Assessments and Predictions

[sd]

Amazing market reaction! I stopped out on all of my short positions Monday after the Comey bombshell #2 over the weekend.
Today My buy-stop in SLV filled-

[blygh]

www.chartoftheday.com/20141231.htm?H



shows rises in market after presidential elections   We should have a run up to the inauguration.

[blygh]

www.nytimes.com/2017/02/06/business/dealbook/sorkin-seth-klarman-trump-investors.html?emc=eta1



Interesting article - Trump's policies may be inflationary 
Blygh 

[sd]

It is an interesting article -and he may prove to be correct- Yet I think it odd that He blames the underperformance of Hedge funds to the influx of money- perhaps it's simply the greed of the Hedge fund operator that chooses to remain an open fund-and become larger and larger-to the point they fail to provide a real benefit- Goes back and validates what John Bogle of Vanguard has been saying since he built Vanguard- The vast majority of funds fail to beat the market over the longer term-
Peter Lynch's magellan Fund was a great outperformer in it's day, and eventually failed to outperform- largely because it became so large,it lost it's tactical advantage-
From the article "Most hedge funds have found themselves on the losing side of trades over the past several years, a point Mr. Klarman addressed in his letter. Noting that hedge fund returns have underperformed the indexes — he mentioned that hedge funds had returned only 23 percent from 2010 to 2015, compared with 108 percent for the Standard & Poor’s index — he blamed the influx of money into the industry.

“With any asset class, when substantial new money flows in, the returns go down,” Mr. Klarman wrote. “No surprise, then, that as money poured into hedge funds, overall returns have soured.”

i think the outflows from Hedge funds,with their under performance and higher fees , and Investors being forced to go back into stocks- simply have fueled the market rally- and more and more of that is going into ETF's every year.
Yes , we are indeed extended- and bound to see a market correction- But WHEN?
If his assessment of the effects of Trump's policies are correct- The outcome may likely take several years to become noticeable-
For a value investor, it's likely slim pickings at reasonable PE's these days... A 30% cash position is large-may be a while to see valuations at a level where he'd be a buyer.
I wonder - is he trimming off those value positions that have run up and are now at higher PE's?
Good case for using % trailing stop-loss

[ira85]

I just read an interesting article on Seeking Alpha. The Mad Hedge Fund Trader predicted a year ago the bull market would end on Friday, May 10, 2019 at 4:00 PM. Now one year later his prediction is looking pretty good. Even though I know the odds are against me, sometimes I just can't resist the temptation to make broad market call like this. I'll be waiting to see how this May 10, 2019 call works out. With many variables that could upset the prediction, logic tells me the odds are against all such predictions. There could be a hundred issues not currently on the radar that pop up between now and May 10 that upset the prediction with new, unforeseen market moving information.

I've been expecting or perhaps more accurately hoping there would be a big fear driven blowoff of selling that would give us a better re-entry opportunity. This week that didn't happen. Before any real fear started, what appears to be an over-sold relief rally started. Now what? Is the market washed out enough to buy into this rally? Or is there another leg down coming, and we'll have another shot at a better re-entry? I think the Mad Hedge Fund guy's prediction indicates any selling produces a buying opportunity, a chance to get on board with the still intact primary trend. That is, until May 10 next year. The trend is your friend until it isn't. Right now that looks like May 10, 2019. Thanks Mad Hedge Fund guy. - ira



Hi Ira,
FWIW- Your post made me look back a bit- and look at Momentum-and past retracements Viewing The Weekly Spy going back 11 years 2009 had the most extreme reading of price and momentum most negative if also viewed with the RSI indicator at an extreme oversold level-
about a 6.0 (30 level is nominally called 'oversold territory) What was interesting about that extreme reading, Which occurred in October 2008- SPY 60.48; but that was not the market low-only the indicator low. The market went lower until Mar 2009 , 55.0 but the indicator had improved during the 2008-09 period, and had actually gone above the 30 level, and then dipped below again-several times as the market dropped even lower in price- Those later dips in RSI in 08-09 -were seen again in 2011 as the market sold off-the indicator hit a low but did not mean the selling was over. We have a similar initial low RSI reading here, and now a move higher- out of 'oversold territory"- but as can be seen from past periods, that does not mean the selling and lower prices are behind us- I have been doing some buying here- as pullbacks of this % are not infrequent- but 'normal' but still have some free cash and lower limit orders anticipating that price could move sharply lower- Near term Catalyst- Mid term elections? The issue of course in timing the market and holding some cash in the hopes of buying at even lower prices-
If we don't get those lower prices, that % in cash dilutes the net return if you fail to get those lower orders filled, market turns and goes higher and you then wait or chase.
That is the basis for the historical poor net performance of us market timers, vs those that typically stay the course.
I have been averaging back in- and have some limit orders set for a potential rare hard flash crash- Of course, I've also bought a few lottery tickets over the years . Never got filled on those either LOL!
Deciding on When to Buy also follows What to Buy- I elected to overweight the Vanguard Value and Quality factor funds - conversely- had to add to a losing AMZN and NFLX positions on this sell-off....

[ira85]

Well the big day slipped past me a bit. Big day? Yes, the day the bull market will end. Here's the quote from my November 3, 2018 post. This was on Seeking Alpha.

"The Mad Hedge Fund Trader predicted a year ago (2017) the bull market would end on Friday, May 10, 2019 at 4:00 PM. Now one year later his prediction is looking pretty good." Is he right? Is the bull market over?

I'd love to sell high and gloat that I caught the top of the market and sold at almost the perfect time. So is he right? Is this the perfect time? Well surprisingly, it seems to look pretty good to me. SPY looks like it peaked about May 1 and was down a little by May 10. It bounced a little, but it's now lower than May 10. Now if this very short term trend just keeps going like it already is going, the May 10 prediction will be great! Do I trust it and sell everything, buy 3x leveraged short etf's, and wave to Warren Buffett as we pass? Darn, that seems to be the rub. Making the call is a game. Stuff gets real when I have to bet my retirement on it. -ira

[sd]

I think the call was prescient and coincidentally close- to this minor decline- but I don't think anyone can really have a crystal ball as you previously noted- a lot of variables at play- Fed policy for 1-
Where would we be if we didn't have the Donald digging his heels in on the trade Tariffs? That wasn't on the forefront a year ago....Consider the Sell-off because of the fall comments in 2017 from Marks?
and look at where we rallied to....
Based on my limited past experience , I would definitely not be going 3x leveraged or on margin with my retirement funds though- Although at this time, I presently hold a larger % in cash and the remainder in TLT and Utilities- as I had a more aggressive market exposure in April entering May- and used stops to try to capture gains, and retain profits. As those stops were hit, I accumulated cash and then made the transition to be positioned more defensively- TLT is doing quite well, but the VPU position is now flat due to 3 days of selling.
Speaking for myself - Some of my biggest past losses were taking short leveraged positions- betting against the market because of the news, the gov't shut down, etc. I found that I was a typical retail trader- getting in late when the news was already getting "baked in" and then the markets find ways to justify an optimistic rally higher- Your approach may be more timely- but i would caution using a significant % of my retirement account to bet against a market where the predominant trend has been up for almost a decade. I approach this with higher RISK monies in a smaller trading account- and a more conservative approach in the retirement account- The goal of course- is that the higher Risk trading account will eventually overwhelm the investment/retirement account- but despite my attempts to accomplish that feat, it does not appear that the trading account will ever meet and overcome the steady tortoise approach of diversified investing.
JMHO- Minor normal market corrections in the 5% -10% range should likely not be viewed as reasons to react in your retirement account if one has 5 + years to continue working and to remain invested- professional advisers would likely suggest that if that makes you concerned, You may wish to consider a review of your asset allocations. Many company retirement accounts offer only limited broad funds.
While this obviously doesn't appear to be true in your situation, I would point out to any that read this, they can roll out some or all of their retirement funds from their company employer sponsored plan without penalty to an individual IRA account- where you are not limited by the small group of broad investment themes.
As opposed to betting the farm on shorting the market because the news is so and so and it pulls at our emotions- perhaps consider reading "The Ivy Portfolio" by Faber- deals with shifting asset allocations-and how the big endowment funds typically outperform through diversification and asset allocation and rebalancing. This also coincides with Brian livingston's momentum approach research in stockcharts. Instead of standing at the roulette wheel of timing- - or like the great outperformer presently in Jeaporday- taking big bets works until it doesn't. The jeaporday guy has an obvious edge in the game- He's brilliant-
I once thought I would easily outperform the tortoise in the retirement account by my agility and prowess in the trading account- Such is Hubris...

I'm content- I'm down 3-4% from the highs, and the "market is down just -5%- a very "normal " correction and minor- Seasonally, June- September is a weak time in the markets. Not a time to think the Sky is about to fall, or that this Bull is done- it's just grazing IMO- Eventually, the market cycle will see another significant decline- but no soothsayer can tell us when that will occur- All of those crying that "The Sky Is Falling" got their 5 minutes on the news- and perhaps eventually their cries will be realized- Look at Dr Doom, Peter Schiff, Marks- etc- the market can outlast their dire warnings- and Yes- eventually the economic cycle- will peak to trough and we will see a recession- and they can then claim victory- But is this pullback the start of that much larger decline?

Only time will tell- but I would bet cautiously against the market in my retirement account-JMHO- SD

I would add this link- adjusting your asset allocation as a defensive move may be a more conservative -and long term -profitable move than betting on a big market decline-

stockcharts.com/articles/muscular-investing/2019/05/use-currency-to-your-advantage.html

[ira]

As we close up shop I wanted to see how the prediction about the end of the bull market was doing. 

The prediction was that the bull market would end May 10, 2019 at 4:00 PM. The prediction was made about 2 years before that.  So how did the prediction work out to date? 

The SPY closed at 288.10 on May 10, 2019.  Today it closed at 331.97.  In the 8 months since the predicted end of the bull market SPY has gone up about 15%.  A 15% gain in 8 months ain't too shabby.  It looks pretty clearly that history has proven the bull market kept doing strong after the predicted demise.  A wise man once said, "It's difficult to make predictions, especially about the future. 

Adios.  - ira