The Tasgall Group

I found a good little blurb (and a good chart) on Ticker Sense regarding the S&P 500’s 5% decline and previous such declines…

With today’s near 1% decline, the S&P 500 is now down 5.86% form its peak on 2/20. This is the seventh time during this bull market that the S&P 500 has declined by 5% or more from a peak. In [the chart], we plot the S&P 500 highlighting each correction in red. The lower chart shows the percentage decline in each correction on a cumulative basis (from peak to trough).

On average, declines have lasted an average of 74 calendar days. Once the market does reach its low point, it has taken an average of 64 calendar days to recoup the losses.

While looking at historical patterns can mislead as easily as it can enlighten, it is worth noting that we’re not talking about a short-term one-week dip and one week recovery here.? With an average decline timeframe of 74 calendar days, we aren’t going to see the markets make new highs tomorrow if/when a recovery starts. (more…)

You may remember that I wrote about P/E compression a while back. Here’s a quick, updated view of the long-term P/E compression effect in the S&P 500 (brought to you by TickerSense):

While earnings have indeed been impressive, P/E ratios continue to grind lower. Even with earnings rising and prices going up, earnings have been rising faster than prices causing the ratio to fall. (more…)

Join me for a bit of silly fun in the CNBC “Million Dollar” trading contest, which starts on Monday. The prize is a “million dollars” paid in an annuity, but heck, I’ll still take it if I win.

The basic rules:

• You can only buy and sell stocks at the closing price of the day (market orders only)
• No short selling, no options, no leverage
• Mergers and share splits apply, but dividends don’t
• Stocks must have a $500 million market cap as of their closing price on Friday March 2nd (you can use the Yahoo Stock Screener to find all 2,723 tickers that should be elligible for the contest)

One of those crafty folks over at Fool.com has discussed the way to win the contest… He basically points out how to win any trading contest — take the biggest risks that you can and hope that you’re one of the lucky winners. A sound, safe, low risk strategy does not win contests.

It should be very interesting to see how the first week of the contest fares if the market continues to behave like it did last week…

Today was a ridiculous day in the markets… incredible moves across almost everything. The Dow was down over 546 points intra-day, closing over 400 points down. The decline was so sharp that the “circuit breakers” were triggered.

Apparently the volume on the Dow Industrials was so high that, much to everyone’s surprise, the calculation of the index fell behind causing a rather odd appearance of a 200 point drop at 3pm. The reality was that the dow was falling much faster than it appeared, and at 3pm the system that calculates the index price caught up with reality. That should give conspiracy theorists something to talk about for a while…

What caused today’s plunge? In theory it was China’s stock market, losing nearly 9% overnight. I think that was a catalyst, but it was really just the first domino. I think a contributing factor was the number of US investors waiting for a correction to start, and everyone looking to exit their trades before prices start to move down… (more…)

I just saw an ad that Investor’s Business Daily is having a “free pass” for the next week (Feb 26 to? March 4) on their online subscriber services.? I haven’t been dying to read IBD, but if it’s free I might look around a bit…

I know John has subscribed to IBD in the past…? what’s your take, what’s worth using, and does anything justify the subscription price when it stops being free?

We probably all know about the CRB index, and it’s use as an index of commodities, and how it can be watched as a gague of the general level of commodities… Most importantly, the CRB index has been falling quite a bit since last August:

With the falling CRB, quite a few people have hopped on the commodity-bear bandwagon, claiming that commodities are falling because (insert your favorite reason here). Everything from a slowing economy to “this time it’s different”. (more…)

Here’s a quick, bearish article on REITs from Bloomberg…

Shares of U.S. REITs are the most expensive in more than two decades compared with Treasury notes after the five-year property boom. Real estate stocks have led the Standard & Poor’s 500 Index higher this year on speculation takeovers will increase after Blackstone agreed to buy Sam Zell’s Equity Office Properties Trust for $39 billion in the biggest-ever leveraged buyout.

“Sam Zell is probably the shrewdest operator in this field that there is,” said David Dreman, who oversees $21 billion at Dreman Value Management LLC in Jersey City, New Jersey. “If he’s selling, I don’t think I want to be a buyer.”

Remember when I suggested IGR for international REITs? I don’t think I emphasized the volatility enough… it was down over 5% yesterday, 11% in the last few days. It’s not a smooth ride… though the discount on the fund has gone up to almost 5% again.

Is it time to sell REITs? Hard to say… but so far we’ve only had 3 down days since a 52-week high (in the DJR). While losing 4% in 3 days is rough, it’s not that significant. We’ll have to wait and see how the sector continues to perform over the next few weeks…

Another pretty picture from RealtyTrac via The Big Picture… this one shows the real estate/housing foreclosures by state… the redder the states, the more foreclosures per capita.

While the residential real estate market continues to soften, REITs are still going ganbusters (thanks to the EOP buyout), and homebuilders are doing quite well too.

In case you’ve been missing volatility, according to Profunds’ website, they now offer ultra and ultrashort sector ETFs.? These are funds that aim to return either 2x or -2x the underlying sector’s return thanks to the use of leverage.? (You’d choose the -2x ultrashort funds when you think a sector will go down.)

Included in the new short funds, the Ultra (URE) or Ultrashort (SRS) Real Estate Fund, Ultra (DIG) or Ultrashort (DUG) Oil and Gas, Ultra (USD) or Ultrashort (SSG) Semiconductors…

Paraphrased from Technically Speaking…? (you can tell which side he’s on based on the wording he uses…)

The Bear Case is simple:

• Mean reversion to growth norms
• P/E Multiple norms
• Dividend norms (1.8% on the SP500)
• Extremely low mutual fund cash
• Rising interest rates with a questionable dollar, under constant pressure from the printing press.

The Bull Case is equally simple:

• “WooHoo”
• “This time it’s different
• “The trend is your friend”
• “I can get out any time”
• “Debt doesn’t matter”
• The US consumer will never give up
• The Bernanke Put
• Victor Sperandeo’s “follow the false train of hope to the end of the line, and jump off just before the end.”

I think this sums things up fairly concisely… though I would probably add a few more strong profits stories to the bullish side, and some additional inflation stories to the bearish side…