Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Is The Stock Market Moving From A Bull To A Bear?

By Pacific Park Financial Inc. (Gary Gordon)ETFsMay 06, 2016 01:56AM ET
www.investing.com/analysis/are-you-considering-%EF%BF%BD%EF%BF%BD%EF%BF%BDsell-in-may,-go-away%EF%BF%BD%EF%BF%BD%EF%BF%BD-200128359
Is The Stock Market Moving From A Bull To A Bear?
By Pacific Park Financial Inc. (Gary Gordon)   |  May 06, 2016 01:56AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

One of the signs that a stock market may be transitioning from a bull to a bear? Participants dismiss exorbitant valuations, cast aside disturbing shifts in technical trends, disregard economic stagnation and scoff at historical comparisons. For instance, it has been 352 days since the Dow Jones Industrials Average registered an all-time record high in May of 2015. Since the 1920s, when the Dow has surpassed 350 calendar days without recovering a bull market peak, the index has dropped at least 17% on nine out of 11 occasions. On average, the Dow has succumbed to 30% bearish price depreciation.

Dow History
Dow History

Adding insult to injury here is that the Dow has failed to hold 18000 since it first notched the milestone back on December 23, 2014. That was 499 days ago. Equally compelling? Five days earlier (12/18/2014) marked the Federal Reserve’s final asset purchase in its third round of quantitative easing (QE3). In other words, the stock market has been unable to make any meaningful progress since the Fed stopped expanding its balance sheet. (Note: This also lends credence to research that attributes 93% of the current bull market’s gains to the Fed’s electronic credit/asset purchase interventions).

“Forget corporate earnings, sales, the global economy, technical analysis and history, Gary. You’ve got to be a contrarian here because this is the most hated stock market ever!” I’ve heard this clam dozens of times now. Ostensibly, a lack of excitement for stock assets should push stocks back to record heights and beyond. And there may be some truth to the declaration. After all, corporations have been the only “net buyers” for more than three months, as the other participants (e.g., pensions, hedge funds, “Mom-n-Pop” retail, institutional advisers, etc.) have been “net sellers.”

On the other hand, according to the National Association of Active Investment Managers, investment sentiment sits at its highest level since April of 2015. Putting that into perspective? A contrarian who recognized the uber-bullishness last year may have exited the market near the all-time record highs for the Dow and the S&P 500 in May of 2015. Similarly, we may once again be at a point where bullishness is overextended.

S&P 500: Contrarian Indicator
S&P 500: Contrarian Indicator

Granted, the S&P 500 might only need to rise 4% from current levels to register an all-time record. In and of itself, that is relatively impressive. Nevertheless, the year-over-year and year-to-date outperformance of the S&P 500 by the FTSE Multi-Asset Stock Hedge Index (affectionately known as “MASH”) is reason enough to be wary. We’re talking about the collective success of several key components like the SPDR Gold Shares (NYSE:GLD), Guggenheim CurrencyShares Japanese Yen (NYSE:FXY), PIMCO 25+ Year Zero Coupon US Treasury (NYSE:ZROZ) and iShares National AMT-Free Muni Bond (NYSE:MUB).

MASH vs SPX: 5/4/2015-5/4/2016
MASH vs SPX: 5/4/2015-5/4/2016

MASH vs SPX: 12/31/2015-5/4/2016
MASH vs SPX: 12/31/2015-5/4/2016

Three-quarters of S&P 500 corporations have reported Q1 2016 earnings. And according to the S&P Dow Jones Indices web site, as reported earnings estimates for the S&P 500 (3/31/2016) are now $87.48. The trailing twelve-month P/E? 23.4. “In the era of ultra-low interest rates,” you insist, “it simply doesn’t matter.” Well, then, perhaps you should investigate the four bear markets that occurred in the 20-year period (1936-1955) when the U.S. had similar 10-year yields, yet price-to-earnings ratios that were half what they are right now.

Here is one thing that should not be ignored. When precious metals like gold and carry-trade currencies like the yen outperform stocks over 5-6 months as well as one year – when long-maturity U.S. treasuries and Japanese government bonds are behaving in a similar fashion – “risk off” has the edge over “risk on.” Should you sell in May and go away, then? From my vantage point, just make sure you’ve got a comfortable cash/cash equivalent cushion to buy riskier assets at more attractive valuations down the road.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Is The Stock Market Moving From A Bull To A Bear?
 

Related Articles

Tim Knight
If You’re Right…… By Tim Knight - Jun 28, 2022

I’d like to trot out our old friend IYR (real estate ETF) once again as a prospective short-sale candidate (or, in my case, long puts, as I did acquire those today). The little...

Is The Stock Market Moving From A Bull To A Bear?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email