US - Market Direction 37 (Oct 15 - Apr 16)

[winston]

The death cross is saying to stay away from U.S. stocks

This simple indicator is surprisingly accurate in predicting bear and bull markets

Source: Market Watch

http://www.marketwatch.com/story/the-de ... eid=yhoof2

[winston]

Why I Don’t Expect the Market to Make a New High

By Harry S. Dent Jr.

Stocks are once again rallying after another “mini crash” at the start of the year. We’ve had three of these things since October 2014 without much to show for it. As Adam warned Boom & Bust readers earlier this week, stocks have basically gone nowhere for a year and a half.

After the first crash in late 2014, stocks were able to eke out a new high into May of last year. But since then, stocks have failed to make new highs despite strong attempts like this one.

Ten months without a new high.

That’s only happened at 11 other points in history. And in eight of those instances, we saw a new bear market follow. That’s almost 75%! Even after the 20% correction in 2011, the only major correction in this bubble since March of 2009, stocks hit new highs within 10 months. We’re moving into dangerous territory here.

Two weeks ago I referred to this as a “rounded top pattern,” and we’re testing that trend line which should peak in the 2,070-2,095 area on the S&P 500. If it breaks that level, then a new high would be imminent.

But here’s why I think that’s unlikely…

Coming into the May top and more-so since, small cap stocks have clearly underperformed large caps.

That is the classic sign of a major top!

The dumb money continues to pour in, buying well-known large caps… while the smart money exits after having focused on buying the broader universe of small caps where there is much more opportunity. Your typical investor doesn’t have the sophistication to play that market.

But while they may be able to find some good opportunities in this area… the small caps as a whole have already entered bear market territory, and have no chance of hitting new highs! And that drags on the broader market.

Earlier this year I pointed out the equally weighted Value Line index, which showed the typical stock had already turned bearish. While the S&P 500 was down 15%, this “typical stock” was down 23%, and the small caps were down 27%.

If you’ve got some stocks still flying high while a large group of them are sucking wind, then it’s only a matter of time before the market becomes stretched too thin and rips apart.

At worst, you’ve got the biotech sector that’s been down 40% recently, after bubbling up 600% since early 2009. No chance of new highs there either! Not a good sign to see the leading sector tank.

Even if the large caps did hit slight new highs, it would only worsen this divergence between large caps and small caps. That would signal even more conclusively that a major long-term top is in.

Just look at the environment we’re in. Most other major international markets have already hit bear market levels.

China’s Shanghai Composite down 50% at its worst…

The DAX in Germany down 30%...

The FTSE in Britain down 23%...

The Japan Nikkei down 29%...

And don’t even ask about Greece and Italy!

The last potential holdouts are the large-cap indices in the U.S… otherwise known as “the best house in a bad neighborhood.” The S&P 500 has gotten to within 3% of its all-time high. But there should be strong resistance at the 2,095 level just above here.

Here’s my favorite chart to show why this is not the time to buy stocks, but sell them. This shows the expected returns over the next 10 years based on stock valuations as a percentage of GDP today. As the correlation shows, this has been very accurate in the past:

See larger image

It says that you should expect to lose 1.5% a year for the next 10 years, which means you would lose near 20% over the next decade. I, of course, expect worse as we are in the once-in-a-lifetime winter season where stock crashes are the most devastating.

I’ll take a 10-year Treasury at 2% annual no-risk returns over that any day!

In the update to The Demographic Cliff in paperback I favored a peak in May 2015, but allowed for a substantial correction, followed by one slight new high in 2016. After that, I expect the next great crash towards 5,500 by late 2017.

I still favor the high already being in. But either way, the upside gains are limited to 5% or so in the next few weeks or months, and the downside is 70%-plus in the next two years.

I have continued to warn that it’s better to get out a bit early than too late as bubbles burst at least twice as fast as they build… just ask the Chinese.

Source: Economy & Markets

[winston]

Broad base can support extension of S&P 500 rally

BY RODRIGO CAMPOS

Among the good signs, the run-up has come with strong volume and is supported by almost every company in the index. Furthermore, worries have eased about some threats to the bulls' case for stocks, such as an aggressive U.S. monetary policy and spreading weakness from China and other developing markets.

Weekly moving average convergence-divergence (MACD) of the S&P is pointing to positive inertia that could smooth the way for the market to push higher.

Source: Reuters

http://www.reuters.com/article/us-usa-s ... r%20Update

[winston]

No Sales, No Profits, No Bull: When Valuations And Central Banks Collide

There is trouble ahead with today's overvalued market

By Gary Gordon

Make no mistake about it. We are sitting on valuation extremes. Based on estimates of as-reported earnings for the S&P 500’s first quarter of 2016 ($89.4), the current price-to-earnings ratio is at 23.

Even the non-GAAP, adjusted operating earnings ($100.6) is a lofty 20.5. And low interest rates alone are not a panacea for exorbitant valuation levels.

Source: Investor Place

http://investorplace.com/2016/04/no-sal ... wGgzqR96M8

[winston]

NEW HIGHS OF NOTE LAST WEEK

The food boom is in full swing...

General Mills (GIS)... cereal
Kellogg (K)... cereal
ConAgra Foods (CAG)... pantry staples
Sysco (SYY)... food-distribution leader
Campbell Soup (CPB)... soup
McCormick (MKC)... spices
J.M. Smucker (SJM)... jelly
Tyson Foods (TSN)... meat
Tootsie Roll (TR)... candy
McDonald's (MCD)... fast food
Sonic (SONC)... fast food
Texas Roadhouse (TXRH)... steakhouse
Coca-Cola (KO)... soft drinks
PepsiCo (PEP)... soft drinks

NEW LOWS OF NOTE LAST WEEK

Valeant Pharmaceuticals (VRX)... pharmaceutical firm
Novartis (NVS)... pharmaceutical firm
Lannett (LCI)... generic drugs
Vivint Solar (VSLR)... solar energy
H&R Block (HRB)... tax service


Source: Daily Wealth

[winston]

Market insiders flip to bearish

by Richard M. Smith

Source: TradeStops

http://thecrux.com/market-insiders-flip-to-bearish/

[winston]

Are We Headed 73% Lower From Here?

By James Quinn

Source: SHTFplan.com

http://www.thetradingreport.com/2016/04 ... from-here/

[winston]

One of the best signals in the stock market is saying it may be time to sell

By Bob Bryan

Source: Business Insider

http://finance.yahoo.com/news/one-best- ... 00370.html

[winston]

TOM LEE: Stocks will hit all-time highs by the summer

By Akin Oyedele

He outlined four things that could drive stocks to new highs before the fall.

First, he anticipates a recovery in sales and earnings, as the adverse effect of the strong dollar on corporate earnings reduces.

The dollar's 10% jump last year subtracted about $93 billion, or $10 a share, from S&P 500 company earnings, he calculates. But more companies should report sales gains this year as the dollar's drag fades.

Second, Lee says, the imbalance between oil supply and demand keeps getting closer to equilibrium every month. Later this month, a meeting between OPEC and non-OPEC members could produce an agreement on output cuts, though Saudi Arabia has threatened to abstain unless Iran gets on board.

Third, Lee notes the high levels of short interest in stocks, or investors' bets against their advance. He says the level of short interest — 4.3% of float — tops the levels seen in March 2009 when stocks bottomed.

"From March 2009 to September 2009, short interest fell by 90bp and equities rose 50% in those 6 months," he wrote. "That is the equivalent of reducing short interest today to late 2014 levels."

Lee also expects the US consumer to remain a "bright spot" in the economy.

He says the biggest risks to this call for new highs by the summer include a global recession and a spike in credit defaults.

Source: Business Insider

http://finance.yahoo.com/news/tom-lee-s ... 00766.html

[winston]

DJIA still forming bullish triangle pattern?

We have been highlighting the potential bullish triangle formation for the US DJIA over the past few months.

Interestingly, the rally in the DJIA over the past few weeks has tested the triangle resistance trendline.

If we are right about this triangle formation pattern, the DJIA could likely correct soon to complete the “e” wave in the wave “a-b-c-d-e” triangle formation.

However, this triangle formation is void if DJIA surpasses the recent high at 17,977pts.

Source: CIMB