Market Internals Go Negative / Hussman

Last week could have been the turning point for the broader markets. I have to admit that i have thought this at least twice in the 6 month. And you know how much fear is in the market when there is a call for the Fed to step in when the markets are just a few percentage points away from a new high. Click on the headline to read the entire piece from Hussman

Habe das Gefühl das die letzte Woche einen Wendepunkt für die Märkte eingeleitet hat. Ich muß aber auch zugeben das ich dieses Gefühl bereits mindestens zweimal in den vergangenen 6 Monaten hatte. Und ein sicheres Anzeichen wie verzweifelt einige Marktteilnehmer sind ist das bereits bei einem überfälligen Pullback von nahe 5% lauthals nach der Fed gerufen wird. Klickt bitte auf die Überschrift um den kopletten Bericht von Hussman zu lesen.

Though the S&P 500 is only 6% below its recent highs, it has already provoked a surprising amount of denial and lack of civility, with an irritated financial news anchor suggesting on Friday, for example, that Pimco's Bill Gross should “just shut up.” It does no service to investors when the media and the analysts who appear there wholly rule out any possibility of a substantial further market decline, when 10% market losses have typically occurred more than once every 2 years, and bear market losses (generally 25-35%) occur about once every 4-5 years.
Abrupt market weakness is generally the result of low risk premiums being pressed higher. There need not be any collapse in earnings for a deep market decline to occur. The stock market dropped by half in 1973-74 even while S&P 500 earnings grew by over 50%. The 1987 crash was associated with no loss in earnings. Fundamentals don't have to change overnight. There is in fact zero correlation between year-over-year changes in earnings and year-over-year changes in the S&P 500. Rather, low and expanding risk premiums are at the root of nearly every abrupt market loss.

Market internals go negative
One of the best indications of the speculative willingness of investors is the “uniformity” of positive market action across a broad range of internals. Probably the most important aspect of last week's decline was the decisive negative shift in these measures. ....Still, the favorable market internals did tell us that investors were still willing to speculate, however abruptly that willingness might end.

Evidently, it just ended, and the reversal is broad-based. For example:
Credit spreads and credit default swap spreads are surging. While we haven't observed the spike in short-term spreads (e.g. 6 month commercial paper versus 6 month Treasury yields) that would indicate near-term recession risks, we are now seeing a “tiered” widening of credit concerns. For example, note that high yield (junk) securities have experienced upward yield pressure since early June (red line). In recent weeks, we've seen a spillover into credit spreads on investment grade securities (blue line). Again, we're not observing this in short-dated spreads, which would be a signal of imminent recession risks, but it's already clear that low risk premiums are being pressed decisively higher.....

As Jim Stack of Investech Research noted near the recent highs, “The DJIA has closed higher in 5 of the past 8 trading days, but declining stocks outnumbered advancing stocks in 7 of 8 of those sessions. That type of negative breadth divergence has occurred only 15 times in 75 years – the majority of which were in bear markets.” He also noted “On Monday of last week, the DJIA hit a record high while declining stocks overwhelmed advancing stocks by a 2:1 margin.” That divergence has never before occurred in market history, though again, lesser divergences have typically been characteristic of weakening markets. ....

Other interesting measures of “overbought” conditions are also worth noting. Last week, Jim Stack reviewed an observation that a technician named Don Hahn made in the 1960's about the Coppock Guide (a measure of price momentum based on the 10-month smoothing of the averaged 14-month and 11-month rate of change in the S&P 500). He observed that when a double-top or “wave” occurs in this measure, without falling to zero between those peaks, “it identifies a bull market that hasn't experienced any normal, healthy washouts or corrections. That's a runaway market usually headed for disaster. This double-top has occurred only 6 times in 80 years.” Those instances, and the subsequent market losses were:

• October 1929 (-86.2%),
• May 1946 (-28.8%),
• February 1969 (-36.1%),
• January 1973 (-48.2%),
• September 1987 (-33.5%),
• and April 1998 (though followed by an 18% market correction by October 1998, the subsequent recovery produced a third “shelf” in the Coppock Guide by 2000, and the market lost nearly half its value between 2000 and 2002).

I don't want to create any confidence that the market is headed for steep losses, but I do want to encourage shareholders not to rule out that sort of outcome. ....

Housing Bust Recovery in 1930s

fascinating!

thanks to rj and http://www.homebust.com/

some charts from yesterday.......and some cartoons

i think it is safe to say that this cartoons is now officially outdated.... we have now moved to the sell side.....but i have to wait for cohen, cramer, battapaglia etc to confirm this.............. :-)

denke das dieser cartoon seit gestern ausgedient hat.---- wir sind wohl jetzt zu der verkäuferseite gewechselt... wir hier müssen aber wohl auf all die daueroptimisten speziell auch in der presse warten um das zu bestätigen (kann nicht alle aufzählen).....


i think this one is also outdated.......the bear has entered the stage........


here now the facts: europe and asia have extended their slump today.

i especially like the opinion from bill cara on the sudden drop. http://www.billcara.com/

At 3:00pm ET yesterday the Dow 30 index dropped about 200 points in literally seconds. There was commentary in the media that the trade data had fallen behind and that had caught up at that moment.

I believe otherwise.

Having been in the business at a high level, I believe a rational explanation is that margin calls were sent to under-margined accounts during the day. With one hour to go, the broker-dealers would take action by selling out accounts of under-margined clients that had not responded to demands.

here comes the response from dow jones:

System problem caused calculation lag Tuesday

maybe caused from too much liquidation going on....... :-) / evtl. zuviel verkaufsdruck.... :-)

update from http://tickersense.typepad.com/

We all know by now that the sudden 200 point drop in the Dow yesterday was due to a calculation delay caused by information overload by Dow Jones' data systems. Below we calculate how the intraday price chart should have looked based on the actual price changes of the Dow's 30 components. As the chart shows, the calculations began to go awry a little after 1:30 pm and continued until the computers finally caught up at 3:00 pm (i leave it to the readers to judge this action.../macht euch selber einen reim darauf......)

größer/bigger http://tickersense.typepad.com/photos/uncategorized/dowactual.jpg

this is what to be expected. but i think this time they need to clone van gogh and michelangelo...........

hier kommt wohl was wir jetzt zu erwarten haben. denke aber das dieses mal ne verbindung von van gogh und micheangelo nötig sein wird......

and on top of this the "spin doctors" / dazu wohl auch noch die "spin doctors" :-)

more graphs etc here from barry ritholtz http://bigpicture.typepad.com/comments/2007/02/helluva_day_dow.html

and mish! http://globaleconomicanalysis.blogspot.com/2007/02/advance-decline-volatility-charts-2007.html

both very good!