Louis Navellier - S&P 500 "Triple Bottom" Last Friday

Excerpts from a Louis Navellier email titled "The S&P 500 Reached a "Triple Bottom" Last Friday"

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-------- Forwarded Message --------

Subject:	The S&P 500 Reached a "Triple Bottom" Last Friday
Date:	Wed, 20 Jan 2016 08:05:08 -0500 (EST)
From:	Navellier and Associates <marketmail@navellier.com>

All content in this Introduction to Marketmail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

The S&P 500 Reached a "Triple Bottom" Last Friday

Last Friday, the S&P 500 essentially tested its August 24th low on high trading volume; so we finally got the panic "capitulation" day that typically marks decisive stock market bottoms. I for one can tell you that I was putting new money into the stock market by funding my 2016 SEP and adding money to a family partnership Friday, because the stock market appears to be grossly oversold, as signaled by a "triple bottom," which was created by market lows set in mid-October 2014, August 24, 2015, and January 15, 2016.

The way High Frequency Trading (HFT) systems work, what is down today is likely to be up tomorrow; so the herky-jerky market action we've been seeing on a daily basis will likely persist. The fact that Friday was a capitulation day on high trading volume, aided by an option expiration day, gives me hope that we'll see a big bounce early in this holiday-shortened week; so be prepared for more daily gyrations, thanks to HFT. In addition, the S&P 500 dividend yield of 2.3% is now well above the 10-year Treasury bond (below 2%, intraday).

However, before we get too excited, theaverage energy stock now trades at 28.7 times trailing earnings, and their forecasted earnings are truly horrific. A while ago, my company published a white paper, warning investors to stay away from these stocks. The ETF industry is basically causing this excess valuation for energy companies with negative sales and earnings. Specifically, I've seen a wave of ETF "pop up" buttons lately, advertising ETFs with yields over 4%. The only problem is that to get that 4% dividend yield, the ETF industry has to buy a lot of multinational and commodity-related stocks that are characterized by negative sales and earnings. As a result, the tail (i.e., dividend yield) is wagging the dog.

Not surprisingly, energy stocks now dominate the "F"-rated stocks in our Navellier DividendGrader and PortfolioGrader services. In my opinion, it is futile to chase high-dividend stocks via ETFs since you are setting yourself up for persistent principal erosion, regardless of the dividend yield. In other words, while the S&P 500's generous dividend yield is putting a good foundation under the overall stock market, some of the highest dividend offerings are becoming dangerous, due to the ongoing woes in the energy sector.

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Bob Brinker & Louis Navellier Market Projections and Outlook

Bob Brinker & Louis Navellier Market Projections and Outlook:  Both Brinker and Navellier expect the markets to "test" their recent lows

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.

More S&P 500 Charts

From the comments section of the article Intel Buying Opportunity - Bob Brinker's Favorite Trading Stock, John wrote:

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.

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.

This matches what Louis Navellier sent me via email this morning titled

"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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