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
評論
timwest
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It's about time to update this as we face the final three months of 2014. Earnings have been levered through stock repurchases and stock prices have been leveraged by margin accounts across the country. The entire balance sheet of the financial system has been leveraged through the Central Banks around the world. We are nearing the end of the end of the end of all of the positive forces holding up the market. The hard part to figure out at this moment is where all the money will go that is resting in stocks and bonds.
The final flush down in gold is happening with gold under $1200 as the ultimate "fight against money printing" seems to be falling on its face. The believers that Gold would save their portfolios are being truly challenged because as we all know, burying your head in the sand (which gold investing can be likened to) is not an investing strategy. Commodity prices are tumbling across the board with ample supplies of corn, wheat, soybeans together with crude oil, heating oil, and even natural gas, are keeping inflation at bay. Even though employment is gaining, apparently it is only in people aged 55 and up that have found work since the recession started and magically, their wages have not risen.
So, we still face a demographic headwind of people retiring who don't spend as much as they used to and will continue to spend less each year, keeping a cap on the US economy. There simply aren't enough new spenders to keep the game of musical chairs going. We simply won't keep trading up from the condo to a small single family house, to a much larger single family house, to the mcmansion. That game is over. The economy won't be sustained on massive spending on houses anymore, we all know this. The economy will grow on getting more transactions taxed that have heretofore been untaxed. Enough waxing on.
I am thinking that year end could be lower than I forecast, but at this point let's just take one day at a time. So far, so good for this year. I don't know what will trigger investors to start to sell stocks and I don't know what they will buy. Cash is still a wasting asset, note the negative interest rates in various places. We all just need to realize that deflation is still the bigger risk and emerging markets may be the beneficiary as they are growing. So, I think the trade will be "out of developed markets" and into "emerging markets" for the next year (as a whole - details to follow)...
A-shot
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PS - after studying several of your old charts, posted an updated chart and added my comments (lengthy ones), although the chart was left as it was. All credit was given where it was due, so i hope you not feel bad that people get inspired by your charts :)
timwest
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Thanks 2use - I will look for what you have posted. Very kind of you. I do this work passionately to help everyone and in turn, it helps me. Sharing the knowledge I have accumulated over the decades brings me peace, and hope that someday I can put all of this into a book.
A-shot
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Well, i always give credit where credit is due - i am just a freshman, but if i ever score something or grow to be a great investor/trader, i will sure note your influence in this. team-high-five :)
Bobby_Axe
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Gold seems to be reversing and the two have had an inverse relationship of late - From your experience is it likely that buying commods or commodity driven shares even (silver/gold/mining) could offset the fall in other areas/industries of the equity market?
timwest
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I keep an eye on gold and it does appear to have made an important bottom. Year end was important to get behind the gold market and those who didn't want to show gold in their portfolio kicked it out and those that bought it seem to be in control of the market. I'd look for a 5%-10% upside in gold for the first few months. Longer term I am more neutral on gold, but very constructive on silver due to it's more solid industrial demand.
ct586283
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Nice work Tim. Always nice to read an analysis that makes sense and has a history of accuracy. Thanks for providing what I consider valuable advice.
A-shot
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Really nice chart i missed as i was later on here. I recently caught myself on a thought that many of the high flyers, expensive stocks are trading lower than their 52w highs. yet still we ran so high up to all time highs - where do investors bid then? Once confidence goes away, the first to flop are the expensive, high P/E stocks - but many are already lower than their tops.
timwest
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The market is following the same path but at a faster speed so far. Either way, it has been a good tug of war between the bulls and the bears so far this year. Earnings have been very weak overall with low, single-digits gains in earnings so far this year. This is certainly odd after seeing a 39% increase in the market last year, so this isn't much of a "follow through" on the fundamental front.
The final flush down in gold is happening with gold under $1200 as the ultimate "fight against money printing" seems to be falling on its face. The believers that Gold would save their portfolios are being truly challenged because as we all know, burying your head in the sand (which gold investing can be likened to) is not an investing strategy. Commodity prices are tumbling across the board with ample supplies of corn, wheat, soybeans together with crude oil, heating oil, and even natural gas, are keeping inflation at bay. Even though employment is gaining, apparently it is only in people aged 55 and up that have found work since the recession started and magically, their wages have not risen.
So, we still face a demographic headwind of people retiring who don't spend as much as they used to and will continue to spend less each year, keeping a cap on the US economy. There simply aren't enough new spenders to keep the game of musical chairs going. We simply won't keep trading up from the condo to a small single family house, to a much larger single family house, to the mcmansion. That game is over. The economy won't be sustained on massive spending on houses anymore, we all know this. The economy will grow on getting more transactions taxed that have heretofore been untaxed. Enough waxing on.
I am thinking that year end could be lower than I forecast, but at this point let's just take one day at a time. So far, so good for this year. I don't know what will trigger investors to start to sell stocks and I don't know what they will buy. Cash is still a wasting asset, note the negative interest rates in various places. We all just need to realize that deflation is still the bigger risk and emerging markets may be the beneficiary as they are growing. So, I think the trade will be "out of developed markets" and into "emerging markets" for the next year (as a whole - details to follow)...