Irrationally Exuberant or Exuberantly Irrational Jordan Kotick – Head of Global Technical Strategy
[email protected] A behavioral finance reminder … Equities Change and status quo One Question – 3 answers: What is the market?
Main Street
Wall Street
Technical Strategy US Equities- stretched
% of stocks above their 200 day sma on the NYSE Current Market
Stock market history k1
Figure 1: Dow Jones Industrial Average bear markets (>20% decline) since 1929 History speaks
Percent Drop Percent Drop Percent Drop Date High Date Low Calendar Days (High to Low) per Quarter per Month
1929 09/02/1929 386 07/04/1932 40 1036 89.51% 7.46% 2.63%
1933 7/17/1933 110 3/18/1935 84 609 23.53% 3.36% 1.18%
1937 03/08/1937 195 4/27/1942 92 1876 52.63% 2.51% 0.90%
1946 5/27/1946 213 10/28/1946 160 154 24.80% 8.27% 4.96%
1961 11/13/1961 741 6/25/1962 524 224 29.25% 9.75% 4.18%
1966 02/07/1966 1001 10/10/1966 735 245 26.51% 6.63% 3.31%
1968 12/02/1968 994 5/25/1970 627 539 36.92% 5.27% 2.17%
1973 01/08/1973 1067 12/09/1974 572 700 46.39% 5.80% 2.02%
1976 9/20/1976 1026 2/27/1978 736 525 28.20% 4.03% 1.66%
1981 4/27/1981 1030 08/09/1982 769 469 25.32% 4.22% 1.58%
1987 8/24/1987 2746 10/19/1987 1706 56 37.85% 18.93% 18.93%
1990 7/16/1990 3010 10/08/1990 2353 84 21.83% 10.91% 7.28%
2000 1/18/2000 11720 10/07/2002 7197 993 38.59% 3.22% 1.17%
2007 10/08/2007 14198 01/21/2009 7449 471 47.50% 7.91% 2.96%
Mean Drop Mean Duration (Calendar Days) Median Drop Median Duration (Calendar Days)
In the past 37.03% 578 29.25% 525
Present 47.50% 471 47.50% 471
Difference ---10.47% -10.47% 107 ---18.25%-18.25% 545454
Source:Source: Bloomberg Bloomberg Figure 2: Dow Jones Industrial Average: the past and the present Diapositive 13 k1 kotickj; 21-01-09 Figure 3: Dow Jones Industrial Average: decline in Figure 4: Dow Jones Industrial Average: decline each bear market ranked by days of duration in each bear market ranked by percent drop
1937 1929
1929 1937
2000 2007
1973 1973
2000 1933
1987 1968
1968 1976 2007: 8th largest out of 14 1961
2007 1976 2007: 3rd largest out of 14
1981 1966
1966 1981
1961 1946
1946 1933
1990 1990
1987 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
0 200 400 600 800 1000 1200 1400 1600 1800 2000
Source: Bloomberg Top Down Approach to Investing in Equities Current DJIA
3M Co 5.359856 JPMorgan Chase 1.961784 Alcoa Inc 0.856871 Kraft Foods Inc 2.810812 American Express Co 1.630408 McDonald’s Corp 5.708879 AT&T Inc 2.494142 Merck & Co Inc 2.809831 Bank of America Corp 0.568633 Microsoft Corp 1.857861 Boeing Co 4.020628 Pfizer Inc 1.726488 Caterpillar Inc 3.831410 Procter & Gamble Co 5.686330 Chevron Corp 6.887322 United Technologies Corp 4.904950 Citigroup Inc 0.306866 Verizon Communications Inc 2.979441 Coca-Cola Co 4.237297 Wal-Mart Stores Inc 5.041226 EI Du Pont de Nemours & Co 2.359827 Walt Disney Co 2.039236 Exxon Mobil Corp 7.631447 General Electric Co 1.302954 General Motors Corp 0.357847 Hewlett-Packard Co 3.308856 Home Depot Inc 2.196100 Intel Corp 1.295111 ***price weighted, not market cap weighted IBM Corp 8.180473 Johnson and Johnson 5.647114 Global markets - % distance from the 60-day - January
Topix : 0.3 WSE WIG Indx: -0.3 DJIA: -1.0 Hang Seng: 1.6 Prague Stock Exch Indx: 2.5 S&P 500 Indx: -0.4 KOSPI Index: 6.3 Russian RTS Indx: -8.2 S&P/TSX Comp. Indx: 1.5 BSE Sensex 30: -2.8 Budapest Stock Exch Indx: -1.4 Bolsa Indx: 5.4 Straits Times: 1.5 Bucharest Bet Indx: -11.5 Bovespa Stock Indx: 10.8 KL Comp. Index: 4.1 PFTS Indx: 5.3 Merval Index: 9.3 Stock Exch of Thai: 5.1 BELEXline Indx: -13.1 FTSE 100: 4.6 Jakarta Composite: 7.8 OMX Tallinn Indx: 0.2 CAC 40: 1.0 PSEi: 1.3 OMX Riga Indx: -19.5 DAX: 1.3 Karachi 100: -39 OMX Vilnius Indx: -8.4 IBEX 35: 3.6 Ho Chi Minh Stock Indx: -4.1 SOFIX Indx: -24.3 Sri Lanka Colombo All Shares:-11.8 ISE National 100 Indx: 1.8 Swiss Market Indx: -0.7 ASX 200 index: -0.7 FTSE/JSE Africa All Shr: 7.5 Nikkei: 3.1 NZX 50 FF gross index: 0.5 Egypt Hermes Indx: 0.9 NYSE Composite: 1.4 Milan MIB30 Indx: -0.8 MASI Freefloat Index:-18.6 AMEX Composite: 7.2 PSI General Indx: 3.2 Namibia Stock Ex. Overall: 5.5 DJ STOXX: 1.4 Irish Overall Indx: 3.1 Botswana Gaborone Indx: -11.1 Chile Stock Mkt General: 2.4 AEX Index: 5.2 BHSE All Share: -18.4 Venezuela Stock Mkt Indx: 0.1 Belgian Stk Mkt Ret Indx: 2.2 Kenya SE: 1.1 Peru Lima General Indx: -2.7 Luxembourg LuxX Indx: 5.4 Tel Aviv 100: 0.5 IGBC General Idx: 5.0 OMX Copenhagen Indx: -0.2 Tadawul All Share: -2.2 BCT Corp Costa Rica Indx:-2.2 OMX Helsinki Idnx:-1.2 JSE Market Indx: -2.6 JASDAQ SE: 3.3 OSE All Share INDX: 4.1 DSM 20 Indx: -4.8 DJ Trans: -1.2 OMX Stockholm Bench.: 5.1 Abu Dhabi Sec Indx: -18.6 DJ Util.: 1.4 Austrian Vienna Stock. Ex: -2.1 MSM 30 Indx: -15.4 Shanghai SE Composite: 0.2 ASE General Indx: -10.3 Mauritius Stock Exchange: -5.4 Taiwan Taiex Indx: -1.3 Global markets - % distance from the 200-day - January
Topix : -34 WSE WIG Indx: -38 DJIA: -25 Hang Seng: -38 Prague Stock Exch Indx: -48 S&P 500 Indx: -31 KOSPI Index: -25 Russian RTS Indx: -152 S&P/TSX Comp. Indx: -33 BSE Sensex 30: -43 Budapest Stock Exch Indx: -48 Bolsa Indx: -19 Straits Times: -41 Bucharest Bet Indx: -94 Bovespa Stock Indx: -27 KL Comp. Index: -18 PFTS Indx: -104 Merval Index: -41 Stock Exch of Thai: -41 BELEXline Indx: -99 FTSE 100: -16 Jakarta Composite: -38 OMX Tallinn Indx: -55 CAC 40: -26 PSEi:-24 OMX Riga Indx: -68 DAX: -25 Karachi 100: -82 OMX Vilnius Indx: -86 IBEX 35: -21 Ho Chi Minh Stock Indx:-35 SOFIX Indx: -152 Sri Lanka Colombo All Shares : -47 ISE National 100 Indx: -33 Swiss Market Indx: -18 ASX 200 index: -28 FTSE/JSE Africa All Shr: -18 Nikkei: -33 NZX 50 FF gross index: -16 Egypt Hermes Indx: -67 NYSE Composite: -34 Milan MIB30 Indx: -34 MASI Freefloat Index:-39 AMEX Composite: -30 PSI General Indx: -29 Namibia Stock Ex. Overall: -32 DJ STOXX: -26 Irish Overall Indx: -61 Botswana Gaborone Indx: -8 Chile Stock Mkt General: -10 AEX Index: -39 BHSE All Share: -44 Venezuela Stock Mkt Indx: -6 Belgian Stk Mkt Ret Indx: -39 Kenya SE: -27 Peru Lima General Indx: -78 Luxembourg LuxX Indx: -58 Tel Aviv 100: -42 IGBC General Idx: -13 OMX Copenhagen Indx: -40 Tadawul All Share: -49 BCT Corp Costa Rica Indx:-11 OMX Helsinki Idnx:-40 JSE Market Indx: -20 JASDAQ SE: -19 OSE All Share INDX: -50 DSM 20 Indx: -51 DJ Trans: -31 OMX Stockholm Bench.: -23 Abu Dhabi Sec Indx: -67 DJ Util.: -21 Austrian Vienna Stock. Ex: -76 MSM 30 Indx: -73 Shanghai SE Composite: -37 ASE General Indx: -41 Mauritius Stock Exchange: -35 Taiwan Taiex Indx: -48 Nothing without volume Sector rotation
Full Early Recession Recovery Market bottom Bull Market Early Middle Expansion Expansion
Technology Basic Capital Materials Goods & Discretionary Transportationsdf Energy Consumer Cyclicals Consumer Late Financials Staples Late Contraction Expansion Utilities
Full Early Recovery Recession – Market top Bear Market Early Contraction Sectors
1 Year 2009 Relative Strength Market Trend Airlines (XAL) ---44% -44% ---16% -16% Outperform Neutral
Banks (BKX) ---70% -70% ---37% -37% Underperform Bearish
Biotechs (BTK) ---8.6% -8.6% +7% Outperform Bullish
Brokers (XBD) ---63% -63% ---2% -2% Neutral Neutral
Con. Stp (IXR) ---16% -16% ---6%-6%6%6%Outperform Neutral
Con. Dis. (XLY) ---39% -39% ---3% -3%3%3%Underperform Neutral
Defence (DFI) ---25% -25% ---4% -4% Outperform Neutral
Drugs (DRG) ---16% -16% ---2% -2% Outperform Bullish
Gold/Silver (XAU) ---30% -30% +1% Outperform Bullish
HMOs (HMO) ---46% -46% +12% Outperform Bull. 1 Year 2009 Relative Strength Market Trend
Housing (HGX) ---47% -47% ---7% -7% Neutral Neutral
Insurance (S&P Ins. Indx) ---66% -66% ---21% -21% Neutral Neutral.
Internet (DJ Int. Indx) ---39% -39% +2% Outperform Neutral
Nat. Gas (XNG) ---31% -31% +3% Neutral Neutral
Networking (NWX) ---41% -41% ---5% -5%5%5%Neutral Neutral
Oil (XOI) ---31% -31% ---2% -2%2%2%Outperform Neutral
Oil Services (OSX) ---51% -51% +6% Neutral Neutral
REITS (RMZ) ---52% -52% ---16% -16% Underperform Bearish
Retail (S&P Ret. Indx) ---35% -35% ---4% -4%4%4%Neutral Neutral
Semis (SOX) ---41% -41% +3% Outperform Neutral
Transports (TRAN) ---35% -35% ---13% -13% UUUnUnnnddddeeeerrrrppppeeeerrrrffffoooorrrrmmmm Bear.
Utilities (UTY ---26% +1% Outperform Banking wastes an opportunity Leadership potential Sector Watch China Canada and US Housing Global Markets Domino effect throughout the year How the dominos fall is important Business Cycle tells us roughly what to expect Fixed income Breakevens - real change in US and Europe Early signs that tension could be easing in EU Sentiment is too extreme Too bullish - Europe Japan – Pivot is clear…otherwise, just a range US yields - 2 and 10 US Curve German curve Germany and UK Cash Tens Commodities CRB 56% fall – only 45% between 1980/2000 Bubbles and their aftermath Oil Base metals – leading indicators Gold shines brightly A precious story Foreign Exchange EUR/USD USD index CHF Yen – upside potential USD/JPY Sterling EM – signals to watch Commodity Currencies Canada Green shoots starting to sprout – more needed
•Equities – S&P500/Shanghai Composite*/Kopsi/Ftse100
•T-Bill yields rise at the margin
• Dollar falls
•Breakevens recover
• Sectors – Relative recovery in US housing/Banking /Consumer discretionary. Small cap outperformance.
• Commodity stability Disclaimer
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