We Predicted the Market Selloff Yet Again

We don’t have the time to document and celebrate our track record. Such an effort would require a staff of several dedicated to this marketing endeavor.

However, we do try to remind those of you who still aren’t aware of the FACT that our Chief Investment Strategist, Mike Stathis is the BEST stock market forecaster in the world.

His record speaks for itself.

You can get a good idea of his track record from here and here.

Over the past several years, he has successfully predicted the timing and magnitude of more than 90% of all stock market corrections.  We don’t know anyone else in the world who can even claim an 80% accuracy rate. 

Here, we show some excerpts from the market forecasting section in the Intelligent Investor and Market Forecaster, demonstrating that once again, Stathis nailed the most recent correction in both magnitude and timing.

The first chart shows that he nailed the correction down to nearly the exact level. 

Whenever the stock market corrects, it's not always time to buy even when it bottoms. However, Stathis advised subscribers to buy the Dow at what he felt would be the bottom at 12,500.

 

 

Of course, the Dow is significantly higher today at around 13,250.

So let's now have a look at excerpts of his market forecasts.

Note also that each month's forecast usually contains several charts. Here we present only 1-2 charts for each month for brevity.

 

 

August 2012 DJIA Forecast

To be brief, we stand by our forecast from July. Specifically, we want to emphasize the following excerpts from the July forecast:

“...further earnings weakness in the U.S. is likely to cause the DJIA to trade within the 12,000 to 13,100 for 95% of the time over the next few months. Thus, investors should respond accordingly.

Although the DJIA remains at the upper end of this range, it could go higher. However, we feel that it is likely to retest the 12,000 area at least once more before testing the highs made in May.

Keep in mind that the possible correction levels we mention are not likely to be triggered in one direction. Most likely, we will see and up-and-down market movements in coming months.”

Keep in mind that the current market momentum is quite strong given the current and forward risks. That means the Dow could continue to rise. Hence the 95% trading range we discussed last month (this means the Dow is likely to exceed the 13,100 top for short periods). However, we believe the momentum will fade. Most likely, it will come to an abrupt halt upon an earnings disappointment, followed by several others. The process is not likely to cause the Dow to fall rapidly, but instead to lure more investors in with rallies.

How long of a decline to wait for prior to repurchase will depend largely on how active each investor is, the amount of profit in each position, how much cash they have on the sidelines, and the sector which the securities are categorized.

Consumer Staples, Telecoms, Utilities and Healthcare are the safest sectors now, and the ones (in that order) expected to outperform over the next few months. But this does not mean securities in these sectors will not decline. If the market retraces significantly, even the strongest stocks are also likely to decline.

So the real questions must answer are how much possible downside do we see and what are the probabilities of this downside?

These are critical questions to answer because if the market downside is not large or is only expected to be temporary, to some investors, any correction would represent a buying opportunity only, not a selling opportunity.

As well, if the probabilities of such a correction are not compelling and the longer-term forecast is for a higher Dow, then it does not make sense to sell positions for most investors (unless they are VERY short-term traders). 

So let’s have a look at our forecast for the DJIA.

Our forecasting analysis remains largely unchanged from the previous month, with the following subtle differences, as noted.

 

 

1)   We feel that the current market rally is not discounting continued weakness in corporate earnings, especially due to the recession in Europe. Moreover, it neglects to account for further weakening of the U.S. economy. Despite this, last month we stated that the Dow could go higher because we were aware that investors were behind the curve. 

While we still feel that the 12,000/12,100 level will be retested, we are now less sure when this will occur. As a result, we have extended this possible correction by one month (should be 2 months, left but now 3). This might represent a buying point for a trade, depending on how and when the decline occurs.

In addition, we feel fairly certain that a correction to the 12,500 level will occur within the next 1-2 months. Thereafter, the Dow could rally back to 13,000 again.

 

September 2012 DJIA Forecast

As forecast, the Dow did spend some time beyond our 13,100 range. However, the strong bullish momentum we also discussed has not yet faded.

One cannot deny that the chart of the Dow looks impressive when analyzed over any time frame since March 2009. This is by no coincidence. A trend of record earnings has combined with record-low Treasury yields and the safe haven status of U.S. assets to keep the market high. 

 

 

 

October 2012 DJIA Forecast

The announcement of QE3 sent the markets higher, but they have since given up these gains. QE3 or not, the U.S. stock market continues to perform nicely due to impressive earnings. QE has not really helped corporate earnings other than for financial firms.

 

[long-term guidance has been deleted; only subscribers will obtain access]

With the presidential elections on the horizon, it is difficult to know how investors will react both before and after the results. Looking past the elections, we feel that [forward guidance has been deleted; only subscribers will obtain access]

In addition, we also stated that we felt fairly certain that the Dow would correct down to the 12,500 level within a couple of months. We also stated that the Dow could rally after this correction, and only later sell off down to the 12,000/12,100 level.

With the announcement of QE3, we feel that much of the downside risk in the stock market has been reduced for now.

 

 

Accordingly, we have raised the expected correction level for the Dow to the 12,500 area. In contrast, the 12,000/12,100 level is not likely prior to 2013, unless a series of major unforeseen events occur, and/or corporate earnings take a big dive.

We do not feel chances are exceptionally high for any of the events required to cause the Dow to sell off to the 12,000/12,100 are likely through the remainder of 2012. 

 

November 2012 DJIA Forecast

Based on the announcement of the “unlimited QE3,” we raised our downward expectations through 2012 for the DJIA last month from 12,000/12,100 to 12,500. 

While we did not specifically state anything about the 11,800 level, it should be obvious that we lowered the possibility of this during the next two months. Previously, we placed a **% chance of the 11,800 being tested through January. We have lowered this to about **%, which is **************.

 

Of course, it’s always possible for these issues to take center stage prior to the close of 2012 which would send the markets lower. Our timing forecast is just a rough guess. The key points to keep in mind are the following:

· We feel there is at least a little more downside to the market, although there could be a bounce from here only to be followed up with new lows thereafter.

· This correction period is likely to be driven more by emotion and the herd effect, than reason and fundamentals. As such, the correction stands a good chance to be exaggerated.

· The correction should present buying opportunities because we currently do not see a reversal in trend taking place. Thus we expect the longer-term bull market to continue for now.

 

Note that his forecasts for the Nasdaq yielded results of the same accuracy but we will not present this material here for sake of brevity.