The recent bubble that burst in the oil market has been the talk around the world. What would people say if the stock market fell 40% in 2015?
The U.S. market’s foundation is crumbling, according to my calculations — just as it did in 2000 and in 2008.
My proprietary daily indicator, called The Cook Cumulative Tick indicator, or CCT, measures several internal market components, the strongest of which is the duration of buying versus the duration of selling. A healthy bull market sees mostly buying, indicated by the NYSE tick.
But when the duration of the plus-column NYSE tick is less than the duration of the minus tick, this suggests weakening buying volume for stocks.
A second component of the CCT focuses on the NYSE “big block” buying and selling. A bullish market has numerous big blocks of buying. A print on the NYSE tick in excess of plus-1000 signifies fund buying by numerous entities, which accompanies a healthy bull market. Nowadays the big institutional money has dried up.
Market action in both December 2014 and January 2015 have given a short-term sell signal. I believe the correct way to gauge a market condition is by measuring the strength or weakness of a rally. The S&P 500
futures registered a triple-top in the range between 2,088 and 2,089, on December 26th, December 29th, and December 30, 2014 respectively. The resulting pullback took the index to the 1,970 price area.
I am so bearish, I am growing fur!
The gauge of measurement following the lows of 1,970 is the rally strength generated in the rally phase, which carried prices to 2,062. This last rally covered approximately 90 S&P futures points. A rally of this magnitude under normal market conditions would record a net Daily CCT reading of plus-9.0.
This means that there would be a recorded reading of 9 more incidences of plus-1,000 NYSE tick readings than minus-1,000 tick readings. Yet the actual readings during this period registered a minus CCT reading, not a plus.
This condition has happened two other times, in March 2000 and December 2007. In each of the following years, the market lost more than 30%.
I am so bearish, I am growing fur!
Here are four observations about this market:
1. Institutions are not buying. Without big institutional support, this market is in trouble.
Using the CCT, I can see that on the days the market goes up, institutions aren’t participating. This is reflected in the low volume numbers. Lack of institutional buying is bearish.
2. There were more minus-1,000 NYSE ticks than plus-1,000 ticks. This demonstrates that the rallies are hollow and short-lived.
3. The stock market is now at lower prices than just before the European QE was announced. Positive news has no lasting effect on rallying the market.
4. The volume, the lower highs, and now the lower-price highs are all indications of a price pattern deterioration.
Conditions today remind me of a speech I gave in February 2000 to some traders in New York. I was direct: “You who are in the stock market, get out now — you will get killed.” Two dozen people walked out on me.
But the CCT then was pushing out the most ominous readings since it began in 1986. Institutional buying was non-existent. In January 2000, the CCT weakened but the S&P kept rising. That told me the rally was built on quicksand. The CCT gives an advance warning. The bear market was showing its vulnerability in January 2000, but stocks did not head south until April 2000. The resulting bear market of 2000-2003 cut the value of the S&P 500 about in half.
I am now more bearish on the U.S. stock market than ever before.
Mark D. Cook (www.markdcook.com) runs The Mark D. Cook Advisory Service, a twice-a-day email for investors and traders. Contact him at firstname.lastname@example.org. He is also the coauthor with Michael Sincere ofPrepare Now and Survive the Coming Bear Market
View more information: https://www.marketwatch.com/story/too-late-were-already-in-a-bear-market-2015-01-28