Rising Tech Index Imply Hilary Clinton Win and Fed's Next Move

Rising Tech Index Imply Hilary Clinton Win and Fed Next Move

Recent market gyration disguises tech index strength. Over the past four weeks, S&P 500 dropped 2.5% from its high, while Nasdaq Index down only 0.8%. Tech Index strength resulted from Apple, Alibaba, Amazon, Google, Facebook, Netease, Priceline, among others, each of which shows its uptrend intact.

In spite of tech stocks strength, many market players still think market will face tremendous challenge ahead. Below we continue our comparison between 2016 and 2012, two election years.

In 2012, S&P 500 had two corrections: One from March to June, S&P 500 corrected 11%, just 100 points below previous year high, after which S&P 500 entered 21.5% shallow short bear market mainly caused by European debt crisis; the other 8.9% correction happened between September to November with Hurricane Sandy and presidential elections  as two uncertainties.

Back to 2016. In 2015 S&P 500 dropped 15.2% in 10 months caused by China's stock market collapse and the Fed's first move. Based on Ned Davis' bear market definition, this S&P 15.2% corrections was a bear market. In June 2016, S&P 500 dropped 6% due to Brexit fear. So what parallels can we draw from 2012 for the rest of the year?

Now the market similarly faces two uncertainties: the Fed fear and election.The  Fed fear has been priced in the market for so long. Any real move and clear guidance for the next move will lift the veil, and market will melt up. As to election, most Silicon valley tech gurus endorsed Hilary Clinton, helping Nasdaq Tech Index continue to climb wall of fear.

So in 2012 after a 21.5% bear market in 2011, S&P 500 had two corrections: drop 11% between March to June, and down 8.9% from September to November 8 election;

In 2016, after a 15.2% bear market, S&P 500 had a 6% correction in June. How about market  from September to November 8 election?   In terms of above  2012 and 2016 similarities, my best guess is that S&P will drop 3-5%. Given that it has already down 2.4%, S&P 500 downside should be very limited. This optimistic view implies that the Fed will likely raise rates next week and say the the future move will be based  on macro-data points.

So buying any dip will still be a good investment strategy this year.

Gunning Ju

From New York

Rising Tech Index Imply Hilary Clinton Win and Fed's Next Move

Rising Tech Index Imply Hilary Clinton Win and Fed Next Move

Recent market gyration disguises tech index strength. Over the past four weeks, S&P 500 dropped 2.5% from its high, while Nasdaq Index down only 0.8%. Tech Index strength resulted from Apple, Alibaba, Amazon, Google, Facebook, Netease, Priceline, among others, each of which shows its uptrend intact.

In spite of tech stocks strength, many market players still think market will face tremendous challenge ahead. Below we continue our comparison between 2016 and 2012, two election years.

In 2012, S&P 500 had two corrections: One from March to June, S&P 500 corrected 11%, just 100 points below previous year high, after which S&P 500 entered 21.5% shallow short bear market mainly caused by European debt crisis; the other 8.9% correction happened between September to November with Hurricane Sandy and presidential elections  as two uncertainties.

Back to 2016. In 2015 S&P 500 dropped 15.2% in 10 months caused by China's stock market collapse and the Fed's first move. Based on Ned Davis' bear market definition, this S&P 15.2% corrections was a bear market. In June 2016, S&P 500 dropped 6% due to Brexit fear. So what parallels can we draw from 2012 for the rest of the year?

Now the market similarly faces two uncertainties: the Fed fear and election.The  Fed fear has been priced in the market for so long. Any real move and clear guidance for the next move will lift the veil, and market will melt up before. As to election, most Silicon valley tech gurus endorsed Hilary Clinton, helping Nadaq Tech Index continue to climb wall of fear.

So in 2012 after a 21.5% bear market in 2011, S&P 500 had two corrections: drop 11% between March to June, and down 8.9% from September to November 8 election;

In 2016, after a 15.2% bear market, S&P 500 had a 6% correction in June. How about market  from September to November 8 election?   In terms of above  2012 and 2016 similarities, my best guess is that S&P will drop 3-5%. Given that it has already down 2.4%, S&P 500 downside should be very limited. This optimistic view implies that the Fed will likely raise rates next week and say the the future move will be based  on macro-data points.

So buying any dip will still be a good investment strategy this year.

Gunning Ju

From New York

Will 2016 Parallel 2012?: Markets as anticipated defy all the doubts heading...

Will 2016 Parallel 2012?: Markets as anticipated defy all the doubts heading...: Market Defies Bearish Views and Goes Its Own Way To Its Destiny Months ago famous billionaires George  Soros, Bill Gross,Carl Icahn, Dru...

Markets as anticipated defy all the doubts heading to new high ground

Market Defies Bearish Views and Goes Its Own Way To Its Destiny

Months ago famous billionaires George  Soros, Bill Gross,Carl Icahn, Druckenmiller , and Jeff Gundlach all declared themselves bearish on equity markets.I said that this bearish comments on markets would create kind of contrarian support to the market. How would market react to that?

Back to six years ago when markets rallied nicely, Paul Tutor Jones made a comment via Bloomberg that he would not chase market , considering the macro-fundamental was not so strong that market rally would have  further to go. Along the way until now, this second-longest bull market has surprises many market players and has been making us so suspicious on its legality and durability.But as long as there are so many doubters and /or perma bears around, this bull market will continue to climb the wall of worry.

So why have so many famous market players talked down market? Don't  they really have no idea about what's going on? Of course not. To my views all those gentlemen have their own agenda. Lets say Jeff Gundlach, the young bond king, may have two agendas ( to educated guess) for why he is so bearish on equity market: a. being bearish on equity market, he may hope to have a bullish bond market;b. He endorses Donald Trump to be next president. Historically when markets performed poorly during election year, incumbent party would lose presidential election, 80% of the time.

Carl Icahn also belongs to second category. he publicly claimed that he would like to be Trump's Treasury if Trump is president.

Another bearish comments on equity markets may result from the fact that these market players want to take advantage of media to make up or add long positions....

This year gold and gold stocks have huge run. Jeff Gundlach was right at this aspect that the global central banks will continue to create ample liquidity and  will not raise interest rate at faster paces.The previous  three years' plunge with gold prices was overdone, and lot of gold stocks were priced in bankruptcy as the global equity markets did in 2009. So gold stocks revenged to run up immensely. But I think this run seems to be overdone and this gold bull rally is not the beginning of another leg of super gold bull market.

Weeks ago I found great Dow theorist  Richard Russell passed way on November 23, 2015.We lost a truly great market theorist.  I thought that I would interview him some time ago. His five decades' Dow letters of  using Dow theory to interpret market will be a market treasure for us forever.  Wish he Rests In Peace.

Gunning Ju

A market analyst

From Flushing, New York

Market Will Eventually Climb Over Three Hurdles Next Five Months

 

Market Will Eventually Climb  Over Three  Hurdles  Next Five Months

Today Goldman Sachs downgraded US. equity market for two major reasons: 1. high market valuation--current forward p/e 16  is higher than long-term average 14.5; 2. low earnings growth cannot support market to go higher.

Days ago, George Soros, Carl Icahn, Jeffery Gundlach, and Stanley Druckenmiller all publicly talked down market, creating a little panic in the markets.

The latest Fed minutes today further hammers market. The Fed possibly will raise interest rate second time, which really surprised the market, sending gold price diving.

The market seems to really face too many hurdles to cross: uncertainties of interest rate, Brexit, presidential election. Each hurdle looks like a tower wall to climb. But each will not impede this bull market run, to the writer's view.

Given that the global economy is still shaky and needs the major central banks' accommodation, the Fed will not likely be too aggressive in hiking interest rate. If the Fed indeed raises interest rate in June meeting, it will not do so again in the next meeting for all sort of reasons.

Historically, presidential election seldom creates a bear market. Then how about Brexit? It should be another temporary market fear that will not have deep impact on the market.

The bearish comments by the four aforementioned market gurus, to some extent, help soothe market, in the contrarian way. This can be seen via semi stock NVDA and others keep hitting new high after solid earnings reports.

Thus, the chance that the market enters 15%+ correction should be slim during next 5 months, but not guarantee.

 

Gunning Ju

Market Analyst

from Flushing, NYC  

Will 2016 Parallel 2012?: Will 2016-2018 repeat 2000-2003 or 2007-2009?

Will 2016 Parallel 2012?: Will 2016-2018 repeat 2000-2003 or 2007-2009?: Will 2016-2018 repeat 2000-2003 or 2007-2009?       Many market players nowadays think 2016 -2017 will repeat 2000-2002 or 2008-200...

Will 2016-2018 repeat 2000-2003 or 2007-2009?

Will 2016-2018 repeat 2000-2003 or 2007-2009?

 

 

 

Many market players nowadays think 2016 -2017 will repeat 2000-2002 or 2008-2009, two big bear markets. To writer's view, this time may be really different, although this statement is considered by Wall Street the most expensive phrase.

 

Before I dissect the difference, I would like first to mention their similarities:

 

a. Like  2000 or 2008, 2016 is presidential election year, and during each of previous bull market, markets have up huge;

b. Indexes'  long-term MACDs line downward deadly crossed, regarded by many as a dangerous sign.

 

But there are 4 hidden substantial difference:

 

a. Unlike in 2000 or 2008, the yield curve in 2016 is not inverted;

b. Although Indexes' long-term MACDs appear  deadly cross, this year Indexes have not given up rising, while 2000 or 2008 Indexes simply surrendered to downside in spiral;

c. Economies looked peaking in 2000 or 2008, with the FED did not hesitate keeping raising interest rates; while in 2016 the FED still accommodates easy monetary policy when the economy is in the early stage of recovery; 

d. Leading stocks react well to solid earnings reports, with no sign of climax run as did in 2000 or 2007/8.

 

In these regards, this time big bear looks like farther away. However, be preparing  for  10%+ market correction and cherry-picking.

 

Gunning Ju

 

Market analyst

 

5/4/2016 from New York