, it’s “follow what the big money is doing and is likely to do”.
A subscription to their flagship weekly “Global Investment Strategy” is now $10k/year even for an individual, explaining why I am an ex-subscriber.
The message above is from a marketing message, not republication of any of their proprietary content.
Their bots would like me to subscribe again.
This mornings Wall St. Journal had an article pointing out Buffet is following his own advice
and buying when others are fearful (see the link said2 posted in #283310
to CNN’s fear gauges).
Surely Buffet’s actions, buying more than oil stocks,
must be some sort of validation for our minor bottom signals
The discussion of these signals here even encouraged me to sell a put on Friday the 13th.
Maybe it’ll turn out to be a lucky day after all!
The traditional major bottom detector hasn’t triggered yet, but it getting quite close. A couple of spectacularly horrible days would do it. But, for no reason at all, I think we won’t see that yet.
The traditional major bottom detector hasn’t triggered yet, but it getting quite close. A couple of spectacularly horrible days would do it. But, for no reason at all, I think we won’t see that yet.
Are we there yet??
No. Major bottoms, measured with weighted averages on market breadth statistics by thoughtful posters here, are ultimately represented by institutions desperately vomiting their shares en masse. That’s what I follow and it is not happening as it does at major market bottoms. While selling by institutions is accelerating, it’s still methodical and mixed with lots of small volume purchases, a hallmark of retail traders. Retail traders don’t purchase actively at major market bottoms.
Desperate institutional selling is not exactly the same as a big spike in the VIX. For anyone skeptical that there’s a notable difference, recall the historical record VIX spike in October 2008 and the great final desperate institutional upchuck in March 2009. Similar but different phenomena with different results (last-minute option purchases versus share sales at any price). A VIX spike is something like a flight attendant handing out emesis bags to all the first class passengers who reach for one. There’s definitely a correlation between desperately vomiting and reaching for an emesis bag, but watching the passengers clutching their emesis bags is just not the same as hearing them desperately retching up their lunch. The retching isn’t choreographed or performed on cue so it’s best not to walk through the cabin until they’re all done. Once again, there is simply no precise proxy measure in the options markets or anywhere else for the formal act of institutions desperately selling (or buying) shares of individual stocks. Breadth measures indirectly measure what’s happening, but individual stocks are moving the breadth indexes so it is best to monitor them one-by-one. Other more recently available option measures such as DIX and GEX (https://squeezemetrics.com/monitor/dix) to measure action within institutional dark pools aren’t especially reliable either, although such measures are useful for buy-the-dips during bull markets.
One other factor to consider is the SPX trades at or below reasonable estimates of its normalized earnings at long-term bottoms, after trading on the basis of inflated earnings forecasts during the latter stages of a bull run. One of the reasons bear markets really get going is inflated earnings estimates get adjusted downwards. Many institutions pay careful attention to these revisions as provided by sources such as I/B/E/S as they’re trading shares on the basis of earnings forecasts rather than normalized earnings. They’ll collectively reset POC (point of control) Index prices accordingly if there are downwards earning revisions. The SPX is probably worth about $3750-$3800 tops on the basis of normalized earnings. It would be unprecedented if there are no substantial downward revisions in the current inflationary climate.
One other factor to consider is the SPX trades at or below reasonable estimates of its normalized earnings at long-term bottoms…
Outstanding post.
But I might quibble a bit with the implications of this bit…
Though a real secular bottom can’t happen without compelling valuations, many “pretty major” bottoms can happen.
It seems to me that there are moments that the “vomiting everything” seems to be enough to warrant interpretation as a pretty major bottom,
at least in the sense that 1-2 year returns are generally excellent,
even if nothing related to earnings or valuation makes the broad market seem particularly attractive.
Certainly the rally after such a buying moment has more “legs” if the valuations are particularly attractive,
but (surprisingly for me) the valuation levels don’t seem to matter all that much for medium time frames.
My observation is that major capitulation selling seems to be a strongly bullish signal even if things are generally still pretty expensive.
My observation is that major capitulation selling seems to be a strongly bullish signal even if things are generally still pretty expensive.
Thanks for the complement. In my hands, trying to use ready-made breadth indexes was like nailing Jell-O to a wall and your own intelligent proficiency with those measures bugged me. That was 12 years ago. So thanks for your useful clues and cues to further study.
It’s true that the SPX can trade for months or years at a substantial, scary premium, as it did through 2021 until recently, and speculators will pay a penalty for relying on discount valuations in short-term trading. Regarding longer-term bottoms, which I think the original poster is inquiring, and where traders really ought to take bigger exposure risks, your discount model must be far more stringent than mine because the only substantial correction I’ve examined where SPX’s price collided with estimated intrinsic worth, rather than actually trading below it, is late 2015-early 2016. The 1987 crash ended with SPX trading at a negligible discount with my model. What’s notable about 2015 from a valuation perspective is that inflation term structures anticipated negative inflation, and measured inflation was 0.12% — far below the 2%-2.5% long-term inflation rate typically inferred in equity risk premiums, coinciding also with falling commodity prices. Just prior to that 2015-2016 correction, SPX traded at a big premium to intrinsic value. The 1973-1974 crash resulted in the SPX trading at a healthy discount to its intrinsic value. What’s notable about that period from a valuation perspective is inflation started at 3.4% and rose to 12.3% in 1974.
Collectively, discounts and implied equity risk premiums tend to be larger during high inflationary climates and leaner during low inflationary climates. Discounts and equity risk premiums were particularly large during corrections in the 1970s-early 1980s, much more modest in 2000-2003 and much smaller during those between 2008 and 2020.
Some additional thoughts about the 1970s, which might be pertinent to today ‘s market valuations (somebody else’s observations, whom I’d cite but lost the paper): Nobody walked into the 1970s anticipating inflation to accelerate as it did, and inflation expectations, even as implied by the bond markets, tended to be overly optimistic and spectacularly wrong throughout the entire decade. Monetary policy with the Fed’s Arthur Burns, on a short-leash with Richard Nixon who wanted low unemployment at any cost, entailed excessive printing of money leading to a similar problem that the American economy now faces with excessive M2 (https://fred.stlouisfed.org/series/M2SL). It makes intuitive sense that high inflation has a particularly nasty impact on equity risk premiums and earnings power, but I hadn’t considered the surprise element of inaccurate inflation forecasts on what do appear to be abruptly higher incremental valuation discounts during the 1970s.
