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Will do. Have a good week end.
----- Original Message -----
Sent: Thursday, November 02, 2006 1:37
PM
Subject: Re: [RT] Fw: [AAQuants] 3 signs
that a stock crash is coming
Hello Ira
gold seems to start basing and
euro
can you post about them in your blog next
week
as for my personal portfolio
(my ira and conservative money and 401K all out
of mkt)
still long :
mo
Qid
gld
oii
ice
but tight stops
----- Original Message -----
Sent: Thursday, November 02, 2006 2:22
PM
Subject: Re: [RT] Fw: [AAQuants] 3
signs that a stock crash is coming
Ben:
Long term the target price is still 13250 with
an interim target of 12200 which I believe we have just reached. there
should be resistance at this level. There are 2 more price objectives above
here 12360 and 12650. These are all on long term charts. The major
problem with trading very long term charts is that price can go down to 9700
and you would still be in the primary up move. That is quite a hit to
take to prove to your ego that you are right.
On shorter term charts I have support at 12000
and it seems to be holding for now. Price is currently in a move down.
I had a short term target low of 12003 which should hold as support for a
short time. Price is in a little longer cycle down move that has a
price objective of 11900 +/-. I don't see a strong up move at this time and
the Dow would have to take out 12230 to have any chance for a intermediate
rally. Today that doesn't seem to be a possibility.
I have been following the Dow this week at www.thetradersguide.net
and I will continue until Friday. Next week I will follow something
else. Any suggestions? Have a good weekend Ben.
Thanks Ira.
----- Original Message -----
Sent: Thursday, November 02, 2006
10:18 AM
Subject: Re: [RT] Fw: [AAQuants] 3
signs that a stock crash is coming
Ira
back 6 month ago you said you can see over
13000, congratulations on a great call,,!!!
where do you see short term we are
going and where longer term?
best regards
Ben
----- Original Message -----
Sent: Thursday, November 02, 2006
1:49 AM
Subject: Re: [RT] Fw: [AAQuants] 3
signs that a stock crash is coming
I have found that it doesn't make any
difference about the fundamentals, the PE ratios, or anything
else. It is all on the chart. You can have 2 companies with
the exact same fundamentals and one can be trading at twice the price of
the other. One is followed and the other has a set of officers
that doesn't talk nice to the analysts. As long as the chart says higher
that is where it is going. If the chart says lower it will go
there. The problem comes in what each trader sees in the
chart. Like a painting or a woman. It is all in the eye of
the beholder.
Good trading, Ira.
----- Original Message -----
Sent: Wednesday, November 01,
2006 9:46 PM
Subject: Re: [RT] Fw: [AAQuants]
3 signs that a stock crash is coming
Dunno Ben .. we can all make any case we wish with numbers but he
says nothing about PE's being in line or that earnings are fantastic
and growing or that interest rates are historically low or that the
NASDAQ is still down 60% from the high. Technicals are important
but no more so than fundamentals and at least with fundamentals, the
facts are the facts and not manipulated forecasts by manipulating the
numbers. The fact that there are heavy shorts in the indices is
bullish in my opinion. Still, I appreciate all you share with
this list and with all of us. You are most generous to do
so.
Bob
At 11:55 PM 11/1/2006 -0500, you wrote:
X-Yahoo-Newman-Property:groups-email-trad
Content-Type:
multipart/alternative;
boundary="Boundary_(ID_/jrmDsn210rp4MbVYTFCxw)"
Sent:
Wednesday, November 01, 2006 3:41 PM
Subject: [AAQuants] 3
signs that a stock crash is coming
By Michael Brush
What a
great time to own stocks.
Three major indicators with strong
track records are signaling it's
time to sell stocks. Here's how
they work and why investors should
worry.
The Dow Jones
Industrial Average ($INDU) is setting records just
about every
day. The S&P 500 Index ($INX) has advanced 12% in less
than
five months. Technology stocks are up about 14% since
midsummer.
The giddy stock bulls may be in for a nasty surprise.
They're
ignoring three trusty stock-market indicators -- with
great records
for predicting corrections -- that currently are
saying it's time to
get out of equities. The signals are closely
watched by market
technicians on the lookout for hints that the
bull run is getting
tired.
One of the indicators says
stocks are simply expensive compared with
other investment
options available to big money managers. Another
says that
mutual fund managers have mostly exhausted the supply of
dollars
they have available to put into the market. And the third
says
that the smartest investors are now betting on a downturn.
Together, these harbingers paint a far different picture of the
market than do the raw return numbers.
Here's a closer
look at these indicators and why you should be
cautious with
stocks now.
The stock-bond trade-off
Money managers
chiefly put money in two assets: stocks and bonds.
One way of
deciding whether stocks are expensive is by comparing
their
performance to that of bonds. If bonds lag while stocks
advance,
according to some market watchers, fund managers will be
more
likely to sell stocks and buy bonds.
But how do you compare
the prices of stocks to bonds? Jason Goepfert
of
SentimenTrader.com looks at the performance of the largest bond
and stock indexes as they are embodied by two exchange-traded
mutual
funds -- the Standard & Poor's Depositary Receipts
(SPY, news,
msgs), which tracks the S&P 500 Index, and the
iShares Lehman 20+
Year Treasury Bond Fund (TLT, news, msgs),
which tracks 20-year
government bonds. (For data that predates
the funds, he compares the
S&P 500 with the 10-year Treasury
bond.)
To compare them, Goepfert contrasts the current ratio
of the SPY to
the TLT with the average ratio over the past three
months. Since the
ratio typically doesn't change much in 90
days, the two values
should be about the same. Now, though, with
the recent rally in
stocks, there's a big gap. The current ratio
has moved up to 1.58,
compared with an average of 1.5 over the
past 90 days. That may not
sound like much. But since the ratio
usually stays fairly constant
in any 90-day period, this is a
huge move compared with what
normally happens.
The
difference between the current gap and the 90-day average is at
a level seen only 1% of the time. (For you statistical wonks,
the
indexes are now more than three standard deviations away
from the
norm). "Stocks are rarely as overvalued to bonds as
they are now,"
says Goepfert.
In the three months after
such an extreme reading, the performance
of the S&P 500 has
ranged from a loss of 8.7% to a gain of just
1.7%. That's a bad
outlook for the bulls. It gets worse: This
indicator has called
two of the biggest market declines in the past
decade.
It flashed red just before the big correction that started
in March
2000, signaling the end of the technology bubble. By
the end of
2002, the S&P 500 had fallen more than 45%. (On
the upside, this
model said buy in mid-2002, just before the
start of the current
bull rally.)
On July 17, 1998, the
model said sell just before a dramatic crash
that took the
S&P 500 down 19% in the next month and a half. On Aug.
31
that year, the model said buy just before a September rally that
took the market up 11% in a month.
Cash-strapped mutual
funds
Mutual funds are allowed to hold cash instead of stocks or
bonds.
How much cash they have on hand is often a good signal of
where the
market is heading. If they have a lot of cash, it
means there's
still a lot of money left to go into stocks. When
cash levels are
low, it means there's less money on the
sidelines to drive stocks
higher. It also means that if retail
investors get scared and sell
their fund shares, fund managers
will have to sell stock to meet
redemptions, driving stock
prices lower.
As of the end of August, U.S. equity mutual
funds had 4.4% of their
assets in cash, according to the
Investment Company Institute.
Goepfert adjusts this number for
how much cash they should have on
hand given the current level
of interest rates. Even though interest
rates are relatively
low, Goepfert figures that funds should have a
7% cash position,
according to historical trends. This means funds
have 2.5% less
cash than they "should" have, given the level of
short-term
interest rates. This is another historic extreme.
Since
1950, whenever cash shortfalls hit these lows, the S&P 500 has
fallen 69% of the time with an average decline of 4%. Ominously,
the
last two times cash levels were this low, bad things
happened to
stocks. Cash levels hit these lows in early 2000
just ahead of the
last big bear market. Cash also hit current
levels in early 1981
just before a two-year market slump.
The smart money is bearish
Investors, of course, always
want to know what the "smart money" is
doing. To figure this
out, Goepfert turns to the Commodity Futures
Trading Commission.
First, a primer on futures contracts. Traders who own
futures
contracts on a stock index like the S&P 500 have
purchased the S&P
500 stocks at a price agreed upon now, for
delivery at some point in
the future. Usually these contracts
are settled in cash, without
delivery of the underlying
stocks.
To keep track of the futures markets, the CFTC makes
brokers report
client positions. The CFTC designates the biggest
traders -- those
holding more than 1,000 S&P 500 futures
contracts -- as "commercial"
traders. They only make the grade
if they hold those futures
contracts as a part of a hedge to
protect against losses in
underlying investment positions.
Goepfert considers these commercial
traders to be the "smart
money." (The other two categories are big
speculators, who hold
1,000 or more S&P 500 futures contracts that
aren't part of
a hedged position, and small speculators, who hold
less than
1,000 contracts.)
Right now, commercial traders have a $30
billion net short position
in futures on the S&P 500, the
Dow Jones Industrial Average and the
Nasdaq Composite Index
($COMPX). Going short is a bet against the
market. Traders go
short by borrowing securities and selling them,
hoping they will
be able to replace them later at a cheaper price
after a market
decline.
This is only the third time in recent history that
this short
position has been so large. The other two times were
early 2001,
just before the S&P 500 tumbled 38%, and
November 2004, after which
the market rose some more and then
corrected in early 2005.
A ray of sunshine
Taken
together, these three indicators say its time to be more
cautious with stocks -- but they don't mean that a sharp
correction
is 100% certain.
Here's just one dissenting
voice: Robert Froehlich, chairman of the
investor strategy
committee at DWS Scudder, the U.S. mutual fund
division of
Deutsche Bank. Froehlich points out we are moving into
the
seasonally bullish phase for stocks. This is the six months from
early November to the end of April, a period Froehlich calls
"turkey
to tax time." Since 1950, the average return of the
S&P 500 during
this phase has been 9%. The average return of
the S&P 500 during the
other six months of the year was only
2.71%.
At the time of publication, Michael Brush did not own
or control any
of the equities mentioned in this
portfolio.
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