April 7, 2014

History rhymes itself

For now I am positioned market-neutral, and I prefer being reactionary (rather than anticipatory), looking for Mr. Market's price action to give me some direction.

The major market risks include a downgrade in valuations (and P/E ratios), disappointing corporate profits (and profit margins), less vigorous global economic growth (which might be the message of the recent flattening in the yield curve) and the likely emergence of natural price discovery in the capital markets as the Fed begins to taper and ultimately raise interest rates.

The first quarter of 2014 is the first opening three-month period of a year since 2009 that the market has made no progress.

Market leadership is changing, often a worrisome signal.

Previously poorly performing large-cap conservative market sectors are strengthening just as the market leaders have slumped, which is reminiscent of the weakness in large-cap value in 1997-1999 and the firming up in early 2000 right before the market's schmeissing.

The upcoming reporting period might prove to be a market catalyst to the downside.

In terms of comparing the Marches (2009 and 2014), obviously generational bottoms occur only once a generation, but cyclical tops (and bottoms) are entirely other things -- they happen with frequency.

I conclude that stocks, which with the benefit of hindsight were at the generational bottom five years ago, might very well be mapping out a cyclical top in early 2014.

History doesn't repeat itself, but it sure as hell rhymes.

Via- http://www.thestreet.com/story/12572827/3/kass-from-generational-bottom-to-cyclical-top.html