lamensdorf market
EDITOR: DICK STERN
+100%
75%
CIO: BRAD LAMENSDORF
50%
25%
0%
-25%
s
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
-50%
32.5%
s The charts and graphs presented in LMTR’s newsletter are not produced by LMTR. The interpretation of the charts and graphs is only the opinion of LMTR and does not reflect the associated firms’ opinions.
Indicators are Cued Up for a Bear Market LMTR focuses on four areas of market analysis when determining risk: sentiment, breadth, valuation and market liquidity. We are now at the midway point of the year and are currently seeing poor readings in all four areas. Thus, things are cued up for a substantial pullback.
SENTIMENT The infamous Investor’s Intelligence bulls/ bulls + bears indicator includes data from Investor’s Intelligence-Chart Craft. Marty Zweig, a well-known market participant who is now deceased, tweaked the gauge. The current reading is at a 17 year high, which is a level not seen since the summer before the crash of 1987.
Monthly Data 12/31/1965 - 6/30/2014 (Log Scale)
Standard & Poor's 500 Stock Index
1795 1499 1251 1044 872 728 607 507 423 353 295 246 206 172 143 120 100 83 70
1970
1975
1980
1795 1499 1251 1044 872 728 607 507 423 353 295 246 206 172 143 120 100 83 70 1985
1990
1995
2000
2005
2010
BULLS / BULLS + BEARS
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24
Extreme Optimism -- Unfavorable
Extreme Pessimism
Three-Month Average
Advisory Service Sentiment
(S400)
1 W E S T P O R T, C O N N E C T I C U T [email protected]
6/30/2014 = 75.4
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24
Source: Investors Intelligence Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
SENTIMENT (continued) 19 67 18 04 16 56 15 19 13 94 12 79 11 73 10 76 9 87 9 06 8 31 7 63 7 00 6 42 5 89 5 40 4 96 4 55 4 17
Daily Data 1/13/1994 - 7/17/2014 (Log Scale)
Standard & Poor's 500 Stock Index
1967 1804 1656 1519 1394 1279 1173 1076 987 906 831 763 700 642 589 540 496 455 417
S&P 500 Gain/Annum When: Indicator in Bottom Clip:
Gain/ Annum
* Above 82.5
-10. 0
Between 50.5 & 82.5 50.5 and Below
% of Time 12. 9
1. 7
70. 2
52. 2
16. 8
Bear Funds = Rydex Inverse S&P 500 + Dynamic OTC + Inverse Dynamic S&P 500 + Inverse Dynamic OTC + Inverse Small Cap + Inverse Mid Cap + Inverse Dynamic Dow Source: S&P Dow Jones Indices
Bull Funds = Rydex Nova + Dynamic S&P 500 + Dynamic OTC + OTC Assets + Russell 2000 Advantage + Mid-Cap Advantage + Long Dynamic Dow
Excessive speculation is also present within the Rydex family of funds. Take note of the lower window portion of this chart, which displays the Rydex Bull Funds/Rydex Bull + Bear funds. Such an optimistic skew has not been since the top of 2000.
M J S D M J S D M J S D M J S D M J S DM J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S DM J S D M J S D M J S D M J S D M J S D M J S D M J S D M J
95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 (S0572A)
1995 1996 1997 1998 199 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 5-Day Smoothing
Excessive Speculative Optimism 70.5
73.8
45.4
26.3
71.6
51.6
49.7
48.6
80.1
74.0
69.1
67.4
42.9
42.5
45.7
Extreme Speculative Pessimism 7/17/2014 = 88.8%
Source: Rydex Funds, www.rydexfunds.com, past performance is not indicative of future results.
Rydex Bull Funds / Rydex Bull + Bear Funds
95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10
83.1
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
Quarterly Data 3/31/1952 - 3/31/2014
Household Financial Assets' (as a % of Disposable Personal Income) Potential Impact On Growth
Households own more financial assets now than they have at any other period. Media outlets have been reporting that individuals, for the most part, have been uninvolved in the recent bull market. However this chart, which utilizes data provided by the Federal Reserve, repudiates these claims. Such heavy involvement in financial assets indicates that investors are being overly aggressive and far too optimistic.
525 520 515 510 505 500 495 490 485 480 475 470 465 460 455 450 445 440 435 430 425 420 415 410 405 400 395 390 385 380 375 370 365 360 355 350 345 340 335 330 325 (DAVIS155)
Gain/ Annum
% of Time
Fin. Assets/DPI is:
Gain/ Annum
* Above 449%
% of Time
4. 2
16. 5
1. 2
16. 5
Between 348% and 449%
6. 1
65. 7
Between 348% and 449%
1. 7
65. 7
Below 348%
9. 7
17. 7
Below 348%
1. 9
17. 7
* Above 449%
525 520 515 510 505 500 495 490 485 480 475 470 465 460 455 450 445 440 435 430 425 420 415 410 405 400 395 390 385 380 375 370 365 360 355 350 345 340 335 330 325
Nonfarm Payrolls Gain/Annum When:
Nominal GDP Gain/Annum When: Fin. Assets/DPI is:
% Well Above Income Growth
Source: Department of Commerce Bureau of Labor Statistics Federal Reserve Board
1955
1960
1965
Well Below Income Growth 1970
1975
1980
1985
1990
1995
2000
2005
2010
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
2 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
BREADTH Daily Data 7/15/1981 - 7/18/2014 (Log Scale)
S&P 500 Index S&P 500 Index Gain/Annum When: Gain/ Annum
Bottom Clip is * Above 61
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 (S244A)
% of Time
12. 3
53. 3
Between 36 and 61
4. 5
32. 3
Below 36
4. 3
14. 4
1835 1571 1346 1152 987 845 724 620 531 455 389 333 285 244 209 179 154 131 113
2011
2006
2001
1996
1991
Source: S&P Dow Jones Indices
1986
1 835 1 571 1 346 1 152 987 845 724 620 531 455 389 333 285 244 209 179 154 131 113
7/18/2014 = 68.9%
Source: Ned Davis Research, Inc.
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
Tracking stocks above their 200day moving averages is useful in determining whether the market is overbought or oversold. It can also reveal periods of poor breadth. Last year this gauge hit 90, which is extremely overbought. It has continued to hit a series of lower highs while the indexes have continued to hit higher highs. Thus, a negative divergence has been formed.
Percent of NDR Multi-Cap Stocks Above Their 200-Day Moving Averages
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
Buying climaxes occur when a stock makes a 12-month high yet closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones. Selling climaxes occur when a stock makes a new 12-month low but then closes the week with a gain. They are a sign of accumulation, and indicate that stocks are passing from weak hands to strong ones. Traditionally, when markets have bottomed a large number of selling climaxes occur (shown in blue). Inversely, a large number of buying climaxes (shown in red) indicates distribution. While we have had several mini corrections within the last year, none of them have produced a sufficient number of selling climaxes to produce a significant bottom. Over the last year and a half there have been half a dozen buying climaxes that have reached over 300. This implies that stocks are being sold into rallies, which creates poor breadth characteristics in the marketplace.
© Copyright 2014, All Rights Reserved Chartcraft. Further distribution prohibited without prior permission.
3 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
VALUATION 16 66 13 25 10 53 8 37 6 66 5 29 4 21 3 35 2 66 2 12 1 68 1 34 1 06 85 67 53 42 34 27
Quarterly 3/31/1952 - 3/31/2014 (Log Scale)
Standard & Poor's 500 Stock Index S&P 500 Gain/Annum When: (3/31/1952 - 3/31/2014) Gain/ Annum
Tobin's Q: * Above 0.85 Between 0.55 & 0.85 0.55 and Below
% of Time
2. 5
30. 6
6. 6
35. 1
12. 3
34. 3
3/31/2014 = 1872.34 1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
1666 1325 1053 837 666 529 421 335 266 212 168 134 106 85 67 53 42 34 27
2010
1.6
1.6
1.5
1.5
1.4
__________________________ Market Value of Equities ________ B $21222.4 Net Worth (Assets - Liabilities) $19094.4 B
1.3 1.2 1.1
1.4 1.3 1.2
Overvalued
1.1
1.0
Tobin’s Q measures replacement value of market assets relative to their stock price. The market is currently experiencing the second highest valuation within the last 60 years, proving that investors are overpaying for stocks.
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
Undervalued
0.3 (DAVIS133)
Tobin's Q (Market Value / Net Worth)
3/31/2014 = 1.11
0.3
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
The USA Expected Real Equity Return, published jointly by Bridgewater and the University of Texas and released to the public, judges the forward expected return of the stock market. The gauge is at 1%, which is the second lowest reading over the last 50 years.
© Copyright 2014, All Rights Reserved Bridgewater. Further distribution prohibited without prior permission.
4 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
MARKET LIQUIDITY
As of April, there was $4.13 invested in stocks for every $1 stored in money markets. This is one of the worst ratios in history, and it shows that tremendous liquidity has been used up to produce the current stock market rally. With the tank so empty, can this rally be maintained?
© Copyright 2014, All Rights Reserved www.sentimenTrader.com. Further distribution prohibited without prior permission.
Monthly Data 10/31/1980 - 6/30/2014 (Log Scale)
NDR Total Market Value vs Money Market Fund Assets / NDR Total Market Value NDR Total Market Value Gain/Annum When: Money Market Fund Assets/ NDR Total Market Value: Above upper bracket
Gain/ Annum
% of Time
13. 8
19. 6
Between brackets
9. 6
67. 8
* Below lower bracket
-0. 7
12. 6
NDR Total Market Value (Billions, Scale Right) 6/30/2014 = 22526.1 9715.02
9322.61
8289.32
Source: Ned Davis Research, Inc.
3888.48
2356.00 1876.00
Total Money Market Fund Assets (Scale Left In Billions) 6/30/2014 = $2556 595.57 583.18
1055.64
275.82
Source: Investment Company Institute, www.ici.org
196.95
46.91
Money Market Fund Assets / NDR Total Market Value ( ) 6/30/2014 = 11.3% Linear Regression Trendline (Long Dashed Line) (Scale Right) 23.97
23.71
43.7 38.2 33.3 29.1 25.4 22.2 19.4 16.9 14.8 12.9 11.2 9.8 8.6 7.5
High Liquidity
19.62
12.74
Low Liquidity
10.01
9.31
20 14
20 13
20 12
20 11
20 10
20 09
20 08
20 07
20 06
20 05
20 04
20 03
20 02
20 01
20 00
19 99
19 98
19 97
19 96
19 95
19 94
19 93
19 92
19 91
19 90
19 89
19 88
19 87
19 86
19 85
19 84
19 83
(S423)
19 82
Upper/lower brackets are a constant percentage above/below the linear regression trendline.
19 81
This NDR chart bolsters the previous indicator produced by sentimenTrader.com. As one can see, the ratio is at its lowest point in 10 years.
3541 2909 2389 1963 1612 1324 1088 893 734 603 495 407 334 274 225 185 152 125 103
23750 20089 16992 14372 12157 10283 8697 7357 6222 5263 4452 3765 3185 2694 2279 1927 1630 1379 1166
18082.49
17102.05
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
5 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
CONCLUSION When taking a step back and viewing longer-term gauges, we see warning signs flashing. Many of these readings are in extreme territories, and historically bear markets have occurred from such overbought positioning. We are all cued up for a bear! Our position remains unchanged at short 32.5%.
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DISCLAIMER Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA. This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential.
W E S T P O R T, C O N N E C T I C U T [email protected] Copyright © 2014 Lamensdorf Market Timing Report.
AUGUST 2014
BIO
Brad Lamensdorf, a seasoned money manager and market strategist, is the CIO of The Lamensdorf Market Timing Report, a newsletter designed to help investors improve performance via market timing by assessing the environment of the stock market using a variety of technical, fundamental and sentiment-oriented tools from powerful independent research firms. Many investors mechanically enter and depart the market without a true “game plan.” Studies have shown that retail investors, in particular, are very poor market timers, tending to invest at or near market peaks and sell at or near market lows. The newsletter is designed to provide risk parameters for both professional and retail investors around the short-term stock market environment, giving subscribers better insight about when to allocate assets into or out of the equity markets. Lamensdorf, a frequent guest commentator and analyst on major business networks including CNBC, CNN and Fox Business News, also serves as a Portfolio Manager and Principal of Ranger Alternative Management LP, a sub-advisor to the Advisor Shares Ranger Equity Bear Exchange Traded Fund (NYSE: HDGE). In this role, he conducts top-down technical evaluations of broader market liquidity, sentiment and breadth to help identify short and intermediate-term market trends, manage exposure and mitigate risk. HDGE was launched in 2011 and is the first and sole actively managed, short-only ETF in existence. Lamensdorf, also has managed investment portfolios for the Hughes family and was principal of Tarpon Partners, managing a long/short fund that was up more than 200% gross over six years. Earlier in his career, he was as an equity trader/market strategist for Taylor and Company, the Bass brothers’ trading arm, co-managing a short-only strategy in a derivative format with national exposure. He also served as the in-house market timing strategist for the entire internal and external network of Bass managers.
+100%
75%
CIO: BRAD LAMENSDORF
50%
25%
0%
-25%
s
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
-50%
32.5%
s The charts and graphs presented in LMTR’s newsletter are not produced by LMTR. The interpretation of the charts and graphs is only the opinion of LMTR and does not reflect the associated firms’ opinions.
Indicators are Cued Up for a Bear Market LMTR focuses on four areas of market analysis when determining risk: sentiment, breadth, valuation and market liquidity. We are now at the midway point of the year and are currently seeing poor readings in all four areas. Thus, things are cued up for a substantial pullback.
SENTIMENT The infamous Investor’s Intelligence bulls/ bulls + bears indicator includes data from Investor’s Intelligence-Chart Craft. Marty Zweig, a well-known market participant who is now deceased, tweaked the gauge. The current reading is at a 17 year high, which is a level not seen since the summer before the crash of 1987.
Monthly Data 12/31/1965 - 6/30/2014 (Log Scale)
Standard & Poor's 500 Stock Index
1795 1499 1251 1044 872 728 607 507 423 353 295 246 206 172 143 120 100 83 70
1970
1975
1980
1795 1499 1251 1044 872 728 607 507 423 353 295 246 206 172 143 120 100 83 70 1985
1990
1995
2000
2005
2010
BULLS / BULLS + BEARS
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24
Extreme Optimism -- Unfavorable
Extreme Pessimism
Three-Month Average
Advisory Service Sentiment
(S400)
1 W E S T P O R T, C O N N E C T I C U T [email protected]
6/30/2014 = 75.4
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24
Source: Investors Intelligence Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
SENTIMENT (continued) 19 67 18 04 16 56 15 19 13 94 12 79 11 73 10 76 9 87 9 06 8 31 7 63 7 00 6 42 5 89 5 40 4 96 4 55 4 17
Daily Data 1/13/1994 - 7/17/2014 (Log Scale)
Standard & Poor's 500 Stock Index
1967 1804 1656 1519 1394 1279 1173 1076 987 906 831 763 700 642 589 540 496 455 417
S&P 500 Gain/Annum When: Indicator in Bottom Clip:
Gain/ Annum
* Above 82.5
-10. 0
Between 50.5 & 82.5 50.5 and Below
% of Time 12. 9
1. 7
70. 2
52. 2
16. 8
Bear Funds = Rydex Inverse S&P 500 + Dynamic OTC + Inverse Dynamic S&P 500 + Inverse Dynamic OTC + Inverse Small Cap + Inverse Mid Cap + Inverse Dynamic Dow Source: S&P Dow Jones Indices
Bull Funds = Rydex Nova + Dynamic S&P 500 + Dynamic OTC + OTC Assets + Russell 2000 Advantage + Mid-Cap Advantage + Long Dynamic Dow
Excessive speculation is also present within the Rydex family of funds. Take note of the lower window portion of this chart, which displays the Rydex Bull Funds/Rydex Bull + Bear funds. Such an optimistic skew has not been since the top of 2000.
M J S D M J S D M J S D M J S D M J S DM J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S DM J S D M J S D M J S D M J S D M J S D M J S D M J S D M J
95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 (S0572A)
1995 1996 1997 1998 199 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 5-Day Smoothing
Excessive Speculative Optimism 70.5
73.8
45.4
26.3
71.6
51.6
49.7
48.6
80.1
74.0
69.1
67.4
42.9
42.5
45.7
Extreme Speculative Pessimism 7/17/2014 = 88.8%
Source: Rydex Funds, www.rydexfunds.com, past performance is not indicative of future results.
Rydex Bull Funds / Rydex Bull + Bear Funds
95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10
83.1
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
Quarterly Data 3/31/1952 - 3/31/2014
Household Financial Assets' (as a % of Disposable Personal Income) Potential Impact On Growth
Households own more financial assets now than they have at any other period. Media outlets have been reporting that individuals, for the most part, have been uninvolved in the recent bull market. However this chart, which utilizes data provided by the Federal Reserve, repudiates these claims. Such heavy involvement in financial assets indicates that investors are being overly aggressive and far too optimistic.
525 520 515 510 505 500 495 490 485 480 475 470 465 460 455 450 445 440 435 430 425 420 415 410 405 400 395 390 385 380 375 370 365 360 355 350 345 340 335 330 325 (DAVIS155)
Gain/ Annum
% of Time
Fin. Assets/DPI is:
Gain/ Annum
* Above 449%
% of Time
4. 2
16. 5
1. 2
16. 5
Between 348% and 449%
6. 1
65. 7
Between 348% and 449%
1. 7
65. 7
Below 348%
9. 7
17. 7
Below 348%
1. 9
17. 7
* Above 449%
525 520 515 510 505 500 495 490 485 480 475 470 465 460 455 450 445 440 435 430 425 420 415 410 405 400 395 390 385 380 375 370 365 360 355 350 345 340 335 330 325
Nonfarm Payrolls Gain/Annum When:
Nominal GDP Gain/Annum When: Fin. Assets/DPI is:
% Well Above Income Growth
Source: Department of Commerce Bureau of Labor Statistics Federal Reserve Board
1955
1960
1965
Well Below Income Growth 1970
1975
1980
1985
1990
1995
2000
2005
2010
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
2 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
BREADTH Daily Data 7/15/1981 - 7/18/2014 (Log Scale)
S&P 500 Index S&P 500 Index Gain/Annum When: Gain/ Annum
Bottom Clip is * Above 61
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 (S244A)
% of Time
12. 3
53. 3
Between 36 and 61
4. 5
32. 3
Below 36
4. 3
14. 4
1835 1571 1346 1152 987 845 724 620 531 455 389 333 285 244 209 179 154 131 113
2011
2006
2001
1996
1991
Source: S&P Dow Jones Indices
1986
1 835 1 571 1 346 1 152 987 845 724 620 531 455 389 333 285 244 209 179 154 131 113
7/18/2014 = 68.9%
Source: Ned Davis Research, Inc.
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
Tracking stocks above their 200day moving averages is useful in determining whether the market is overbought or oversold. It can also reveal periods of poor breadth. Last year this gauge hit 90, which is extremely overbought. It has continued to hit a series of lower highs while the indexes have continued to hit higher highs. Thus, a negative divergence has been formed.
Percent of NDR Multi-Cap Stocks Above Their 200-Day Moving Averages
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
Buying climaxes occur when a stock makes a 12-month high yet closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones. Selling climaxes occur when a stock makes a new 12-month low but then closes the week with a gain. They are a sign of accumulation, and indicate that stocks are passing from weak hands to strong ones. Traditionally, when markets have bottomed a large number of selling climaxes occur (shown in blue). Inversely, a large number of buying climaxes (shown in red) indicates distribution. While we have had several mini corrections within the last year, none of them have produced a sufficient number of selling climaxes to produce a significant bottom. Over the last year and a half there have been half a dozen buying climaxes that have reached over 300. This implies that stocks are being sold into rallies, which creates poor breadth characteristics in the marketplace.
© Copyright 2014, All Rights Reserved Chartcraft. Further distribution prohibited without prior permission.
3 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
VALUATION 16 66 13 25 10 53 8 37 6 66 5 29 4 21 3 35 2 66 2 12 1 68 1 34 1 06 85 67 53 42 34 27
Quarterly 3/31/1952 - 3/31/2014 (Log Scale)
Standard & Poor's 500 Stock Index S&P 500 Gain/Annum When: (3/31/1952 - 3/31/2014) Gain/ Annum
Tobin's Q: * Above 0.85 Between 0.55 & 0.85 0.55 and Below
% of Time
2. 5
30. 6
6. 6
35. 1
12. 3
34. 3
3/31/2014 = 1872.34 1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
1666 1325 1053 837 666 529 421 335 266 212 168 134 106 85 67 53 42 34 27
2010
1.6
1.6
1.5
1.5
1.4
__________________________ Market Value of Equities ________ B $21222.4 Net Worth (Assets - Liabilities) $19094.4 B
1.3 1.2 1.1
1.4 1.3 1.2
Overvalued
1.1
1.0
Tobin’s Q measures replacement value of market assets relative to their stock price. The market is currently experiencing the second highest valuation within the last 60 years, proving that investors are overpaying for stocks.
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
Undervalued
0.3 (DAVIS133)
Tobin's Q (Market Value / Net Worth)
3/31/2014 = 1.11
0.3
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
The USA Expected Real Equity Return, published jointly by Bridgewater and the University of Texas and released to the public, judges the forward expected return of the stock market. The gauge is at 1%, which is the second lowest reading over the last 50 years.
© Copyright 2014, All Rights Reserved Bridgewater. Further distribution prohibited without prior permission.
4 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
AUGUST 2014
MARKET LIQUIDITY
As of April, there was $4.13 invested in stocks for every $1 stored in money markets. This is one of the worst ratios in history, and it shows that tremendous liquidity has been used up to produce the current stock market rally. With the tank so empty, can this rally be maintained?
© Copyright 2014, All Rights Reserved www.sentimenTrader.com. Further distribution prohibited without prior permission.
Monthly Data 10/31/1980 - 6/30/2014 (Log Scale)
NDR Total Market Value vs Money Market Fund Assets / NDR Total Market Value NDR Total Market Value Gain/Annum When: Money Market Fund Assets/ NDR Total Market Value: Above upper bracket
Gain/ Annum
% of Time
13. 8
19. 6
Between brackets
9. 6
67. 8
* Below lower bracket
-0. 7
12. 6
NDR Total Market Value (Billions, Scale Right) 6/30/2014 = 22526.1 9715.02
9322.61
8289.32
Source: Ned Davis Research, Inc.
3888.48
2356.00 1876.00
Total Money Market Fund Assets (Scale Left In Billions) 6/30/2014 = $2556 595.57 583.18
1055.64
275.82
Source: Investment Company Institute, www.ici.org
196.95
46.91
Money Market Fund Assets / NDR Total Market Value ( ) 6/30/2014 = 11.3% Linear Regression Trendline (Long Dashed Line) (Scale Right) 23.97
23.71
43.7 38.2 33.3 29.1 25.4 22.2 19.4 16.9 14.8 12.9 11.2 9.8 8.6 7.5
High Liquidity
19.62
12.74
Low Liquidity
10.01
9.31
20 14
20 13
20 12
20 11
20 10
20 09
20 08
20 07
20 06
20 05
20 04
20 03
20 02
20 01
20 00
19 99
19 98
19 97
19 96
19 95
19 94
19 93
19 92
19 91
19 90
19 89
19 88
19 87
19 86
19 85
19 84
19 83
(S423)
19 82
Upper/lower brackets are a constant percentage above/below the linear regression trendline.
19 81
This NDR chart bolsters the previous indicator produced by sentimenTrader.com. As one can see, the ratio is at its lowest point in 10 years.
3541 2909 2389 1963 1612 1324 1088 893 734 603 495 407 334 274 225 185 152 125 103
23750 20089 16992 14372 12157 10283 8697 7357 6222 5263 4452 3765 3185 2694 2279 1927 1630 1379 1166
18082.49
17102.05
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
5 W E S T P O R T, C O N N E C T I C U T [email protected]
LAMENSDORF MARKET TIMING REPORT
CONCLUSION When taking a step back and viewing longer-term gauges, we see warning signs flashing. Many of these readings are in extreme territories, and historically bear markets have occurred from such overbought positioning. We are all cued up for a bear! Our position remains unchanged at short 32.5%.
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DISCLAIMER Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA. This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential.
W E S T P O R T, C O N N E C T I C U T [email protected] Copyright © 2014 Lamensdorf Market Timing Report.
AUGUST 2014
BIO
Brad Lamensdorf, a seasoned money manager and market strategist, is the CIO of The Lamensdorf Market Timing Report, a newsletter designed to help investors improve performance via market timing by assessing the environment of the stock market using a variety of technical, fundamental and sentiment-oriented tools from powerful independent research firms. Many investors mechanically enter and depart the market without a true “game plan.” Studies have shown that retail investors, in particular, are very poor market timers, tending to invest at or near market peaks and sell at or near market lows. The newsletter is designed to provide risk parameters for both professional and retail investors around the short-term stock market environment, giving subscribers better insight about when to allocate assets into or out of the equity markets. Lamensdorf, a frequent guest commentator and analyst on major business networks including CNBC, CNN and Fox Business News, also serves as a Portfolio Manager and Principal of Ranger Alternative Management LP, a sub-advisor to the Advisor Shares Ranger Equity Bear Exchange Traded Fund (NYSE: HDGE). In this role, he conducts top-down technical evaluations of broader market liquidity, sentiment and breadth to help identify short and intermediate-term market trends, manage exposure and mitigate risk. HDGE was launched in 2011 and is the first and sole actively managed, short-only ETF in existence. Lamensdorf, also has managed investment portfolios for the Hughes family and was principal of Tarpon Partners, managing a long/short fund that was up more than 200% gross over six years. Earlier in his career, he was as an equity trader/market strategist for Taylor and Company, the Bass brothers’ trading arm, co-managing a short-only strategy in a derivative format with national exposure. He also served as the in-house market timing strategist for the entire internal and external network of Bass managers.
