Why this veteran analyst sees stocks headed for the biggest bear
There are some signs of a recovery attempt following Monday’s wipeout, chiefly for techs. The Nasdaq Composite
COMP,
is teetering toward correction territory and the S&P 500
SPX,
and Dow industrials
DJIA,
are halfway there. With jobs data looming for Friday, even the bravest dip buyers may have second thoughts.
Don’t look for reassurance in our call of the day, where the founder and CEO of BullAndBearProfits.com, Jon Wolfenbarger, predicts U.S. stocks may be “on the verge of starting the biggest bear market since the Great Depression.”
“Now with the Fed talking about tapering and money supply growth slowing
significantly from 39% y/y in February to only 8% y/y in August, perhaps that is
enough of a ‘tight monetary policy’ to change investor psychology to a more
bearish mood? We will see,” he said in a Monday interview and follow-up comments with MarketWatch.
Wolfenbarger, who spent 22 years as an equity analyst at Allianz Global Investors, said while he’s not a permabear — his newsletter offers strategies for profiting when markets go both ways — investors should heed some warnings signs.
Overbullish sentiment, economic weakness, excessive debt levels and limited policy tools are key ingredients for a market rout worse than that seen in 2008-09, he said, adding that a top for the S&P 500 reached a few weeks ago could have been the start.
One chart he’s watching that predicts future long-term stock returns — a favorite of legendary investor Warren Buffett, the chairman and CEO of Berkshire Hathaway
BRK.A,
BRK.B,
— shows equities 30% above the prior all-time high seen in the tech bubble peak of 2000.
Wolfenbarger is watching S&P 500 moving averages closely. If the 250-day, currently at 4,020, were to “really break through” that could trip a major drop for stock. His below chart shows the S&P 500 price (black line) with its 250-dma since 1980. The red circles indicate when it fell below the 250-dma and the 250-dma slope was falling.
As for what investors should do — Wolfenbarger advised using exchange-traded funds that actually go up in bear markets,…
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