TVO Market Barometer 11-13: Is the bear giving us a sign?

The Democrats are working their way back in and the tax plan seems doomed before it even reaches a vote. With all this stressful market news there’s only one thing left to do… call in the top callers. They seem like they’re everywhere, and for good reason. Market tops have lots of investors (as opposed to market bottoms), so there are plenty of folks who are ready and willing to buy into the analysis of the many top calling gurus out there.

Peter Eliades’ “Sign of the Bear” has just reared its ugly head and over the past 90 years every single one of its 8 triggers has been spot on for calling market tops (including the crash of 1929). One could say a near 100% track record is a pretty successful system, right? Well, before you liquidate your holdings and go hiding away your money for the next big one, consider that “the Bear” system is still just a system and should be viewed as such.

When backtesting systems, even among those with a success rate not quite as high as the Bear (like our own TVO which is 65-70%), it’s not unusual to have winning streaks of 10 or more occurrences. Go ahead and flip a coin and see how many times in a row you can get heads… you might be surprised. In fact, if you come across anyone trying to sell you a system or trading strategy while boasting their near perfect track record and sizable win streak, the odds would be in your favor if you actually bet against them.

And to top things off (pun intended), among the Bear’s minuscule 8 piece data sample, 2008 is suspiciously left out… if you’re backtesting a top calling system and get no signal for ’08, well it just might be time to re-examine the data. And it’s one thing to know when to get out, but what about when to get back in? The bottom after a greater than -20% correction may be easy to spot in hindsight on a chart, but it’s not such an easy task when you’re still in the middle of it.

Time would be far better spent and far more profitable for investors if these gurus started calling bottoms. Top calling makes you look more like a hero, though (if you’re right), and while the fear of missing out is strong, the fear of losing it all in the big one is much stronger. As long as worried folks are scared into lining up to pay for their newsletters and predictions of doom, the top callers are not going away any time soon.

As far as volume goes, institutional bears are not showing any signs of things coming apart at the seams in the near to mid-term. TVO bounced back into the healthy 0-3 range last week and never even dipped below zero in oscillator values. IO is negative, but that indicates that the market is oversold in the short-term and will revert back to the mean (our members were alerted of this setup last week and our SPY calls from the trade are already in the money). The Central Bankers kick things off early Tuesday, but earnings are still in focus and are very much the driving force behind the wheel. Whether or not the bear is giving us a sign, the bull is very much in control right now. -MD

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