S&P500 dropping to 600 by spring 07

[Chris Scoreboard Johnston]

Chris Johnston

Here We Go

The sell May and go Away goes against the seasonal tendency for a rally at that time of the year. It does not always happen, but on average it does. That is not part of my trading, so it is not a consideration one way or the other. I am not sure where that came from, but probably from someone who never made any money trading. I cannot afford to get caught up in cute little phrases like that with no basis in fact. I trade for a living, so I need to make money, not write about what others should do. I do advise others, but I only make money when they do, so I need to be pretty accurate. Last year we had a big decline in May which I called one day in advance in my blog. You can go to it and see the May 10th post. That was clearly telegraphed by a bond market decline, which we do not have right now.

When the commercials are as heavily long as they are now, it is not likely that a large decline will occur. If they head to the sidelines, I will go with them. Until that time I will stay heavily long as I have been for about a month now. Fighting a trend like this is a good way to part with ones money IMO, and I have learned that lesson the hard way over the years.

This does appear to be a blow off top, but how far it goes is anyone’s guess, and I want to ride it as long as possible.

[Anonymous]

Makes sense, Chris.

Tricky part for me is that — in my mind — the late February 9% decline in the Chinese stock market, which took the Dow down 4%, could have been — I believe — the triggering event for the collapse in the U.S. stock market.

I feel comfortable that the market will be going down long and hard (in my read of history, we are nearing October ’29). What I’m concerned about is being blindsided by an idiosyncratic event, and being long when I know that I should have been short. Hence, why I’m short, now.

What’s the address for your blog, Chris?

[Chris Scoreboard Johnston]

Chris Johnston

jg – my blog is http://www.iamafuturestrader.blogspot.com. I do not post every day like I used to for alot of reasons that are not worth explaining, mostly that I get alot of visitors, but not many posts. Then I get emails instead of posts on the blog, which kind of defeats the purpose of the open conversation. You can view some of my old posts to guage whether or not I know what I am talking about or not.

I do see a significant short term decline coming towards the end of summer, but I think it will setup another buying opportunity in the fall. I am of the belief that 10 years from now we will be way higher in stock prices than where we are now. However, we will have swings down that hopefully I will be able to dodge. I have been successful in the past at dodging them, particulary 2000 which was an easy top to spot in advance. I doubt it will be that easy the next go around.

[equalizer]

Stock Traders Almanac and other have documented the Sell in May works over the past 30-50 years on average.
See http://www.bizjournals.com/boston/stories/2002/05/27/newscolumn7.html

For buy and hold types, it is not a bad indicator along with 
looking at operating and reported P/E ratios, interest rates.

The fact that S&P 500 hasn't broken through 1530 is very 
scary.  But the Dow Theory is still intact.  The Transports and DOW still have not broken uptrend, although I think with GM, etc, the Transports may see decline.
So, I stay put with stocks and money market for now.
 

[equalizer]

http://www.bobbrinker.com

Recently his record is pretty good.

On his radio show in Jan 2000, he screamed for everyone to get out of stock and go to GNMAs. I ignored that signal. He favored a small buy in tech at NASDAQ 2000 in 2001(?), which was a bad call. Then in Mar 2003 with S&P 500 at 800 he recommended full exposure to stocks. I did follow partially follow that signal. Has been bullish since then, with S&P 500 target of 1550-1600.

Bob Brinker is the host of the ABC talk radio show Moneytalk, which has been on the air since 1986. He previously had a show on local radio in the New York area going back to 1982. Brinker includes market timing in the investment newsletter he authors, titled Marketimer, which contains recommendations on no-load mutual funds along with several model portolios.

Bob Brinker’s Moneytalk radio show is heard on close to two hundred radio stations on Saturdays and Sundays from 4-7 pm Eastern Time. The show is also heard live on both XM Satellite Radio and Sirius Satellite Radio, and is also streamed live globally on the internet. Moneytalk on Demand is a streaming service that allows around the clock access to Moneytalk radio broadcasts for a monthly fee.

Brinker is a long time member of the New York Society of Security Analysts and the Financial Analysts Federation. He served as Vice-President Investment Counsel at The Bank of New York, and on Wall Street as Chief Investment Officer for the U.S. division of Guardian Royal Exchange, London. Bob is the co-founder of the “BJ Group”, an investment management firm that he sold in the summer of year 2000. Brinker continued to provide asset allocation guidance for the firm after the sale.

[HereWeGo]

In a related note, Tweeter is closing at least 1/3 of its stores. That’s right, the overpriced big screen TV outlet is in deep trouble, and the stock price certainly reflects that fact.

I continue to believe there are money making opportunities for smart, targeted bears. But being bearish on the general market will only get you mounted at this point.

[Cow_tipping]

I think when starbucks tanks that is officially the bottom of the house market. I believe so much of the over priced sheite was bought with heloc money.
Cool.
Cow_tipping.

[lniles]

I’m not going to bet on this but I think Starbucks is fixin’ to take off (again). They’re getting into movie and music distribution now, as well as food services. They just opened the first Starbucks in India, if they take off over there, WOW! Ad astra per aspera. I sold all my SBUX a few months ago but maybe I will buy some again. I’m happy to say that I’ve sold all my apple stocks, which I bought for $17 some time ago… I’m sad to say that capital gains tax will be taking a Lexus-sized bite out of the proceeds.

[equalizer]

15% captial gains rate is great. Should complain about taxes on money market, CDs at much higher rates. Sullying about a great profit is so not piggington. After 2000, I am so happy to pay capital gains, since it means I didn’t lose 100% on my tech stocks!

[Critter]

I agree with Equalizer. I had a friend moan about long-term cap gains in the neighborhood of $300K. I did the mental math and realized she had made a $1,700,000 profit, so I changed the subject.

In her case, complaining about cap gains was a way of telling me how wealthy she was. Then she made me pay for my own coffee! Dang!

[Chris Scoreboard Johnston]

Chris Johnston

Seasonal patterns have changed quite a bit in the last 10 years, so looking at things that on average work over the last 30 to 50 is a way to get yourself into big trouble. That data is too heavily skewed to the past.

[poorgradstudent]

HereWeGo- The price of big sceen TVs crashed largely thanks to aggressive pricing and marketing by WalMart. While I don’t always agree with their politics, Walmart certainly can lower the price of consumer goods.

Regardless of the overall market, there are always money making opportunities for smart, targeted approaches. If you bought Altria (MO) just before the tech bubble burst, you made a ton of money (it had been beat up during the bubble). The trick is just finding those opportunities.

As for Starbucks, I thought their music/movies foray has been regarded as a fiasco at best? Hard for me to really say, as I hate Starbucks coffee. I do agree with Cow_tipping that Starbucks likely is one of the canaries in the coal mine; if people’s wallets are feeling a pinch that $5 cup of coffee is one of the first things to go.

[lniles]

Just throwin' this out there, from MarketWatch news:

After Thursday's closing bell, Starbucks said it made $150.8 million, or 19 cents a share, in the latest three-month period, vs. $127.3 million, or 16 cents share, in the comparable period a year earlier.

Revenue rose to $2.26 billion from $1.89 billion.

In its international segment, same-store sales growth stood at 7%.

Personally, any company with revenue in the billions by selling cups of coffee earns respect. I travel to Japan and China every year and only drink my coffee at Starbucks there… Mostly because I'm impressed with their world-wide non-smoking policy (a risky business move in Asia). The queues in those stores are often out-the-door.

For future reference their stock is at $30.70 today.

[(former)FormerSanDiegan]

davelj –
Thanks.
I tend to agree that investors are not accounting for risk properly in recent years (one look at sub-prime mortgage market tells us that). Certainly, a decline in earnings and subsequent shunning of stocks by investors could result in the scenario you laid out.

Modest increases in interest rates, economic slowdowns and earnings recessions are likely to come our way at some point and result in a change (decline) in stocks.

However, by one simple measure, stocks have reverted to the mean. According to Bob Brinker …

S&P 500 P/E as of beginning of May * : 16.1
50-year average of S&P 500 P/E : 16

(* Forward-looking P/E assuming 5% earnings growth from actual 2006 levels)

[davelj]

FSD,

Yes, despite all (the negative stuff) I’ve posted, IF earnings hang in there over the next few years (that is, they don’t decline materially) AND rates don’t materially increase, then the S&P is arguably roughly at fair value, give or take 10%. The Nasdaq, however, still could get a shellacking because it’s valuation is considerably greater (mid-30x EPS) with no commensurate earnings growth advantage (anymore). The key will be earnings, in my opinion. I don’t expect long rates to increase materially for the foreseeable future. But I think earnings are going to take a pretty big hit, as they did in 2000/2001… I’m guessing in 2008/2009. But, in any case, we’ll see. For the record, I have no direct exposure to the S&P or Nasdaq, or publicly-traded stocks in general, but they do convey a lot of information about where market/economic psychology is at a given point in time.

[Author]

Posts