At some point I asked Bruce if he would be willing to put some of his thoughts in writing so I could share them on this blog. What follows are his thoughts.]
When one looks back at all the bull markets since 1896 and averages them out they find the average bull to last 39 months. With this current bull market in month number 45 we get the feeling we are looking at an 85 year old man who wants to buy life insurance. The actuarial table says we should not write the policy. Sorry.
Looking back we also find a number of sentiment indicators flashing warnings.
Technical analyst Paul Montgomery did the original research on Time magazine cover stories and the September 23rd issue with “HOW WALL STREET WON” did not go unnoticed by Barron’s. More recently Carl Icahn made the cover. Paul Montgomery found that a trend could continue for 3 or 4 months after the cover story, but one year later about 85% of the time the trend had reversed.
Have you lost count of the IPOs this year? I have recently. Corporations do not issue stock when it is cheap. How about that new movie – The Wolf of Wall Street. It was filmed in New York two years ago but was finally released now. Would anyone have gone to a movie like that in 2008 or 2009? Hollywood knows their audience and something about timing too.
From time to time we like to dissect the Dow Industrials. We look at each component and classify it as being in a clear uptrend or a sideways/neutral trend or a downtrend. Starting at 3M and going stock by stock to Wal-Mart Stores we found that we could only count 10 Dow stocks in clear uptrends even as the Dow made a new all-time high Wednesday. The 20 other stocks have been a drag on the famous average. This same exercise back in October 2007 found only 8 stocks making new highs while the remaining 22 were in bad shape (just think about the names that were subsequently removed).
Volume has not been confirming the extended uptrend, but that seems to be a chronic situation for a long time. Valuation is an area for debate. Certainly stocks are not as “cheap” as they were in March 2009 but are they “overvalued” and vulnerable? The devil is in the metrics.
The public is largely out of the market so we are left with hedge funds that chase performance. At some point the music can stop and the hedge funds will want to nail down their performance numbers. We suggest keeping a closer watch on those ten uptrends – MMM, AXP, BA, DIS, DD, XOM, GE, GS, NKE, and V – and if they weaken without rotation into the other names then a more defensive posture should be assumed.
At the other end of the spectrum, sentiment seems to been very bearish on gold with one prominent hedge fund manager telling clients not to buy here – meanwhile a bottom is developing in a number of the mining issues.
2014 should be an interesting year.
Bruce M. Kamich, CMT
Bruce brings to the table 40 years of Wall Street experience. Starting out as a commodity researcher he soon found how important technical analysis and timing was to be successful in the markets. Over the years he has learned about the fixed income markets, equities and ETFs at top firms like Merrill Lynch and Smith Barney. He is the author of “How Technical Analysis Works” – one of Barron’s top picks for 2004 and “Chart Patterns” in 2009. He enjoys passing on his wisdom and technical skills to the next generation as an adjunct at Baruch College in New York. You can follow him on Twitter @BruceKamich.
