Regardless of what happens in Europe, stocks are not the place to be if a recession is around the corner. The odds of a recession are increasing. A bearish economic outlook is supported in Friday’s Wall Street Journal:
“It feels like a recessionary environment. What they call it later on I can’t tell you,” says Bart van Ark, chief economist of the Conference Board, who put the odds of recession at 45%. Since 1988, every time the Conference Board’s estimate of the probability of recession topped 40%, a downturn followed shortly thereafter.
We remain skeptical of the current advance in stocks, primarily due to the weak participation and conviction behind moves in economically sensitive sectors, such as energy and commodity-related stocks. The current advance looks narrow (again) with the S&P 500 Index and NASDAQ QQQ's being used as the main exposure vehicles. The sectors, asset classes, and portions of the globe that lead the markets higher off the November 2008/March 2009 lows are not providing a lot of confidence the current advance is sustainable. China and emerging markets, shown below, were leaders off the 2008/2009 lows. Following the bottom in 1998, emerging markets also led the way to higher highs. Emerging markets and China continue to lag the S&P 500, which is not what we want to see.
The bulls still have a good grasp on the short-term trend. It was only five days ago the market was on the edge of taking out important levels on the downside. Sharp moves like what we have seen since the intraday reversal on Monday are typical in bear markets. It remains well within bear market reason for the S&P 500 to revisit the 1,260 level, as we mentioned on August 10.
How the market behaves between 1,230 and 1,260 will go a long way in helping sort out the debate between the bulls and the bears. If the S&P 500 barrels through these levels in impressive fashion, it would obviously be a win for the bulls. The most likely outcome for the S&P 500 is a reversal between current levels and roughly 1,260. If a reversal does occur, the manner in which the market comes down will be very important. If we see a pullback on weaker volume and see bullish divergences appear on charts (especially weekly charts), then it may represent a good entry point for bullish positions. If the reversal is swift, backed by volume, and negative market breadth, then the bearish case will remain firmly intact. The important thing is to keep an open mind and make decisions based on facts rather than fear of missing something. Our current high position in cash allows us to adapt if conditions improve.
We still have all of the following to contend with:
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Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
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Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
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