The Technical Bear Case

Of the 3257 issues traded on the NYSE last week, 2955 declined and just 275 advanced. The S&P 500 has now abruptly erased nearly 8 months of progress. Moreover, we observed a "leadership reversal" with new 52-week lows flipping above the number of new 52-week highs. Our broader measures of market action deteriorated to a negative position as well. Historically, we can identify 19 instances in the past 50 years where the weekly data featured broadly negative internals, coupled with at least 3-to-1 negative breadth, and a leadership reversal. On average, the S&P 500 lost another 7% within the next 12 weeks (based on weekly closing data), widening to an average loss of nearly 20% within the next 12 months - often substantially more when the Aunt Minnie occurred with rich valuations and elevated bullish sentiment.
-John Hussman of Hussman Funds
This morning and yesterday I posted statistics that argue for a rally. The always thought provoking John Hussman brings up equally impressive statistics calling for a decline. I would point out that we are not necessarily at odds. My statistics are shorter term in nature. Hussman's look out a few months.  I believe we will see a second half slowdown so its possible we will both be right.

2 comments:

David said...

unscientifically I went back and looked at the dates from Hussman's letter of today.i was looking at whether the 50dma was below the 200dma on those dates. and again this was not precise. but 4 of 4 of the instances he cites as being not bad despite the technicals flashing red did not occur when 50 dma was below 200dma.

of the 9 instances he cites as leading to large drops, 4 of 9 had the 50 dma below the 200dma. 3 of the 9 allowed you up to a month before you had to get out. Conversely, 6 of the 9 cited by hussman lead to basically a collapse over about 6 weeks or so.

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