When is a bearish signal not bearish

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Technically Speaking: Bullish But Bearish

Over the last week, I was on vacation with my family taking a much-needed respite from the weekly workload.

The good news is that usually when I go out of town, the market crashes. Such was not the case, and in fact, the Dow Industrials hit all-time highs. I pay little attention to the Dow due to the limited number of holdings in the index, so, despite headlines of the Dow’s achievement, the S&P 500, a better representation of the economic backdrop of the country, made little progress. As I noted in the last weekly newsletter:

“Our existing client portfolios are fully allocated to the market in accordance with their model allocations. New client portfolios are being slowly allocated into their models as the market breaks out of consolidation levels to new highs.

All accounts have had stop limits raised to current running support trend lines.

The current advance continues to remain intact despite a lack of legislative action, weaker economic and inflationary data and less than inspiring forward guidance on the earnings front.”

“As shown in the bottom part of the chart above, on a very short-term basis the market currently remains on a ‘buy signal,’ however, the weakness of the market over the last couple of days has led to some deterioration. Furthermore, the market is struggling with recent resistance levels as the overbought condition continues to limit the advance.

If the market can pull back to support, and work off some of the overbought condition without triggering a broader ‘sell signal,’ we will add exposure to client portfolios.

We remain cautious, however, on the type of ‘risks’ we take on in portfolios. Capital preservation always remains our priority over chasing returns.”

So, in effect, nothing much has changed in the past week. However, while the market remains bullishly biased there are numerous “bearish signals” that should be paid attention to. While these signals do not necessarily suggest a bear market is imminent, these signals have all been present when previous bear markets have begun.

Bull Hopes, Bear Signals

Importantly, the “buy” signal that was registered following the November election, has now flipped back to a “sell” signal. These signals have usually been indicative of short-term corrective actions which can provide for better entry points for trading positions and rebalancing.

As shown below, on a longer-term basis the backdrop is more indicative of a potential correction rather than a further advance. With an intermediate-term (weekly) ‘sell’ signal triggered at historically high levels, the downside risk currently outweighs the potential for reward.

Internal measures of the market have also weakened substantially in recent months. The problem is while the stock market has pushed higher, both the ratio and number of stocks trading above their respective 50 and 200-day moving averages have continued to weaken.

This divergence will likely not last much longer, the only question is whether the internals will “catch up,” as the “bulls” currently hope?

Deviations from both intermediate and long-term moving averages have also reached levels that become problematic for further advances without a correction first. The first chart is the percentage deviation from the 200-day moving average. At almost 7%, it is one of the larger deviations over the last 3-years and, as shown, has always resulted in at least a short-term correction.

However, while the short-term corrections have been mild, and “buy the dip” opportunities which are always the case in a strongly trending market, the bigger concern comes from the deviation from the 3-year moving average as shown below. At 3-standard deviations, and 17% above the long-term moving average, the risk of a “mean reverting event” has risen markedly.

With the long-term “sell signal” very close to triggering, investors would be well-advised to administer some risk controls within their portfolio allocation models. The same can be seen below where the 21-month RSI has pushed into extremely overbought territory which has previously preceded more significant corrections and bear markets previously.

Of course, the run up in the markets which has created these more extreme deviations have come from the “bullish exuberance” of investors jumping into the markets at this rather late stage of the bull market advance. As shown below, courtesy of TheAtlasInvestor.com, both the bullish sentiment of professional advisors and fund managers has reached more exuberant levels.

And as noted by Tiho Babak just recently, even the Yale survey has exploded with bullish exuberance.

Of course, as the final chart shows below, while the bulls are clearly in charge of the market currently, and could be for quite a while longer, such deviations from the long-term growth trend do not last indefinitely.

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Again, let me restate for those who insist I am bearish, the market is in a bullish trend currently and as such equity exposure should remain tilted to the “long” side. However, being allocated to the financial markets without an understanding and appreciation of the mounting risks is simply foolish.

With the markets extended, and moving into the two months of the year that have seen more than their fair share of historical corrections, it is a good opportunity to clean up and reduce excess risk in portfolios.

  1. Tighten up stop-loss levels to current support levels for each position.
  2. Hedge portfolios against major market declines.
  3. Take profits in positions that have been big winners
  4. Sell laggards and losers
  5. Raise cash and rebalance portfolios to target weightings.

An important point to remember is that STOCKS DO NOT preserve capital, but BONDS do. Even if interest rates do reverse for some reason, while bond prices may fall the corpus is still returned to the investor at maturity along with all interest payments along the way. Such is not the case for equities.

Eventually, even the best house in a bad neighborhood is devalued. Globally low interest rates and falling inflationary pressures are not a function of financial market strength, but rather global economic weakness. There is only one way such a backdrop will end.

For now, the party rages on with little regard for the consequences of partying too long or too loudly. There are always a few who leave the party too early, but the consequences are substantially worse for those who stay too long.

“There is nothing riskier than the widespread perception that there is no risk.” Howard Marks

Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube

David Rosenberg: ‘I’m less bearish, but far from bullish’ as markets head into new chapter of this crisis

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN.ca or Microsoft.

From my lens, what we are seeing unfold this week in equities is a classic bear market rally. It is not the start of a new bull market. This run-up is purely speculative, nothing fundamental behind it, and we can see that volumes have been way below average, which tells you that there is not a very high conviction level — nor should there be.

What we have experienced in the past six weeks is not a correction. We are in a full-fledged bear market, and these episodes can easily last a year (or more) and there are always sharp and short rallies along the way. Indeed, we have seen a seven per cent surge in the S&P 500 just six other times in the past seven decades and they all occurred at times of severe stress. Two such moves happened this cycle (March 13 and March 24), three in the 2008-09 vicious bear market and one other time, which was the surge following the October 1987 crash.

We still have to confront a wave of negative economic news ahead, but I sense that we’re heading into a new chapter where we can start to pick a point of re-entry and get back to work. We have reached a point where the fear of economic disaster is starting to outweigh the fear of death by the coronavirus. It will start as a trickle and then become a trend and, for a change, we have to be respectful here of a more durable countertrend rally than what we saw two weeks ago in that failed first attempt.

I’m less bearish, but far from bullish. The recession now seems to be short and severe, but there is no V-shaped recovery, either. Any re-opening of the economy promises to be gradual and limited to stores and malls. Nobody is going into big crowds, events or airports any time soon. At the same time, we have to respect what the markets are signalling to us. We had absolutely horrific claims and jobs reports last week. Claims were twice what the consensus had penned in and payrolls were seven times worse. We’re going to find out next month that the unemployment rate in April gapped up to 13 per cent, about where it was in 1931 — the worst ever in the modern era was November and December in 1982 at 10.8 per cent. At the same time, Jim Bullard, head of the Federal Reserve Bank of St. Louis, came out last week with a forecast of a 32-per-cent peak in the unemployment rate, and you’ll see that means 47 million jobs lost when you go on the Fed bank’s website.

For second quarter GDP, Morgan Stanley’s seasonally adjusted quarter-over-quarter estimate is -38 per cent, Goldman is at -34 per cent, Bank of America is -30 per cent and JP Morgan at -25 per cent. These are Great Depression numbers and the good news is that they no longer serve up as a surprise, by definition. The worst economic news of the last 90 years and yet the S&P 500 was down a paltry two per cent last week, when it should have been down 20 per cent with all the bad economic news. Furthermore, investment-grade spreads came in roughly 20 basis points, so all this tells me that we already had a ton of bad news already in the price. We have to respect how markets respond either way to dramatic economic news.

So let’s discuss what can reasonably happen that can remove some of these dark clouds. We probably begin to see the apex in the coronavirus case count sometime in May, maybe even a bit earlier if you want to extrapolate the past weekend’s data, though I would advise against that. The markets are now pricing out the worst: hundreds of thousands of deaths and an extended shutdown of the economy. This is now getting repriced. But pricing out a multi-quarter recession is one thing, how the recovery looks is quite another. And while the government stimulus will overwhelm the economic loss, to be sure, one can reasonably expect that in an environment where cash-on-hand and liquidity will be respected more than it has in the past, much of this financial aid will be saved. It will not be used for a new car or home, so whatever does get spent will mostly be on necessities, especially since employment and income uncertainties are bound to linger.

When you look at the savings rates coming out of the 1930s, coming out of the 9/11 terrorist attacks and the Great Financial Crisis in 2008 and 2009, much of the fiscal stimulus coming out of all three shocks went into savings, not demand. This is why whatever recovery we see will be anything but V-shaped.

Here’s what I see happening. We get through this quarter’s economic detonation. There will be numerous bankruptcies, because there is no way that the government can save everyone, and even now, the Fed has been reticent to directly support the high-yield bond market. Even as jobs do come back, the unemployment rate will still be well in the double-digits by the end of the year. There will be widespread excess capacity that will, for a time, be deflationary.

What is unknown is how confident the consumer will be, and if spending only comes back slowly, then companies will not be able to keep on the staff that they did maintain for those few months when it was a quid pro quo for the loans (forgiven) that kept them alive through the eye of the storm. This is why any recovery is likely going to be painfully slow, and not conducive to much of a rebound in corporate profits. It is against that backdrop that rallies in the stock market are still better to rent than to own.

David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. You can sign up for a free, one-month trial on his website.

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Meaning of bearish in English:



1 Resembling or likened to a bear, typically in being rough, surly, or clumsy.

  • ‘As Arnoldo, tenor Chris Merritt is a lumbering, bearish presence.’
  • ‘The types we got at B&Q were young couples, old crusty workmen blokes, middle-aged couples, pensioners (usually on a Wednesday) and the odd beefy bearish labourer.’
  • ‘‘That was the last time I’ll go in a light aircraft,’ he repeats, sitting in a London cafe, his face a bearish bristle of hair, topping a navy blazer and jeans.’
  • ‘Upon meeting his first jazz instructor there, a bearish Israeli whose last name is Katsenelenbogen, Matt cried out, ‘Six syllables!’’
  • ‘Running the public affairs show is a bearish soldier who looks like the kind of guy who enjoys breaking things on his face.’
  • ‘His father was round, creased and bearish, his face puffy from heavy drinking and chain-smoking.’
  • ‘We met at work, and I was entranced by this big nerdy bearish intelligent fella.’
  • ‘Paul was looking almost bearish with the face fuzz that he seems to grow every so often.’
  • ‘From a boyhood spent hunting and climbing in southern Idaho, Petzoldt grew into a bearish man with enormous flat feet and eyebrows of legendary bushiness.’
  • ‘Herbst is a bearish Afrikaner with unruly graying hair and a love of a good joke.’

2 Stock Market
Characterized by or associated with falling share prices.

Definitions of Long, Short, Bullish, and Bearish

The Meaning of Common Trading Terms

Trading has a language of its own. If you’re just starting to trade, there are trading terms you’ll hear frequently—long, short, bullish and bearish—and you’ll need to understand them. These words are important for effectively describing market opinions and when communicating with other traders. Understanding these terms can make it easier to communicate what you are doing, and interpret what another trader is doing or where the market is heading. You’ll also be able to understand what the media is saying, and what economists believe the overall market and economy are doing.

Traders can think of “long” as another word for “buy.” If you’re “going long” in a stock, it means you’re buying it. If you’re already long, then you bought the stock and now own it.

In trading, you buy (or go long on) something if you believe its value will increase. This way, you can sell it for a higher value than you paid for it and reap a profit.

As an example, assume Suzy goes long 100 shares of ZYZY stock at $10.00, costing her $1,000. Several hours later, she sells the stock for $10.40 per share, collecting $1,040 and making a $40 profit. If the price moves down to $9.50, her long position isn’t profitable. If she sells at that point, she’ll lose $50 ($0.50 loss x 100 shares).

Bull or Bullish

Being long or buying is a bullish action for a trader to take. Put simply, being a bull or having a bullish attitude stems from a belief that an asset will rise in value. To say “he’s bullish on gold,” for example, means that he believes the price of gold will rise.

Being a bull can represent an opinion or action. Someone who’s bullish may go long on the assets they’re bullish in. Or, they may just have an opinion that the price will rise, but have decided against making any trades based on that opinion. Bullish stances can be extremely specific opinions about a single stock, or they can be broad opinions about the overall market.

The term “bull” or “bullish” comes from the bull, who strikes upwards with its horns, thus pushing prices higher.

A bull market is when an investment’s price is rising—called an uptrend—typically over a sustained period, such as months or years.

Bullish, bull and long are used interchangeably. For example, instead of saying “I am long on that stock,” a trader may say “I am bullish on that stock.” Both statements indicate this person believes prices will rise.

Short and Shorting

Most people think of trading as buying at a lower price and selling at a higher price, but that’s only part of what traders do. Traders can also sell at a high price and buy back at a lower price. Being short, or shorting, is when you sell first in the hopes of being able to buy the asset back at a lower price later.

In other words, the financial markets allow traders to buy then sell, or sell then buy. This is essentially borrowing the asset, selling it, then buying it back cheaper for a profit. If you’ve done this, then you’re short the asset. You’ll also hear the term short-selling. This is also called shorting.

In the futures and forex market, you can short anytime you wish. In the stock market, there are more restrictions on which stocks can be shorted and when. No matter the market, if you hear someone say they are shorting something, it means they believe the price will go down.

Assume Suzy shorts 100 shares of ZYZYZ stock at $10.00. Since she sold first, she’ll receive $1,000 into her trading account, but her account will show negative 100 shares. The negative share balance must be brought back to zero at some point by buying back the 100 shares.

An hour later, she buys 100 shares back for $9.60 per share at a total cost of $960. Since she initially received $1,000, buying the shares back for only $960 gives her a $40 profit. However, if the price moves up to $10.50, she has lost $50 ($0.50 extra cost x 100 shares).

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