LAMENSDORF MARKET TIMING REPORT EDITOR: DICK STERN CIO: BRAD LAMENSDORF FEBRUARY 2016 +100% 75% 50% 25% 0% -25% -50% The charts and graphs presented in LMTR s newsletter are not produced by LMTR. The interpretation of the charts and graphs is only the opinion of LMTR and does not reflect the associated firms opinions. Expect a Short Term Bounce, but Bank Stocks Signal Trouble for the Long Term January s selloff certainly caught investors by surprise. It occurred with tremendous downside volume and created significant technical damage. Sentiment indicators have become very pessimistic, and over the last week the market was able to produce over 1,000 selling climaxes. This is bullish from a contrarian perspective, and we expect a short-term bounce. However it is important to point out that bank stocks led the market lower during the correction, and this sector s weakness, based on market history, indicates that a more serious decline is coming. Paying subscribers to LMTR received an email notification on January 19, alerting them that we were covering 15% of our short position, taking our short position to 0. The next day, January 20, we sent out another alert notifying subscribers that we were covering the remainder of our short position, taking exposure to 0%. We are closely monitoring the market to determine a favorable entrance point for adding back our short position. 1 s s
Ned Davis Research s crowd sentiment has moved to 45.3, showing that pessimism has reentered the market. This is a far cry from the optimistic 73% reading at the start of 2015. 2,208 1,998 1,808 1,636 1,480 1,339 1,212 1,097 992 898 812 735 665 75 70 65 60 55 50 45 40 35 30 S574 S&P 500 Composite Index Extremes Generated when Sentiment Reading: Rises above 61.5% = Extreme Optimism Declines below 55.5% = Extreme Pessimism Sentiment must reverse by 10 percentage points to signal an extreme in addition to the above extreme levels being reached. Arrows represent extremes in optimism and pessimism. They do not represent buy and sell signals and can only be known for certain (and added to the chart) in hindsight. 2002-07-31 to 2016-01-19 (Log Scale) (Updated weekly on Wednesday mornings) 2,208 S&P 500 Index Gain/Annum When: 1995-12-01 to 2016-01-19 NDR Crowd Sentiment Poll % Gain/ % of is: Annum Time Above 61.5 1.6 42.2 Between 55.5 and 61.5 9.7 21.2 * Below 55.5 8.5 36.6 Source: S&P Dow Jones Indices 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 53.5 59.4 33.9 33.9 75.7 51.9 68.1 43.8 73.5 54.8 67.1 46.6 NDR Crowd Sentiment Poll 71.9 69.6 49.7 42.5 Extreme Pessimism (Bullish) 70.5 69.5 72.2 49.9 47.6 58.1 38.0 37.1 Average Value Of Indicator At: Optimistic Extremes (down arrows)= 68.3 Pessimistic Extremes (up arrows)= 46.8 Average Spread Between Extremes = 21.5 Extreme Optimism (Bearish) 73.0 69.8 70.7 32.5 30.9 62.3 46.8 51.3 40.5 50.3 63.2 38.4 70.7 47.2 1,998 1,808 1,636 1,480 1,339 1,212 1,097 Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/ 68.3 48.2 Source: Ned Davis Research, Inc. 71.6 55.2 73.9 73.3 53.3 45.8 66.6 2016-01-19 = 45.3 992 898 812 735 665 75 70 65 60 55 50 45 40 35 30 The Investors-Intelligence bulls/bears ratio, which measures sentiment of market newsletter writers, has moved to -10%. This shows that there are now more bearish newsletter writers than bullish ones, a positive market sign from a contrarian point-of-view. Copyright 2016, All Rights Reserved Investors Intelligence. Further distribution prohibited without prior permission. 2
Sentimentrader.com s smart money/ dumb money ratio is now as wide as it was during September s correction. This gauge is indicating major pessimism, or fear, in the marketplace by the dumb money. Once this fear dissipates, it will serve as a contrarian indicator for a large decline. Copyright 2016, All Rights Reserved Sundial Capital Research. Further distribution prohibited without prior permission. Selling climaxes occur when a stock makes a 12-month low but then closes the week with a gain. In mid-january there were almost 1,100 selling climaxes, which rivals the number that occurred during the September low. Investors should be careful not to use the increase in the prices of the stocks as a trending indicator. Copyright 2016, All Rights Reserved Investors Intelligence. Further distribution prohibited without prior permission. 3
A great many large bank stocks sliced through their fall lows like a hot knife through butter. Among them were Citigroup, Deutsche Bank, Credit Suisse, Sun Trust, Cullen Frost Bank, Fifth Third Bank and Comerica. The heavy volume selloff in these stocks indicates that institutions are aggressively selling shares of bank issues. Using Citigroup as an example, in January it broke support at 48 and dropped nearly 20%. What could such dramatic downside action indicate? There are many possibilities: Recession, exposure to sovereign debt or loan defaults on energy. While the list of possibilities could go on and on, the certainty here is that the price action is worrisome from a historical perspective. Copyright 2016, All Rights Reserved Bloomberg Finance, L.P. Further distribution prohibited without prior permission. 4
CONCLUSION For over a year, we have warned LMTR readers that the market was breaking down. In our opinion, a 10-20% downside still remains. Now is not a time to be adding exposure during dips. Instead, rallies should be viewed as either selling opportunities or a time to establish hedges. We are eagerly watching for signals to short the market again. SUBSCRIBE TO THIS NEWSLETTER Sign up at the new LMTR.com Contact us today to recieve this newsletter at the low annual price of just $299. Phone: 203-557-3006 Please send a check to: We also accept Email: brad@lmtr.com LMTR PO Box 5087, Westport, CT 06881 BIO Brad Lamensdorf, a seasoned money manager and market strategist, is the CIO of The Lamensdorf Market Timing Report, a newsletter designed to help investors improve performance via market timing by assessing the environment of the stock market using a variety of technical, fundamental and sentiment-oriented tools from powerful independent research firms. Many investors mechanically enter and depart the market without a true game plan. Studies have shown that retail investors, in particular, are very poor market timers, tending to invest at or near market peaks and sell at or near market lows. The newsletter is designed to provide risk parameters for both professional and retail investors around the short-term stock market environment, giving subscribers better insight about when to allocate assets into or out of the equity markets. DISCLAIMER Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA. This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a buy or sell recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF s Nor any investment Advisors. Copyright 2016 Lamensdorf Market Timing Report. Lamensdorf, a frequent guest commentator and analyst on major business networks including CNBC, CNN and Fox Business News, also serves as a Portfolio Manager and Principal of Ranger Alternative Management LP, a sub-advisor to the Advisor Shares Ranger Equity Bear Exchange Traded Fund (NYSE: HDGE). In this role, he conducts top-down technical evaluations of broader market liquidity, sentiment and breadth to help identify short and intermediate-term market trends, manage exposure and mitigate risk. HDGE was launched in 2011 and is the first and sole actively managed, short-only ETF in existence. Lamensdorf, also has managed investment portfolios for the Hughes family and was principal of Tarpon Partners, managing a long/short fund that was up more than 200% gross over six years. Earlier in his career, he was as an equity trader/market strategist for Taylor and Company, the Bass brothers trading arm, co-managing a short-only strategy in a derivative format with national exposure. He also served as the in-house market timing strategist for the entire internal and external network of Bass managers.