For those who place faith in technicals, there’s a long way down until the next shelf on a monthly chart.
The weekly chart suggests more spots from which to bounce, but nothing looks very firm until 2083 or 1991.
S&P 500 Weekly Support Levels
For those who place no faith in technicals, valuations are extreme.
GMO
GMO Projects real (inflation-adjusted) negative returns in US stocks and bonds, every year, for the next seven years.
GMO offers this disclaimer.
*The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward-looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forward‐looking statements. U.S. inflation is assumed to mean revert to long‐term inflation of 2.2% over 15 years.
Measuring the Bubble
If one assumes 2.2% inflation per year, then the nominal decline is on the order of -3.4% per year for seven years.
Compared to Hussman, GMO is outright optimistic. In Measuring the Bubble, Hussman forecast stocks will decline by two-thirds over twelve years.
I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this cycle. My impression is that future generations will look back on this moment and say “… and this is where they completely lost their minds.” As I’ve regularly noted in recent months, our immediate outlook is essentially flat neutral for practical purposes, though we’re partial to a layer of tail-risk hedges.
I side with Hussman, but even GMO’s optimistic forecast would crucify pension funds.
Finally, here is an amusing chart of IMF growth forecasts.
By now, anyone believing consensus “this time is different” estimates is truly gullible pic.twitter.com/dp1Zap2VPk
— Daniel Lacalle (@dlacalle_IA) April 2, 2018
Mike “Mish” Shedlock
This markets feels like the bears are toying with the bulls. For years the bulls have been running the market up on low volume (not textbook stuff) Now the bears use the low volume rallies to dump stocks in volume. I would say we will reach a psychological tipping point when the bulls give up on buying the dips, or the bears finally get their portfolios rebalanced. The reasons why markets got this high are not psychological however, Central Banks printed trillions. Now some of it will disappear, as margin, some will get reallocated to bonds, and the stock bears are in no real hurry, as bond yields are rising. That could change of course, the Fed/CBs could cut rates, or pause the rate hikes, which means in their rationale that the economy is slowing (the economy was never a factor) or that the dollar has finally caught a bid and bond buyers are ready to return. Meanwhile if the Fed drives investors out of stocks it will be easier to subsidize new government spending so they promise to raise raise raise until something breaks. There is very little to hold this market up, except whats left of the greatest monetary expansion in history, and those CBs really really want that money to reallocate to bonds which is how the economy recovers. How does CB policy enforce that psychological choice, simple, make owning stocks painful. But right now the bear is merely turning over in its sleep and one false move by the Fed and bombs away.
Hussman is a genius but he’s been very wrong for a VERY long time. He’s guaranteed to be right some day (i.e., a large decline is always somewhere down the road). But in the meantime, a generation of wealth has been destroyed if you invested with him. If you invested $100,000 in the Hussman Strategic Growth Fund (has there ever been a more poorly-named fund?) 15 years ago, you’d have $76,150 today. Nearly a 2% negative annualized return! That same $100K in an S&P 500 index fund would be worth $417,723. Let that sink in for a moment: $76K vs $417K – just by being in the index! Being that wrong that long is not something to easily forgive. And for that long a time period, if the market crashes tomorrow, you can’t simply say “well he was right, he just got the timing a little wrong”. No. He destroyed wealth for a a generation of retirees. John Hussman writes a great white paper on why the sky is falling. But he’s been a disaster for his investors. Take any predictions he makes about stock market movement with more than a grain of salt. Take it with the entire Morton’s Salt Company.
Most probably it bottomed on todays bad news about China tariffs
What is the track record for technical analysis? I prefer astrology.
@RedQueenRace, “Until the SPX decisively breaks the February low talk of lower support is pointless”… Yup! It is holding up remarkably well as of now. That too despite attack on FB and Amazon! Also the supports below needs to be broken decisively before we can talk of a crash.
Until the SPX decisively breaks the February low talk of lower support is pointless. If it does break there are still support points in the 2400-2500 range, as well as the 100 -week MA at 2387+ and rising.
The bears are feeling their oats after – finally – a bad two months off a 9 year bull.
Wrong on the monthly support, you have major trendlines on the monthly at 24-2500, here es futures
link to s3-us-west-2.amazonaws.com
Technical analysis works because so many traders use technical analysis. It’s a self-fulfilling prophecy.
Who needs the PPT when you have a legion of dip buying morons. “Buy the V” “Buy the W” “Buy the VW” etc. Mind you they must be pretty bruised up at this point.
The PPT might very well have to move in though because there’s so much momentum with these great falls as this next one is supposed to be; no support level can stop them.
That said I don’t expect anything as dramatic as Q4 ’08 just yet, so far the financial media has been rationalizing the decline in terms of trade war and a few other antics, and that contains the fear. We have yet to see a sizeable fall the the finance media is at a loss to explain. That’s when I’ll call SHTF.