Stock-market strategist Hayes Martin has good and dangerous news for inventory market bulls.
First the dangerous: The decline that started in late July/early August will finally take between 8% and 13% off the market averages, Martin says. (The S&P 500 is underwater in August already.) The good news, he provides, is that the approaching decline won’t spell the top of the bull market and the beginning of a brand new bear market.
Martin, president of the advisory agency Market Extremes, is likely one of the few market consultants to whom I usually flip to for perception. When an electronic mail from him arrives in my inbox, I concentrate. (For the file, his advisory service doesn’t contract with my auditing agency to calculate his service’s efficiency.)
One such electronic mail from Martin arrived late within the day on Aug. 1. In distinction to prior emails through which he mentioned the market’s advance was on strong floor, on this one he reported that the market’s “internals” have been “deteriorating.” He concluded: “Although I do not expect a major decline to result from this, we should be prepared for a more severe intermediate pullback. A defensive posture is warranted under such conditions.”
From Martin’s Aug. 1 electronic mail by means of Aug. 15, the S&P 500
SPX
slipped 3% whereas the Nasdaq Composite
COMP
is down 4.6%.
In a follow-up electronic mail, Martin mentioned that, primarily based on his work, this correction has additional to go, within the 8% to 13% vary. Yet as a result of his evaluation exhibits that the market’s internals have solely modestly deteriorated, in distinction to the extreme deterioration seen at bull-market tops, he provides that “I expect the advance to resume” as soon as this correction runs its course.
As we contemplate Martin’s evaluation, it’s price remembering his prior feedback over the previous 12 months and a half. In late May/early June of 2022, for instance, within the midst of the bear market that started the January earlier than, he predicted that the market would stage a countertrend rally through which the expertise sector would rise 15% to 25%. The Nasdaq Composite over the following three months rose 16.5%.
After that rally ended, the bear market resumed in earnest and by early October 2022 the Nasdaq had greater than erased that 16.5% achieve. At that time, Martin forecasted a powerful “reflex bounce,” although not a brand new bull market, through which the market averages would rise 10%-15% and “the technology-dominated indexes may well show gains in the 15-20% range.” The market’s low was on October 12. Though Martin in early October didn’t envision a brand new bull market, and solely later turned extra bullish, he deserves credit score for forecasting a powerful rally.
The backside line? To the extent you give credence to Martins’ evaluation, you could wish to shift your inventory portfolios right into a extra defensive posture.
Mark Hulbert is an everyday contributor to MarketWatch. His Hulbert Ratings tracks funding newsletters that pay a flat payment to be audited. He could be reached at mark@hulbertratings.com
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