Market conditions are extremely oversold in all risk assets right now. Some assets have entered a four standard deviation price range away from their normal mean. Sentiment is super bearish across the board for many global stock indices and major commodities, to the point where an inflection point could easily occur. Certain commodities and European equity markets are slaughtered. Numerous assets are down 8, 9, 10, or even 11 weeks in the row. Other assets are down 8, 9, 10 or even 11 days in the row. These are extreme historical statistical events dating back decades. Something has to give soon...
It all points to a possibly of a major bottom occurring eventually and a massive buying opportunity. Having said that, if we continue down this selling road and we do not get a rally in risk assets soon, which drags us outside of oversold conditions, than we could crash from these oversold level. That is right... we could crash from here! Markets tend to crash when fear and panic spreads, while the technical conditions refuse to exit oversold readings. With no buyers coming into the market, prices just sink lower and lower until full blown panic takes hold of all market participants.
Greece seems to be the catalyst yet again. If Greece leaves the EU and completely defaults on its bonds, banks from all around the Eurozone (even globally) will incur huge losses. Since majority of these EU banks are leveraged anywhere from 20 to 1 towards 40 to 1, liquidation in risk assets will take place to square off the balance sheet and reduce banks overall leverage. Some banks might even blow up. Even if the event lasts only for a several days, price levels could sink really really quickly. Similar type of event occurred In September and October of 2008 during Lehman Brothers bankruptcy. A more mild version occurred during MF Global liquidation just several months ago.
Personally, the current market conditions have certain type of Lehman II resemblance. On the other hand, technicals, sentiment and price data seems to point to an inflection point buying opportunity. I am not sure which one it is going to happen, the market will decide for all of us very shortly. Strong price action reversals could / should be bought for a rally, while further breakdowns could / should be major warning signals.
Therefore, I would advise all to be very careful and take necessary precautions to protect yourselves in coming days and weeks. Hedge your core holdings in portfolios and reduce leverage. Leave cash on sidelines for a buffer. Finally, for those die hard contrarians out there... they should use this post (and the current market sentiment) as a signal that maybe it is time to buy right here... right now! Good luck.
Very good post.
ReplyDeleteSupport you Tiho!!. Trading life should be flexible to different market stitution. Sometimes dramatic market crash caused by politics even cannot be discounted by market.(Lehman Brother is a good example)
ReplyDeleteAny help on where can I find daily sentiment index value for silver?
ReplyDeleteGuess we're crashing
ReplyDeleteJim Rogers full hedged his Gold and Silver positions - detail in interview today. He also keeps mentioning 2019, 2020, and 2021 as gold bull market top. This conflicts with other information and past cycle history dating back to 1800s (including Solar Cycle which is expected to peak in 2013)
ReplyDeleteAnonymous #1 - we are not crashing yet. We will be crashing if the price starts falling 5% to 8% every single day. Now, that is a full crash! *smile*
ReplyDeleteAnonymous #2 - Jim Rogers is a very smart man, probably one of the smartest out there. Everyone always thinks he has no idea how to time things and that is very late to the game. Funny enough, he is almost always right. No wonder he is a billionaire.
I dunno why commodities would peak in 2013 when we have barley started working on the supply side problems in the raw materials space. With constant crisis after crisis (from Lehman to Greece), hardly anyone is investing in supply side. Shortages everywhere still remain. I don't think commodities will end in 2013, no matter what cycle says what.
Every commodity bull market has lasted from 15 to 21 years, with average being 17 years, since the 1800s. The bull market from 1932 to 1952 lasted 20 years. During that time we have banking and debt crisis similar to today, which constantly interrupted supply side investment and prolonged the bull into above average age. We could have similar event occur in todays environment, where the bull market, which started in 1999, could end by 2017/18/19 or something like that.
Besides, if commodities were to end in 2013, than stock market should be ripe and ready for a bottom around 2014. Currently the Shiller P/E on S&P 500 is around 21. If earnings declined by 25% in coming recession and stock market crashed by 50%, I doubt we would even reach single digit P/E ratios of a bottom like in 1921 1932, 1949 and 1982 - all of which were major starting points of bull.
So to summarise, supply & demand in commodities as well as long term stock price valuations, both do not signal any change occurring in secular trends yet. Stocks will go sideways to work of valuations, governments will print a lot of more money, Chindia (China and India with 4 billion people) will not stop consuming commodities, while miners and farmers will conituue to invest into supply side to meet the ever growing demand - and than the whole thing will eventually enter euphoria and mina like Nasdaq in 1999. Commodities bull market is not over!
You've gotta agree that gold/silver miners are certainly crashing (coming from extremely oversold conditions like you said)
ReplyDeleteBold and Silver miners are crashing, that is for sure. Gold and Silver are down a lot and are extremely oversold, but a crash in Gold could take us to extremes, even below $1400! Silver will be totally killed in that scenario, as it would start going down 5 or 6% in the row, instead of 2% down days.
ReplyDeleteBold = Gold. iPad autocorrect is sometimes an awfully flawed tool!
ReplyDeleteAre you saying that gold and silver are going to crash?
ReplyDeleteHaha. Maybe, anything can happen if Greece leaves... this reminds of 2008. It is pretty much wait and see.
ReplyDeleteTiho what do you think the price is doing on this ECB and Greek news?
ReplyDeleteHahaha I cannot stop laughing. So many comments are asking what does this mean and what does that mean. People are truly scared... much more scared than at anytime since late 2008. I've received emails and questions about selling only. Everyone wants to know if to wake away or sell or reduce.
ReplyDeleteFirst I would recommend reading a true contrarian at work over at solar cycles blog. The gentlemen is buy oil, equities, silver all risk across the board.
Second, regarding recent news, any news right now moves the market. It seems ECB wants stop monetary policy with Greek banks. So prices tanked for awhile, but the Euro failed to make a new intra day low. Maybe I wrong, but maybe people are just overreacting to any news now. And since we didn't make new lows in the Euro, maybe majority of the bad news has been priced in.
Dollar is up 12 days in the row. That is a record. Will it go up 13 days in the row? Never since 1970s have we had this many days up in the Dollar. Sentiment n the USD is extremely bullish. Eventually something needs to give and we can revert back to mean a bit here.
Tiho, Understood about supply/demand and 17.6 year cycle. The good news is with either a 2013 top or beyond... the commodity bull market is still in tack. Please consider that from commodity top to top has historically been about 30 years. For example 1920 commodity top to 1950 commodity top is about 30 years. From 1950 to 1980 is about 30 years. So considering this bull market, we should have completed in 2011. Considering the full cycle from peak to peak, we are overdue for a peak. Also, you will see that the commodity bulls runs have been getting short. Some were 25 years long in the 1800's. Will the previous one (1980) was only 15 years.
ReplyDeleteI'm favoring our friends prediction at Solarcycles.net of a peak in 2013-2014
Tiho,
ReplyDelete1. I appreciate your transparent blog. In that same spirit, I will transparently post my trades to help with the discussion, since you are being so open about things. These are tough times if you are a Gold/Silver bull. My emotions are telling me to sell and ease the pain, but Jeremy Grantham once said "Write down your moves in advance, and when the time comes to pull the trigger, execute what your written plan says to do, because when that time comes, you will not want to do it".
I am "scaling in" to add to my Silver positions, which are large. Because a crash could occur, I am not buying as much as my written plan says, however, I am scaling in at pre-determined levels. I use AGQ as my silver play. Every 20% drop, I buy more. I have to hold my nose and grab my balls each time. I did however, reduce my price points where I enter. I bought more today.
2. Tiho, how would you define a "crash". If you were to define a crash from these levels, what would that look like? Just curious.
if silver breaks 26, look out. CRASH will take silver to 20 in 2-3 days.
ReplyDeleteThanks Tiho !
ReplyDeleteI appreciate your tech analysis with DSI. To be a contrarian trader is not easy, but giving 4% bull for GOLD yesterday, I just want to image how the emotion will be when 97% bull .....
Anonymous mentioned the 17.6 year stock market cycle. This book mentions a stock market panic in 2013 but its not out yet.
ReplyDeletehttp://www.harriman-house.com/products/books/870601/investing/The-176-Year-Stock-Market-Cycle