Market Direction Mid Week Update©

Market Direction: BULLISH alert issued 2/15/2018

Tariffs and volatility... 

The stock market remains under pressure and the volatility is fierce from day to day.

Enjoy days like this while they last, warns longtime bear John Hussman, because the volatility we’re seeing on the Dow DJIA, +1.79%  and the S&P 500 SPX, +1.67% only serves to reinforce his pessimistic view that the stock market is careening toward a painful drop of at least 60% and a decade or more of zero to negative returns.

“We’re observing the very early effects of risk-aversion in a hypervalued market,” the Hussman Trust president wrote in his latest missive. “To some extent, the actual news events are irrelevant. I certainly wouldn’t gauge market risk by monitoring the day-to-day news on potential tariffs or even prospects for rate changes by the Fed.”

For those of you feeling a bit queasy because of what Hussman describes as the “rather minimal level of volatility” we’ve seen lately, it’s time to make some changes and rebalance your portfolio with some hedges, or at least lighten up by adding cash.

“But do so knowing one thing in advance: you will experience regret,” he says. “If the market advances after you rebalance, you’ll regret having sold anything. If the market declines after you rebalance, you’ll regret not having sold more.”

The driving factor he frequently cites for the top-heavy market is that the Fed’s quantitative easing has inflated valuations to unsustainable levels, and as the free money goes away, the bottom will fall out, leaving a trail of blown-up investors in its wake.

“Investment is about valuation. Speculation is about psychology,” Hussman said. “Both factors are unfavorable here.”

He used this chart or the median price/revenue ratio of S&P components to show just how overvalued stocks are at this point, even after the recent tumble: 

 Hussman, who takes credit for his bullish stance in early 1990, as well as for calling big declines in 2000 and 2007, addressed the criticism he’s faced for being caught wrong-footed as the market has feasted on a steady diet of new highs in recent years.

“Look, I’m aware of how tempting it is to dismiss my concerns here, given my stumble in the half-cycle since 2009,” he said. “The problem is that I stumbled in one heck of a speculative advance, and speculators like to declare victory at half-time.”

He said the problem for his team has been the over-reliance and negative response to extreme “overvalued, overbought, overbullish” market action.

“Those syndromes provided valuable warnings in prior market cycles across history, but were wholly ineffective in putting brakes on speculation in an environment where the Fed intentionally starved investors of safe alternatives,” he explained. “Recognizing that valuations matter profoundly over the long run, yet are nearly useless over the short run, is central to navigating complete market cycles.”

$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at  $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Share with a friend.

The all-time highs since our initial recommendation to go LONG this market. Here is how the markets have performed:

Stock Market Direction Recommendation (2/15/2018)
Dow	up 599.98 points a 2.38% gain	2/27/18
Nasdaq	up 181.66 points a 2.50% gain	3/13/18
S&P 500	up 70.70 points a 2.59% gain	3/13/18

Related Link: http://www.stockmarket-direction.com/