For those of you who know me from my previous posts - I have tried my best to draw the outline of the market going 6-12 months into the future. I have merely "cloned" my previous charts and you can see what those forecasts looked like on this chart. I realize it is a bit cluttered on the chart, but I think the relevant points are on here and you can review what I have said "untouched" from before. So, here it goes:
2014 Forecast:
The market has not built enough time up here to sustain a long term rally. But with more time at lower levels then accumulation can develop and the bull market can continue. However, from current levels the market is not on sturdy ground. The market is stretched up at 165 and support is down at 149 and implies a downside risk of 10%. The time of the last consolidation was 12 weeks and we are in the 12th week of the rally. So, time has run out. Since the market has needed 20 weeks of accumulation before each previous rally, it is bearish to me that it only took 12 weeks in this latest accumulation.
The factors driving the market until now have been clear (stock buybacks, earnings growth, Fed driven low interest rates, equity fund inflows), but we are ahead of rational long term valuations and I would not recommend committing new funds to this market.
I am concerned about several areas: Corporate leverage is up. Valuations are stretched as stocks have been top performers. Margin buying is at record levels. Investors are optimistic again. Analysts seem unanimous in forecasting higher prices. Demographic trends are pointing down for several years, implying weak economic growth (See Harry Dent's newest book, just released this week). This is a great time to do the opposite of the analysts forecasting another 10%-15% gains and walk away instead.
A great alternative will be picking individual stocks and getting back in when prices are lower. I'm happy to take the risk of avoiding any further upside to this market. For now, sit in cash and if you have knowledge about put and call options, you can utilize strategies to give away the upside (selling call options) return in exchange for protecting against a move to the downside (buying put options).
Happy New Year to all and here is to a successful 2014 at TradingView!
Cheers,
Tim Jan 9, 2014 12:10PM EST
2014 Forecast:
The market has not built enough time up here to sustain a long term rally. But with more time at lower levels then accumulation can develop and the bull market can continue. However, from current levels the market is not on sturdy ground. The market is stretched up at 165 and support is down at 149 and implies a downside risk of 10%. The time of the last consolidation was 12 weeks and we are in the 12th week of the rally. So, time has run out. Since the market has needed 20 weeks of accumulation before each previous rally, it is bearish to me that it only took 12 weeks in this latest accumulation.
The factors driving the market until now have been clear (stock buybacks, earnings growth, Fed driven low interest rates, equity fund inflows), but we are ahead of rational long term valuations and I would not recommend committing new funds to this market.
I am concerned about several areas: Corporate leverage is up. Valuations are stretched as stocks have been top performers. Margin buying is at record levels. Investors are optimistic again. Analysts seem unanimous in forecasting higher prices. Demographic trends are pointing down for several years, implying weak economic growth (See Harry Dent's newest book, just released this week). This is a great time to do the opposite of the analysts forecasting another 10%-15% gains and walk away instead.
A great alternative will be picking individual stocks and getting back in when prices are lower. I'm happy to take the risk of avoiding any further upside to this market. For now, sit in cash and if you have knowledge about put and call options, you can utilize strategies to give away the upside (selling call options) return in exchange for protecting against a move to the downside (buying put options).
Happy New Year to all and here is to a successful 2014 at TradingView!
Cheers,
Tim Jan 9, 2014 12:10PM EST
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