Wednesday, December 06, 2006

On the Runway

Folks,

I've got to make a 2 minute post today, as my flight back home is about to leave. I see the market is down somewhat, as I much as I'd like to talk about it, I simply won't have time for a post today! I am truly sorry.

I will mention, however, one interesting comment made to my post a couple of days ago comparing the recent market to 1973-1974. The poster wrote:

"I think the various trading and credit derivatives, huge amounts of liquidity, international markets, massive hedge funds, private equity traders, and last but not least, the creation of the PPT are all noteworthy differences between the markets of 1973/74 and today's markets."

Repeat after me, bulls: it's different this time.

;-)

26 comments:

Ralph said...

Yessss!
I can't stand the "this time it is different crowd". Make sure you know what really affects markets before you go spouting about how things are different.

That phrase works once every 50 years or so.

common sense said...

"Make sure you know what really affects markets before you go spouting about how things are different."

Eat your own words...

Obviously something is different this time - otherwise the market would not have just gone straight up for 5 months on end - so wake up - you've all been on the wrong side of the trade.

What's different?
Simple - all the bear markets and recessions upto and including 2003 were stricly a US driven phenomenon.

Now we have a Central bank in China and Japan and Europe and India and everywhere else - that are all playing the same game - this means global liquidity will run in to put out any fires are where any time.. period.

Stupid to short this...

Anonymous said...

In this inflammed market, seems like no one gets in without hitting the offer. And the sideline sitters are as desperate as covering shorts to make the pain go away.

To that extent, these past few days have had the "feel" of the top in May, and not surprisingly the chart pattern has a similar look. Maybe, just maybe.

Jeff

Anonymous said...

I've got to make a 2 minute post today.

or

I've got 2 minutes to make a post today.

which is correct

mde said...

2nd is correct bozo.

Anonymous said...

Jeff makes an excellent point regarding the current resemblance of today's chart to the May highs. I have noticed the same thing.

Momentum is slowing. What will happen if the various sources of liquidity suddenly slow down or stop? Stuka?

Anonymous said...

why do you have to be a bull or a bear? can't you just flow with the market? kinda like a fly riding on the back of elephant.

I know when trading options you get more bang for your buck buying puts in a down market than buying calls in an up market. due to volatility. but trying to fight the market is useless, you won't win. I would have loved to see the market tank about a month ago as i was short almost 1000 deltas, whew was that an expensive lesson. I should have just bought 2 futures contracts the day the hezbollah war was over. i'd be alot richer today.

In 'Reminiscenses Of A Stock Operator', Jesse Livermore claimed to be neither a bear or a bull overall, he just sold in bear markets and bought in bull markets,
bear- no/sometimes
bull- no/sometimes
rich- YES!!!
but then again, he didn't trade options, he would have been killed on volatilty crushing.

l8r
magz

Anonymous said...

5285 mutual funds @ 52 week highs. When do the longs decide to take profit.

Michael Newton said...

Was that statement supposed to mean that it (crash) won't happen this time or that this time it will be even worse?

As for the "this time it's different" crowd:
"Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature." Reminiscences of a Stock Operator

Anonymous said...

Jesse Livermore did not trade options but you could buy stocks with 10% down at the time which is as much leverage as the riskier options and maybe more.

Apparently at the end Jesse Livermore did not follow his own rules since he lost all his fortune by trying to pick the bottom thw 1930-1933 bear market.
And that is a lesson to learn for every trader. Never deviate from the basic rules of the game.


Zeus111

Anonymous said...

As for the market valuations are not at extreme levels. It is selling 18 times trailing earnings and 16.5 times next year earnings. If pe expands back to 18 next year that is another 10% move. If pe expands to 20 that is a 22% move. It is possible it can happen. Technicals are favorable and fundamentals are not out of sync with recent historical norms(late 80's and 90's). Lets not forget that S&P was trading 30 times earnings in 2000, so 16.5 based on 2007 estimates is not bad.
Now if the housing sector knocks the economy into a reccession then the estimates will not realize and then we can have the bear market. But that remains to be seen. Meanwhile the technicals remain intact and we have to go by that.


Zeus111

Anonymous said...

"Lets not forget that S&P was trading 30 times earnings in 2000, so 16.5 based on 2007 estimates is not bad."


So let me see here. You're comparing the HIGHEST market multiples in the history of the stock market with today's "fair" forward earnings multiple??

16.5 in a recessionary/contraction period is insanity. Don't even try to tell me that would be "not bad."

When the P/E of the Dow gets to around 10-12, I'm a buyer in this economy.

PB said...

Trying to pick bottoms results in smelly fingers.

This is a free country and free market (at least I thought it was).

So, feel free to buy as much as you want if you think that this market is so 'undervalued'

PE ratio's swing from one extreme to another, they don't stop mid-swing and reverse course.

What this means zeus111 and other reality ignorers, is that we are on our way to sub 10 PE's. Also, profit margins are running double to TRIPLE their long-term trend. Do you mjean to tell me that this can be further expanded, not to mention maintained?

Reversion to mean is what many current bulls should re-aquant themselves with.

P.S. - the above does not make me a capitalist/America hater, it just points out that I am able to think rationally rather than just run with the crowd. Going is long is an uncomfortable position for me, so I will wait for a proper trend-line break.

Just 'cause the markets are at these levels does not make them right or correct. Remember Nasdaq at 5300+ ???

Anonymous said...

Patiently waiting to break 12,070 to join the party..... and hoping I won't have to raise that.

Anonymous said...

I understand what you al are saying and you PB. I know about the argument that pe should swing to the other low extreme from the high extreme of 2000. In the 70's pe's were at 7-8 and yield were 13%. Will it happen again? I dont know. That was 40 years ago.
Why should it happen. And what makes you think that a pe of 10-12 is possible but an 18 or 20 pe is impossible. Market action so far suggests that a pe of 20 is more likely that a pe of 10.

You also said "What this means zeus111 and other reality ignorers, is that we are on our way to sub 10 PE's." The market went up 1500 pointa since May. that is the reality. How can you call me a reality ignorer and leave your self out.

Anonymous said...

Harry Dent predicts Dow 20000 by 2009. Bears Beware. Below is the text of his news letter.

Zeus111

HS Dent Forecast
The Economic Guide for Effective Financial Decision Making
1
2
3
4
4
5
6
8
Feature Articles
The Economy: Recovery Set
for Second Quarter of 2007
Oil Prices: The Bounce Will
Likely Lead to Sideways
Trading
Minor Correction Likely
Already In, But the Markets
Didn’t Fall As Far As We’d
Like
Dow Channel Still Intact
Election Impacts –
Healthcare and the Iraqi War
Investing in Europe: Booms
and Busts in the
Mediterranean
La Dolce Vita No More?
Sunny Spain
HOLIDAY PACKAGE
Our newest report Death of Pensions
and Technology Cycles and the
Demographic Supercharger
www.hsdent.com
Minor Pullback of 11/27 Was Likely
The Last Before Next Big Move
In brief: The markets suffered a minor pullback after
spending months edging up slowly. We have been
anticipating a minor correction sometime before mid-
December with buy targets near 12,000 on the Dow
and 2,350 on the Nasdaq. It is likely that the steep
drop on 11/27, which saw the Dow at 12,078 and the
Nasdaq at 2,390 on 11/28 was the last opportunity to
buy at the bottom of the current range before the first wave of the
next bubble continues into late 2007 or early 2008. Leading
Indicators now more clearly point to a strong recovery around the
second quarter of next year, while housing continues to weaken.
But there are signs that the worst is over in housing and that there
may be a slow recovery after perhaps another year of weakness. The
fall in oil prices has been a major reason for the market’s rally since
July, but oil prices have tested strong resistance at $56 and have
recently bounced back to $63, which could slow down, but not stop,
the next move up. The markets are likely to see their best progress
in this final, more muted, bubble. Meanwhile, oil prices should go
through an extended correction before likely heading up to over
$100 in a final bubble that should peak by late 2009 based on the
29 – 30 year commodity cycle and also due to the slowing of the US
and European economies to follow from 2010 or so onwards. The
Democratic victory in the Congress is not likely to cause major
changes with a Republican President – we should mostly just see
gridlock. However, this may cause some headwinds for healthcare
stocks and we are more likely to see some slow pullout of Iraq
because of this. But the real story continues to be strong corporate
earnings. Real estate and bonds can’t compete with those trends
and investors are going to keep flooding back into the stock market
as this final bubble continues to gains strength.
The Economy: Recovery Set for Second Quarter of 2007
The Weekly Leading Index in Chart 1 is now showing very clear
signs of a strong recovery around the second quarter of next year.
Remember that this indicator works on an approximate 8-month lag
and that would be the recovery around March/April. The question
now is whether the slowing will continue enough to get the Fed to
lower rates during the first quarter. That would be very bullish for
stocks. Otherwise bond yields are going to have to rise as we can’t
have an inverted yield curve indefinitely. Outside of autos and housing,
the economy remains strong.
We have said in the past that the slowdown in housing will merely
feed other sectors of spending. Our demographic analysis clearly
shows that housing is expected to peak 5 to 6 years before the overinside
Two Reports for $19.95 (see full
page ad on page 12 for details)
December 1, 2006
© Copyright 2006, HS Dent Publishing
2
5
4
3
Weekly Leading Index (Growth Rate)
2
1
0
-1
-2
Dec-
04
Sep-
06
Jun-
06
Mar-
06
Dec-
05
Sep-
05
Jun-
05
Mar-
05
harry s. dent, jr.
all peak in spending. In this last phase, households
spend more on education for their kids, services, travel
and leisure and furnishings and improvements to their
house. Housing is also one of the least technology-intensive
sectors, hence, this shift in spending to other areas
will help the technology stocks.
Housing has continued to weaken with sales a full 25%
lower than a year ago, but is just showing some signs of
resilience with inventories of homes for sale backing off a
bit and a minor resurgence in buying due to lower interest
rates. But housing is typically slow to come back after
a downturn. We expect the overall weakness to continue
at least into the summer of 2007. For the rest of the
boom, housing should only see a minor resurgence at
best, as interest rates will tend to be creeping up from
mid-2007 into late 2009 – and overall demand for housing
has peaked based on demographic trends.
Source: Economic Cycle Research Institute
100
90
80
70
60
50
40
30
20
10
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2
3
b
a
1
Source: Energy Information Administration
400
350
300
250
200
150
100
50
0
Jan-13
29-30 Year Commodity Price Cycle
2038-39
Jan-23
1920
Jan-23
Jan-33
Jan-33
CRB Index (PPI before 1947)
Jan-43
Jan-73
Jan-83
Jan-93
Jan-03
Jan-13
2009
1980
1951
Jan-53
Jan-63
Source: HS Dent
Oil Prices: The Bounce Will Likely Lead to
Sideways Trading
The decline in oil prices from $78 to as low as $55 recently
has provided major fuel for the strong (and unseasonal)
stock advance, as have earnings, which continue to be
very strong. But we have been warning that there should
be very strong support for oil prices between $56 and
$58. As has been typical, the market dipped just below
our support numbers and then has rallied back to $63
(Chart 2). Hence, we are not likely to get further relief
from falling oil prices – although if they did break decisively
below $55, then we could see a fall all the way
down to as low as $40 – and that would be great for
stocks and falling interest rates near term. It is more likely
that after this current move upwards oil prices will
trade sideways into early to mid next year.
We are projecting that we will see one more bubble rally
in oil and commodities, likely to start slowly in the second
half of 2007, and accelerate more into 2008 and
2009 before peaking. The first and most obvious reason
that we will see a final peak by around late 2009 is that
we are expecting North American and European
economies will start to slow down, caused by the 90%
penetration of information technologies by the end of the
decade and slowing demographic spending trends
between late 2009 and 2010. But there is another reason.
There is a very consistent commodity price cycle with
peaks every 29 – 30 years as you can see in Chart 3. The
next peak would be projected for 2009, give or take a
year.
www.hsdent.com
December 1, 2006
Dec-
06
Crude Oil
1998-2010
c
4
Chart 1
5
Chart 2
Chart 3
© Copyright 2006, HS Dent Publishing
harry s. dent, jr.
13500
13000
12500
12000
11500
11000
10500
Jun-06
Dow Industrials
Source: Yahoo Finance
16000
15000
14000
13000
12000
July 2006-Dec 2007
www.hsdent.com
1
3
4
1
2
Sep-06
Dow
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
11000
10000
Source: Yahoo Finance
Jul-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
3
b
5
a c
2
Dec-06
Jul-07
Chart 5
Aug-07
Sep-07
December 1, 2006
This cycle actually traces back to an older theory called the Kondratieff
Wave. Before the mass production revolution and the advent of broadbased
middle class incomes, our economy was driven less by generational
cycles and more by a 56 – 60 year cycle in inflation and commodity
prices. Major peaks in inflation occurred in 1864, 1920 and
1980 on this cycle. Each Kondratieff Wave cycle has two booms (spring
and autumn), two inflation cycles (one primary and one secondary) and
two deflation cycles (one primary and one secondary). We saw a primary
inflation peak in 1980 followed by a secondary deflation cycle into
1982/1986 and we are headed for a secondary inflation peak around
late 2009, followed by a primary deflation cycle from 2010 into
2022/2024. Hence, we would expect, on this cycle alone, a higher peak
in oil and most commodities around late 2009. When you add in the
demographic slowdown, this projection looks even more likely to occur.
The Generation Wave that we follow has tended to dwarf the Kondratieff
Wave in influence since the mass production revolution and the broader
dissemination of wealth, generating the booms and the broader inflation
trends that now have more to do with workforce entry and labor
force productivity. But we can still see the Kondratieff Wave working
when we look at commodity prices rather than broader
inflation gauges like the CPI or PPI (which follow the
Generation Wave).
We look at the Kondratieff Wave and how the new
Generation Wave has become much more dominant over
the last century, -- including why the Kondratieff Wave
camp failed miserably in calling for a Great Depression in
the 1990s, when we got “The Great Boom” that we forecast
instead – in our Special Report: “Technology Cycles
and the Demographic Supercharger”.
Mar-07
Chart 4
Oct-07
Nov-07
Dec-07
Minor Correction Likely Already In, But the
Markets Didn’t Fall As Far As We’d Like
Since stocks bottomed between June and July on
extreme bearish sentiment, they were pretty much
straight up until 11/27, despite being in the worst
months of the powerful 4-year cycle. We have been warning
that once investors started to move back into stocks,
this new money would tend to create a persistent tendency
towards remaining overbought. Chart 4 shows the
Dow since the double bottom in June and July. We
appear to just be completing a 5th wave top in late
November. The most obvious support would have been
just under 12,000, hence, our buy targets were a bit
lower than the markets actually reached on 11/27 and
11/28. And recall from Chart 5, first seen in the last
newsletter, that we should be marching towards 15,000
or so by late 2007 or early 2008. The correction back to
12,000 has put us right back at the trend line beneath
such a rally. If 2007 is going to be the strong year we
anticipate, a strong rally into and through January would
be expected.
© Copyright 2006, HS Dent Publishing
4
2800
2600
2400
harry s. dent, jr.
Chart 6 shows the Nasdaq with a similar pattern, where
strong resistance was suggested at 2,315 – 2,320. Chart
7 shows the Russell 2000 (small caps) with resistance
suggested at 745 – 750, where it actually reached 767 in
the latest pullback. Again, not as far as we would have
hoped for clear signs, but definitely close enough to be an
opportune buying point in this range before the next
wave up.
2200
2000
Jun-06
Dow Channel Still Intact
The Dow Channel (Chart 8) is still intact, even after the
downdraft last summer, which came very near to breaking
through the bottom of the channel. Our expectation
now – as laid out more completely in the free download
on the front page of our website – is for the Dow to march
up quickly in 2007 and part of 2008, reaching and maintaining
the middle trendline of the Dow Channel, held
back from moving further up by what we believe will be
the next and last wave up in commodity prices, specifically
oil. This would bring us to our revised high of
20,000 on the Dow. If we instead see a stronger bubble,
perhaps due to oil not moving up toward $100 or a
stronger move higher in investor sentiment because of a
resolution to the war in Iraq, then we might reach as high
as 32,000, but that is very unlikely at this point.
Source: Yahoo Finance
900
850
800
750
700
650
Jun-06
Source: Yahoo Finance
Russell 2000
3
1
2
Sep-06
1
4
Source: Yahoo Finance
Election Impacts – Healthcare and the Iraqi War
As usual, political and financial pundits make a big deal
over the elections, whereas we see little impact on the
economy. The democrats have a bear majority and hence
are not likely to have the strength to push through tax
hikes to reverse Bush’s cuts. The elections did send a
clear signal on the Iraqi War, hence we will see changes
in strategy that may well include a long pull out process
starting next year. That will be more of a positive for the
stock market in general, but will obviously hurt defense
stocks a bit. Such a pullout could also be followed by
greater waves of violence and that would tend to push up
oil prices in line with our forecast. Thus far, the biggest
impact has been that healthcare stocks have pulled back
a bit since the election. Big healthcare companies do not
like the democrats and healthcare stocks underperformed
significantly in 1992 and 1993 with the Clintons
coming in.
Chart 9 shows how healthcare stocks have underperformed
the S&P 500 for the entire rally since late 2002.
We already have a lower than typical healthcare allocation.
We will be monitoring near term to consider cutting
that back more. But we don’t want to overreact after the

z-stock said...

We’ll I sure don’t like posting, after 111’s very compelling argument (he’s good), in favor of the bulls, but here goes. (I’ll short 111’s Isrg somewhere above 110-118).
Can we focus on the Task at hand? Shorting. Buying puts. When I see bulls on this site, they make me sick. Instead of “bull” rhetoric ad nauseum, can you give me a failed 200 day pick, Give me some target prices, Give me some rsi 80’s. Does anyone up here, besides Tim, have one short pick idea at all? Sometimes I find 20 put candidates in one day. There are at least a 1000 stocks that go “down” EVERYDAY.
Now for some business.
Xom is finished. Hit 78 Target. I’m personally looking for Xom to consolidate around the 75.5 area, before falling again, to 71.4 (50 day). Some gold stocks are finally safe to short, at double tops, with little or no upside risk.
z-stock
Successful puts past month. Dia qqqq spy (2x) xle mro tdw hydl leh gdx (2x) al aem pph gg (2x) adbe pcar (2x) tol vix misses ctx hydl adbe
20 wins 3 losses. As you can see, Tim’s been involved in quite a lot of my picks, He puts things on paper. And Dec. does look like May. (I’ll keep my fingers crossed)

Anonymous said...

I see the name Harry Dent get invoked again and all I can think is "top."

Jeff

fuzz said...

we're all bozos on this blog
btw, what's PPT?

Anonymous said...

"z-stock said...
Xom is finished. Hit 78 Target"

---------------------------------

z-stock,
How did you arrive @ $78 for the target on XOM?

Thanks,
Keith

stealthelephant said...

Tim,
I think you are groping in the dark on that one. I don't hear a chorus shouting out "it is different this time" or using language to that effect. There is plenty to worry about: geopolitical risk, inflation, softening domestic housing, and anti-corporate Democratic activism. On the other hand, there is plenty to buttress the bulls: strong employment numbers, low domestic interest rates, liquidity, burgeoning buy-outs, more liquidity, and D.C. gridlock. This tug of war reveals no demonstrable winners and absent of an external shock, there is no reason why the market should go down. Price trends bear this out. As we technicians know, price trumps every other signal no matter how strong the divergent signals. Incidentally, my KYPH killed me the other day. Any more shorts like that one and I'll have to be on the dole. Very treacherous to be a bear unless you are taking advantage of breaking charts or those on the verge of breaking. Don't play this market on faith. In fact, I'm more inclined to be flat and wait for my breaks, then implement a short strategy.

Anonymous said...

Seems like the minute Tim got cocky on LEH it slapped him in the head.

Anonymous said...

green again!!!

Anonymous said...

green again lol

I,ve never seen so many green days!

insane is not the word anymore

Anonymous said...

insane isnt the word. These markets are waiting for the job report, I dont know what to hope for with this job report because any number will be a positive number no matter what.

These markets are just extremely boring to trade. If there not skyrocketing there up 2 points, no such thing as a down day.

downosedive said...

You are all missing the two fundamental things that control all market behaviour, the world over - FEAR & GREED. As simple and factual as that folks. When either one ones motivators have complete dominance, reiforcement to continue momntum in that direction will be sought from every economic, political or social event or piece of data available ecah day. These drivers or oftn lead by one driver in particular,which is known as the dominatrix. The drivers may be repeated as motivators for many days or weeks until other drivers take the spot light. In between definitive FEAR & GREED dominance are periods of 'wrestling' or 'no-mans-land', where both forces struggle to take absolute control. All we have seen since summer is GREED as the fundamental controller, reinforced by many driver - interest rate (actual & expectations) being an example of a dominatrix and the regular raft of economic reports as being the back-up drivers. GREED will turn to FEAR, that is fact. Bulls cannot change that, this rally is no different to any other. It is a question of when FEAR will take over and not IF. Probably we will encounter a period of wrestling or no mans land on the way to FEAR taking control. This site in part seeks to try and estimate or project when the change from GREED to FEAR will occur. That is why we regular bears always live in anticipation of that turning point, or at least for the direction reach the wrestling stage.