X-Factor Report 1/28/13 - Will The Market Ever Correct?

7/29/2019 X-Factor Report 1/28/13 - Will The Market Ever Correct?

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DISCLAIMER: The opinions expressed herein are those of the writer and may not reflect those of Streettalk Advisors, LLC, Charles Schwab & Co., Inc.,

Fidelity Investments, FolioFN or any of its affiliates. The information herein has been obtained from sources believed to be reliable, but we cannot assure

its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any

reference to past performance is not to be implied or construed as a guarantee of future results. See additional disclaimers at the end.

The Market Will Never Correct Again

[Special Note: We are migrating to a new backend for the website this

weekend. Therefore, to make life a little easier on Eric and Julia, the

webmasters extraordinaire that make everything work; this will be a very shorttechnical market update. I appreciate your patience but the effort will be

worth it.

In this regard we have some ambitious projects scheduled for the next few

months including:

1) Conversion to an HTML newsletter which will provide faster downloads,

search capability, sharing and more.

2) Podcasts with commercials removed and named by subject and date.

3) 1-2 minute video blogs in addition to the Daily Exchange

4) Web based investment seminars; and much more.

All in all, 2013 should provide for a much more robust development of the

website to make sure that you are getting the information that you need to

manage your money better.

Here is the cool part. All of these changes were spurred by you, our loyal

members, who submitted comments, criticisms and requests frequently

through the website. I read them all, archive them, and when I get enough

of the same request I take action to implement them if I am able. The entire

www.streettalklive.com website and community has been, and will continue

to be, built around your requests. So keep them comingand thank you.]

This past week my partner swung by my office and asked me: Lance, do

you think this market is ever going to correct again? While the question was

asked sarcastically; it summed up the attitude of the average investor who

has now plunged face firstinto the equity risk pool. The problem, of course,

is that it is the capitulation by investors who abandon caution out of fear of

missing the boat is what leads to their inevitable demise. When will the

correction come? That is the topic of todays shortened missive.

January 26, 2013

Inside This Issue:

Market Correction Coming?

Overbought And Bullish

Early Warning Signal

Bonds Tell The Story

Truth About Investing

Recommended Reading

Consumer Deleveraging?

LEI Revisions To Growth

Visible Hand Of The Fed

Economic Policy Uncertain

Richmond Fed Survey

Real Housing Recovery The Bond Bubble

401k Plan Manager

No Change This Week

Click Here For Current

Model Allocation.

Disclaimer & Contact Info.
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Over Bought and Extremely Bullish

One of the questions I received by email this past week was: Just how

overbought is the market currently compared to previous bull market peaks?

This is a great question. However, before I can answer it we need provide

some basic background for context.

Most investors fall into the trap of thinking that the market can move in one

direction for an indefinite period of time. When markets are rising it isassumed they will never correct again and vice versa. The reality is that

market prices, like the hound dog in the Foghorn Leghorncartoons, are tied

to a stake. The dog could chase Foghorn until he reached the end of his rope

and then whamhe was yanked back to earth.

(Click the picture, or link, to watch)

The chart below shows the S&P 500 as it ranges between its run of rope.The boundaries, represented by the blue lines, are where the current price

would be 2 standard deviations above, or below, the moving average, solid

green line, which is ouranchor point.
https://www.youtube.com/watch?v=8dKfiIgZmKQhttps://www.youtube.com/watch?v=8dKfiIgZmKQhttps://www.youtube.com/watch?v=8dKfiIgZmKQhttps://www.youtube.com/watch?v=8dKfiIgZmKQhttps://www.youtube.com/watch?v=8dKfiIgZmKQmailto:[email protected]?subject=X-Factor%20Suggestions%20&%20Commentshttp://www.streettalklive.com/rss/1-daily-x-change.htmlhttp://www.facebook.com/streettalkhttp://www.twitter.com/streettalklive


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RECOMMENDE

READING

Is The Consumer Rea

Deleveraging

The balance sheet recess

continues. Only mortgage de

is declining.

LEI Revisions Show Slow

Growth

The Conference Boa

released the LEI index with

full set of backward revisio

which showed that LEI h

been growing slower th

estimated since end of the la

financial crisis.

The Visible Hand Of The Fe

There is clear evidence that t

recent market push is driven

the Federal Reserve.

For those non-geeks reading this missive when prices reach 2-standard

deviations above, or below, the average price, statistically that movement has

encapsulated 95% of its normally distributed potential movement in that

direction (34.1%+13.6% / 50% = 95.4%).

The light blue shaded areas in the chart of the market above show when theS&P 500 has reached such EXTREMELY overbought levels AND is pushing

2-standard deviations above the mean.

At the beginning of these shaded areas the market is pushing higher and

exuberance is building in the market. The belief becomes that the market will

not correctanytime soon. Of course, it is generally not too terribly long after

the onset of such complacency that the market takes away a large bulk of the

gains and provides a much better entry opportunity for patient investors.

The next chart is the same chart as above but I have overlaid the Volatility

Index to illustrate the extreme complacency that sets in just prior to themarket correction.
http://www.streettalklive.com/daily-x-change/1481-is-the-consumer-really-deleveraging.htmlhttp://www.streettalklive.com/daily-x-change/1481-is-the-consumer-really-deleveraging.htmlhttp://www.streettalklive.com/daily-x-change/1478-lei-revisions-show-slower-growth.htmlhttp://www.streettalklive.com/daily-x-change/1478-lei-revisions-show-slower-growth.htmlhttp://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.htmlhttp://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.htmlhttp://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.htmlhttp://www.streettalklive.com/daily-x-change/1478-lei-revisions-show-slower-growth.htmlhttp://www.streettalklive.com/daily-x-change/1478-lei-revisions-show-slower-growth.htmlhttp://www.streettalklive.com/daily-x-change/1478-lei-revisions-show-slower-growth.htmlhttp://www.streettalklive.com/daily-x-change/1481-is-the-consumer-really-deleveraging.htmlhttp://www.streettalklive.com/daily-x-change/1481-is-the-consumer-really-deleveraging.htmlhttp://www.streettalklive.com/daily-x-change/1481-is-the-consumer-really-deleveraging.html


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RECOMMENDE

READING

COTD: Economic Poli

UncertaintyThe problem is that wh

market participants ha

become wildly bullish in rece

weeks the economic data h

continued to either rem

weak or get worse.

COTD: Richmond Fed Surv

The latest release of t

Richmond Federal Reser

Manufacturing Survey show

little to excited about.

Real Housing Recovery Sto

While the belief was that t

Government, and Fed

interventions would ignite t

housing market creating

self-perpetuating recovery

the economy - it did not turn o

that way.

As you can see during these periods of exuberance the Volatility Index has

dropped to extremely low levels of fear. Today, the VIX is at the lowest level

since 2007.

Early Warning Signal

Back in early 2000 we began writing and warning investors of the crash and

the secular bear market that was coming. No one believed me then.

In December of 2007 I wrote that we were either in, or about to be in, a

recession. No one believed me then.

In February of 2009 I wrote an article entitled 8 reasons for a bull market. No

one believed me then either.

The reason that I wrote these things is simply because of the following chart

which has an incredible track record of seeing trend changes in the market

long before it is recognized by the media.

You will notice that the indicator WILL NOT get you out right at the top or in at

the bottom. However, it does tell you when the trend has changed for, or

against, you.

Currently, the market is still on a longer term buy signal and remains a buy

the dips market for now. However, it is the top part of the chart that is the

most important. When this indicator has reached extreme overbought levels,

as it is currently, it has signaled that the market was beginning to reach the

potential peak for the current cycle. It doesnt mean that the market is about

to imminently crash. This is a monthly chart so these topping processes can

several months. Nonetheless, it is a warning sign that is juxtaposed to the

many bullish analysts in the market right now predicting that we are entering

into a new secular bull market we arent.
http://www.streettalklive.com/daily-x-change/1474-chart-of-the-day-economic-policy-uncertainty.htmlhttp://www.streettalklive.com/daily-x-change/1474-chart-of-the-day-economic-policy-uncertainty.htmlhttp://www.streettalklive.com/daily-x-change/1471-chart-of-the-day-richmond-fed-survey.htmlhttp://www.streettalklive.com/daily-x-change/1468-the-real-housing-recovery-story.htmlhttp://www.streettalklive.com/daily-x-change/1468-the-real-housing-recovery-story.htmlhttp://www.streettalklive.com/daily-x-change/1468-the-real-housing-recovery-story.htmlhttp://www.streettalklive.com/daily-x-change/1471-chart-of-the-day-richmond-fed-survey.htmlhttp://www.streettalklive.com/daily-x-change/1471-chart-of-the-day-richmond-fed-survey.htmlhttp://www.streettalklive.com/daily-x-change/1474-chart-of-the-day-economic-policy-uncertainty.htmlhttp://www.streettalklive.com/daily-x-change/1474-chart-of-the-day-economic-policy-uncertainty.htmlhttp://www.streettalklive.com/daily-x-change/1474-chart-of-the-day-economic-policy-uncertainty.html


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There are many similarities between the current market and previous market

peaks. But the chart below shows the greatest similarity yet.

This chart was featured in the article this past week entitled The Visible Hand

Of The Fed.

As I stated then: It is clear that the visible hand of the Federal Reserve is

firmly in control of the markets at the moment as liquidity flows are increased.

However, extrapolating the current advance indefinitely into the future

becomes somewhat dangerous. Each previous program cycle has ended

with a fairly nasty decline, in both the markets and the economy, as the

fundamental drivers were being supported solely by artificial interventions.

Those declines would have likely been far worse had they not been halted bythe next round of liquidity injected goodness.

While the Fed programs that we have witnessed since the financial crisis are

historically unique - liquidity driven markets are not. We have witnessed the

effects of excess liquidity in the bull market cycle prior to the 2008 financial

crisis. The only difference during that cycle was that, through government

intervention, real estate was turned into an ATM allowing mortgage equity

withdrawals to be the liquidity source for the economy and the markets. The

chart below shows the extremely high correlation between these two bull

market cycles.

There are many similarities between the peak of the market in 2008 andtoday. Investor sentiment is pushing extreme levels, the markets are

exceedingly overbought, earnings are weakening, complacency is higher,

multiples are expanding, the consumer is beginning to sputter and headlines

are beginning to push the boundaries of manic optimism.

One doesn't haven't to think back too far to remember that at the peak of the

markets in 2008 there was no recession in sight, even though it had already

started, as it was a goldilocks economy. Earnings were expected to continue

to grow into the coming year and equities were the only investment of choice.

Come to think of it - that is what we heard in 1999 as well.
http://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.htmlhttp://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.htmlhttp://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.htmlhttp://www.streettalklive.com/daily-x-change/1475-the-visible-hand-of-the-fed.html


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Bonds Tell The Same Story

If you dont believe any of the analysis above then maybe you will listen to the

bond market. When stocks begin to reach extreme levels it is the

exuberance that sucks investors out of bonds and into stocks. Therefore, a

good indicator to watch is the ratio of stocks to bonds as shown in the chart

below.

Historically, when this ratio has reached the extreme levels that are currently

present it has been coincident with a market peak. Currently, as shown withthe stock market above, the ratio is pushing 2-standard deviations of its mean

as investors sell bonds to buy stocks.

Of course, this is exactly the emotionally driven behavior that you would

expect to see for average individuals that get sucked into to panic buying

market peaks and selling market bottoms.

The chart on the next page inverts the ratio above to bonds versus stocks.

This creates a clearer buy/sell indicator. When the lower indicator reaches

extremely oversold conditions the SELL indication is given when it turns

sharply up.

While the indicator would have gotten you out very early in 2011, leaving you

to be regularly chastised for such stupidity by the media for next several

months, it would have saved you from the near 20% plunge that following

summer. The same held true this past September as QE3 was introduced.

Conversely, when this indicator peaks and turns back down that has given

a clearbuyindication as well.


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The Truth About Stocks And Investing

Despite all of the ink spilled on value based investing, fundamentals,

earnings, etc. in todays world of high frequency trading, position seeking

algorithms and programmed trading, fundamental analysis now takes a back

seat to price analysis.

Today, 90% of the price movement in any stock is dictated by the overall

movement of the stock market. While fundamental analysis still serves a

valued purpose in helping to avoid potential bankruptcy issues in the long run it is price analysis that rules in the short term.

This is important to understand, comprehend, accept and adopt because

investors are no longer long term oriented. The markets, overall, are

focused on the next day, week and month and buy/sell decisions are

evaluated as success, or failure, within minutes of the transaction.

This is why we spend so much time focused on the price movements of the

market in this weekly missive to evaluate our buy/sell recommendations

accordingly.

However, the management of risk, through understanding price movement is

essential for long term success. Here are some real stats for you:

Fact: 3 out of 4 stocks eventually decline 75% or more from their IPO

prices before they go bankrupt. While underperforming the indexes,

all of them spend a lot of time on the 52-week low list.

Rule: Dont buy 52-week lows because you think they are

cheapthey arent.


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page 8

STREETTALK

ADVISORS

What makes us different?Its really pretty simple. W

believe that managing risk

the key to long term succes

Conserve the principal and t

rest will take care of itself.

Risk = Loss

Seems like a simple concept

yet most people take way t

much risk in their portfolio whi

is fine as long as the mark

goes up. The problem comwhen it doesnt.

Managed Risk = Returns

By applying varying levels

risk management to a portfo

of assets the potential for larg

drawdowns of capital

reduced thereby allowing t

portfolio to accumulate retur

over time.

Total Return InvestingWe believe that portfolio shou

be designed for more than ju

capital appreciation. There a

times when markets do not ris

During those periods we wa

income from dividends a

interest to be supporting t

portfolio.

If you are ready for somethin

different then you are ready f

common sense approach investing.

Get Started Today!

Fact: Yes, occasionally, a stock will have a massive comeback from

its 52-week lows. These are the exceptions and not the rule.

Rule: Dont buy bounces of bottoms until trends confirm a return to

sustained positive price action. This will be when they hit a new 52-

week high following a proper basing process.

Fact: Only 1 in 4 stocks outperform the S & P 500 during their lifetime. The biggest winners spend the majority of their time on the 52-

week high list.

Rule: These are the stocks that you generally want to focus on

buying. However, all trends end and generally when there seems to

be nothing in the world to stop it. AAPL is the most recent example.

Fact: Tops are clear only in hindsight.

Rule:As shown in the charts above the market usually gives plenty

of signs of a trend change and enough time to exit. You just have to

be willing to pay attention and set aside the greed factor.

Fact: Not every breakout to a new 52-week high is a valid buy signal.

Only the ones from proper technical setups are.

Rule: Pay attention to the details and not the media hype.

Successful trading, you are not an investor, requires attention to

details and the flexibility to move when necessary.

Let me repeat that last part. Despite what you think, or what you are told,

you are NOT AN INVESTOR. You are a speculator, a trader, who buys

electronic pieces of paper in a company that you neither have control or real

knowledge in order to sell those electronic pieces of paper at a higher pricethan where you bought them. Thats it. Everything else is Wall Street

marketing machine enticing you to keep you money invested for the long

termwhile they trade all around you at your expense.

If you dont believe that previous paragraph look at your annual profits

versus those of the major banks.

The Wall Street Casino is a huge business, and very much like going to Las

Vegas, you either learn to play by the rules or you become part of the profit

margin.

The market is extremely over bought, extremely bullish and much overvalued.

A correction is coming. It is just a matter of time and will likely be bigger

than you can currently imagine. While I am NOT recommending that you sell

everything you own on Monday and go hide into cash I am suggesting that

the risk is rising. As stated above the market will give us plenty of time to

liquidate our positions and move to cash the only question is whether, or

not, you will be paying attention.

Have a great weekend.

Lance Roberts
http://www.streettalklive.com/make-an-appointment.htmlhttp://www.streettalklive.com/make-an-appointment.html


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page 9

401K Plan Manager

The ongoing rally since

the end of December

continued this past week.

Earnings season has

been less than positive

and on a comparative

basis is the second

weakest since 2011.

However, earnings

expectations are

extremely low and the

Fed pumping $85 billion a

month into the markets

the overbought nature of

the market can continue

for a while longer.

However, as stated in this

weeks missive above a

correction will come and

will likely be sooner than

most expect. We continue to recommend holding current allocations but not

increasing exposure to equities at this time.

If you need help after reading the alert; dont hesitate to contact me.
mailto:[email protected]?subject=Need%20Help%20With%20My%20401k%20Allocationmailto:[email protected]?subject=Need%20Help%20With%20My%20401k%20Allocationmailto:[email protected]?subject=Need%20Help%20With%20My%20401k%20Allocation


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page1

Disclaimer & Contact InformationDisclaimer

The opinions expressed herein are those of the writer and may not reflect those ofStreettalk Advisors, LLC., Charles Schwab & Co, Inc., Fidelity Investments, FolioFN, or anyof its affiliates. The information herein has been obtained from sources believed to bereliable, but we do not guarantee its accuracy or completeness. Neither the information norany opinion expressed constitutes a solicitation for the purchase or sale of any security.Past performance is not a guarantee of future results. Any models, sample portfolios,

historical performance records, or any analysis relating to investments in particular or as awhole, is for illustrative and informational purposes only and should in no way beconstrued, either explicitly or implicitly, that such information is for the purposes ofpresenting a performance track record, solicitation or offer to purchase or sell any security,or that Streettalk Advisors, LLC or any of its members or affiliates have achieved suchresults in the past. ALL INFORMATION PROVIDED HEREIN IS FOR EDCUATIONALPURPOSES ONLY USE ONLY AT YOUR OWN RISK AND PERIL.

Registration

Streettalk Advisors, LLC is an SEC Registered Investment Advisor located in Houston,Texas. Streettalk Advisors, LLC and its representatives are current in their registrationand/or notice filing requirements imposed upon United States Securities & Exchange andState of Texas Registered Investment Advisors and by those states in which StreettalkAdvisors, LLC maintains clients. Streettalk Advisors, LLC may only transact business in

those states in which it is registered, or qualifies for an exemption or exclusion fromregistration requirements.

Performance Disclosures

Past performance may not be indicative of future results. Therefore, no current orprospective client should assume that the future performance of any specific investment,investment strategy (including the investments and/or investment strategies recommendedand/or purchased by adviser), or product made reference to directly or indirectly on thisWebsite, or indirectly via link to any unaffiliated third-party Website, will be profitable orequal to corresponding indicated performance levels.

Different types of investment involve varying degrees of risk, and there can be noassurance that any specific investment will either be suitable or profitable for a clientsinvestment portfolio. No client or prospective client should assume that any information

presented and/or made available on this Website serves as the receipt of, or a substitutefor, personalized individual advice from the adviser or any other investment professional.

Historical performance results for investment indexes and/or categories generally do notreflect the deduction of transaction and/or custodial charges or the deduction of aninvestment-management fee, the incurrence of which would have [the] effect of decreasinghistorical performance results.

Disclaimer of Warranty and Limitation of Liability

The information on this site is provided AS IS. Streettalk Advisors, LLC does not warrantthe accuracy of the materials provided herein, either expressly or impliedly, for anyparticular purpose and expressly disclaims any warranties of merchantability or fitness fora particular purpose. Streettalk Advisors, LLC will not be responsible for any loss ordamage that could result from interception by third parties of any information made

available to you via this site. Although the information provided to you on this site isobtained or compiled from sources we believe to be reliable, Streettalk Advisors, LLCcannot and does not guarantee the accuracy, validity, timeliness or completeness of anyinformation or data made available to you for any particular purpose.

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If you download any information or software from this site, you agree that you will not copyit or remove or obscure any copyright or other notices or legends contained in any suchinformation.

All investments have risks so be sure to read all material provided before investing.

STREETTALK ADVISORS

Lance Roberts

Director of Fundamental & Economic

Analysis

Michael SmithDirector of Alternative Investments

Luke PattersonChief Investment Officer

Hope EdickCompliance Officer

Leah MillerOperations Manager

Lynette LalanneGeneral Partner Streettalk Insurance

Office Location

One CityCentre

800 Town & Country Blvd.

Suite 410

Houston, TX 77024

Tel: 281-822-8800

Web Siteswww.streettalkadvisors.com

Email (For More Information)[email protected]

FOR APPOINTMENTS

Brooke Sanders

[email protected]
mailto:[email protected]:[email protected]

Documents

X-Factor Report 1/28/13 - Will The Market Ever Correct?