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发帖数: 11530 | 1 Market timer Tom McClellan sees stocks set up for ‘ugly decline’
By Tomi Kilgore
Published: Aug 20, 2015 11:09 a.m. ET
McClellan is bullish, but he expects a definitive peak in within the next
week
Tom McClellan expects ‘nothing good for bulls’ the rest of the year
Tom McClellan loves doing what financial advisers tell you not to do. He
tries to time the financial markets — to the exact day, if his charts align
just right.
At the moment, they are telling him to be bullish on the stock market for
all of his trading time frames, including those that trade every few days,
weeks and months. But bulls should be ready to flee, as soon as this week.
That’s because McClellan said his timing models suggest “THE” top in
stocks will be hit some time over the next week. He expects “nothing good
for the bulls for the rest of the year,” he said in a phone interview with
MarketWatch.
McClellan doesn’t have a strong view on how far stocks could fall, just
that it will probably be an “ugly decline” lasting into early 2016. The
good news is that his models suggest it should not be as bad as the 2007-to-
2009 bear market, when the S&P 500 Index SPX, +1.03% plunged as much as 57%
, or the 2000-to-2002 selloff when the index plummeted 49%.
“I try to get the direction right, and I let the magnitude take care of
itself,” McClellan said.
From his home in Lakewood, Wash., about 10 miles outside of Tacoma and
nearly 3,000 miles from Wall Street, McClellan scours over what seem to be
hundreds of charts covering the stock, commodities and bond markets, and
even those following weather patterns, architecture billings and sunspot
activity.
The West Point grad and former Army helicopter pilot also relies heavily on
the widely used technical indicator that bears his surname, the McClellan
Oscillator (MCO). Developed in 1969 by his parents, Sherman and Marian
McClellan, that indicator can be used to determine overbought and oversold
conditions and gauge the flow of money into and out of the market, according
to the Market Technicians Association’s Knowledge Base.
He’s always looking for patterns that could help him predict the direction
and the timing of future market moves. Then he writes about those patterns
in daily and bimonthly newsletters, as well as in a weekly notice on one
chart in particular.
Currently, McClellan sees a number of bearish patterns warning that the big
one is likely to hit Wall Street very soon, he reported. For one, the
advance-decline line, which tracks the number of stocks participating in a
trend, started declining nearly four months ago.
The NYSE’s advance-decline line has been falling since April
Meanwhile, the S&P 500 came within a fraction of a record high as recently
as July 20. Basically, that suggests the index is being propped up by fewer
and fewer stocks, making it much more vulnerable to a shock.
And one reason he expects a big selloff to start as early as this week is a
chart showing that liquidity in the financial markets is about to dry up, as
investors prepare for the Federal Reserve’s inevitable interest-rate hike.
Drops in smart-money long positions in eurodollar futures suggests liquidity
is drying up.
Eurodollar futures reflect investors’ bets on where they see three-month
borrowing rates down the road. Commercial traders are known as “smart money
,” because their trades reflect what’s actually happening in the
underlying cash markets, as opposed to noncommercials, who tend to trade
futures to speculate.
Some may question the predictive ability of any chart, set forward by one
year. McClellan’s response: “You don’t have to understand the physics of
something to accept and profit from it.”
Combined, he feels the charts’ message is pretty clear.
“We are already seeing confirming signs of liquidity problems in the
weakening [advance-decline] line, which topped back in April and appears to
be setting up for a major divergence [from the S&P 500], similar to 2000 and
2007,” McClellan wrote in a recent newsletter.
Other charts supporting the bearish view include the leveling off of
Treasury and mortgage-backed securities held by the Federal Reserve after
the end of quantitative easing, and the high level of taxation relative to
gross domestic product.
End of QE could start weighing on stocks — soon.
Warily bullish
But if he’s so sure that “a major price top” is coming, why is he still
bullish for his short-, medium- and long-term trading styles? “If the top
is still out in front of you, you don’t want to exit yet,” McClellan said.
In other words, you don’t wear a raincoat today because a storm is coming
tomorrow.
A rise in tax receipts to 18% of GDP has always led to recessions in the
past
Many argue that trying to time the market so precisely not only increases
risk, by raising the odds of being whipsawed — buying high and selling low,
or vice-versa — but also fails to beat the more passive buy-and-hold
strategy espoused by financial advisers.
“My mother used to say [that] everyone times the market,” according to
McClellan. “Some people buy when they have money, and sell when they need
it. Others use methods that are more sophisticated.”
You can decide whether you’re going to buy or sell, but you don’t get to
set the price. “The timing [of a trade] is the only thing you have control
over. Why abandon the only thing you have control over?” McClellan asked.
The bottom line is that, while it might seem counterintuitive, data provided
by MarketWatch’s Mark Hulbert, editor of the newsletter-tracking Hulbert
Financial Digest, shows that over the past couple of years, McClellan has
helped his readers make money while also reducing risk.
Since Oct. 1, 2013, McClellan’s short-term timing signals have produced an
annualized return of 14%, compared with a buy-and-hold return of 14.6%.
But the Sharpe ratio, used by modern portfolio theorists to gauge how much
return they’re getting for the risk they are taking, was 0.54 for McClellan
’s short-term signals, which was better than the risk-adjusted return
reading of 0.47 for a buy-and-hold approach.
The Sharpe ratio for McClellan’s intermediate-term timing signals was also
higher than for a buy-and-hold strategy, while his long-term signals came up
a bit short.
He declined to comment on the growth of newsletter subscriptions over the
years, but he did say he makes “a comfortable living” doing what he loves.
McClellan didn’t always love the stock market
The McClellan Oscillator started gaining acclaim when Tom was a child, but
he didn’t become interested in his parents’ work until he grew up. “It’s
only when I got older,” said McClellan, “that my parents got smarter.”
He took over the family business in 1995 after 11 years in the Army, and
quickly started modernizing the process. When he published the first
newsletter on a PDF file in 1997, McClellan said he had to call “several
hundred subscribers” to explain how to download the software they needed to
read it.
While technology has made his job easier over the years, the demands of a
daily newsletter can still be daunting. During a recent so-called vacation
in Guatemala, he had to break away every afternoon to work on his reports.
The only time he has taken off was when he had some guest writers, including
his father, fill in for a few days while he had hip-replacement surgery.
That’s when he realized, as demanding and emotionally taxing the daily
commitment to analyzing and writing about the financial markets can be, he
didn’t want to do anything else.
“I missed writing. I missed the daily involvement,” McClellan said. “It’
s a challenge. But I love to work with indicators. I love my job.” | W***n
发帖数: 11530 | 2 he's a genius technician |
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