"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Tuesday, October 4, 2011

Doug Kass Calling a Bottom Again

Frequent readers of this blog know what I'm thinking about market pundit Doug Kass, a frequent CNBC guest who does not publish his investment track record. It was therefore difficult for me to understand how investors can even listen to him and other Fast & Mad Money talking heads (I understand now after reading more on the topic of crowd psychology).

Anyways, Kass has been calling a bottom again ("I believe that the lows of the year are in", Sep 26 2011). As discussed in other posts (March 23, 2010; Feb 7, 2011) , there is no statistical evidence that Kass' calls differ from random calls. In fact, we'll never forget his legendary call to buy Financials on Jan 14 2008.
Kass compares the current situation with the mood of the markets in February 2009.

Here is my comparison: one of the indicators I'm looking at is the number of new 52-week highs lows. In 2009, there was a clear divergence between price and the number of new high/lows: the the sell-off was loosing steam. The situation is entirely different now: there hasn't been any divergence in the last months. Also note that the number of new lows is not at extremes levels, compared to 2008/09. Based on this indicator, stocks have more room to fall in my opinion: 

The only positive is that indices are approaching major support levels, but this itself does not mean we'll see a bottom. (It's like driving on a highway: the fact that there is an exit coming up doesn't mean I will take it. Only when I start using my blinker, you can infer that I might be willing to leave the highway.)