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Dec 09, 2010


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William Apel

John Mauldin at http://www.frontlinethoughts.com/ isn’t comfortable with market timing, yet he shares this: [Note – originally from John Hussman at http://www.hussmanfunds.com/]

“In recent weeks, the U.S. stock market has been characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile to stocks. Last week, the situation became much more pointed. Past instances have been associated with such uniformly negative outcomes that the current situation has to be accompanied by the word ‘warning.’

1. S&P 500 more than 8% above its 52 week (exponential) average
2. S&P 500 more than 50% above its 4-year low
3. Shiller P/E greater than 18
4. 10-year Treasury yield higher than 6 months earlier
5. Advisory bullishness > 47%, with bearishness < 27%

“The historical instances corresponding to these conditions are as follows:
December 1972 - January 1973 (followed by a 48% collapse over the next 21 months)
August - September 1987 (followed by a 34% plunge over the following 3 months)

July 1998 (followed abruptly by an 18% loss over the following 3 months)
July 1999 (followed by a 12% market loss over the next 3 months)
January 2000 (followed by a spike 10% loss over the next 6 weeks)

March 2000 (followed by a spike loss of 12% over 3 weeks, and a 49% loss into 2002)
July 2007 (followed by a 57% market plunge over the following 21 months)
January 2010 (followed by a 7% "air pocket" loss over the next 4 weeks)
April 2010 (followed by a 17% market loss over the following 3 months)
December 2010 ….?????”

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