Hello Jim,
You probably already know this, but once support gives way in the market predicting the floor ahead of time is both difficult and dangerous. I will not rehash my take on the warning signs that I laid out in The Smart Bird: It Should Come As No Surprise for those who are interested. Basically, the last few months looked like the setup for the larger 2011 correction.
I think most investors became complacent since the market that has gone so long without a 10% correction, so it helps to review a little market history for perspective. From 1997 to the bull market top in 2000, the S&P 500 (TSP C fund) corrected 4 times between 9 – 12% with one large correction of 19%. From 2004 to the bull market top in 2007, the market had no 10% corrections until the bear market started, but four corrections in the 6 – 9% range.
In this bull market we had a 9.9% correction in 2012, then after 2012 only two 6+% corrections prior to the current one. Yesterday, the S&P 500 closed down 11% from its high which meets or excesses the range of most market corrections.
But since the market internals and credit spreads over the last few months look a lot like the 2011 correction, it could still correct further. In 2011, the market corrected just under 20% and in 2010 the market corrected 16%. Those corrections were halted by the Federal Reserve's announcements of more QE. QE transmitted to the bond and stock market, not so much the economy. For another round of QE, it would require a significant reversal of current Fed policy statements and I do not think an 11% correction cause this.
So will the market continue in a straight line to a 45+ percent bear market loss – no. Could this correction exceed the few that are greater than 15% - very possible. The wildcard remains the overt and covert actions of all the central bankers who can't seem to keep their hands off the markets. This makes predictions difficult and dangerous.
Even if this becomes a larger correction, should you sell now – no. All corrections end and a follow-on rally will ensue. It then becomes important to determine how sustainable the rally is. I also do not think we are in a buy-on-dip market for those sitting on the sidelines in TSP accounts. We are still in a sell-on-strength market until the conditions clear or valuations become much, much better.
Market risk is not static. My strategy remains out until the fall which allows time to analyze the market for signs investor's risk aversion is trending back to the all-clear or not.
On Mark Hulbert's article:
I've been comparing the market's setup to 2011 for a while. Here's an excerpt from his article:
"It's important to stress that this best-versus-worst contrast is more helpful for intermediate-term guidance than for short-term market timing signals. Just prior to the market's sharp correction in April 2011, for example, the best timers were also more bullish than the worst ones."
I like Mark Hulbert's service, but I do not always agree with his analysis. When the market is near all-time highs (current situation), those who hold high exposures to equities will have the best track record over most time spans. I would throw out the 1 – 5 year results because this encompasses the bull market so of course those who like to be heavy in equities outperformed.
Currently the best timers for the longer timeframes (10, 15, 20-year) are holding an average of 78% in equities. Sounds good, but this number should be compared to their own average exposure and not the worst timers. I would guess average exposure the last few years has been closer to 90% and interpret this as typically high equity investors leaning against the market.
I also believe the best performers reduce exposure in bear markets by selling-on-strength (bear market rallies) since the market does not go straight in any direction. I think we should too. Whether this is a correction or the start of a bear market I discuss in-depth with my subscribers and I can't give everything away for free.
The S&P 500 is currently up 3% as I post this and it does not change my analysis. Daily action is noise.
Posted by: michaelhbond@yahoo.com
| Reply via web post | • | Reply to sender | • | Reply to group | • | Start a New Topic | • | Messages in this topic (28) |
Belum ada komentar untuk "[TSP_Strategy] Re: Seasonality of Bear Markets"
Post a Comment