October 12, 2008

Hi Everyone

These data points come courtesy of Ritholz (again), who is becoming my favorite guy to plagiarize, err, let me say quote. The guy really does come up with great stuff. Check out the dates on the RSI bottoms-1929, 1973, 2002 and 2008!!

I apologize for not getting this out sooner, but I was a bit swamped over the weekend. I have had the discussion with many of you that a “sellable rally” was coming soon. For those of you I haven’t spoken with, I think this is going to be one doozy of a sucker’s rally-a good chance to lighten up on some equity positions before the impact of a long recession sets in. The market was definitely in a classic oversold condition. Hopefully between Friday and today the market hasn’t finished its run.

As always, let me know if you’d rather not see these notes and I’ll drop you from the list. Believe me, you won’t hurt my feelings.

Ned



Relative Strength Indicator, SPX, 1928-2008

Ever since the beginning of the S&P500, the RSI's monthly indicator has only dropped below 30 on four occasions: 1929, 1973, 2002, and 2008.

All 3 prior instances were very close to lows.



Dow Components and the 200 Day Moving Average

All 30 Dow stocks are below their 200 day moving average -- a condition that has only occurred once before -- and the last time was right after the 1987 crash.



Percentage NYSE over 200 Day MA

The percentage of stocks trading over their 200 day moving average is at multi year lows:



Yet another historically excellent entry point.

Gold vs SPX

The cost of an ounce of Gold is now greater than the S&P500; This last occurred in the early phase of the 1982-2000 bull market -- around 1984.

The VIX (also known as the Fear Index) hit a multi-year high of 70.90, reflecting extreme levels of emotion in the markets. We like to look at this on a 50 day moving average

VIX Deviation From 50-Day Moving Average



Readings above 15 over the last 10 years have produced significant rallies. The present reading on this indicator is 26!

1998 Reading Market Up + 27 % (3 Months Later) and + 36 % (6 Months Later)
2001 Reading Market Up + 22 % (3 Months Later) and + 22 % (6 Months Later)
2002 Reading Market Up + 14 % (3 Months Later) and + 19% (6 Months Later)

If History bears out this should be a good buying opportunity with a 3 to 6 month horizon.

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S&P500 is down 47% from its peak level one year ago. Transports are down 38%. These are relatively rare degrees of loss, and suggest a near term upside move.



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The following two charts show the 2002 lows, and the current market. Can you tell them apart?





Highlight for answer: The first chart is 2002, the second chart is current as of 10/10/08