In a recent Barron's article, Randall Forsyth shares Michael Kahn's (Barron's technical analyst) view that the market, on the basis of numerous indicators is showing signs of strain, of topping.
Michael Kahn, Barrons.com's own technical guru, thinks the seven-month-long advance now is showing signs of topping out. In his latest column, ("Setting Free the Bears," Nov. 2,) points to various technical signs that the market is topping out. Unlike in the summer, when the major indexes paused at several junctures, market internals such as breadth now suggest something more serious.
Albert Edwards argues that if bonds and equities are indeed decoupling, then the market is going to be very sensitive to changes in the economic cycle. Edwards notes that during the 1965 to 2000 period, "bad" news was "good" news. Now, post-bubble in the US, with Japan as its progenitor, or model, Edwards is suggesting that "good news" that hurts the bond market, is "bad" news for stocks.
In post-bubble Japan, bonds and equities decoupled. In the U.S. from 1965 to 2000, lower bond yields would mean higher stock prices, so "bad news" would be treated as "good news" if it benefited the bond market and, in turn, price-earnings multiples. But in Japan, equities follow the economic and profits cycle.
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Edwards emphasizes that, even in Japan's secular bear market since 1989 (during which the Nikkei is off by three-quarters), there have been numerous 50%-plus rallies coming off of cyclical low points. Bit investors should have always sold these rallies when cyclical leading indicators topped out.
Post-bubble Japan is the progenitor for the U.S. after the bursting of its credit bubble, Edwards long has hypothesized. If so, the equity market is tied more tightly to the economic cycle, in which case investors need to be keenly aware of cyclical turning points.
Read the whole article here.
