A 60% Drop in Stocks, Really?

Yesterday, CNBC noted that two experts were warning of the coming 60% crash.  Now at first I’m thinking, here we go again.  We’ve heard these warnings time and time again, only for them to be wrong every time.  None the less, I clicked on the link and saw the two experts were David Tice and Abigail Doolittle.  

Here’s what you need to know, they’ve both been bearish for years now.  Mr. Tice is the founder of the Prudent Bear Fund and Ms. Doolittle has been noting bearish technical patterns in the face of a huge bull market for years.

Trust me, I’m wrong a lot also.  You trade long enough, we are all wrong plenty of times.  What aggravates me though is how dangerous it is to simply stick to a position.  If your wrong, so what?  Close the trade and find another one.  Being stubborn and sticking to a bad trade or wrong thesis is one of the most dangerous things you can do and is one of the best ways to lose money.  

One of the keys to being successful over time is being able to adapt.  

I call it being a chameleon trader.  The chameleon is one of the most adaptive animals ever.  If they need to turn red to hide, they turn red.  They have no agenda, just adapt and survive.  Adapt or Die is another favorite market saying of mine.

As traders, I think this is very similar.  If the environment changes, you need to change as well - and fast.  Although I’ve been called a perma-bull many times, in late June I started seeing a lot warnings.  Eventually we had the 4% dip (and much larger in small caps)  and pure fear came into the market. That was a clue we were about to rally once again.  Fortunately for me, it all worked out this time.  But my main point is don’t have a bias, just trade what your indicators tell you.  And if you are wrong, accept it.  Don’t be a hero.  

Here’s a CNBC spot I did with Ms. Doolittle back in May ‘13.  The SPX is up a cool +25% since then and she has a lot of the same bearish arguments.  Sure, it’ll be right eventually, but my big takeaway is be very careful who you listen to, as they might have an agenda under the surface you don’t know about.

The Nasdaq-100 Hasn’t Been Red For Two Weeks, Now What?

The market makes a habit of fooling the masses.  That is how it works, always has and always will.  Seriously, how many have sat on the sidelines just the past 12 months focusing on the scary headlines.  This time a year ago all the rage was the coming ‘87 like crash.  

For this reason, I do my best to avoid any emotion in my trading and use quantified data and sentiment instead.  Last year, nearly all the studies I did suggested a big second-half rally was coming.  This wasn’t a popular call at the time to say the least.  But, by looking at past history, it helped show a guide for what might happen.  Many a year ago were saying margin debt was high and we were due for an ‘87 like crash because of this.  As you know now, that didn’t happen.  

Here’s a great example of how digging a little bit deeper can show surprising results.  

The PowerShares 100 Trust (QQQ) hasn’t been red since August 12.  First off, the QQQ is an ETF based on the Nasdaq-100.  So these are the largest stocks listed on the Nasdaq in a one nice big basket.  

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The current streak is 10 trading days in a row the QQQ hasn’t closed negative.  I find a few things interesting about this.  Two weeks ago all the talk was how that 10% dip we hadn’t seen in three years was coming.  Sentiment had moved to a full blown panic in a lot of cases on just a 4% S&P 500 (SPX) dip.  

Also we heard a lot how weak breadth was in the QQQ.  Facebook (FB) was about the only stock leading it anymore.  Breadth looks at how many stocks are going up along with the Index.  It measures internal strength.  Well, all we’ve done since these warnings is see one of the best streaks in the history of the QQQ.

Here’s where the current streak ranks all-time.

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Now for the best part.  I went back and looked at the top three streaks and found what the QQQ did after 10 straight days without being red.  The results were what I’d call surprising.  Most would probably guess the near-term is weak.  None the less, the returns are simply stellar.  

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Significantly better results across the board on all timeframes.  How about that?  Sure, there are just three occurrences and you could argue this is totally random.  Still, to me, this much strength usually results in more strength.  

Here are the three times it made it to 10 days and the returns after.

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So today if you see a talking head on tv or social media say the QQQ has gone two weeks without being red and this is bearish, you can know that the quantified data simply doesn’t back that up.

Continue to dig deeper in your analysis and always question conventional wisdom.  Thanks for reading.  

Why This Bull Market Could Last Another 15 Years
Is there really another 15 years to the current bull market?  Chris Hyzy of US Trust said just that Monday on CNBC.  The call got a lot of press and needless to say, the very vocal group of bears who have been fighting this bull market for years scoffed at this even having the slightest chance.
He isn’t the first person to say something like this, as fellow Yahoo Finance Contributor Ralph Acamapora said the exact same thing back in May.  In late 2010, I started saying we were now in a new secular bull market.  It was pretty early for that call and I got my fair share of hate for saying it.  Four years later I still feel we’re in a secular bull market.  I have no clue how far it’ll eventually go, but I do think we have many years left.  
One trademark of true bull markets is new all-time highs.  The S&P 500 (SPX) made 45 new all-time highs last year and has added another 30 so far in 2014.  That’s a good thing, don’t be fooled into thinking new highs are bearish.  
Last month, I showed that new all-time highs had returns after new highs pretty much in-line with the at-any-time average returns.  So making new highs isn’t some bearish event like so many claim.  
Now for the good stuff, new highs tend to happen in clusters that can last years.
To keep this very simple, we saw new highs in the ’50s and ’60s, then very few in the ’70s.  Then continued new all-time highs for another two decades, ending with the horrible overall performance of the 2000s.  Now here we are in a fresh new decade and new highs are starting to pop up again.

Take another look at that chart above.  Could we really have another 15 years of this bull market?  At first, it sounds ridiculous to even ask I’ll admit, but once you look at the chart above we can all agree it is at least possible.   
So one last time, could we really have another 15 years of the this bull market?  I have no idea to be honest.  Still, my best advice is be open to it.  It has happened before and very well could happen again.  Don’t be one of the guys using CAPE ratios to stay out or blaming QE for the bull market.  Good luck out there.
Photo thanks to Watcher1999.   Zoom Permalink

Why This Bull Market Could Last Another 15 Years

Is there really another 15 years to the current bull market?  Chris Hyzy of US Trust said just that Monday on CNBC.  The call got a lot of press and needless to say, the very vocal group of bears who have been fighting this bull market for years scoffed at this even having the slightest chance.

He isn’t the first person to say something like this, as fellow Yahoo Finance Contributor Ralph Acamapora said the exact same thing back in May.  In late 2010, I started saying we were now in a new secular bull market.  It was pretty early for that call and I got my fair share of hate for saying it.  Four years later I still feel we’re in a secular bull market.  I have no clue how far it’ll eventually go, but I do think we have many years left.  

One trademark of true bull markets is new all-time highs.  The S&P 500 (SPX) made 45 new all-time highs last year and has added another 30 so far in 2014.  That’s a good thing, don’t be fooled into thinking new highs are bearish.  

Last month, I showed that new all-time highs had returns after new highs pretty much in-line with the at-any-time average returns.  So making new highs isn’t some bearish event like so many claim.  

Now for the good stuff, new highs tend to happen in clusters that can last years.

To keep this very simple, we saw new highs in the ’50s and ’60s, then very few in the ’70s.  Then continued new all-time highs for another two decades, ending with the horrible overall performance of the 2000s.  Now here we are in a fresh new decade and new highs are starting to pop up again.

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Take another look at that chart above.  Could we really have another 15 years of this bull market?  At first, it sounds ridiculous to even ask I’ll admit, but once you look at the chart above we can all agree it is at least possible.   

So one last time, could we really have another 15 years of the this bull market?  I have no idea to be honest.  Still, my best advice is be open to it.  It has happened before and very well could happen again.  Don’t be one of the guys using CAPE ratios to stay out or blaming QE for the bull market.  Good luck out there.

Photo thanks to Watcher1999.  

Did the Options Market Just Fire a Major Warning for Stocks?
We’re making new highs and everything is great, right?  Well, maybe things are a little too good and the masses are just buying everything they can now, which is a huge contrarian warning.  
The ISE Sentiment Index is a proprietary put/call ratio that uses only opening long customer transactions.  In other words, it is measuring how many people are buying a new position in bullish call options or bearish put options.  I like to use put/call ratios to see if the masses are getting too one-sided.  Remember, once everyone is expecting something, it rarely happens when it comes to investing.  
This ratio is actually constructed as a call/put ratio and it just had three straight days over 200, meaning there were twice as many calls opened versus puts.  Again, when everyone is buying calls (especially on equities like this ratio tracks) that could be a warning traders are a little too excited.  
Here’s what really has Twitter buzzing right now.  The previous two times we saw three straight days >200 were 1/16/14 and 7/22/11.  The S&P 500 (SPX) dropped -3.43% and -10.83% just 10 days later.  
Here’s the chart so far YTD.  The only meaningful weakness so far this year took place just after the last time this happened.  Could a quick drop happen again here?  

You have to go back nearly three years for the most recent time other than January we saw three straight days >200.  Back in July ‘11 we saw five straight days and this took place just ahead of the huge August correction.  

So on the surface this indeed does seem pretty scary.  Now I’m not a big fan of just using two data points and saying it matters.  It could be random.  Going back to 2006 and I found there were 42 other times this ratio was >200 for 3 straight days.  Here are the returns after.  

Not much to like about those stats if you are bullish.  Negative across the board, that is tough to do.  
My pal @Market_Time created this great chart last night on the subject.  It shows all the signals with a chart of the SPX since 2006.

Finally, here are the longest streaks (since 2006) of consecutive trading days with this ratio >200.  A few things stand out to me.  First off, the longest streak ever took place just a few months before a major market peak.  Also there was a streak of six in a row in October ‘07, right as the market peaked.  April 2010 saw two streaks of six in a row and this took place just as the market was forming a major peak that took nearly seven months to get back above.  Lastly, we simply haven’t seen this phenomena the last few years.  

There’s no other way than to say this is a worry if you are bullish.  Now one trait of this bull market since 2013 is it has ignored nearly all previous bearish signals that once worked in the past.  Can it do it again?  
Photo courtesy of Eduard Titov.  

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Did the Options Market Just Fire a Major Warning for Stocks?

We’re making new highs and everything is great, right?  Well, maybe things are a little too good and the masses are just buying everything they can now, which is a huge contrarian warning.  

The ISE Sentiment Index is a proprietary put/call ratio that uses only opening long customer transactions.  In other words, it is measuring how many people are buying a new position in bullish call options or bearish put options.  I like to use put/call ratios to see if the masses are getting too one-sided.  Remember, once everyone is expecting something, it rarely happens when it comes to investing.  

This ratio is actually constructed as a call/put ratio and it just had three straight days over 200, meaning there were twice as many calls opened versus puts.  Again, when everyone is buying calls (especially on equities like this ratio tracks) that could be a warning traders are a little too excited.  

Here’s what really has Twitter buzzing right now.  The previous two times we saw three straight days >200 were 1/16/14 and 7/22/11.  The S&P 500 (SPX) dropped -3.43% and -10.83% just 10 days later.  

Here’s the chart so far YTD.  The only meaningful weakness so far this year took place just after the last time this happened.  Could a quick drop happen again here?  

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You have to go back nearly three years for the most recent time other than January we saw three straight days >200.  Back in July ‘11 we saw five straight days and this took place just ahead of the huge August correction.  

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So on the surface this indeed does seem pretty scary.  Now I’m not a big fan of just using two data points and saying it matters.  It could be random.  Going back to 2006 and I found there were 42 other times this ratio was >200 for 3 straight days.  Here are the returns after.  

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Not much to like about those stats if you are bullish.  Negative across the board, that is tough to do.  

My pal @Market_Time created this great chart last night on the subject.  It shows all the signals with a chart of the SPX since 2006.

Finally, here are the longest streaks (since 2006) of consecutive trading days with this ratio >200.  A few things stand out to me.  First off, the longest streak ever took place just a few months before a major market peak.  Also there was a streak of six in a row in October ‘07, right as the market peaked.  April 2010 saw two streaks of six in a row and this took place just as the market was forming a major peak that took nearly seven months to get back above.  Lastly, we simply haven’t seen this phenomena the last few years.  

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There’s no other way than to say this is a worry if you are bullish.  Now one trait of this bull market since 2013 is it has ignored nearly all previous bearish signals that once worked in the past.  Can it do it again?  

Photo courtesy of Eduard Titov.  

The Market Can Stay Irrational Longer Than You Can Stay Solvent
That quote is by John Maynard Keynes and is one of the better explanations of what can happen if you trade in markets long enough.
With that, here’s proof the market doesn’t always do what you’d think.  
If you follow me on Twitter or StockTwits, then you know I’ll throw out a lot of studies.  Some might be a stretch (like who wins the Word Cup and what the SPX does after), but most of the time I’m looking for things others aren’t talking about and trying to find an edge.
Yesterday while doing some research, I found these two interesting stats on the Nasdaq and they prove just how difficult trading can be if you think logically.  
First up, the Nasdaq is up five days in a row.  This is the fourth time we’ve seen that in 2014, with the longest winning streak an impressive eight in a row back in February.  For fun, the longest winning streak ever for the Nasdaq was an amazing 19 trading days in a row in 1979.  
Now back to being up five days in a row.  A logical person would probably say that is near-term bearish, as the market is over-extended.  Well, turns out going back to 1978 the Nasdaq actually does better across the board up to three months after being up five days in a row.

Time for the real head scratcher.  I keep a database of all the Nasdaq returns since 1978 and I was playing in there yesterday and found that March 12, 1999 was the single best day to buy the Nasdaq and hold for one year, as you’d have gained +111.99% just 12 months later.  Why is this significant?  The Nasdaq was up a cool +122% the three years coming into this fateful day.  Would you really be buying there?  
Any logical person would say something up that much wasn’t worth buying.  Now sure, I get it.  Had you bought on March 12, 1999 and held for two years the returns would be much different.  Still, this hammers home just how irrational markets can be and ignoring what is ‘normal’ could actually benefit you sometimes.  

We’re all looking for those rare outliers to make our year.  Don’t be scared of them when they could be happening right in front of you.  Ride the trend for all it’s worth, but be aware it’ll end badly - they always do.  Be smart enough to get off once the trend starts to show major deterioration.  
Good luck out there.  
Picture courtesy of Doug Caldwell. Permalink

The Market Can Stay Irrational Longer Than You Can Stay Solvent

That quote is by John Maynard Keynes and is one of the better explanations of what can happen if you trade in markets long enough.

With that, here’s proof the market doesn’t always do what you’d think.  

If you follow me on Twitter or StockTwits, then you know I’ll throw out a lot of studies.  Some might be a stretch (like who wins the Word Cup and what the SPX does after), but most of the time I’m looking for things others aren’t talking about and trying to find an edge.

Yesterday while doing some research, I found these two interesting stats on the Nasdaq and they prove just how difficult trading can be if you think logically.  

First up, the Nasdaq is up five days in a row.  This is the fourth time we’ve seen that in 2014, with the longest winning streak an impressive eight in a row back in February.  For fun, the longest winning streak ever for the Nasdaq was an amazing 19 trading days in a row in 1979.  

Now back to being up five days in a row.  A logical person would probably say that is near-term bearish, as the market is over-extended.  Well, turns out going back to 1978 the Nasdaq actually does better across the board up to three months after being up five days in a row.

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Time for the real head scratcher.  I keep a database of all the Nasdaq returns since 1978 and I was playing in there yesterday and found that March 12, 1999 was the single best day to buy the Nasdaq and hold for one year, as you’d have gained +111.99% just 12 months later.  Why is this significant?  The Nasdaq was up a cool +122% the three years coming into this fateful day.  Would you really be buying there?  

Any logical person would say something up that much wasn’t worth buying.  Now sure, I get it.  Had you bought on March 12, 1999 and held for two years the returns would be much different.  Still, this hammers home just how irrational markets can be and ignoring what is ‘normal’ could actually benefit you sometimes.  

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We’re all looking for those rare outliers to make our year.  Don’t be scared of them when they could be happening right in front of you.  Ride the trend for all it’s worth, but be aware it’ll end badly - they always do.  Be smart enough to get off once the trend starts to show major deterioration.  

Good luck out there.  

Picture courtesy of Doug Caldwell.

Remembering The Google IPO
Hard to believe, but Google (GOOGL) had it’s IPO 10 years ago today.  This event was met with an extreme amount of skepticism and doubt.  Could a search engine with no real profits even work?  Sounds silly now, but a decade ago very few thought this company would even work - let alone become one of the largest companies in the world.
The shares went public at $85/share, which was the low end of the range - making it an immediate disappointment in the eyes of many.  Shares gained +18% that first day, closing at $100/share.  Sounds good, but not the huge gains some had hoped for given this was the biggest tech IPO since the tech crash a few years earlier.  
Leading up to the IPO, the company had a good deal of drama.  My favorite being a Playboy magazine interview which drew the attention of the SEC.  Apparently the SEC actually reads that magazine.  
“I’m not buying,” said Stephen Wozniak, an Apple (AAPL) co-founder.  “Past experience leaves the taste that a few people — never ourselves — will make out the first day, but that it’s not likely to appreciate a lot in the near future or maybe even the long future,” he said.
“Only time will tell if the company can fend off efforts by Yahoo (YHOO) and Microsoft (MSFT) to build superior search engines,” said the New York Times.  
The big question at that time was the $27 billion valuation.  The shares are worth $400 billion today by the way.  
"To see a market capitalization valuing Google as a mature company is assuming a best-case scenario which isn’t a for-sure outcome. It still has a long way to go to justify growing into that kind of market value," said Michael Cohen, director of research with Pacific American Securities.

Sure there might have been a few GOOGL bulls out there, but the masses wanted very little to do with this one.  
So August 2004 had a flurry of ‘overvalued’ articles - Google it if you want.  Then by October 2004 the analysts had just 36% ‘buy’ ratings on it.  Now here’s the beauty of what can happen when you have a lot of negative sentiment that doesn’t play out - it can spark huge rallies.  In the face of all of this negativity, the shares doubled by the end of 2004. 
After doubling again in 2005, there was a brief pullback in early 2006 and this sparked a ‘Gurgle’ Barron’s cover.  This one marked the calendar year low and the shares eventually soared to over 700 by late 2007.  

By now, everyone loved the company.  Funny how that works.  Analysts now had 91% buys (it was just 36% in October 2004) and tech was a consensus favorite sector heading into 2008.  Remember, around the time of the IPO no one trusted tech after the tech bubble implosion.  Add it up and the overall sentiment picture had totally flipped.  That by itself wasn’t a reason to turn bearish, but it was a reason to worry.
Then it happened, in late 2007 BusinessWeek had a very bullish cover titled “Google’s Next Big Dream.”  Expectations were simply too high for any company at this point.  Any little mistake could lead to a waterfall of selling.  

The shares began to underperform in early 2008, yet analysts now defended the shares.  Option activity continued to show heavy call buying, so a ‘pick the bottom’ mentality had set in.  These were much different that the attitude on the way up and said something had changed.  
Over the next year or so the shares dropped more than 65%.  

This example has officially gone down in history at how fading the consensus can be a very powerful tool when it comes to trading.  Things don’t always line up this well, but when they do it can lead to spectacular gains.  
Picture courtesy of Keso. Permalink

Remembering The Google IPO

Hard to believe, but Google (GOOGL) had it’s IPO 10 years ago today.  This event was met with an extreme amount of skepticism and doubt.  Could a search engine with no real profits even work?  Sounds silly now, but a decade ago very few thought this company would even work - let alone become one of the largest companies in the world.

The shares went public at $85/share, which was the low end of the range - making it an immediate disappointment in the eyes of many.  Shares gained +18% that first day, closing at $100/share.  Sounds good, but not the huge gains some had hoped for given this was the biggest tech IPO since the tech crash a few years earlier.  

Leading up to the IPO, the company had a good deal of drama.  My favorite being a Playboy magazine interview which drew the attention of the SEC.  Apparently the SEC actually reads that magazine.  

“I’m not buying,” said Stephen Wozniak, an Apple (AAPL) co-founder.  “Past experience leaves the taste that a few people — never ourselves — will make out the first day, but that it’s not likely to appreciate a lot in the near future or maybe even the long future,” he said.

“Only time will tell if the company can fend off efforts by Yahoo (YHOO) and Microsoft (MSFT) to build superior search engines,” said the New York Times.  

The big question at that time was the $27 billion valuation.  The shares are worth $400 billion today by the way.  

"To see a market capitalization valuing Google as a mature company is assuming a best-case scenario which isn’t a for-sure outcome. It still has a long way to go to justify growing into that kind of market value," said Michael Cohen, director of research with Pacific American Securities.

Sure there might have been a few GOOGL bulls out there, but the masses wanted very little to do with this one.  

So August 2004 had a flurry of ‘overvalued’ articles - Google it if you want.  Then by October 2004 the analysts had just 36% ‘buy’ ratings on it.  Now here’s the beauty of what can happen when you have a lot of negative sentiment that doesn’t play out - it can spark huge rallies.  In the face of all of this negativity, the shares doubled by the end of 2004. 

After doubling again in 2005, there was a brief pullback in early 2006 and this sparked a ‘Gurgle’ Barron’s cover.  This one marked the calendar year low and the shares eventually soared to over 700 by late 2007.  

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By now, everyone loved the company.  Funny how that works.  Analysts now had 91% buys (it was just 36% in October 2004) and tech was a consensus favorite sector heading into 2008.  Remember, around the time of the IPO no one trusted tech after the tech bubble implosion.  Add it up and the overall sentiment picture had totally flipped.  That by itself wasn’t a reason to turn bearish, but it was a reason to worry.

Then it happened, in late 2007 BusinessWeek had a very bullish cover titled “Google’s Next Big Dream.”  Expectations were simply too high for any company at this point.  Any little mistake could lead to a waterfall of selling.  

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The shares began to underperform in early 2008, yet analysts now defended the shares.  Option activity continued to show heavy call buying, so a ‘pick the bottom’ mentality had set in.  These were much different that the attitude on the way up and said something had changed.  

Over the next year or so the shares dropped more than 65%.  

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This example has officially gone down in history at how fading the consensus can be a very powerful tool when it comes to trading.  Things don’t always line up this well, but when they do it can lead to spectacular gains.  

Picture courtesy of Keso.

Welcome To The Worst Six Months Of The Year?

As I’m sure you’ve heard by now, historically the May to October period is one of the worst six month timeframes, while the November to April period is very strong.  Today I wanted to take a closer look at this theory.  Is it true?  Or is there more to the story if you dig a little bit?

Going back to 1950 on the SPX, you can see the average return during the November to April timeframe is significantly better than from May to October.  Meaning we are in the heart of the worst six months currently.  

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What about the other six month periods?  Have you ever wondered how things did from December to May?  I did, and below breaks down the other months.  Interestingly enough, the November to April period is the strongest and the May to October period is the worst.  Guess everyone was right about which periods to avoid and which to be long.  

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This is the second year of the Presidential Cycle.  Historically, year two isn’t that strong.  Well, this is true once again, as the average November to April in year two goes down to an average of just +3.34% versus the average November to April return of +7.15%.  But what about the May to October during year two?  That one actually has a negative return, so we’re right in the heart of a very weak period it looks like.  

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Now looking at all four years in the Presidential Cycle, you’ll find that year two is the weakest and the current six months is the only one to average a negative return!  Seasonality isn’t playing anyone any favors here and now.  

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The beauty of the current weak six month stretch is that it opens the door to some awesome gains.  Now take one more look above.  The November to April period in year three of the Presidential Cycle has never been lower since 1950 and averages a very impressive +16%!  In other words, we are just a few months away from one of the most bullish periods every four years.  We’ve just got to get there first.  

Lastly, here are all the six month periods broken down by Presidential Cycle years.  Check out the bolded area below.  August to January during year three of the Presidential Cycle (so right now) is actually rather strong - up +11.4% on average and up 75% of the time.  So maybe things aren’t so dour and seasonality is on our side?  

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In fact, each of the next five months all are parts of six month periods which are the strongest in the Presidential Cycle.  All average double digit returns, with some very high chances of being positive.  

So maybe we aren’t in the middle of such a weak time seasonally like so many claim.  Doing a little more research reveals the next six months are some of the most bullish out of the entire four year cycle.  Good luck out there.  

Interview with MoneyBeat

While in New York last week for the Yahoo Finance Contributors party I dropped by the Wall Street Journal and shot a quick video with Paul Vigna for MoneyBeat.  

We talked about how August is usually volatile and sure enough, 10 minutes after we were done the Dow dropped 150 points due to Ukraine/Russia tensions.  Ha.

Also touched on seasonality, sentiment, why remaining bullish makes sense, mutual fund flows, and more.   

Watch the full video here.  

Just How Old Is This Bull Market?
So just how old is this bull market when you put it up against some of the others?  As my pal Michael Batnick noted, it has been a very long time since we’ve had a 10% correction and this has a lot of traders worried we’ve gone too long without a much needed correction.
So what about that 10% correction?  By my math, we’ve now gone 34 months without a 10% correction on a closing basis.  We did hit the magical 10% correction land on an intraday basis back in June ‘12, but I’m just talking closes here.  
Since 1950, the current streak is getting up there, but we could go another 34 months and still not be at the all-time streak from the ’90s.  

Another popular streak is the number of days the S&P 500 (SPX) has been above its 200-day moving average.  Turns out, the SPX has closed an amazing 435 straight days above this long-term trendline.  Again, getting up there, but it isn’t unprecedented for this streak to last a little bit longer. 

Let’s talk sentiment for a second.  One of the more amazing streaks in that world is how many weeks in a row we’ve seen bulls in the Investors Intelligence Poll come in above the 50% area.  Before this year we were all taught that being above the critical 50% was a huge warning of too much optimism.  Turns out you can rally in the face of a lot bulls and we have done that since February.  In fact, the current streak of 24 straight weeks sounds like a lot, till you see the amazing 45 straight weeks of bulls above 50% back in ‘03/’04.  

How about this one, the Russell 2000 (RUT) is up eight quarters in a row, the longest streak ever!

The SPX on the other hand is up six quarters in a row.  Sounds like a lot, till you realize out of the four other times this has happened, three of those times it went up at least another four quarters in a row.

What about the CBOE Volatility Index (VIX)?  Seriously, no market conversation is complete without talking about everyone’s favorite fear/greed indicator.  Since 1990 the VIX has averaged exactly 20.  The funny thing is it usually doesn’t trade around that area for very long.  It’ll spend years well beneath that area, then years well above that area.  
Check out this chart.  For seven years in the ’90s and four years last decade it traded beneath 20.  This current streak is just over two years old.  Once again, this streak is impressive, but it wouldn’t be crazy for it to continue for a very long time.  

Lastly, what about the length of other bull markets?  I mean, that is the best way to gauge just how this bull stacks up, right?  
The current bull market is 65 months old.  It is now older than the ‘03/’07 bull market, but it isn’t anywhere close to the amazing 153 month bulls we saw twice just since ‘75 or the 151 month bull that died in 1961.

What does all of this mean?  Hey, the bull market could die tomorrow for all I know, but I like to take a bigger look at things sometimes.  It might seem like this bull cycle has been going on forever, but it is very possible it could keep going a lot longer if you look at the length of other bull markets.  Be open to it is all I’m saying.  
Photo courtesy of Podolux. Zoom Permalink

Just How Old Is This Bull Market?

So just how old is this bull market when you put it up against some of the others?  As my pal Michael Batnick noted, it has been a very long time since we’ve had a 10% correction and this has a lot of traders worried we’ve gone too long without a much needed correction.

So what about that 10% correction?  By my math, we’ve now gone 34 months without a 10% correction on a closing basis.  We did hit the magical 10% correction land on an intraday basis back in June ‘12, but I’m just talking closes here.  

Since 1950, the current streak is getting up there, but we could go another 34 months and still not be at the all-time streak from the ’90s.  

image

Another popular streak is the number of days the S&P 500 (SPX) has been above its 200-day moving average.  Turns out, the SPX has closed an amazing 435 straight days above this long-term trendline.  Again, getting up there, but it isn’t unprecedented for this streak to last a little bit longer. 

image

Let’s talk sentiment for a second.  One of the more amazing streaks in that world is how many weeks in a row we’ve seen bulls in the Investors Intelligence Poll come in above the 50% area.  Before this year we were all taught that being above the critical 50% was a huge warning of too much optimism.  Turns out you can rally in the face of a lot bulls and we have done that since February.  In fact, the current streak of 24 straight weeks sounds like a lot, till you see the amazing 45 straight weeks of bulls above 50% back in ‘03/’04.  

image

How about this one, the Russell 2000 (RUT) is up eight quarters in a row, the longest streak ever!

image

The SPX on the other hand is up six quarters in a row.  Sounds like a lot, till you realize out of the four other times this has happened, three of those times it went up at least another four quarters in a row.

image

What about the CBOE Volatility Index (VIX)?  Seriously, no market conversation is complete without talking about everyone’s favorite fear/greed indicator.  Since 1990 the VIX has averaged exactly 20.  The funny thing is it usually doesn’t trade around that area for very long.  It’ll spend years well beneath that area, then years well above that area.  

Check out this chart.  For seven years in the ’90s and four years last decade it traded beneath 20.  This current streak is just over two years old.  Once again, this streak is impressive, but it wouldn’t be crazy for it to continue for a very long time.  

vix chart_years under 20 historically

Lastly, what about the length of other bull markets?  I mean, that is the best way to gauge just how this bull stacks up, right?  

The current bull market is 65 months old.  It is now older than the ‘03/’07 bull market, but it isn’t anywhere close to the amazing 153 month bulls we saw twice just since ‘75 or the 151 month bull that died in 1961.

image

What does all of this mean?  Hey, the bull market could die tomorrow for all I know, but I like to take a bigger look at things sometimes.  It might seem like this bull cycle has been going on forever, but it is very possible it could keep going a lot longer if you look at the length of other bull markets.  Be open to it is all I’m saying.  

Photo courtesy of Podolux.

Is The Market Efficient?  Maybe Not.
August 13 is National Filet Mignon Day.  As a bigtime steak guy, this day is like Christmas in August for me.  
I know there are those that think the market is totally efficient and then there are those that think you can indeed outsmart the market by finding inefficiencies.  Today, I will prove the market isn’t efficient.  
Texas Roadhouse (TXRH) has publically traded since October 2004.  Over this time it has been up on National Filet Mignon Day just ONCE.  That just feels wrong/dirty/silly - you pick the word.  All I know is since the IPO, the shares have averaged +0.06% a day and have been higher 49% of the time.
Here are the returns on National Filet Mignon Day.

Now do you believe me about markets being inefficient?  
Thanks to Kurt VanderScheer for the photo making everyone hungry.   Zoom Permalink

Is The Market Efficient?  Maybe Not.

August 13 is National Filet Mignon Day.  As a bigtime steak guy, this day is like Christmas in August for me.  

I know there are those that think the market is totally efficient and then there are those that think you can indeed outsmart the market by finding inefficiencies.  Today, I will prove the market isn’t efficient.  

Texas Roadhouse (TXRH) has publically traded since October 2004.  Over this time it has been up on National Filet Mignon Day just ONCE.  That just feels wrong/dirty/silly - you pick the word.  All I know is since the IPO, the shares have averaged +0.06% a day and have been higher 49% of the time.

Here are the returns on National Filet Mignon Day.

Now do you believe me about markets being inefficient?  

Thanks to Kurt VanderScheer for the photo making everyone hungry.  

2014 in Charts So Far
They say a picture is worth a thousand words, well, I’m going to test that theory today.  
Here are some charts showing 2014 so far versus what happened various other years.  
Remember what Winston Churchill said, “The farther back you can look, the farther forward you are likely to see.”
First up, here’s the average year for the SPX since 1950.  The average year gains about +9% and tends to start strong, chop around during the summer, and bottom in late October before a strong year-end rally.  Each data point on the chart below presents the average for each day of the year from all the years from 1950 to 2013.  



Now comparing that to 2014 and after all that has happened so far this year, things are right where the average year is up till this point.  



This is the second year of the Presidential cycle and historically it has been one of the weaker years in the cycle.  In fact, looking at the chart below, this year is actually negative till late October, before a furious late year rally.  

Putting this in perspective, this year is actually above average by a good margin.  

One other way to look at things is this is the 2nd year of the 2nd term for President Obama.  I’ll just call it year six of the Presidential cycle.  
Turns out, these years are extremely bullish, up nearly +23% on average.  Going back to 1950 there have been four - Bush in 2006, Clinton in 1998, Regan in 1986, and Eisenhower in 1958. 

2014 is running a little weak compared to the average year six of the Presidential cycle, but once again we tend to see a strong late year rally after some summer doldrums.  


Lastly, here is all the data in one chart.  

I wouldn’t bet the farm on charts like these, but I’d rather know than not know.  Time and time again last year I’d overlay what happened in 1954 and 1995, and said 2013 could see a huge second half rally as they were all nearly identical.  It is tough to remember, but this time a year ago many were chanting for an ‘87 like crash, not a huge end of year rally.  History might not repeat, but it does rhyme.  To me, the odds favor we finish higher than where we are right now and there’s a good chance for a strong year-end rally.  
Picture courtesy of Chris Morley.   Zoom Permalink

2014 in Charts So Far

They say a picture is worth a thousand words, well, I’m going to test that theory today.  

Here are some charts showing 2014 so far versus what happened various other years.  

Remember what Winston Churchill said, “The farther back you can look, the farther forward you are likely to see.”

First up, here’s the average year for the SPX since 1950.  The average year gains about +9% and tends to start strong, chop around during the summer, and bottom in late October before a strong year-end rally.  Each data point on the chart below presents the average for each day of the year from all the years from 1950 to 2013.  

image

Now comparing that to 2014 and after all that has happened so far this year, things are right where the average year is up till this point.  

image

This is the second year of the Presidential cycle and historically it has been one of the weaker years in the cycle.  In fact, looking at the chart below, this year is actually negative till late October, before a furious late year rally.  

image

Putting this in perspective, this year is actually above average by a good margin.  

image

One other way to look at things is this is the 2nd year of the 2nd term for President Obama.  I’ll just call it year six of the Presidential cycle.  

Turns out, these years are extremely bullish, up nearly +23% on average.  Going back to 1950 there have been four - Bush in 2006, Clinton in 1998, Regan in 1986, and Eisenhower in 1958. 

image

2014 is running a little weak compared to the average year six of the Presidential cycle, but once again we tend to see a strong late year rally after some summer doldrums.  

image

Lastly, here is all the data in one chart.  

image

I wouldn’t bet the farm on charts like these, but I’d rather know than not know.  Time and time again last year I’d overlay what happened in 1954 and 1995, and said 2013 could see a huge second half rally as they were all nearly identical.  It is tough to remember, but this time a year ago many were chanting for an ‘87 like crash, not a huge end of year rally.  History might not repeat, but it does rhyme.  To me, the odds favor we finish higher than where we are right now and there’s a good chance for a strong year-end rally.  

Picture courtesy of Chris Morley.  

DJIA and S&P 500 trading action around August options expiration

jeffhirsch:

image

Next week is options expiration week and mid-August is often better performing than the beginning and the end of the month. This strength is punctuated with a four-day string of bullish days that wrap the weekend from August 14 to 19. A bullish day is defined as a trading day in which the S&P…

Great stuff, Jeff.  Good news is I did some studies last night going back to 2004.  My returns are the same as yours here.  Helps me feel better to match up with your stuff.  Take care.  

 Is This An Oversold Bounce, Or The Start Of A 10% Correction?
There are some signs we could be nearing a meaningful bottom, yet there are others this is just an oversold bounce and more pain to come.
First off, the good news and why a major bottom could be near.  The CBOE options equity put/call ratio is nearing a very high level – suggesting there’s a lot of fear in the options market.  I’ve been talking about this one for a while now as a concern, but I’d say it is now more a positive than negative.  Still, the bottom line is the trend, as this ratio tends to trend inversely with the SPX.  This ratio is now high, but I’d need it to reverse lower to become comfortably bullish. 


Looking at the AAII sentiment poll, the number polled that consider themselves bearish is at its highest level this year and highest since August ’13.  That is a good sign, as the masses are getting worried after the recent weakness. 


Also, the bulls haven’t been greater than the bears for three straight weeks.  The last time we saw that much persistent worry was May ’13. 


Lastly, the NAAIM survey just outright panicked.  I like this survey as it looks at what real active managers are doing.  Well, this one just dropped 38% in one week to 51 from 82.  In fact, the 31 total point drop was the 7th largest one week drop all-time. 


Now for the bad news and why any near-term strength could be just an oversold bounce.  The AAII and NAAIM might be panicking, but the Investors Intelligence poll has had bulls greater than 50% for 24 weeks in a row.  This is now tied for the 4th longest streak ever.  That is a lot of persistent bullishness. 

Seasonality isn’t doing anyone any favors here either, as we are in the midst of the only two months to average back-to-back negative returns going back to 1950. 


Plus, when August is negative, it is really negative.  Going back to 1980, there isn’t any month with a lower average negative return than August.  August isn’t off to the best start in ‘14, so if that continues a good deal of more pain is likely. 


Lastly, the VIX futures recently turned inverted.  I explained this in detail here, but the bottom line is this has been historically very bullish.  My take is it is a sign of an extreme amount of panic and since late 2012 it has marked some huge buying opportunities. 


Well, a week from the latest signal, the SPX was down over 1%.  This is actually the worst one-week return since late ’12.  Is this formerly bullish indicator fading?  If so, could this be a major clue something under-the-surface has changed and this pullback is something much different than we’ve seen in a long-time?


There you go.  I’m torn on what could happen next.  There are some good arguments to both sides.  Some sentiment signals are flashing major buys.  Also, you have to side with the bull market, as it has earned our trust.  Still, seasonality and the poor results after the VIX term structure inversion are huge concerns of mine right here and now.  If we turn back lower next week that could be a sign something indeed big has changed. 
Thanks for reading. 
 Picture courtesy of CollegeDegrees360.   Zoom Permalink

 Is This An Oversold Bounce, Or The Start Of A 10% Correction?

There are some signs we could be nearing a meaningful bottom, yet there are others this is just an oversold bounce and more pain to come.

First off, the good news and why a major bottom could be near.  The CBOE options equity put/call ratio is nearing a very high level – suggesting there’s a lot of fear in the options market.  I’ve been talking about this one for a while now as a concern, but I’d say it is now more a positive than negative.  Still, the bottom line is the trend, as this ratio tends to trend inversely with the SPX.  This ratio is now high, but I’d need it to reverse lower to become comfortably bullish. 

Looking at the AAII sentiment poll, the number polled that consider themselves bearish is at its highest level this year and highest since August ’13.  That is a good sign, as the masses are getting worried after the recent weakness. 

Also, the bulls haven’t been greater than the bears for three straight weeks.  The last time we saw that much persistent worry was May ’13. 

Lastly, the NAAIM survey just outright panicked.  I like this survey as it looks at what real active managers are doing.  Well, this one just dropped 38% in one week to 51 from 82.  In fact, the 31 total point drop was the 7th largest one week drop all-time. 

Now for the bad news and why any near-term strength could be just an oversold bounce.  The AAII and NAAIM might be panicking, but the Investors Intelligence poll has had bulls greater than 50% for 24 weeks in a row.  This is now tied for the 4th longest streak ever.  That is a lot of persistent bullishness. 

Seasonality isn’t doing anyone any favors here either, as we are in the midst of the only two months to average back-to-back negative returns going back to 1950. 

Plus, when August is negative, it is really negative.  Going back to 1980, there isn’t any month with a lower average negative return than August.  August isn’t off to the best start in ‘14, so if that continues a good deal of more pain is likely. 

Lastly, the VIX futures recently turned inverted.  I explained this in detail here, but the bottom line is this has been historically very bullish.  My take is it is a sign of an extreme amount of panic and since late 2012 it has marked some huge buying opportunities. 

Well, a week from the latest signal, the SPX was down over 1%.  This is actually the worst one-week return since late ’12.  Is this formerly bullish indicator fading?  If so, could this be a major clue something under-the-surface has changed and this pullback is something much different than we’ve seen in a long-time?

There you go.  I’m torn on what could happen next.  There are some good arguments to both sides.  Some sentiment signals are flashing major buys.  Also, you have to side with the bull market, as it has earned our trust.  Still, seasonality and the poor results after the VIX term structure inversion are huge concerns of mine right here and now.  If we turn back lower next week that could be a sign something indeed big has changed. 

Thanks for reading. 

 Picture courtesy of CollegeDegrees360.  

Is The VIX Saying Be Scared?
We are in the heart of the three most bullish months for the VIX and 2014 isn’t disappointing so far.  

I noted at the start of July that July was the most bullish month for the VIX historically.  It played out perfectly, as it soared +46.50% - the 7th largest monthly move since 1990!  


I’ve long been a guy who said the VIX is a mean-reverting instrument. Meaning, if it goes up a lot, it’ll eventually come back down and vice-versa.  Well, look at what has happened after some of the largest monthly VIX spikes ever.  The top 20 monthly surges ever pulled back just 1.19% that following month.  Didn’t expect this one, as more of a pullback was my guess.  



I’ll be the first to admit, just yesterday I noted how VIX futures became inverted and how this had been very bullish for the SPX in the near-term.  My big caveat was if it didn’t work fast, be very careful.  Well, so far we aren’t seeing any type of a meaningful bounce.  Then, considering the fact that the VIX doesn’t pullback much at all after huge monthly surges and we’re still in the heart of a very bullish time seasonally for the VIX, be open to higher volatility and a potentially lower market here.  Risk is much higher now, be aware.  
Thanks for reading.   
Photo thanks to Dan Anderson. Zoom Permalink

Is The VIX Saying Be Scared?

We are in the heart of the three most bullish months for the VIX and 2014 isn’t disappointing so far.  

I noted at the start of July that July was the most bullish month for the VIX historically.  It played out perfectly, as it soared +46.50% - the 7th largest monthly move since 1990!  

I’ve long been a guy who said the VIX is a mean-reverting instrument. Meaning, if it goes up a lot, it’ll eventually come back down and vice-versa.  Well, look at what has happened after some of the largest monthly VIX spikes ever.  The top 20 monthly surges ever pulled back just 1.19% that following month.  Didn’t expect this one, as more of a pullback was my guess.  

I’ll be the first to admit, just yesterday I noted how VIX futures became inverted and how this had been very bullish for the SPX in the near-term.  My big caveat was if it didn’t work fast, be very careful.  Well, so far we aren’t seeing any type of a meaningful bounce.  Then, considering the fact that the VIX doesn’t pullback much at all after huge monthly surges and we’re still in the heart of a very bullish time seasonally for the VIX, be open to higher volatility and a potentially lower market here.  Risk is much higher now, be aware.  

Thanks for reading.   

Photo thanks to Dan Anderson.

Is It Time To Panic?
Friday saw some extreme readings in sentiment, which brings the question is there enough fear out there to form a major low?
For starters, the CBOE options equity put/call ratio spiked clear up to 1.04 on Friday.  As I discussed here, this is the highest level in three years and 19th highest reading since 2003.  Remember, when everyone is trading bearish puts that could be a sign of extreme fear in the options market.  From a contrarian point of view, that could be a bullish sign.  

The ISE Sentiment Index saw similar action, as its proprietary call/put ratio registered the second lowest reading ever!  This ratio looks at just customers opening long positions, so it is a fairly true gauge for the overall action.  Again, this ratio was very low, which suggests buying puts over calls was near historic levels.  

Now what throws a real wrench into the whole thing is there were rumors some of those trades on Friday weren’t legit and were ‘fat finger’ trades.  Reuters summed it up here, but as of now the trades appear they’ll count.  They just might need to have a big asterisk next to them.  
Regardless, the action in the VIX suggests some real fear is finally entering the marketplace and this could be a real clue for some near-term strength.
Looking at the VIX/VXV ratio we see it just moved above 1.0 - or is now officially inverted.  Now remember, the VIX looks at volatility going out one month, while the VXV goes out three months.  When things are ‘normal’ this means near-term volatility is lower than further out volatility. The reason is the longer you hold something, the more time there is for some big event to happen that could cause volatility - so you tend to pay more for this.  That makes a lot of sense if you think about it.  The flipside is when there is a good deal of panic, we see this ratio become inverted just like it did late last week.  This is much more rare.  


Going back to 2012, you can see this is now the 8th time this ratio has become inverted.  Safe to say it doesn’t happen much.  
Here’s a chart with the SPX overlaid and you’ll see a lot of previous spikes in this ratio nailed some major SPX lows.

Now check this out, here are the returns after those previous seven spikes higher.  Sure, there are only seven occurrences, so one could argue some of this is random.  Still, the near-term returns are simply outstanding and suggests paying attention here.  I’d rather know than not know.

Here are all the signals and returns after.  



Lastly, there were times this ratio became inverted and it didn’t lead to higher prices (think ‘08).  So if we are still in a bull market, I’d expect some strong prices soon.  If not, buckle your seatbelts.  
Thanks for reading.  

Picture courtesy of Kaylala Madmaydel Permalink

Is It Time To Panic?

Friday saw some extreme readings in sentiment, which brings the question is there enough fear out there to form a major low?

For starters, the CBOE options equity put/call ratio spiked clear up to 1.04 on Friday.  As I discussed here, this is the highest level in three years and 19th highest reading since 2003.  Remember, when everyone is trading bearish puts that could be a sign of extreme fear in the options market.  From a contrarian point of view, that could be a bullish sign.  

cboe equity put call ratio spike august 2014

The ISE Sentiment Index saw similar action, as its proprietary call/put ratio registered the second lowest reading ever!  This ratio looks at just customers opening long positions, so it is a fairly true gauge for the overall action.  Again, this ratio was very low, which suggests buying puts over calls was near historic levels.  

Now what throws a real wrench into the whole thing is there were rumors some of those trades on Friday weren’t legit and were ‘fat finger’ trades.  Reuters summed it up here, but as of now the trades appear they’ll count.  They just might need to have a big asterisk next to them.  

Regardless, the action in the VIX suggests some real fear is finally entering the marketplace and this could be a real clue for some near-term strength.

Looking at the VIX/VXV ratio we see it just moved above 1.0 - or is now officially inverted.  Now remember, the VIX looks at volatility going out one month, while the VXV goes out three months.  When things are ‘normal’ this means near-term volatility is lower than further out volatility. The reason is the longer you hold something, the more time there is for some big event to happen that could cause volatility - so you tend to pay more for this.  That makes a lot of sense if you think about it.  The flipside is when there is a good deal of panic, we see this ratio become inverted just like it did late last week.  This is much more rare.  

Going back to 2012, you can see this is now the 8th time this ratio has become inverted.  Safe to say it doesn’t happen much.  

Here’s a chart with the SPX overlaid and you’ll see a lot of previous spikes in this ratio nailed some major SPX lows.

Now check this out, here are the returns after those previous seven spikes higher.  Sure, there are only seven occurrences, so one could argue some of this is random.  Still, the near-term returns are simply outstanding and suggests paying attention here.  I’d rather know than not know.

Here are all the signals and returns after.  

Lastly, there were times this ratio became inverted and it didn’t lead to higher prices (think ‘08).  So if we are still in a bull market, I’d expect some strong prices soon.  If not, buckle your seatbelts.  

Thanks for reading.  

Picture courtesy of Kaylala Madmaydel