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Five Signs Telling Me the Bear Market Is Back

by Claus Vogt 07-07-10

The stock market’s rise since the March 2009 lows was nothing more than a bear market rally. Yes, it was a huge rally, but not out of the realm of similar historical examples.

Low trading volume, still high valuations and lingering economic problems — especially within the real estate sector and the banking system — have been strong arguments for my outlook. And the history of burst real estate bubbles could serve as a blueprint for our current dilemma.

I’ve never departed from that assessment of what was going on …

In fact, over the past months I’ve regularly predicted that the March lows would finally be broken and the stock market’s valuation would decline. What’s more, they would go all the way down to levels seen at historical secular lows and hit single digit price/earnings ratios.

Now it looks as if the bear market rally is over and the next cyclical bear market has begun. I say that because my cyclical stock market model has given me …

Five Bearish Signs

Sign #1— Valuations never fell Valuation metrics never fell to undervalued levels. But they quickly rose to overvalued again, as soon as the stock market recouped a good part of its losses.

Sign #2— Money dried up The liquidity indicators turned outright bearish. Not just in the U.S., but globally, too. These indicators are especially important during this cycle, because the rally since March 2009 was mainly liquidity driven.

It was simply a reaction to monetary and fiscal stimulus never heard of before, aside from during war times. And with liquidity drying up the uptrend was on rented time.

Sign #3— Excessive optimism Sentiment indicators reached levels indicating high complacency and even extreme optimism. Some put/call ratios fell as low as during the heights of the 2000 stock market bubble.

And the cash level of mutual funds fell to a record low. Lower than in March 2000, and lower than during the summer of 2007, the two former record lows. Both marked excellent times to get out of the stock market.

Sign #4— LEI fell

The Economic Cycle Research Institute’s Leading Economic Index fell below the zero line in early June. This leading economic indicator (LEI) for the U.S. economy came in at minus 7.7 percent. If history is our guide, this reading is a clear recession warning.

Until recently the only component for my model that wasn’t bearish was the technical situation of the stock market. Typically, important turning points are accompanied by negative divergences in market breadth indicators, such as the advance/decline line or the number of stocks making 52-week highs.

But that changed last week when …

Sign #5— The technical picture turned the corner

The technical component of my cyclical stock market model turned bearish on June 30. Have a look at the S&P 500 chart below to see what I’m talking about.

SP 500 Chart
Source: Bloomberg

The market’s behavior since October 2009 looks like a well formed topping formation. Its lower boundary or neckline is the 1,040-1,050 area. The shape of the formation is a head and shoulders top, with the right shoulder having formed in June, accompanied by low volume, as it should be.

Then last Wednesday, the S&P 500 broke below this neckline. In doing so the topping pattern was finished with a clear technical sell signal.

This sell signal gets additional strength from the much oversold condition the market was in before last week’s breakdown took place, which is a sign of remarkable weakness. Normally a market as oversold as this one at least experiences a short-term bounce.

But that’s not all …

There is another strong technical argument signaling the end of the bear market rally and the beginning of a new cyclical bear market.

The upward trend of 200-day moving average of the S&P 500 has started to level off, also shown in the above chart. This moving average is a slow moving trend-following indicator. It won’t help you pick market tops or bottoms. But you can use it as a good sign post to tell you whether the cyclical trend is up or down.

And the 200-day moving average is not only a good indicator of the S&P 500 and most other major U.S. indexes, but also for the EuroStoxx 50 and the Nikkei 225 as shown in the two charts below.

Euro Stoxx 50 Index Chart
Source: Bloomberg

Nikkei 225 Index Chart
Source: Bloomberg

Indeed, this adds fuel to the overall bearish message.

It’s Time to Get Out of the Stock Market

The evidence that a new bear market has begun is compelling. And I believe this downturn can easily last until 2012 with prices going much lower than in 2008.

In my opinion, the prudent thing to do now is to consider selling.

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09-Jul-2010 18:12

Straits Times Index / STI to cross 3000 boosted by long-term investors

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Six Reasons Why U.S. Stocks Are Heading
Back to Their March 2009 Lows

My forecast revealed in this bulletin:

Why I’m convinced that the U.S. economy is even now falling into a rare double-dip recession ...

Why this ferocious new downturn will send unemployment soaring ... crush home values again ... light the fuse on a new banking and
credit crisis ...

Plus, why it will pull the rug out from under Wall Street, pushing the S&P down to its March 2009 lows.

Also in this email: What you must do immediately to protect your wealth even as most investors lose theirs.

By Mike Larson

Sure, stocks rallied again today, Ig ... and some investors may now feel that the worst is behind them.

But unfortunately, I think they’re dead wrong. And that’s why I would use any temporary strength to take swift and decisive actions to protect yourself from an imminent market meltdown ... and potentially lock-in big summer profits.I’ll tell you what to do in a moment. But first, I want to give you six reasons WHY — despite the occasional bounce — U.S. stocks are headed back to their 2009 lows:

The economy is quickly running out of gas: The recovery that followed the bear market was bought and paid for with $2 trillion in government stimulus and bailout money. Now, that money is running out. The economy and stock market are running on fumes. And with no new stimulus on the horizon, there’s nothing left to keep stocks from plunging.
Jobs, jobs, JOBS: Despite everything Washington has tried to do, nearly one in four American workers is still struggling to get by with a reduced paycheck — or without any income at all! The inescapable conclusion? The great American job engine has broken down!
70% of the economy is shutting down: Consumers are responsible for 70% of all economic activity — and consumer confidence is cratering. Worse: Retail sales are already plunging.
The housing slump has returned with a vengeance: New home sales just cratered by 33%, the biggest decline on record. Foreclosures are increasing again, creating new nightmares for our largest banks.
Most U.S. states are drowning in debt; New York, California and others are going down for the third time: The 50 U.S. states now have a cumulative deficit of $127.5 billion. Plus, states have more than $1 trillion in pension obligations they can’t pay. They have to make massive spending cuts to survive — cuts that are sure to lead to even more job losses, and impact corporate earnings and stock prices from coast to coast.
Sovereign debt crisis is leaving investors gun-shy: More and more investors are viewing Europe’s sovereign debt crisis as a sneak preview of our own future here in the United States. After all — our debts are far greater than Portugal’s, Greece’s or any of the other “PIIGS” countries! If they’re right, we could see interest rates soar — pure poison for an economy as strapped as ours is.

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09-Jul-2010 18:09

Straits Times Index / STI to cross 3000 boosted by long-term investors

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BBQ octopus

E-war ( Date: 09-Jul-2010 18:03) Posted:

World cup will be over soon, wonder next week will bring.

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09-Jul-2010 16:17

Straits Times Index / STI to cross 3000 boosted by long-term investors

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fight another day..!

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09-Jul-2010 11:23

Midas / Midas

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chiong-ed today..

93 now

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09-Jul-2010 10:46

Neptune Orient L Rg / NOL

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chionging everyday...

shipment recovery??

still see ghost vessels parked along the shores of Singapore..

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09-Jul-2010 10:27

Straits Times Index / STI to cross 3000 boosted by long-term investors

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shutter island..................

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09-Jul-2010 10:15

Straits Times Index / STI to cross 3000 boosted by long-term investors

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i don't like to see dead cats bouncing around..

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09-Jul-2010 09:53

Citic Envirotech / United Envirotech

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38.5 sell Q all gobbled up this morning..

looks like Mr 4,000 lot @ 38c fella making $$$$$$

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09-Jul-2010 09:49

PEC / PEC IPO result out?

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MEGA CHIONGGG..

so powderful?

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09-Jul-2010 09:48

Straits Times Index / STI to cross 3000 boosted by long-term investors

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surpassed already la... >2,900

SHORTAHHHHHHHHHHHHHHHHHHHH

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09-Jul-2010 09:35

Swiber / Swiber

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$1!!!

swiber moving its big butt..

go go go

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09-Jul-2010 09:15

Straits Times Index / STI to cross 3000 boosted by long-term investors

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2,900 SHORT AHHHHHHHH!!!

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09-Jul-2010 09:07

China New Town / ChinaNTown

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CHIONG AHHHHHHHHHHHHHHH!!!!

China New Town Development Company had earlier announced its intention for a dual primary listing of its shares on the main board of the Hong Kong and yesterday submitted an application to the Stock Exchange of Hong Kong regarding the proposed listing

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08-Jul-2010 17:01

Straits Times Index / STI to cross 3000 boosted by long-term investors

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2900 resistance so close.....................................

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08-Jul-2010 15:55

Straits Times Index / STI to cross 3000 boosted by long-term investors

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Oil tops 75 dollars in Asian trade

On Thursday 8 July 2010, 11:37 SGT

Oil topped 75 dollars a barrel in Asian trade Thursday, lifted by rising stock markets, analysts said.

New York's main contract, light sweet crude for delivery in August, touched an intra-day high of 75.10 dollars a barrel before easing to trade at 74.75 dollars a barrel, up 68 cents from the previous day.

Brent North Sea crude for August delivery advanced 68 cents to 74.19 dollars.

"What's really happening is that oil has been handcuffed to equities," said Victor Shum, a Singapore-based analyst with energy consultancy Purvin and Gertz.

Asian stock markets were higher Thursday, cheered by a surge on Wall Street overnight.

US stocks had rallied Wednesday on the back of solid gains chalked up by financial companies, with the Dow index ending 2.8 percent higher to close above 10,000 points.

"This rally in the US stock market followed by Asian stock markets has helped pull oil to around the midpoint of the 70 to 80-dollar range that oil producers and consuming countries are comfortable with," Shum told AFP.

"Given the state of the global economy and the expectations of a tighter oil market as the economy recovers, pricing at around 75 dollars is reasonable at this point."

A report by the American Petroleum Institute showing a large drawdown in crude inventories in the United States, the world's biggest energy consuming nation, was another factor that helped push prices higher, Shum said.

A weaker US dollar has also made dollar-priced oil cheaper to holders of strong currencies, spurring buying and helping to lift prices, he added.

The euro was up to an eight-week high against the dollar in Asia on Thursday as risk-taking sentiment grew on higher stock prices and strong Australian jobs data, dealers said.

The euro briefly rose past 1.2680 dollars to trade at the highest level since mid-May in Tokyo morning trade, up from 1.2630 dollars in New York late Wednesday.

The euro also rose to 111.27 yen from 110.99 yen.

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08-Jul-2010 15:13

Straits Times Index / STI to cross 3000 boosted by long-term investors

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broken today's low..

close lower than open bad sign..good for shortist/put warrant holders/bear bears

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