Saturday, October 3, 2015

Cycles and bear markets - 1: US real estate

Previous market update here

We have some interesting stuff about the market update, that is for tomorrow. 

Out there in the www world, we have seen that the forecast of a bear market bottoming at SPX 1550 - 1600 is very popular. Now, everybody is 100% sure that this is a bear market. Nobody is doubtful abouut this. There are no questions about it. The focus is on forecasting the bottom and the time of bottom now. The number of experts with the forecast of  bottom at SPX 1500 - 1600 is increasing. 

Does the stock market actually take the pundits's permission to bottom at XYZ number? We have no idea how they can come to a conclusion of market bottom when neither the market top or bear market is confirmed by them. 

Let us focus on the title here. Chart below, click the chart to enlarge:

We use the US real estate index as one of the metrics to guage the stock market pulse from time to time.  

- US real estate index made a lower high in June 2015 when the market topped - comparison to 2007 when the US real estate index made a lower high in Oct. 2007 when the market topped

- This assumption will be invalid if the US real estate index breaks higher than Jan 2015 high, then expect the market to break higher - comarison to 2011 when the US real estate index broke higher in 2012 invalidating the market topping speculations in 2011. 

- Caveat: The US real estate index actually bottomed in 2000 when the stock market topped. The US real estate index is tracked in from 2000 (no prior data) but if you are not a kid then, you would certainly know the US real estate in the real world topped in 1997 - 1998 while the stock market bubbles blew into the year 2000. We are not ruling out the same happening now as well. 

How do we trade this? 

Like we said above, this is only one of the guages that we look at. We do not trade based on it. But, these comparisons provide confidence to the long term outlook. 

Almost all of the guages have confirmed US stock indices topping in July 2015. Our line in sand for the long term outlook is SPX ~ 2050. If the monthly chart closes above it, then the market topping theory is off. 

Good luck to all! 

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