There is much hope out there that the current moderation of recessionary forces is a prelude to recovery. I believe that the current market situation is like late 2001/early 2002. Any relapse in activity will cause a catastrophic loss of confidence.
Investors simply did not give up hope when the S&P visited 666 last month. Where was the universal excess bearishness that typically marks the end of major bear markets? I sense there is a lot of hope out there that this is the real thing. But before I can go overweight equities, I need not just cheap valuations, I need to see despair and revulsion.
In my view it is still too early to go bullish. But for those readers who disagree, I would certainly caution piling in with technical indicators so very overbought (see left hand chart below). But I still believe that the worst of the bear market still lies ahead.
4 June, 2009. Global Strategy Weekly, Societe Generale, Albert Edwards:
I wasn’t going to write this week. As I am sure you know, most accidents happen in the home and washing dishes is dangerous. The font of all my weeklies, my index finger, suffered a major injury. After doing the washing-up, I failed to spot the large shard of broken glass lying in wait. I found it when trying to force some homeless peas down the plug hole. Hence tapping out the weekly with my index finger is doubly painful this week. As well as the physical laceration, I have to report that one of the most reliable indicators of an equity bull market, the Coppock Indicator, has just delivered a massive equity buy signal (more on that later). Of course, this would not be a problem if I were not still underweight equities…
For the record, and following Gillian Tett’s declaration that the recovery might take the shape of the Pitman shorthand for “bank” (something like a sickle), Edwards has been delving into his ethnic past to find the possible shape of things to come – an Armenian K:
And he’s at pains to stress that his beloved Coppock Indicator may be giving a premature buy signal.
But it’s here in pixalated black and white:
This is one of the most reliable technical indicators, suggesting we are in a new long-term bull market.
Related link:
Is that a buy from the Coppock indicator? - FT Alphaville