I spent the better part of last week looking at charts and going through value screens looking for something to buy.
There is a lot less there than there was even a year ago.
Investors have gone down the value chain buying up mid-caps, then small-caps, then biotechs. Now the fast money has been moving into penny stocks.
If you look at the S&P 500, you will notice that every two and a half months (with the exception of November, when the market simply consolidated for two months), we experience a (5%, +/-) correction.
This correction has been foretold by a MACD crossover that was well above the zero line. Contrarily, the time to buy has been on the dips, when the MACD is below the zero line.
No one knows if this is a top or just a correction. But to my mind, it feels like a correction.
At the top, all permabears like Peter Schiff or even superb value guys like Warren Buffett will be discredited. They will be ignored and ridiculed. We aren’t there yet.
If you remember the 2000 peak, TVs in every watering hole and restaurant were showing MSNBC or Bloomberg. That’s not happening now. It’s ESPN all the time.
Back in 2007, all the talk at cocktail parties and funerals was about housing prices. Taxi drivers were flipping condos. Again, that’s not happening.
Know Your Bull
There is one simple way to know if we are in a bear market or a bull market. Bear markets have lower lows and lower highs. That is, each dip in the chart is lower than the previous dip.
Bull markets, like in the chart above, have higher lows and higher highs — by definition.
Therefore, we are in a bull market. At some point, that will change — but remember, stocks don’t turn on a dime. Tops are a process.
One good rule of thumb is to sell when the trend line is broken. A trend line simply connects all of the bottoms.
Here is the ten-year NASDAQ chart:
Each candlestick represents three months. Looking at this chart, it suggests the NASDAQ has gotten ahead of itself and should pull back or move sideways. But it’s not a bear market until that long black line is broken at 3,200.
Don’t get me wrong — I’m not shorting it. Fed Chief Yellen could say something tomorrow, or just wave her hand out of the blue, and this market could go up another 200 points. Shorts have been getting killed in this market, but they keep going back.
That in itself is a sign we are not at a top.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
