Articles

Everywhere I turn these days, I see articles discussing how over-extended U.S. equity valuations have become. If I took a shot of mouthwash every time I came across an article that talked about U.S. equity valuations, I’d be leaving Las Vegas, Nic Cage-style, minus Elisabeth Shue. I monkey-hammered the idea of valuation as a catalyst for an equity market drawdown several weeks ago, but this week it’s woodshed time for Mr John Hussman. Hussman has a brand new commentary beating the same dead “S&P 500 is overvalued” horse, but this time he’s coined a new phrase to describe the S&P 500: “offensively overvalued.” While I obviously can’t say for certain what this guy uses to make investment decisions, it’s not a stretch to assume that...

Imagine you had invested $10,000 at the bottom in 2008. The results you find below might not blow you away on an actual basis, but the amount invested is all relative based on your financial situation. It’s the percentage gain that’s more important because that number is going to be the same for everyone – assuming investors poured money into the market at the exact same time for this hypothetical situation. In addition to looking at how much money you would have made, we’ll also take a brief look to see if the same kind of return is possible over the next eight years. S&P 500 The S&P 500 consists of approximately 500 large-cap stocks (it’s never exactly 500 stocks these days and tends to change) that are either listed on the NYSE or...

The end of 2007 was characterized by extreme values in various indicators of stock market analysis. In this article I will review and analyze four of them. I will use the term "indicator" here not necessarily according to the technical analysis jargon but rather as a set of clues (either measurable or not) under the same idea which can reveal specific internals of the stock market and imply bullish or bearish projections. The First Indicator: Commercials Versus Small Speculators The Commodity Futures Trading Commission releases weekly information known as Commitment of Traders (or simply COT) report about various markets which can be used to approximate the net open interest for futures and options in each of the following three...

A look at the yield curve and why it is said to be the most accurate forecast of looming recession. I have written about the yield curve more than any other single topic in the almost six years of writing. There is a justifiable reason to pay attention to the yield curve. In certain very specific circumstances, it has been the single most reliable predictor of recessions. Let's examine what those circumstances are. First, the yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Normally, you expect to get more interest paid to you for holding a longer maturity, as in theory there is more risk to holding a bond for ten years than for 90 days, or for 30...

Open interest is without a doubt the least used bit of market data by chart watchers. Conventional wisdom; prices up on increasing O.I. being bullish, is just as often found to be bearish. What I want to show here is the relationship of O.I. and the buying patterns of the Commercials for the Commitment of Traders (COT) report. I'll begin by showing a chart of gold with an indicator I'm sure you have never seen before, a 13 week stochastics of just Open Interest. Yes, this index is simply an oscillator of O.I. What we see is that, generally speaking, low levels in this index are found at market bottoms. Thinking about it makes sense as what it is telling us is there is little interest, open or not, in the market we are studying. I...

It is appreciated that Trade2Win is first and foremost a "technical analysis" site. Those that know of me from T2W may be aware that my methodology is one of "fundamental analysis". From this rather black and white perspective, what do I have to offer the committed technical analyst? I offer you the price/earnings ratio. The P/E ratio, as it is more commonly referred to, lends itself well to the non-financial analyst for a number of reasons. I shall suggest a methodology that is hybrid in nature, combining the P/E ratio (exclusive of any knowledge, or reference to, the financial statements) with a technical chart that acts as a filter for the P/E ratio, imbuing the P/E's calculation with a factor of safety. We shall end up with a...