At any rate, when the crisis hit the firm, the bear market in the Mortgage-backed securities world was already underway. The firm waited too long, did not act when its safety triggers were hit, and probably went broke, even though that latter scenario is not made fully clear in the film.
So what does all this have to do with the stock market NOW? Fact is, the bull trend that has been underway for the past 3 ½-plus years is getting long in the tooth by any historical, cyclical standards. What is evident is that the character of the stock market changed after 2000. Not only was there a dramatic, albeit mostly tech sector limited, drawdown from 2000 to 2002, but since then not only has trading volume diminished, but none of our key indicators has demonstrated the upside “oomph” that characterized market activity prior to 2000. We’ve written often of the breakdown in the Most Actives Advance/Decline Line (MAAD) since 2000, and most noticeably since the spring of 2011 when three successive higher highs (May 2011, April 2012, and recently) in the S&P 500 were not confirmed by MAAD. That negative divergence may prove to be of historical importance.
The Call/Put Dollar Value Flow Line (CPFL), Cumulative Volume (CV), and Momentum on all cycles (Short, Intermediate, and Major), except for minor variances and despite the fact all are computed on different strings of data, have also failed to confirm S&P pricing since the spring of 2011. Although it’s true the S&P has gained 6.5% since the May 2011 high at 1370.58 that return on investment, given currently “Overbought” levels on all cycles, Minor, Intermediate, AND Major, makes us wonder if exposure to the longer-term vicissitudes of the market are currently worth the risk.
While we realize the unfolding of indicator health is a “work in progress” and will be subject to future market action and the inputs upon which the indicators are constructed, if past is prologue, and we do believe it is, then this market has entered into a period of longer-term risk similar to that period upon which the move, “Margin Call,” was based. If we are correct, or more precisely if our indicators are correct, those indicators will once again have proven their worth. The other choice is to follow the path of those “professionals” in the movie who generally accepted the notion that the party would end at some point, but “down the road,” and did nothing until it was too late. In other words, given the status of this market relative to our key indicators, we would prefer to be a bit early leaving the party than too late, because the latter choice would almost certainly involve a “fire sale” hangover from which it would be difficult to recover.
Market Overview – What We Know:
- Major indexes closed within fractions of even last week and made little progress, one way or another, over past six trading sessions. Only NASDAQ Composite made slightly higher high last week relative to recent short-term highs hit September 14.
- All cycles including Short, Intermediate, and Major remain positive, but “Overbought.”
- NYSE trading volume rose nearly 22% last week, but Average Price per Share declined 44 cents to $62.03.
- To suggest Minor Cycle negative, S&P 500 must sell below lower edge of 10-Day Price Channel (1437.92 through Monday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1366.48 through September 28).
- Weekly MAAD was negative with 4 issues positive and 16 negative. Weekly MAAD Ratio at 1.42 was toward moderately “Overbought” levels. Daily MAAD rose above July 3 resistance high on September 13, but remains well below March 20 high. Daily MAAD Ratio was last at 1.28.
- CPFL on both Daily and Weekly cycles rallied last week to new short to intermediate highs and remains above first resistance made back on April 9. Daily and Weekly CPFL Ratios were toward “Overbought” levels (2.60 and 3.12, respectively).
- Cumulative Volume (CV) in both S&P 500 and S&P Emini rallied to new Intermediate highs September 13, but remain well below major resistance.