Hi Harry:
I subscribe to Don Hayes newsletter and one of the indicators he follows gave a negative signal on Monday. Its called the sign of the bear and the past 6 times the indicator has flashed the market has had a pretty good sell off. The 6 times are from 1929 to present and the timing of the sell off is anywhere from 2 to 26 weeks.
We know indicators can fail (Hayes acknowledges this) but he is quite cautious in this market environment. With this indicator only working 6 times (but they were all pretty gWith the FED priming the pump (money growth over 10% again) the rally can last but before we get too bullish from Fridays action we should keep this in mind.
Here is a direct quote -
But here it is on September 20, 2000. Much like my stock market hero Edson Gould, who was warning of a great bear market, I have been looking at so much anecdotal evidence, showing excessive optimism, excessive debt, and excessive valuations for the last three years, but all the pieces did not fall exactly in place. Each time the market suffered some serious indigestion, not enough to cough up the excesses, but enough to shake up the establishment, the Federal Reserve bailed it out. This personality finally convinced the herd that this new era was not going to allow bull markets to fail.
As I outlined in my last three reports, my nervousness really reached a new crescendo last week with all the dislocations of the excesses. This was heightened as a new indicator, similar in some ways to the Arms index cited above that flashed a powerful "perfect" signal in 1982. This index comes from Peter Eliades studies as far as I know. At least he is the one that brought it to my attention. It was written up in Barron's in May 1998, shortly after one of its previous signal. I have a special fondness for indicators that have never been wrong. Obviously, there is always a first time, but if they strongly support other evidence that I have found to be highly accurate, I'm willing to take the chance. And as I said in yesterday's "special report," six perfect calls out of six signals are not odds that I won't to bet against.
So I'm probably making a mistake by "playing" the market for another 20+% but I'm keeping stops in place and ready to go to the side lines quickly even though I feel Friday's action was short term bullish.
Here are the other dates.
July 22, 1929-----7 weeks before crash
December 14, 1961------10 weeks before crash
January 31, 1966------1 week before crash
October 25, 1968-------26 weeks before crash
December 12, 1972------4 weeks before crash
April 6, 1998-------15 weeks before crash
September 18, 2000------??????????
Tim |
