Each week I examine and evaluate all that is thrown our way
(which I like to call wrestling the financial demons),
whether they be economic, technical or emotional, in an
attempt to make sense of it for you. My job is to keep our
clients on top of financial circumstances as much as it is
to manage accounts to protect against risk as much as
possible. I am proud of our success over the last few years,
particularly with our proprietary, Top-Down
Tactical (TDT™) investment management strategy. I am
writing this today to simply say that the risks have risen
substantially and to be very careful. If you have any
questions or wish to chat about it, give me a call.
This week I am not going to go into the larger economic
picture. You’ve heard me squawk enough about the new
“Mentality of Frugality” (yup, I coined that…although I’m
the only one using it at the moment), “Demographics”: the
aging Boomer turning from net spender to net saver, or
“Failing fiscal policies”, that global governments and
central banks are pursuing a strategy of simply buying time,
hopelessly hoping that a recovery in economic conditions
will allow our banking industry to re-build its capital
base. You can review my past commentaries for that by
clicking on the link above. Nor am I going to discuss market
sentiment, which has been getting increasingly complacent. I
have also warned repeatedly about that. This week it’s all
about the numbers…technical analysis.
Although I think the other factors are reason for caution,
technicals is what kicks us in the pants when it’s to make a
move. I realize I may be alone here, as few people if any
are calling for substantial new lows. However, I was largely
alone in January 2008 when I warned of a market collapse in
my Economic
Tsunami Special Report as well as in my call for the
start of a (Bear market) rally in my March 11th commentary.
Technical analysis best work comes from
Lowry’s Research and appears in many shapes and sizes, with
it most useful in the measurements of Supply and Demand.
Most notably (and in English) buying power, selling
pressure, volume and market momentum: Here’s today’s market
in a nutshell.
Buying Power: Strong investor Demand has been the driving
force during the initial three to six months of every new
bull market. However, that has not been the case since the
March’09 market bottom. Buying Power did increase from early
March to early May. But since May 8th, Buying Power has
dropped 77 points, ending this week one point below its
March low. Based on past experience, it is difficult to
envision a broad, sustained new bull market in the face of
such a significant drop of Demand.
Market Momentum: As a general rule, rally failures are
usually preceded by signs of a loss of upside momentum. That
is, the % of stocks participating in a rally commonly fades
for several weeks, or even months, in advance of a market
high, showing that the rally is becoming too selective to
continue. The rally from the March low reached its best
level of participation in early April, with about 95% of
stocks above their 30-day moving averages. That number now
stands below 50%, reflecting a very selective market.
Volume: Increasing volume on rallies has long been
considered an essential ingredient of bull markets in that
it shows a growing willingness to expose increasing amounts
of capital to risk in equities. Conversely, shrinking volume
on rallies shows investors have lost their zest for stocks.
The 30-day moving average of Upside plus Downside Volume did
expand during the first month of the rally from the March
low, but has been shrinking throughout the past three
months, currently down by 28.4% from its early April peak.
It is worth noting that the 30-day average of Up plus Down
Volume was also shrinking throughout the Mar-May’08 bear
market rally, as well as during the Nov’08-Jan’09 failed
recovery attempt.
Selling Pressure: Despite all of the preceding evidence of
weak Demand, the Selling Pressure Index has been in a
sideways pattern throughout most of the past four months,
suggesting that the desire to sell was not exhausted during
the decline to the March’09 low – one of the initial reasons
for questioning the long term significance of the uptrend.
If Selling Pressure had dropped as much as Buying Power
increased, there likely might have been a buy-signal. At the
same time, the sideways pattern of Selling Pressure from
March to early June meant that the intensifying selling
needed to drive prices sharply lower was simply not in
evidence. However, Selling Pressure has been quietly on the
rise, up 22 points from its June 1st low, calling for
increased alertness.
Just in the last few days selling pressure has increased to
a reading of 881, completed the requirement of a rise in
Selling Pressure of 24 points or more from the Index’s most
recent low thereby raising the Red Flag of Caution. This
signal appears to offer a clear warning that conditions are
shifting, especially in terms of increased Supply, to
significantly increase the risks of a market pullback with
the potential to retrace all, or at least a substantial
portion, of the entire rally from the March 9 low. In this
sense, it is probably worth noting that Buying Power has
recorded new lows, below the March 9 low at 96, over the
past two trading sessions. Over the past two trading
sessions, Buying Power has dropped to new lows, below the
level recorded at the March ‘09 market bottom. In addition
to the deceleration exhibited by Buying Power, new lows are
certainly not typical of bull markets. In fact, there have
been no instances in the 70 years of data when Buying Power
recorded a new low in the early stage of a new bull market.
There have been instances of tests of Buying Power lows, but
these have accompanied pullbacks in price.
Our primarily duty for our clients is to give them peace of
mind and help them sleep at night and that’s what we do. At
a minimum, it appears that the risks are beginning to
rapidly outweighing the rewards. If it looks like the data
is wrong, we’ll quickly adjust and become more aggressively
positive. However, if we are going to experience anything
close to last fall, I want to be ready. How about you?
If you would like a complimentary review of your finances or
even just a free 2nd opinion, simply reply back or give me a
call. Be prepared and take action before it’s too late.
Cheers –Keith
916-925-8900
Keith Springer is President of Capital Financial
Advisory Services, a registered investment advisor,
providing Wealth Management and Mortgage Consulting
Services. For more information on how to build and
maintain a solid retirement plan, please contact Keith
at
916-925-8900 or
Keith@KeithSpringer.com |
