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Just when you think the market is overpriced

edited June 2020 in Fund Discussions
One of the most infallible and rare momentum indicator is triggered and says stocks will be much higher six months down the road. Wish I had posted this yesterday as the indicator kicked in close of Wednesday. But I couldn’t believe my data and called a technical market guru yesterday to see if my data was correct. He said yep, the indicator sure did kick in. Anyway Marty Zweig’s ten day advance/decline ratio greater than 2 to 1 kicked in.

The way you compute this as shown in Marty’s book Winning On Wall Street is simply take the total 10 day NYSE advances and the total 10 day declines. Whenever that is greater than 2 to 1 you have a momentum buy thrust. You wouldn’t think this that rare but in his updated book you only had 11 instances of this occurring between 1953 and 1996. In all 11 instances the market was higher six months later and by an average of 15.2%.

Since the book and since the last signal listed in the book we have had two additional signals. March 2009 and as I discussed previously last year, January 2019. Those six months gains were higher than 15.2%. Unfortunately this indicator has been bastardized a bit by a computer formula and that formula shows another two signals. But when I went back and checked those signals did not qualify as described by Marty.

Marty’s double 9 to 1 up volume/ down volume indicator kicked in one day after the recent March low. I was surprised to see this other indicator kick in after an already 40% rise in the markets. Like everyone else I have never seen a market so detached from economic realty. So will be interesting if we keep marching higher for yet another 6 months or this time around the indicator fails. I have always been a disbeliever in traditional technical analysis and its associated mumbo jumbo. Yet always had the utmost respect and fully utilized Marty’s two momentum indicators most especially his up/down volume indicator.

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Comments

  • Visiting this board is a continuously positive learning experience for me. Thanks for posting!
  • Thanks Junkster!
  • Thanks Junkster. I had that book years ago, wish I’d kept it.
  • beebee
    edited June 2020
    Thought this might fits your thread @Junkster...thanks for your posting:

    https://thechartreport.com/5-things-about-marty-zweig/

    (Zweig’s interview begins at about 6½ minutes into the clip below and has to be one of the most timely market calls in the history of financial media.)



  • @Junkster, if there way a way to set this up on charts website to observe?
  • thanks for that. i don't know what the make of it, action-taking-wise, but i appreciate it anyway. at this point, anything i do will seem like it's based on FOMO and that usually ends up poorly.
  • I spend way more time in FOGMAK (fear of getting my ass kicked) mode
  • @Junkster - Made a bundle on the last signal, 1/2019, and hope this one is as successful. Thanks for posting!
  • edited June 2020

    @Junkster - Made a bundle on the last signal, 1/2019, and hope this one is as successfulI. Thanks for posting!

    Our little secret but you have already made a bundle in you know what the past month and longer. Many of us are already fully invested after the move off the bottom, including you.. Personally I have some serious doubts the market will be higher 6 months from now. I agree with @linter about how actionable this signal is. But then I learned long ago the market never cared much about my opinions. Did we think the market would be this much higher after the signal of his other momentum indicator on March 24? Certainly not me.
  • Thanks for sharing this @Junkster. I always have enjoyed reading your timely posts. Any thoughts to share on what parts of the market you find interesting right now?
  • edited June 2020
    Sell Monday!! .... I'm back in to my target AA -- you've been warned. ;^) I have a plan and didn't follow it this time because I thought this was much different... shame on me. It cost me mucho dinero. They are throwing soooo much money at this market/economy it doesn't really matter how companies are doing ....for now.
  • Junkster said:


    Like everyone else I have never seen a market so detached from economic realty.

    Agree completely. I'm not selling any of my core positions but at the moment any new money I deploy is likely speculative ... either nibbling on new equity positions or doing options trades where the risk is quite controlled "just in case" momentum moves us even higher.
  • the great neil irwin concurs in and substantiates the gloom

    https://www.nytimes.com/2020/06/06/upshot/coronavirus-economic-crisis.html
  • edited June 2020
    https://m.youtube.com/watch?v=8_ExfBp8NIk

    Legendary billionaire trader Stanley Druckenmiller who several weeks ago said this was the most overvalued market in history has changed his tune. In a CNBC interview this morning he mentions the Zweig breath thrust as discussed in this thread as one reason and citing its “undefeated record”. Being into contrarian trading analysis I am not sure this is good or bad. It worries me a bit when all the billionaires who last month - and there were many - were out in bearish force about how severely overvalued we were start getting bullish.

  • Speaking as a former trader, I'm reminded of that great quote, "Markets can remain irrational longer than we can remain solvent." :)

    As I said last night, I'm not dumping stocks out of fear but am being cautious if/when I deploy new money these days.
    Junkster said:

    https://m.youtube.com/watch?v=8_ExfBp8NIk

    Legendary billionaire trader Stanley Druckenmiller who several weeks ago said this was the most overvalued market in history has changed his tune. In a CNBC interview this morning he mentions the Zweig breath thrust as discussed in this thread as one reason and citing its “undefeated record”. Being into contrarian trading analysis I am not sure this is good or bad. It worries me a bit when all the billionaires who last month - and there were many - were out in bearish force about how severely overvalued we were.

  • Two 9 to 1 up/down volume days in a row. Can’t recall that ever occurring. This means both of Marty Zweig’s indicators have kicked in within a week of each other, I had a study last January on Morningstar (which I can’t locate) about how rare and bullish this is for the next six months.I believe something like 4 occasions over the past 60 years. It occurred early last January 2019, March 2009, January 1987, and August 1982.
  • edited June 2020
    Thanks @Junkster. You’ve been very good luck since returning to the board. Appreciate your wisdom and experience. I’m not knowledgeable on technicals or the Zweig Indicator. But darned near worshiped Lou and Marty and the old gang. Sometimes for guidance I envision what Lou might say in the middle of a tough market stretch. Toss in ever-optimistic John Templeton (a frequent guest) and I’m geared to go!

    Man. I don’t remember a moon-shot like the markets have been experiencing the past month - while well aware it could end at anytime. To show how hot things are, two of my nat resource funds (PRNEX and PRAFX) each gained over 2% today despite oil, which they’re loaded with, being down. An unheard of divergence there. And my more aggressive DODBX has been outrunning more sedate holds like PRWCX and RPGAX ever since we hit bottom. Today, its gain in percentage terms (1.87%) exceeded the gain of the other two funds combined.

    Your Drukenmiller mention is appropriate. While he’s one of the better ones out there, the TV pundits generally serve as better indicators of current market sentiment and conditions than as predictors of future market behavior. Would be amusing were it not so costly to many.

    From this week’s Barron’s:

    “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”- F. Scott Fitzgerald (as quoted by Randall Forsyth)

    And this - “Baring a city-size meteor striking Earth, the (S&P) index could hit a new high by year end. With the meteor strike, we might get there by Independence Day” - Jack Hough

    LOL

  • here's a visual of those two 9/1 days, set against the backdrop of the nyse composite. only time will tell how etc etc.

    https://ishort.ink/6s5R
  • edited June 2020
    I agree with much of the sentiment of others here that valuations don’t make sense. Possibly, some drivers:

    - Mark Mobius is convinced a huge infrastructure spending program is in the works (planning) and will be announced and passed by Congress prior to the election. Not the wall - but roads, bridges, airports, subways, etc. Part of the goal will be to put people back to work. That means more deficit spending. Am noting it now because more and more mention of it is popping up in the media I follow.

    - There seems to be a growing consensus that the Fed will soon implement some form of “yield curve control”. I’m not sure what that would mean or do - but likely a way to keep money cheap.

    - Normally near an election the Fed likes to refrain from any major changes in policy. So there’s a presumption among investors that the easy money policies now in place will continue at least until November.

    Any / all of the above might help explain why the market has rebounded so sharply. This morning, futures down while gold has popped a bit. That reverse correlation is what you like to see if holding both. Moderates your volatility. (But doesn’t always work).
  • @hank: There is talk of infrastructure spending and it's been going on since the 2016 presidential campaign, thus my skepticism. In my view, the US is unwilling to invest in infrastructure projects that don't pay for themselves. The wonderful high-speed trains in Europe and Asia do not make money, but they make for great travel and they preserve the environment. California's effort to build an HS train route has been trashed by the same administration that promised infrastructure spending. Very few states appear willing to privatize their toll roads even though it makes perfect sense to do so. BTW, was Mobius partly responsible for the many signals in the past decade or so to buy emerging markets?

    Your comment on gold prompts me to say the physical gold we inherited in 2012 has had a "V" shaped recovery: it has gone from $1675 to $1275 and now back up to $1700+. It cost me more for the safe deposit box than my entire appreciation.
  • edited June 2020
    “BTW, was Mobius partly responsible for the many signals in the past decade or so to buy emerging markets?”

    Hi Ben. Nice dig. Mobius seems to be the eternal optimist. Likely a disciple of Sir John. I resisted mentioning this (infrastructure reference) until I started hearing it from other sources.

    Don’t follow EM that much. They’ve pretty much been overhyped for long as I can remember. Nice bump past 2+ months for PRLAX (mostly Brazil / Mexico). But I only toy with such funds when they’re already clogging up the toilet - seemingly can’t go down further. If you can take the stench, sometimes you can grab a quick profit. Suspect that’s a pretty common game and has likely detracted from longer term profitability for some EM funds.
  • @hank and all,

    What are your thoughts on the Rondure Funds...mgr has good experience, stock picks based on Ev/Ebit, low debt levels, return on equity, etc...looks for "compounders" similar as to the team at AKRE...seems reasonable to me, although in this market environment maybe not enough of "bro-investing stock picks in her funds, i.e., just put your money down and go for it, high risk, high return"...ROSOX, Rondure Overseas Fund

    I never understood investing my hard earned capital that invests in companies in parts of the world that I couldn't even pick out on a map with who knows what kind of accounting practices...maybe that says more about me and my inclination to own what I know and my appreciation for rule of law, understandable accounting practices etc...

    Best Regards to All,

    Baseball Fan

  • edited June 2020
    By Old_Skeet's mythology the S&P 500 Index is extremely overbought. I'm now leaning towards trimming my equity allocation now that I'm pretty close to getting back towards even.

    Can stocks go hgher? Absoutely. And, I hope they do!
  • edited June 2020
    @Baseball_Fan, Thanks for the shout-out. David mentioned Rondure Funds in his February, 2019
    Commentary. Just a bit here: “Rondure Global Advisors is newer investment adviser which is Grandeur Peak’s partner. Rondure, like Grandeur Peak, was launched by an alumna of the Wasatch Funds,” https://www.mutualfundobserver.com/2019/02/as-the-world-turns-rondure-global-gains/

    Global equity funds are pretty far outside my normal investment zone. But I am now beginning to shade a bit more in that direction, since funds holding fixed income (like traditional balanced funds) are at a real disadvantage in this low rate environment. Also, I’ve been trying to get out of the U.S. (figuratively and literally) as I think we’re headed for a lot of chaos as November approaches - markets might not like it. U.S. appears “bubbly” as well.

    My first foray into any pure equity fund in many years was into Price’s developed foreign markets index fund, PIEQX, which I picked up in March and have already reduced by 30 or 40%. While it hasn’t leaped very far, all my other stuff has, and this one is the easiest to cut back on as its a spec position and not part of my normal allocation. It’s not a high octane fund by any measure. But the ER of .40 is appealing and TRP - much as I like them - have never excelled in the international arena. Past experience leads me to believe that, as international funds go, this one is relatively docile.

    You mention ROSOX. Let’s take a look. ER 1.10% isn’t bad for an actively managed international fund. Probably about average. Holdings: 60% Europe, 30% Asia - almost all of that in Japan. (Looks quite a bit like the index fund I own.) ROSOX is only 3 years old. That would normally chase me away - but it appears from David’s commentary that the managers are well experienced. Close call. I’d feel better with a fund that had been around at least 10 years. Better chance of having a stable investor base. The fund has already jumped about 10% from its March low. Not as cheap as it was than. (Woulda, coulda, shoulda.) Lipper gives it a 5 in “preservation.” That’s a coveted rating, as international funds tend to be more volatile than their domestic brethren. Not a bad choice. I’d perhaps look around a bit more before deciding.

    Now, will folks more familiar with international equity funds and / or Rondure please chime in?
  • Laura Geritz has added a PM on ROSOX, but she continues as the sole manager of her EM fund, RNWOX. The new guy appears to have a research and foreign affairs background, quasi-academic. I looked at both funds and I was struck by the over allocations to consumer defensive and consumer cyclical stocks. While both funds are slotted as Large Growth by M*, I’d say they have a decided value tilt. It’s been said that Geritz shares the back office (and maybe more) with the Grandeur Peak crew, although it’s unlikely she is getting stock ideas from them, given that almost all their expertise is in international small and micro caps. When Rondure opened its shop, I was drawn to ROSOX, but I did not think it helped my portfolio and I sold it after a year.
  • @hank if you run the numbers on MFO premium there are 2 funds that consistently outperform other intl funds over the 3, 5 and 7 year timeframes... those are MFAPX and MIOPX. Both are managed by Kristen Heugh. He also has a pure Asian fund but its not available at Schwab. Not sure about other brokers
  • @MikeW and I think alike. The main difference between the two MS funds he cited is that MIOPX currently has 35% in emerging Asia while the other fund has about 20% in EM. TDA has the Asia fund, MSAUX, but with a load.

    Over the past decade, investors have not been rewarded for taking on the risks of pure international funds, whereas they have been rewarded for buying global growth funds. Maybe international value will have its day again, but waiting for it has become stale for me. The members with the skills at charting could prove me wrong, however I’ve not seen international funds zig when US funds zag during this time period thereby negating the diversification advantage usually attributed to overseas investing. One of my high conviction holdings is Heugh’s MGGPX.
  • Old_Skeet said:

    By Old_Skeet's mythology the S&P 500 Index is gextremely overbought. I'm now leaning towards trimming my equity allocation now that I'm pretty close to getting back towards even.

    Can stocks go hgher? Absoutely. And, I hope they do!

    Looks like the @Old_Skeet’s overbought/oversold methodology is trumping the “infallible” “undefeated record” of the Zweig breath thrust indicator.

  • One indicator is GOOD, two is Bad !?
    Derf
    P.S. The fat lady has yet to sing.
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