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Bulls, Rejoice!

happy bulls

Call options are dirt cheap.

The price of bullish call options on the S&P 500(^GSPC) has fallen to historical lows. That means that from a historical standpoint, it is remarkably inexpensive to make a bullish bet on stocks by buying on the options market.

“In terms of how much money it costs you to have exposure in the S&P 500, we’re looking at historic lows,

Dennis Davitt of Harvest Volatility Advisors agrees that call options have “never been more economical.” On the other hand, he said, “The puts [options to sell] are all-time expensive relative to the calls.”

Hmm…. So, let me get this straight. The stock market is sitting near all time highs. Plus, we have a clearly defined bull trend  and most people believe we are in a secular bull market. Yet, the options market is not buying it. This can only mean one of two things. This is either a buying opportunity of a lifetime, as most sell side advisers out there would surely point out,  -OR- we might be on a verge of a bear market.

Call me crazy, but I think the options market is loud and clear here.  

Z30

Bulls, Rejoice! Google

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The Secret Behind This Market Sell-Off

Daily Chart AMarch 26rd

3/26/2015 – Another down day with the Dow Jones down 40 points (-0.23%) and the Nasdaq down 13 points (-0.27%). 

Despite the recent sell-off, the stock market remains near all time highs. A stone throws away, so to speak.  Yet, according to David Rosenberg, the stock market will have to deal with the following 4 issues going forward.

1. Earnings momentum has slowed. Bottom-up consensus forecasts for S&P 500 operating earnings growth in the first quarter have fallen to -3.1% from +5.3% year-over-year. “The second quarter has been sliced to -0.7% YoY as well, so technically speaking we could be looking at a mild profits recession here in the US – this is down from the +5.9% estimate at the start of the year,” he wrote.

Yes, and as I have suggested before, I believe quite a few companies will guide lower in Q1. We already saw that with Intel a few weeks ago. You can find a more comprehensive analysis here Intel (INTC) Guides Down. Are Others About To Follow?  Intel was just the first. 

2. Valuations are high. The trailing P/E ratio is 20x, compared to the long-run norm of 16x. “It actually is not all that uncommon to see the equity market up in years when EPS growth is flat-ish (as the consensus now believes for 2015) but that requires price-to-earnings multiple expansion.

I have beaten this topic to death here over the last few months. If you take historical metrics into consideration, we are in an overvaluation bubble. Particularly, when you realize that most of the corporate earnings over the last few years have been driven by speculation, stock buybacks and a giant EQ/Debt/Liquidity bubble. At some point the P/E ratio will swing back to the other extreme and you won’t want to be around when that happens. I gather that this time is fast approaching.

3. Economic data has been disappointing. The Citigroup Economic Surprise Index is at the lowest level since August 2011, and in that month, the S&P 500 dipped in a way that led some to think the economic cycle was turning.

I don’t think the chart below needs any further comments. 

Macrodata

The strong dollar is hurting profits. “There is such a thing as too much of a good thing,” Rosenberg wrote, and the dollar bull market is not over. He advised investors to avoid sectors that have EPS forecasts below zero, including Utilities (-6.6%) and Telecom (-0.8%.)

I tend to agree. Technicals suggest, at least for the time being, that the dollar rally will continue. I can only imagine how much this hurts multinationals when they report earnings in Q1-Q2. Despite hedging, very few anticipated the velocity of the dollar move over the last 4 months. I believe we will see the evidence of that soon.

In summary: The stock market is incredibly overpriced, by any measure. The economy is rolling over. Earnings multiples are high while the corporates are guiding down. Everyone is bullish and the strong dollar will have an adverse impact on earnings. Yet, I am supposed to believe that this bull market is just getting started, as most market pundits suggest? Again, you don’t have to be a genius to figure out what happens next.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. March 26th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

The Secret Behind This Market Sell-Off  Google

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Did The Dow Theory Just Confirm Trend Reversal?

For the Dow theory buffs out there. After a long period of distribution the Dow theory is confirming trend reversal. Thus far, it is a solid confirmation on the Dow Trasports and a marginal one on the Dow Jones. Nevertheless, I thought you should know.

Dow Transports

Z31

Did The Dow Theory Just Confirm Trend Reversal?  Google

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Investment Wisdom Of The Day

peter lynch“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch

z33

Investment Wisdom Of The Day Google

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Buy The Dips…BUY???

I often talk about how important investor psychology is. The videos below represent the mindset of most investors today. When every sell-off is viewed as a buying opportunity, despite today’s extreme speculation and overvaluation levels, it might be time to adjust your expectations. Certainly be careful when someone tells you that the time to jump back in is NOW….after a relatively small 3 day correction.

z33

Buy The Dips…BUY??? Google

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How Low Can A Bear Market Here Go?

Daily Chart AMarch 25rd

2/25/2015 – A big down day with the Dow Jones down 290 points (1.62%) and the Nasdaq down 118 points (-2.37%). 

Jim Stack was fortunate enough to pick the 2009 bottom. Now, the president of InvesTech Research, which is on the Hulbert Financial Digest’s Honor Roll of top newsletters over the past 15 years, and Stack Financial Management, which manages more than $1 billion of investors’ money, believes we are on the verge of a bear market.

Here is what concerns him.

  • Rising interest rates,” he explained, “can provide significant headwinds to a bull market,” which he calls “one of the more interest-rate-sensitive bull markets in our lifetime.”
  • Margin debt has peaked and begun to fall. “Past peaks in margin debt have led or coincided with the start of past bear markets,” he wrote in InvesTech Research.
  • Professional investors are extremely bullish, with bearish sentiment under 14%, “the fewest bears since 1987, just before the crash,” he told me.
  • Corporate profits topped out more than a year ago, but S&P 500 earnings per share continued to rise until recently. That discrepancy is often an early-warning sign.
  • Although the S&P 500’s current multiple of 19.9 times earnings is slightly below the average when interest rates are below 3%, that will make stocks especially vulnerable when rates do rise. And the median U.S. company trades at its highest valuation of the past 65 years, according to the noted finance scholar Kenneth French of Dartmouth College.

Nothing that I haven’t covered here before, but it nice to hear the same thing from somebody else.  The question is, if a bear market does start, how low will it go? Jim suggests the following

A more likely outcome, he said, was for the S&P 500 to retrace about half of its bull market gains. If March 2 was the peak, that would mean it could fall to around 1,400, roughly a 35% decline.

I would say that is a fairly good estimate. And as I have suggested before and despite the fact that I am bearish, I don’t anticipate the markets to collapse as they did in 2007-2009. That was a mid-cycle panic. The upcoming decline will be more reminiscent of 2000-2002 decline on the Dow. Still, it wouldn’t make sense to be long here.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. March 25th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

How Low Can A Bear Market Here Go? Google

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How The FED Confiscates Capital

Couldn’t agree more with Bill Gross. Watch the video below. It’s definitely worth 2 minutes of your time.

  • Today’s stock market overvaluation will eventually be corrected.
  • The FED is destroying critically important financial business models with their low interest rate policies. Driving more and more people/institution to participate in highly speculative investments. Such as the stock market.
  • This is equivalent to capital confiscation and there is no way this ends well.

Z31

 On How The FED Confiscates Capital  Google

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Corporate America Is Doing A Great Job

Corporate America Is Doing A Great Job, Bullish On America, Bullish On The Markets…. A self promoting buy Amercica “Booyah” piece, but nevertheless. The view below represents how some of the biggest mutual fund managers out there see today’s market environment or any market environment.  Then they claim it was impossible to see a bear market coming. Foolish.

Z30

Corporate America Is Doing A Great Job Google

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Time To Cash Out?

Daily Chart AMarch 24rd

3/24/2015 – A down day with the Dow Jones down 104 points (-0.57%) and the Nasdaq down 16 points (-0.32%) 

So, is it time to cash out of this stock market? Let’s take a closer look.

Money pours into stocks-does that signal a top?

Investors have added $46.8 billion to equity mutual funds and exchange-traded funds in March, the most for any month since October 2013.The basic idea is that once everyone buys, there’s less money left to go into the market. Additionally, heavy buying could be seen as a sign of investor exuberance, indicating that stocks are in “overbought” territory.

Here is the most important factor that most investors are dismissing. At their own peril. Despite heavy inflows most stocks haven’t gone anywhere since July 17th, 2014. This can be seen on the chart below. This is a bearish divergence as it suggests a prolonged period of distribution, not consolidation.

NYSE

Fed’s Bullard warns of ‘violent’ reaction if markets misjudge rate path

“I think reconciliation between what markets think and what the committee thinks will have to happen at some point,” Bullard told reporters at London’s City Week financial conference. That’s a potentially violent (encounter) … and I am concerned about that. I am hopeful that markets and the policy committee can come to some kind of meaningful meeting of the minds in the coming months and quarters.”

We can argue about what the FED will do until the sun explodes, but it won’t do any of us any good. If  we wish to read between the lines, the FED believes the market might have misinterpreted their “more dovish” statement last Wednesday. Hence, Bullard is going out of his way to suggest rate hikes are still on. The futures market tends to agree.

In a sense, the stock market is now playing chicken with the FED. Who will win? Based on my work, extreme bullish optimism appears to be misplaced at this juncture. If so, right now might be, indeed, a good time to cash out.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. March 24th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Time To Cash Out?  Google