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- Manlobbi
Personal Finance Topics / Retirement Investing
No. of Recommendations: 2
Remember Jim several times saying when a long secular bull market ends it doesn't end with a crash, but that on the way down there is a lot of time, that 3 months after the top of a bull market stocks on average lost only 10%?
If looking at a 1 year S&P/Nasdaq chart it looks as if we might be exactly at that point right now, in the middle of a "rounded top" as he called it.
When looking at a 3 year chart it's less pronounced but still visible: After it went down end of 2021 and in 2022 it went up, and for short stretched down, but it never looked "rounded" - until now.
No. of Recommendations: 7
If looking at a 1 year S&P/Nasdaq chart it looks as if we might be exactly at that point right now, in the middle of a "rounded top" as he called it.
It is at times like this when they say are "shaking out the weak hands."
Never take counsel of your fears.
The thing about "rounded tops" is that you don't know until afterwards if it was the top or just normal price action. What "observe rounded top" means is that there is plenty of time to get out; no need to be on a hair trigger.
The 2016 Growth and Trend paper goes into this.
"...differentiate between situations where recession likely, and situations where recession is unlikely.
...
directs the [timing] strategy to turn itself off during periods when those signals are unanimously disconfirming recession, i.e., periods where they are all confirming a positive fundamental economic backdrop."
...
for the U.S. economy, the strongest historical recession indicator is Real Retail Sales Growth. Another accurate recession indicator is Industrial Production Growth.
...
Real retail sales growth and industrial production growth represent two diverse, independently reliable indicators of the health of the two fundamental segments of the overall economy: consumption and production.
At present, both these FRED indicators are positive YOY, thereby disconfirming recession, therefore saying that we should stay in the market.
No. of Recommendations: 19
I wouldn't read too much into how much or little the recent chart resembles a rounded top.
I think the point of my comment arose out of the observation that it is extraordinarily difficult to pinpoint a top in real time. I know a guy who has skill at it, but it ain't me. There are things that are what one might call bad omens indicative of a likely top, but they happen too often during an upwards climb of the market to believe any of them. They are particularly common throughout the second half of a long bull. The most reliable of the bad omens that I know about has to do with the market hitting new highs at the same time that market breadth is bad - for example, more stocks are hitting new 52 week lows than 52 week highs for a while, so the climb of the market index is resting on fewer and fewer shoulders. If that's at the same time as rising interest rates, that would be doubly bad. Both situations were in effect before the crash of 1987, for example.
(as for the current situation, breadth has been poor-to-negative in the Nasdaq since around mid December, but the NYSE has been mildly positive the last six weeks or so. But as mentioned, that doesn't mean we're seeing a market top).
So, my original idea is simpler: if a potential index top doesn't get surpassed for a few months, THEN you have an idea that maybe it was "the" top and you could do some selling. The good news being that, because of the "rounded top" observation, the market probably isn't going to be a whole lot lower those few months later, so your waiting hasn't really hurt. If there has been a fresh recent market high, market drops that are both large and lasting are exceedingly rare. The longer it has been, the worse the average returns. Bullishness and the urge to buy on dips die very slowly.
It's possible to do market timing in a somewhat-better-than-random way, but a surer approach is simply valuation. If you own stuff that you yourself believe to be meaningfully overvalued, consider your reasons for holding it. It may be a fine reason (I want it for many years to come), or it might not (I want to eke out the gains from the last little section of this bull market). If Mr Market is offering you a crazy price for something you own, at least think twice before turning him down.
Jim
No. of Recommendations: 2
If looking at a 1 year S&P/Nasdaq chart it looks as if we might be exactly at that point right now, in the middle of a "rounded top" as he called it.If you are looking for bearish confirmation, no surprise Hussman is happy to oblige and is reliably there to offer it.
Latest (Feb 2025) comment
https://www.hussmanfunds.com/comment/mc250223/What appears to be an endless bull market advance is actually a classic two-tiered blowoff in speculative glamour stocks.
No. of Recommendations: 1
If you are looking for bearish confirmation
I don't. Just sharing an observation.
Regarding 'confirmation': Not required. I learned that I am an outlier here, with my love for BRK puts and other heresy --- but that's ok and I do it anyway :)
