The stock markets are up significantly from their August 2015 lows. Both Bob Brinker and Louis Navellier expect the market to test those lows before making new record highs.
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Bob Brinker is still constructive on the stock market. Although the primary catalyst for the current correction is concern related to the slowdown in economic grow in China, he does not see indications that a recession is on the horizon in the US. In the absence of a recession outlook he does not anticipate a bear market decline of 20% or more.This matches what Louis Navellier sent me via email this morning titled
The initial stage of the current major correction (more than a 10% decline) has taken the S&P 500 Index into the 1800s range. Now that the initial correction stage is completed, Bob expects the S&P to stage a short-term rally which will run out of steam and roll over into a test of the initial bottom area. The establishment of an initial area of a correction bottom, followed by a successful test of the bottom area, is a pattern of market behavior that has occurred many times and has led the market higher going forward.
"Caution: We Could See another Retest of the Market Lows This Week"
The big sell-off on Tuesday looked like a classic retest of the August 24th lows, but trading volume was light due to the upcoming Labor Day weekend, so I believe that a real retest on higher trading volume is likely this week, after the long holiday weekend.
I know it's painful to watch CNBC and fear the worst, but this is a normal market shake-out. All I care about is that any selling pressure is "exhausted" on the inevitable retest(s). I expect that any such higher-volume retest will occur by next Tuesday, September 16, the day the Federal Open Market Committee (FOMC) meets. The next day, September 17, the Fed will announce its long-awaited interest rate decision and also provide guidance on its policy parameters moving forward. Due to chaos around the world and an abrupt slowdown in China, I expect that the Fed will postpone the expected September interest rate hike until its December FOMC meeting. I also expect a substantial stock market rebound if the September 17th FOMC statement is interpreted as "positive."Are Bob Brinker and Louis Navellier correct or have they missed the lows?
Beware! In 2007 and repeated in early 2008, Bob Brinker said (see Bob Brinker's Asset Allocation History) the roughly 10% declines off the then record all-time highs in the mid 1,500s were "Gift Horse" buying opportunities. From page 3 of the January 2008 Marketimer, Brinker wrote:
“In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008. We expect the S&P Index to achieve new record highs this year and to reach the 1600’s rang in the process. We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400’s range. Above this range we prefer a dollar-cost-average approach for new purchases. All Marketimer model portfolios remain fully invested as we enter 2008."Brinker turned out to be 100% wrong as the S&P 500 index fell like a rock to a low of 666 before turning and reaching the 1600s years later.
If the S&P 500 makes a new, record high without testing its August 2015 lows, then Brinker will brag he remains fully invested. Of course, he's been "fully invested" since March 2003 with no changes to his asset allocation since then.
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Chartist Martin Pring is bearish:
ReplyDeleteFrom "Evidence Points to Further Testing of the Lows"
Posted: September 10, 2015 at 06:40 PM by Martin Pring
US Equities short-term
The recent wild swings in the market may look random in nature but so far there has been a certain amount of order to the process. To explain this I need to move away from my longer-term perspective, which remains bearish, to consider the action since the August 24 intraday ”panic” low. That session experienced a lot of the characteristics of an exhaustion day. That’s a day following a sharp decline, the price gaps sharply lower on the opening, but by the end of trading closes above that opening price. Lots of volume also helps as that indicates that substantial liquidation has taken place. “Exhaustion” in this sense means the cessation of liquidation from strongly motivated sellers. Such one day price patterns usually mark the intraday low for several weeks, often longer. So far that theory has taken hold, as prices have traded well above the August 24 low.
The next two bars represent what we call “inside” days. They are ones whose trading range is totally encompassed by the previous sessions range. Inside days offer an additional message that the previous balance strongly favoring sellers is now more evenly matched. That’s because neither side is able to push prices higher or lower. The two inside days again add support to the idea that the August 24 low will hold for a while.
Other evidence in this direction comes from Charts 2 and 3. Chart 2 shows that the $VIX reached a very high level that has been consistent with market lows in the past.
Chart 3, for its part, tells us that the number of new net NYSE 52-week highs touched a very oversold level, again consistent with some form of bottom.
Getting back to the daily bar analysis, but now adopting candlesticks, we see that Wednesday’s action represented the second candle in a bearish engulfing pattern (Chart 4). Engulfing formations develop when the range between the open and the close (known as the real body) of the engulfing candle encompass that of its predecessor. If, following a decline, the close on that engulfing candle is higher than the opening, that second candle is bullish and earns a white real body. On the other hand if, following an advance, the close develops below the opening, as was the case on Wednesday, that’s bearish and the real body is colored in black. The reason lies in the fact that the higher opening on the second candle draws in many bullish traders who think prices are moving higher. Short covering may also represent part of the picture. However, at the end of the session disappointment sets in as these traders are sent home with a loss and therefore represent overhead supply. If the price rose because of short covering that potential demand has now been eliminated and the technical position that much weaker. Wednesday’s engulfing candle met all the requirements, except that its downward influence may be tempered by the fact that it developed after a two day advance that itself was part of a trading range. The bottom line is that until Wednesday’s high is bettered, thereby cancelling the engulfment, the risk of lower prices is very real.
If the longer term indicators were signaling a primary bull market I would label such a dip, should it transpire, as a screaming buying opportunity. However, as I pointed out in this week’s webinar, there are lots of reasons for suspecting that we are at the beginning of a bear market. That’s an important distinction because indicators behave differently in bull and bear markets. Prices are extremely sensitive to oversold conditions when the trend is up but are far more lethargic when the trend is down. My best guess is that the low will hold for a while longer or may be temporarily breached but that the next sustainable down leg will come later. Remember that’s just a guess, no one knows for sure. The best policy unless you are extremely nimble, is to stand aside until the volatility subsides.
Via email today:
ReplyDeleteSeptember 15, 2015 - By Louis Navellier
"All content in this Introduction to Marketmail represents the opinion of Louis Navellier of Navellier & Associates, Inc...
Despite a rebound in global stock markets, including gains of over 2% in most major U.S. stock indexes last week, I hate to be a party pooper but I still expect that the S&P 500 will try to retest its August 24th lows in the upcoming weeks. From my experience, the stock market likes to make sure that the recent low was really "The Low" by testing that low on higher volume. Since Labor Day, we've seen much higher stock market volume since most Wall Street professionals are now back from their summer hiatus.
Even if the S&P 500 retests its August 24th lows later this month, I am sticking with my previous advice that, in my opinion, our best buying opportunities might be on September 16th before the Fed's press conference, in the last week of September during quarter-end window dressing, and in the week before Thanksgiving."