Sunday, October 12, 2014

Hussman: "Only 28% Of NYSE Stocks Are Above Their Respective 200-Day Moving Averages"

John Hussman, President of Hussman Investment Trust, is out with an urgent warning on the stock market in a note titled "Air-Pockets, Free-Falls, and Crashes." According to John Hussman, "only 28% of NYSE stocks are above their respective 200-day moving averages," and it looks like the S&P 500 tested its 200-day moving average on Friday (chart below). The last time the S&P 500 crashed through its 200-day moving average was in 2011, when the last major correction occurred. The S&P recently broke through its uptrend from 2011, so a correction is even more probable now, in my opinion.

Source: StockCharts.com

Here's an excerpt from John Hussman's Weekly Market Comment at HussmanFunds.com:
Present conditions create an urgency to examine all risk exposures. Once overvalued, overbought, overbullish extremes are joined by deterioration in market internals and trend-uniformity, one finds a narrow set comprising less than 5% of history that contains little but abrupt air-pockets, free-falls, and crashes.

In recent weeks, the market has transitioned to the most hostile return/risk profile we identify: the pairing of overvalued, overbought, overbullish conditions with deterioration in market internals and price cointegration – what we call “trend uniformity” – across a wide range of stocks, sectors, and security types (see my September 29, 2014 comment Ingredients of a Market Crash). As in 2007 and 2000, we’re observing characteristic features of that shift. One of those features is that early selling from overvalued bull market peaks tends to be indiscriminate, as deterioration in market internals and the “average stock” often precedes substantial losses in the major indices. As of Friday, only 28% of NYSE stocks are above their respective 200-day moving averages.

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