From Bespoke Investment Group:
While equity markets around the world have been charging to new 52-week highs over the past six months, Japan’s Nikkei-225 has been stumbling. As shown below, the Nikkei has been in a downtrend since early August, and it just broke to new short-term lows in recent days. The S&P 500 is up 16.57% over the last six months while the Nikkei is up just 2.79%.
Despite a seemingly strong bullish sentiment, mind that the current downtrend that has its origin on October 11, 2007 is not broken. If this rally is about to touch that trendline, we will have another solid 20 SPX points or so ahead of us, depending on how long it takes to get there. The more days pass by, the lower the trendline will be at.
If the market is eyeing this spot, our dear rally might top out at around 111.50 on the SPY and either drop significantly from there, or have a consolidation phase as we experienced during June and July this year. For now, the path of least resistance is to the upside.
You might notice the resilience of bulls who are unwilling to give up this fight. What is of particular interest, however, is the lack of participation in this rally. Volume suggests that investors prefer to stay on the sidelines or hold their newly-established short position. Momentum is also unconvincing because it is a creeping up instead of a decisive surge off the lows to run toward new highs. The picture is clearly broken and so is the uptrend since March which we reached again.
What happens next week is going to be interesting. Touching the former uptrend in combination with another resistance at 107.50 is definitely nothing to be bullish about. As of this moment, there is enough reason to be very suspicious about this week’s action and stay bearish.
Staying biased with a time-tested trading system proves to be rewarding in this market environment. After a continuous sell-off, the broader market has been resilient to move lower but new catalysts made bulls run for cover today. All gains are basically evaporated. It was indeed a question of patience and confidence to sit out the slight uptrend we had in the last few sessions, but I firmly believe that short positions are ultimately going to be rewarded, as the market heads toward 676. I discussed this target in a previous post.
Subscribers of the Dynamic System are already correctly positioned and it is not too late to join this trend. I developed this system back in 1999 when the dot-com bubble was in full force. Thanks to strict trend following methodologies, it was getting obvious that I had to position myself and my clients correctly as the bubble bursted. Now that Dynamic System’s signals are available for the public to follow, it will hopefully allow you to position yourself correctly this time, too.
The commercial real-estate crash is the worst-kept secret in the economy, but it is happening. It is just taking a long time to play out. Excerpt from the Bloomberg article:
Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.”
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate. “The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants. U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
