| | | Thursday, January 21, 2016 | Issue #2722 | |
|
Two Signs We May Be at a Market Bottom Matthew Carr, Emerging Trends Strategist, The Oxford Club
 Investors are freaked out.
That's completely understandable. So far, 2016 has been one big pummeling. The Dow... the S&P 500... the Nasdaq...
They're each down 8%.
The small caps on the Russell 2000 are down more than 11%, falling below 1,000 for the first time since 2013.
Things seem to be going from bad to worse...
But are they really?
Today, I'm going to show you two contrarian indicators I'm seeing... bullish signals that the damage in the markets may be done.
Let's start with YOU.
Going Against the Herd
Last week, the AAII Investor Sentiment Survey - which polls retail and professional investors alike - fell to 17.9%. (That means less than a quarter of responders are presently bullish on stocks.)
That's the lowest reading in 10 years. Yes, it's even lower than numbers reported during the 2008 financial crisis.
To find a level lower, we have to go back to the second week of April 2005. Back then, a mere 16.5% of surveyed investors were bullish.
Apples That Don't Bruise or Brown?
This could be coming to a store near you in the coming months.
A new apple... genetically engineered to never brown or bruise.
This same technology has the power to stop birds from getting avian flu... and pigs from getting viral respiratory diseases.
New foods... without spoilage and disease... are on the way. And according to a leading financial guru, this will create the "blockbuster investing category of 2016." Get the whole story here. | |
The situation was actually a lot like today: consumer confidence was high... interest rates were heading north... and stocks had just taken a major dip.
But from that second week in April, the S&P 500 launched upward. After six months, it had etched a positive return of 1.09%. The index ended the year up more than 5.5%.
It was a similar story back in late 1990. Bullish sentiment on the AAII Investor survey hung around 18% that August. But over the year that followed, the S&P 500 gained more than 10%.
Prior to now, there have been 29 occasions when bullish sentiment dipped below 20%. Of those, 28 resulted in stocks moving higher over the next six months.
Just to be clear... we're talking about a bullish indicator with a 96% rate of accuracy here.
Even if we look at only the last four times the AAII bullish sentiment reading fell under 20%, we still see a fairly solid upside trend...
But let's not stop there. As I said, investor sentiment isn't the only contrarian indicator that's signaling a possible market bottom...
When Volatility and Crude Collide
At the moment, there's been a lot of blame placed on crude for the market's decline. And we know that fourth quarter earnings for the S&P 500 are projected to show a decline - for the third straight quarter - due to the energy and materials sectors.
On average, earnings for the energy sector are projected to fall more than 35% year over year. Which weighs heavily on the entire index.
I know, I know... more negativity. But stay with me. Because there is an interesting phenomenon that occurs when the VIX - the S&P 500 Volatility Index - closes above the price of crude.
At the moment, the VIX is at 27.02 and the price of crude is $29.04.
The last time the VIX closed above the price of crude was August 24, 2015. From that point until the end of the year, the S&P gained 7.7%.
The same thing happened before, on March 11, 2009. And we all know what happened to stocks in the months that followed.
In recent years, the VIX and the price of West Texas Intermediate (WTI) crude have crossed only twice. When it's happened, it's meant that oil has completely collapsed and broad market volatility has completely spiraled out of control.
But, during the 1990s and early 2000s, there were long periods of time when crude traded below the VIX.
I went back and pulled the performance of the S&P 500 six months following the VIX crossing above the price of crude. I also included the AAII sentiment for those periods.
As you can see, the track record here is a bit more mixed. However, the only other time bullish sentiment fell below 20% and the VIX crossed above the price of crude was March 2009. Which preceded a near-50% run-up over the next six months.
At the other points when volatility rose above crude prices, the AAII bullish reading was high.
That means we're currently in a very unique situation. For at least the near term, we could be looking at a market bottom.
Good investing,
Matthew
| |
|
Charles Ponzi's America...
Has America turned into one giant version of Charles Ponzi's original pyramid scheme?
One noted financial scholar says yes.
Check out his proof right here. In it, he lays out why five "financial houses of cards" are propping up the entire U.S. economy... and how they may collapse in the months ahead. | |
|
| |
For some energy investors, 2016 is going from bad to worse. But how your portfolio performs will depend entirely on which side of the energy fence you're on. Read On... | |
|
| |
Not everyone will agree with Matthew's assessment of the markets (even if it's based on years of proven data). So in today's Investment U Plus, we're focusing on a play that's managed to prosper despite oil's death spiral. It's up more than 15% in the past six months - and climbing. To find out how you can get all the details, click here. | |
|
| |
This unique contest will test your stock-picking skills against those of your fellow readers. And the best part is... all proceeds go to the charity of your choice. Read On... | |
|
|
|
No comments:
Post a Comment
Keep a civil tongue.