Doug Kass: Stock Market Put in 2011 Low on Monday
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Selling in this market became so pronounced over the past 2 week that even some of the Street’s most celebrated bears think the next big move is higher!
And Doug Kass is among them.
Kass, the president of Seabreeze and CNBC Contributor who’s famous for his market timing tells us the stock market put in its 2011 low on Monday. And unlike other market watchers who say the same, Kass also says, "I do not think we're going to re-test the lows."
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(We know some of you may be skeptical, but for what it's worth, last year -- on July 6, 2010, Kass said the market had made its lows for the year and his call proved to be extremely accurate.)
Kass points to a slew of reasons that suggest the next big move is to the upside. They follow:
1. The decline was so rapid and sharp that when he examines history and looks at similar moves “the mean return after 6 months is a gain of more than 10% and greater than 20% a year later,” he says.
2. The market was so oversold, it suggests an abundance of fear is in the market, which in turn is bullish. “We’re now as oversold as we were when Germany invaded France in 1940 and after the 1987 crash.” Adding to that thesis, Reuters says The S&P 500 is now more technically oversold than at any other time in the last 10 years, with its 14-day relative strength index at 16.5 percent. A level below 20 generally attracts buyers.
3. We’ve had an aha moment. Kass thinks the historic implication of the S&P downgrade will ultimately be a kind of wake-up call for lawmakers. “Now, I think we see renewed leadership” after an event that had been unthinkable became reality.
4. Kass also points to the ratio between normalized earnings and corporate bond yields, which he says has never been more stretched. “That was my most important tell back in 2009,” he says. (Less than a week before the S&P 500 hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom.
5. And finally, he thinks fundamentals line up well for a rally. “The economy is growing,” he reminds, “although it’s growing more slowly than we’d like.”
All told, Kass says these indicators, which are his most important 'tells' for market timing, are trending in a positive direction.
And he’s putting his money where his mouth is. Kass also tells us that over the last 2 days he’s traded into net long positions. In fact, he’s the longest he’s been at anytime over the preceding 12 months.
