ALREADY A BEAR MARKET
It was February 2000 and I stood at the podium of an audience in New York City of traders. The audience knew me since I had done market timing commentary for Barron’s Financial Publication for over 5 years. 2000 marked the year that Jack Schwager’s bestselling book called the “Stock Market Wizards” also was released. I was fortunate enough to be a featured profile in Mr. Schwagers’ book. The audience knew me and also knew I was far from a politician. I was frank, direct, and ominous as I said, “You who are in the stock market get out now, you will get killed”. Two dozen people walked out of my audience with total disdain, total disbelief and total deafness to my words.
I had prepared the most in-depth speech I had ever presented on this cold February 2000 day. I knew that what I said would be unpopular. My credo I lived with in my presentation was to tell people what they needed to hear, not what they wanted to hear.
I had factual information to substantiate my dire forecast in my own proprietary indicator called my Daily CCT indicator. I had been using this since 1986 with a track record that was published in Barron’s column. Never in the years since 1986 until this February 2000 day had I seen such ominous readings in the indicator. Super bearish was not a sufficient title to describe the foreboding numbers the Daily CCT had measured. The institutional buying during this time frame was plainly not existent. A cumulative reading was done compiling day after day of strength or weakness. Typically price rallies in the stock indices were accompanied by strong institutional buying as evidenced by the NYSE tick. The NYSE tick was the gauge measuring the horsepower the institutions were exhibiting in their buying. January 2000 , the Daily CCT weakened but the prices in the S&P index kept ascending created a divergence like the Grand Canyon. I saw those numbers and knew the foundation of the rally was built on quicksand. The resulting bear market of 2000-2003 eroded S&P 500 prices approximately 50%. The bear market was showing its foundational vulnerability in January 2000 but the prices did not head south until April 2000. The Daily CCT is an advance warning indicator of eroding horsepower in what the inexperienced observer will still say is a bull market. What good does it provide individuals to see their portfolios down 20%, 30%, or 40% after it is too late to react? February 2000 is distant history with many people in my audience thinking I should have been in a straight jacket, in a rubber walled room, behind a locked door, so my insane ramblings in a sound proof room would not be heard. The conference management was appalled I had the audacity to demean the integrity of the Great Bull market. I was hailed as the bear of the conference.
The year of 2008 had the same similarities. The summer had rallies that were hollow. The Daily CCT barely registered any plus readings in August. The downside on the S&P had yet to be realized. August 15th was a period that the stock market attempted to rally falling far short of the May 2000 rally. Thus we were making declining tops. The carnage escalated into mid-November with a 6 month drop of 44%. The recent bubble that burst in the oil market has been the talk of financial journalists throughout the world. How much more talk would it elicit if the stock market bubble of 2015 fell 40%? The foundation is crumbling in my Daily CCT just like the first quarter of 2000 and the whole year of 2008. The pattern of declining price tops are in place in 2015 with an early January recording of 2093.55 , an all time high. Mid January recorded highs of 2064.43, a declining top. Meanwhile the Daily CCT has dropped into not only declining tops but also distinct lower lows. The big money has dried up in the quest for buying stocks. A high probability exists for a 100 point down day to be experienced to the downside with expanding volume and NYSE tick registering in excess of -1600 to -1800 or greater. The 100 point down day will be capitulation sign after the S&P has already surpassed 20% on the downside for the S&P futures. The Daily CCT is already forecasting a minimum 30% decline. A surprise to the downside of a greater magnitude than 30% is very likely.
December 2014 and January 2015 have given a short term sell signal. I always believe the correct way to gauge a market condition is by measuring the strength or weakness of a rally. We saw the S&P futures register a triple top between 2088 and 2089, December 26th, December 29th, and December 30, 2014 respectively. The resulting pullback registered pullback of 6% to the 1970 price area.
The gauge of measurement following the lows of 1970 is the rally strength generated in the rally phase which carried prices to 2062.The prices are not the important aspect but how the Daily CCT strength is experienced. This list rally covered approximately 90 S&P futures points. A rally of this magnitude, under normal market conditions, would record a net Daily CCT reading of plus 9. This means that there would be a recorded reading of 9 more incidences of plus 1000 NYSE tick readings than minus 1000 tick readings. The actual readings during this period of time registered MINUS Daily CCT reading, not a plus. This has only happened 2 other times, March 2000 and December 2007. The resulting fall from both of these recorded calendar months resulted in price falls exceeding 10%. The following years, after these recordings, the market continued downward approximately 30%, down in both 2001 and 2008. This cannot be ignored. I am so bearish I am growing fur!
I am asked often, “Well how bad will it be”? My answer is this, “If a dump truck is going to run over you do you ask a bystander, how bad can this be or do you jump to safety”?