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This sub-surface deterioration is a clear sign that rough waters are ahead. It’s time to batten down the hatches and prepare for the inevitable storm!
Hi Old_Skeet. I did not find the author's argument compelling at all. One too many anecdotal claims without substantiation of either historical technical trends or fundamental intrinsic value analysis.
But then, I remain cautiously bullish on the US equity market right now.
Dear Skeet: Its Bradley Lamensdorf who has been in rough waters for the last two years. His ETF Ranger Equity Bear Fund (HDGE) has lost over fifty percent for its shareholders in 2012 & 2013. Happy Thanksgiving Ted
No doubt, many have thoughs on this subject. And, any good investor can present either side of oversold vs. overbought. I am of the camp caution is warranted. I think one of the article readers summed it up pretty good with their comments. Here is what they had to say ... and, this resonates pretty will with me. Might be the time to buy some long dated put spreads. Something to think on.
AllStreetsComments (809)
Very informative article and I take the warning quite seriously. I would add that the rsi on the weekly chart for SPY is at 75.88, an extremely high level that has usually marked significant tops in the past. In addition, SPY and most indices are trading way above their 50-day and 200-day moving average by about as much as they ever do. However, rsi and many of the indicators reviewed in the article have variable lead times. It often pays to wait for prices to fall then rise again with indicators not going to new highs (bearish divergence). Currently upward momentum is very positive and there is the seasonally strong period through at least early January, so it could easily take many weeks of sideways topping action for quite a while to get to an actual intermediate top. However, there is potential for another round of federal budget and debt limit brinksmanship quite soon, and prior occurrences have been occasions for corrections in the past. My position is that it's a good time to acquire some long-dated put spreads to protect positions that are well in the money, and to hedge any new long equity investments with long-dated puts or spreads.
Since this is a major bull market supported characteristically by a sharply positive yield curve, it's unlikely there will be a major bear market, in excess of a 20% drop in averages, in the intermediate future barring some black swan event. Until further evidence mounts, I'd be looking for just a 10-15% correction back to the 50-week moving average (an 11% correction if it happened immediately with the 50-week average for SPY currently at just 161 versus index at 181, ) and roll hedges down and out that point. The issue is from what level and when; the author's original November 1 newsletter warning was somewhat premature.
I note that the 2011 correction of May through October brought SPY down from 130 to about 108, a 17.7% correction; SPY touched its 200-week moving average around 108 at the October 2011 bottom. The SPY 200-week moving average is now about 131, so a correction back to that now would require an actual bear market of 27.6% and bring the index ETF back near to the high of 2011. A correction to the 50-week moving average now at 161 would be 11%.
Thanks for the article. I think his conclusion is fine, as we should always be prepared, but calling a top to this market is extremely difficult. Since this article was published on 11/1/13, the S&P 500 is 1.6% higher and HDGE is 3% lower. And Barry Ritholz addressed the magazine cover issue HERE.
I continue to be long as I refuse to fight the Fed, the ECB, the central planners in China, and most importantly, the tape. Of course I remain vigilant, and follow the various moving averages and Barchart Opinions of my holdings. If conditions deteriorate, I will dial down the risk and seek cover in allocation funds.
Just read an article on bitcoins from 2011- "The Rise and Fall of Bitcoins". One of the early investors bought two pizzas at Papa Johns for 10,000 bitcoins. The current value is over $10 million or $5 milliion for each pizza! http://www.wired.com/magazine/2011/11/mf_bitcoin/all
No doubt the market can trend higher as you have pointed out from the Novemeber 1st date. What was conveyed to me, by the article, was that there are some investment headwinds brewing that could become storms sometime in perhaps January as this is when our elected in Washington will be revisiting the debt ceiling and budget issues. There are many indicators that score the market as being ouverbought as I write. With this and to me the article was conveying that for those that have some good unrealized gains and do not wish to sell their positions now might be a good time to buy some protection in the form of long dated put spreads. In this way, should the market pull back ten or more percent then one has some protection against this anticipated downdraft should it turn into a good size extended downdraft then with the long dated put spreads you have someting that will absorb some of the downdraft. This, seems logical to me.
Most of my defense is found in my asset allocation with cash being currently at about 20% of my portfolio. Some more protection can be found in some funds that I hold that can, if warranted, short. Plus I am overweight the defensive sectors by about 15%. I plan to revisit my portfolio at the first of the year and might trim my equity allocation back by about five percent, which is currently about 45% of the portfolio, to about 40%. While, I don't plan to sell out of equities, I just might sell down some of my equity positions. After all I soon turn sisty six and retired. I have seen too often equity gains get vaporized. This seems to be an unpresidented long run for equities without a major pullback. When it comes, I think there is a good number of investors that will be quick to sell to lock in their gains and this could easily become a rout as valuations drop resulting in margin calls.
Anyway, this is my current thinking. And, let us not forget, it is our different outlooks and perspectives that make the market.
Thanks for stopping by and expressing your view and planned course of action. It is indeed respected.
Comments
But then, I remain cautiously bullish on the US equity market right now.
Great Turkey Day to you too, my favorite holiday.
Charles
Happy Thanksgiving
Ted
http://performance.morningstar.com/funds/etf/total-returns.action?t=HDGE®ion=USA&culture=en-US
corrupteder, biased by motive.No doubt, many have thoughs on this subject. And, any good investor can present either side of oversold vs. overbought. I am of the camp caution is warranted. I think one of the article readers summed it up pretty good with their comments. Here is what they had to say ... and, this resonates pretty will with me. Might be the time to buy some long dated put spreads. Something to think on.
AllStreetsComments (809)
Very informative article and I take the warning quite seriously. I would add that the rsi on the weekly chart for SPY is at 75.88, an extremely high level that has usually marked significant tops in the past. In addition, SPY and most indices are trading way above their 50-day and 200-day moving average by about as much as they ever do. However, rsi and many of the indicators reviewed in the article have variable lead times. It often pays to wait for prices to fall then rise again with indicators not going to new highs (bearish divergence). Currently upward momentum is very positive and there is the seasonally strong period through at least early January, so it could easily take many weeks of sideways topping action for quite a while to get to an actual intermediate top. However, there is potential for another round of federal budget and debt limit brinksmanship quite soon, and prior occurrences have been occasions for corrections in the past. My position is that it's a good time to acquire some long-dated put spreads to protect positions that are well in the money, and to hedge any new long equity investments with long-dated puts or spreads.
Since this is a major bull market supported characteristically by a sharply positive yield curve, it's unlikely there will be a major bear market, in excess of a 20% drop in averages, in the intermediate future barring some black swan event. Until further evidence mounts, I'd be looking for just a 10-15% correction back to the 50-week moving average (an 11% correction if it happened immediately with the 50-week average for SPY currently at just 161 versus index at 181, ) and roll hedges down and out that point. The issue is from what level and when; the author's original November 1 newsletter warning was somewhat premature.
I note that the 2011 correction of May through October brought SPY down from 130 to about 108, a 17.7% correction; SPY touched its 200-week moving average around 108 at the October 2011 bottom. The SPY 200-week moving average is now about 131, so a correction back to that now would require an actual bear market of 27.6% and bring the index ETF back near to the high of 2011. A correction to the 50-week moving average now at 161 would be 11%.
Thanks for the article. I think his conclusion is fine, as we should always be prepared, but calling a top to this market is extremely difficult. Since this article was published on 11/1/13, the S&P 500 is 1.6% higher and HDGE is 3% lower. And Barry Ritholz addressed the magazine cover issue HERE.
I continue to be long as I refuse to fight the Fed, the ECB, the central planners in China, and most importantly, the tape. Of course I remain vigilant, and follow the various moving averages and Barchart Opinions of my holdings. If conditions deteriorate, I will dial down the risk and seek cover in allocation funds.
Kevin
http://www.wired.com/magazine/2011/11/mf_bitcoin/all
Hi kevindow and others,
No doubt the market can trend higher as you have pointed out from the Novemeber 1st date. What was conveyed to me, by the article, was that there are some investment headwinds brewing that could become storms sometime in perhaps January as this is when our elected in Washington will be revisiting the debt ceiling and budget issues. There are many indicators that score the market as being ouverbought as I write. With this and to me the article was conveying that for those that have some good unrealized gains and do not wish to sell their positions now might be a good time to buy some protection in the form of long dated put spreads. In this way, should the market pull back ten or more percent then one has some protection against this anticipated downdraft should it turn into a good size extended downdraft then with the long dated put spreads you have someting that will absorb some of the downdraft. This, seems logical to me.
Most of my defense is found in my asset allocation with cash being currently at about 20% of my portfolio. Some more protection can be found in some funds that I hold that can, if warranted, short. Plus I am overweight the defensive sectors by about 15%. I plan to revisit my portfolio at the first of the year and might trim my equity allocation back by about five percent, which is currently about 45% of the portfolio, to about 40%. While, I don't plan to sell out of equities, I just might sell down some of my equity positions. After all I soon turn sisty six and retired. I have seen too often equity gains get vaporized. This seems to be an unpresidented long run for equities without a major pullback. When it comes, I think there is a good number of investors that will be quick to sell to lock in their gains and this could easily become a rout as valuations drop resulting in margin calls.
Anyway, this is my current thinking. And, let us not forget, it is our different outlooks and perspectives that make the market.
Thanks for stopping by and expressing your view and planned course of action. It is indeed respected.
Old_Skeet