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Articles by Michael Harris
2025 Market Drawdown Duration: 2008 Or 2020 Pattern?
Apr. 28, 2025 11:51 AM ET, , , , , , , Summary Dual-axis charts are misleading for predicting market behavior; price action analysis and regime classification offer better insights. Current market dynamics resemble 2008, but future paths depend on central bank actions, government policies, and economic growth. Without significant Fed rate cuts, the correction may worsen, potentially surpassing 2008 levels.
The Big Picture Cognitive Bias
Markets are non-stationary, and the big picture constantly changes. Understanding the big picture is a daunting, if not impossible, task, yet this futile exercise is appealing to many traders and investors. Some analysts, traders, and investors often argue that understanding the big picture in the markets is more important for success, even more so than quantitative analysis. I can understand the desire of some market participants to understand the big picture.
Why Do I Believe The Stock Market Will Face Rough Waters Ahead?
Sep. 24, 2024 12:34 PM ET Summary Market psychology and qualitative forecasts can offer valuable insights, despite low statistical confidence due to small sample sizes and infrequent data. Rising public debt and increased volatility drag hinder long-term stock market growth, leading to concerns about future performance and final wealth. Alternatives like bonds and managed futures are gaining traction, with potential outflows from stocks and a renewed interest in real estate.
Retail Stock Market Investors Do Not Need Macroeconomic Analysis
For retail stock market investing, understanding the macroeconomic environment and the actions of the central banks is not required. Relying on macroeconomic analysis is difficult due to the subject’s complexity. Macroeconomic analysis is a fascinating area with conflicting opinions. The sample of past recessions and inflation periods is small, and the uncertainty in making forecasts is high. On top of this, regime changes limit the effectiveness of forecasting based on historical analysis.
Gold Might Become The New Bond
Aug. 13, 2024 6:37 PM ETSPX, DBP, GLD-USD, GLTR, IAU, OUNZ Summary Gold may replace bonds in strategic allocations due to surging public debt, deglobalization, geopolitical conflicts, and supply chain disruptions. US debt nears $35 trillion from deficit spending post-2020 pandemic, leading to inflation. Stocks outperform bonds, prompting investors to consider gold as an alternative.
Stock Market Crash Looming, But Not For The Reasons Most Analysts Think
A stock market crash is looming, but not for the reasons most market analysts think. High concentration, low breadth, higher inflation, a prolonged yield curve inversion, and even higher rates are not enough to cause a market crash. This article has three parts: the first is an attempt to briefly describe how we got to this point; the second part examines the drivers of a looming market crash; and the third part mentions a possible strategies for minimizing losses in the event of a market crash.
Stock Market Crash Looming, But Not For The Reasons Most Analysts Think
Stock Market Crash Looming, But Not For The Reasons Most Analysts Think A stock market crash is looming, but not for the reasons most market analysts think. High concentration, low breadth, higher inflation, a prolonged …
A Hard-To-Beat Strategy
Despite its simplicity, it is unlikely that the majority of macroeconomic and discretionary technical analysts outperform this hard-to-beat strategy over sufficiently long time periods. My article, Macroeconomic Analysis or Simple Technical Indicators? on March 2, 2024, attracted more interest than I was expecting. However, this interest was met with some backlash from a few financial social media accounts that focus on macroeconomic and discretionary technical analysis.
Inflationary Growth And The Biggest Bubble Of All Time Original
From January 3, 2023, to April 15, 2024, the magnificent seven equal-weight index has been up 162%. NVIDIA Corporation (NVDA) has contributed a spectacular 489% to the rise of this index. In the same period, the equal-weight NASDAQ-100 (QQEW) and S&P 500 (RSP) ETFs are up only 34.2% and 16%, respectively. Breadth has been low and a few large-cap stocks have provided support to the market. These are the stocks that have mostly benefited from "Stage 3" inflationary growth.
The Myth of Turnaround Tuesday Anomaly
The “turnaround Tuesday” anomaly disappears if we take into account the overnight effect and random short squeezes in bear markets. The “turnaround Tuesday” (TAT) anomaly refers to stocks bouncing back on Tuesday after a down Monday. This effect appears to be a random combination of the overnight anomaly and random short squeezes during bear markets. If we control for these two confounders, there is no anomaly.
The Tech Market Is Fragile
This year, investors have focused on the outlier returns of Nvidia Corporation (NVDA) and a handful of other large-cap stocks. Via a process of induction, they have assumed that the bull market has made a comeback. However, the data reveals that there is a bull market only in a small group of stocks that have benefitted from an artificial intelligence ("AI") frenzy, and the broad market is struggling in a high-interest rate environment and a challenging geopolitical landscape.
The Risks Of Strategic Investing Have Increased
The purpose of my Seeking Alpha article, The 60/40 Portfolio Is A Risky Investment, on June 11, 2017, was to point to the high correlation of this strategic allocation with the stock market and to the fact that past returns have offered a false sense of security to investors. Most readers received the article well, but there was also some backlash and denial of reality.
I’m developing an engaging, indelibly calming style of artmospheric streaming video programs…subtly lively, surprising, altogether beautiful. Briefly, the key product is calm, just CALM. - Michael Harris - Medium
I plan to upload 150 + hours free on Dropbox, my gift. FYI: my cofounder, the technical arm of this media objective left the business. It would be a sublime lucky break to find technical liaison to upload rhe 150 hours of programs to Dropbox. My video studio is in Atlanta. I’m not technical. Text me in Atlanta: 1(415)609–5034 Search me on LinkedIn via Visual Ambrosia
The Diminishing Bitcoin Returns
Bitcoin delivered spectacular returns during its early days, when prices were low. Any hopes of similar returns in the future underestimate how unrealistic prices must become. Bitcoin speculation is on a path of diminishing returns. Spectacular annual returns were realized during the early days of Bitcoin. In mid-2011, a rise from a few cents to about $20 was equivalent to a return of more than 30,000%. The early speculators sold, and Bitcoin plunged back to a few dollars by the end of 2011.
The Diminishing Bitcoin Returns
Bitcoin delivered spectacular returns during its early days, when prices were low. Any hopes of similar returns in the future underestimate how unrealistic prices must become. Bitcoin speculation is on a path of diminishing returns. Spectacular annual returns were realized during the early days of Bitcoin. In mid-2011, a rise from a few cents to about $20 was equivalent to a return of more than 30,000%. The early speculators sold, and Bitcoin plunged back to a few dollars by the end of 2011.
The Worst 2 Periods In The U.S. Stock Market... Will A Third One Follow?
There have been two post-war periods in the US stock market, with sideways action for about twelve and a half years and large drawdowns from all-time highs. Is another such period possible? The two worst post-war periods in the US stock market are marked on the monthly S&P 500 (SPX) chart below. The table below summarizes a few statistics of the two worst post-war periods. Period Duration # of Bear Markets Max.
Why Passive Buy And Hold Might Be The Graveyard Of Investing
After falling 27.5% from all-time highs on October 13, 2022, the S&P 500 has recovered significantly. The S&P 500 is now 9.4% below the all-time high of January 4, 2022. The recovery has triggered another round of articles praising passive buy-and-hold. Most arguments in favor of passive buy-and-hold ignore the investor's point and only focus on the long-term uptrend.
Extremism and the Curse of Informational Dimensionality
Extremism has been on the rise again in recent years. Several decades ago, economic ideology - fascism versus communism - was the driving force behind right and left extremism. Both ideologies concentrated on how capital and resources were distributed. The differences are immaterial for this article. What is important is that those extreme ideologies led to a clash and a world war because "there can be only one." Ironically, both ideologies converged in practice.
Relative Performance Of Market-Cap Weighted And Equal-Weight S&P 500 Indexes
Year-to-date, the SPY ETF (SPY) is up 10.2%, but RSP, the equal-weight ETF (RSP) is up only 0.4%. The two ETFs moved closely together until March of this year but then diverged, with the SPY taking a significant lead while the RSP returns initially fell to negative territory and then consolidated with a small down drift. Many posts on financial social media attributed the large divergence to market weakness and performance driven by a few mega-caps.
Inflation Fell But Prices Are Rising
Alaska Man Sees Moose Foaming at Mouth at Dumpsters Chewing on a Plastic Trash Bag & Decides to Help Before it Chokes
Inflation Fell But Prices Are Rising
I know this article may generate backlash, but as authors, we should not always write about subjects that please the audience. The truth is more important than avoiding criticism from those who have an opposite view. The mainstream media was excited after the recently announced drop in inflation. According to the Bureau of Labor Statistics: Summary The CPI rose 0.1 percent. YoY the CPI increased by 5 percent. What was in the report that caused excitement in mainstream financial media?
222 Days of Consolidation in Large-Cap Stocks
The S&P 500 has been in a long consolidation period since May 4, 2022. The large-cap index has moved between 4,300 and 3,580 in the last 222 trading days. The S&P 500 is down 17.9% from all-time highs and up 2.5% year-to-date after falling 19.4% in 2022. The close of yesterday at 3,936.97 was at the mid-point of the 222-day-long consolidation channel between 4,300 and 3,580.
7+1 Indicators Say Stock Market New Lows Still Have High Odds (Technical Analysis) (SPX)
Since our article "7 Indicators Say We May Have Not Seen The Worst Yet In The Stock Market" published on SA on September 23, 2022, the S&P 500 (SPX) first fell 8% to make a new low at about 4% below the low of June 17, 2022, and then rebounded 9.5%, as shown in the chart below. The vertical dotted line marks on the charts indicate when the quoted article was published on SA. It may be seen that the S&P 500 has been consolidating since May of last year inside a wide channel between 4,300 and 3,500.
Strategic Allocation And Market Timing Update - January 20, 2023
In the case of strategic allocation, we will look at two 60/40 portfolios both with 60% in SPY ETF (SPY), one with 40% in TLT ETF (TLT), and the other with 40% in AGG ETF (AGG). Both strategic allocations are rebalanced annually. The TLT ETF has a duration of 17.7 years and a convexity of 4.06. The AGG ETF has a duration of 6.4 years and a convexity of 0.63, as of January 19, 2023 (Source: Blackrock).
Inflation Parallels And Recovery Time For The Stock Market
The conditions that caused inflation after World War II ended are similar to those that caused the current inflation: supply chain disruptions, then due to the war, and recently due to the pandemic, followed by a high demand by consumers, then due to the end of the war, and recently due to economies returning to normal after lockdowns.
The Overnight Effect Is Fading Away
The overnight effect in US large caps is fading away after the publicity it received in the last three years and the issuance of ETFs to take advantage of it. Updated: January 31, 2023. There are numerous articles in this blog about the overnight effect in SPY ETF and also in other markets and individual equities from the last 10 years. The overnight effect has been known to some traders since the 90s but only recently became widely known. ETFs were also developed to take advantage of it.
2022 A Disaster With 73% Of Russell 1000 Stocks Red, 2023 Not Promising, Either
The sector exchange-traded fund ("ETF") performance chart reveals the severity of the market rout this year and that it could be worse. The communication services ETF (XLC) is down 39.3% year-to-date The Consumer discretionary ETF (XLY) is down 37.7% year-to-date, while the technology ETF (XLK) is down 29.5%. These losses bring back memories of the dot-com period and a bear market that lasted nearly three years.
The "Santa Rally" Calendar Effect Is Overrated
There are a few different definitions of the "Santa Rally," but in this article, we will use the most accepted. This refers to stock market gains in the last five trading days of a year plus the first two trading days of the following year (Wikipedia). Therefore, the "Santa Rally" is about the performance of the stock market in 7 days, as just defined. The first question to ask is: What is the win rate of this calendar effect?
Many Investors Still Look At Astrological Patterns: The Case Of The Puetz Window
Dec. 07, 2022 6:15 PM ETSPX Summary In 2022, there are investors that are still looking for market clues in Astrology. There is a belief that market cycles are influenced by astrological patterns. The Puetz Window is an astrological pattern that has been used to predict market crashes. A new Puetz Window opened last month. My website analytics confirm a public interest in astrological patterns.
The Lost CTA Decade And The New Regime For Strategic Allocations
There are many references in the finance literature about the trend-following CTA "lost decade" from 2009 to 2018. This is a period when trend-following did not perform well and trend-following CTAs had a flat performance. Despite a hostile environment for trend-following in the lost decade, on average there were no losses but a flat performance.
Investing In Minimum Volatility Stocks Can Backfire
Reflexivity is a powerful driver of market moves but also the cause of pain for those who underestimate its dynamics. As more investors increase exposure to low-volatility stocks and move their prices, their volatility increases, and rebalancing causes a reversal. In other words, the low-volatility trade reaches a point when it becomes a higher-volatility trade. Then, panic selling ensues, as investors realize the trade is unsustainable.
Inflation Not Peaked And Prospects Of A Bottom
Beyond any doubt, there is some confusion in the financial media about the state of inflation. Some narratives claim inflation has peaked. They are confusing inflation and its rate of change. It's the rate of inflation that has peaked, hopefully. Consumers are paying much higher prices than they did two years ago. This is shown in the chart below. The top chart shows the CPI level (unadjusted). Since June of this year, the CPI level has remained virtually constant.
Buy The SPY ETF At Each Month's End And Sell After 3 Days
Nov. 03, 2022 8:53 AM ETIWM, QQQ, SPY Summary Buying the SPY ETF at the end of each month and selling it after 3 days has a 7% year-to-date gain versus a loss of 18.1% for buying and holding. This calendar anomaly is present in three major index ETFs this year. This calendar anomaly has also generated a significant fraction of the profits of major indexes historically.
Some Troubling Signs From This Relief Rally
The prevailing "theme" used to justify relief rallies has changed throughout the year, but in all three cases, there was no justification for it in the first place. As I wrote in a recent SA article, I expect a sizeable relief rally this time, but there is no justification for calling a bottom at these levels, as was the case in the previous two relief rallies that started in March and June of this year.
The S&P 500 Could Gain Additional 7% (Technical Analysis) (NYSEARCA:SPY)
The S&P 500 has gained 5% since October 13, 2022, after finding support just below 3,500. There is potential for an additional 6% to 7% rise in the index towards 4,000. First, a brief review of the fundamentals before we move to the technicals. San Francisco Federal Reserve President Mary Daly said on Friday, October 21, 2022, that it is time for the central bank to consider slowing the pace of the hikes. This fueled expectations of a bottom in the stock market downtrend.
The Smart Money Finds Opportunities Even In Bear Markets
Oct. 17, 2022 6:23 AM ETSPX, CI, HII, LW Summary Equity index passive investors are facing large losses this year. Astute stock pickers have been making good returns in this environment. There are always opportunities in equities even in bear markets. The Food Processing, Managed Healthcare, and Aerospace & Defense sectors may offer opportunities for profit in a recession. We will start with a scan of the S&P 500 index (SPX). Below are the results for the top 40 stocks based on year-to-date return.
Bottoms Rarely Form When Investors Wish They Do
It is natural for investors to think a bottom will be formed every time there is a rebound in a bear market. These expectations are fueled by wishful thinking after one of the worst years in the equity and fixed-income markets. The S&P 500 (SPX) index is down 20.6% year-to-date and 21.1% off all-time highs. Investors were hoping for a bottom as early as March and then in June. A rebound started this week after the new lows of last week.
A Massive Relief Rally In The Stock Market Is Overdue
Sep. 27, 2022 7:45 AM ETQQQ, SPY Summary During the dot-com bear market, there were numerous large daily gains. There were also many large daily gains during the GFC bear market. Large daily gains also occurred along the 2020 pandemic crash. This year daily large gains have been absent. The table below shows daily gains in SPY ETF (SPY) larger than 4% since inception when the price was below the 200-day moving average. During the dot-com bear market, there were 6 daily gains > 4%.
Large Cap Momentum: High Alpha But At Higher Risks Original
Sep. 20, 2022 4:06 PM ETSPY Summary Historically, long-only momentum has offered high alpha but at higher risks. Both price-series and cross-sectional large-cap long-only momentum have outperformed buy and hold historically. The cross-sectional momentum anomaly is probably disappearing but price-series momentum is still robust. The open positions of both momentum methods are included.
60/40 Rebalancing Timing Luck (NYSEARCA:SPY)
Rebalancing of the 60/40 allocation in stocks and bonds is normally performed annually, at the end of the year. However, the portfolio may be occasionally rebalanced during the calendar year if there is a good reason for it. As long as this is a rare event, the nature of the strategic allocation is not affected. Rebalancing timing, due to luck or analysis, can theoretically boost the performance of the 60/40 portfolio.
Identifying and Validating Outliers in Market Price Action
Successful identification of outliers in market price action is important for trader profitability. After an introduction to the challenges of identifying anomalies and outliers, we discuss a process that applies to short-term trading. A market outlier is an event or signal, which is often the outcome of an anomaly in price action. The typical outlier is a value that is several standard deviations away from the mean of the distribution.
Alternative To Traditional 60/40 Portfolio Original
In a SA article in June 2017, I argued that the strategic 60/40 portfolio is a risky investment, especially when long-duration bond ETFs are used to take advantage of convexity. In a recent SA article, I wrote about a few alternatives to a 60/40 portfolio based on timing strategies. It is a fact, however, that most investors do not like tactical allocation and timing strategies.
Stock Market Regular Trading Hours Gains Are Increasing (NYSEARCA:SPY) Original
The overnight anomaly in the US stock market has been known since the 90s. In a nutshell, regular trading hours activity has had a minimum effect on the long-term performance of indexes, such as the S&P 500 (SPX). Below is a chart of SPY ETF (NYSEARCA:SPY) since inception. In the bottom chart, the red line shows the overnight accumulation in points, the green line shows the regular trading hours accumulation in points, and the gray line is the daily accumulation.
Taming Inflation May Require More Than A Recession (SPX)
Aug. 12, 2022 9:59 AM ETS&P 500 Futures (SPX)TBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, PLW, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, GSY, TYD, DTYL, EGF, VUSTX, DTUS, DTUL, DFVL, TAPR, DFVS, FIBR, GBIL, UDN, USDU, UUP, RINF, AGZ, SPTS, FTSD, LMBS Summary Month-over-month changes in inflation can be misleading. Prices remain elevated even if month-over-month inflation remains unchanged for several months.
Warnings Of Imminent Stock Market Crash
Pattern matching can be useful if the results are evaluated in the proper context. Usually, visual pattern matching is misleading; the human eye is not very good at calculating actual correlations.
Some Options For Managing Index Investing Risk (NYSEARCA:SPY)
Index investing offers lower risk due to diversification at a lower cost. Since most investors are not good at stock picking, index investing provides a way of tracking the performance of a benchmark while avoiding costly mistakes. However, there are known risks associated with passive index investing: Large drawdowns due to bear markets and corrections. Potentially long "time to recover" periods from drawdown.
In Search For An Alternative To 60/40 Portfolio
In an SA article in June 2017, I argued that the strategic 60/40 portfolio is a risky investment, especially when long-duration ETFs are used to take advantage of convexity. Bond yields are rising after a long period of quantitative easing and asset purchases. The commodities rally and surge in inflation have caused significant losses to strategic 60/40 allocations year-to-date.
Impact Of Rebalancing On Dow Jones Industrial Average Performance (NASDAQ:AAPL)
An analyst in social media observed the wide divergence in performance between Exxon (XOM) and Salesforce (CRM) since the latter replaced the former in the Dow index (DJI). The stock of Exxon is up 174% while the stock of Salesforce is down 34%. The particular divergence does not reflect the effectiveness and impact of rebalancing on the Dow index. It can create a false impression for those who rely on limited information and selection bias.
Most Commodities Are Not Part Of The Future Stock Market Problem (NYSEARCA:SPY)
Jun. 09, 2022 1:35 PM ETSPY, S_1:COM, CORN, CL1:COM, HO1:COM, SLV, GLD Summary Year-to-date commodity inflation persists due to price rises in grains and energy. Precious, industrial, and strategic metals are down year-to-date. The risk to the stock market is from a recession next year. Stocks could drop an additional 30% if economic conditions do not improve. Let us look first at the commodities that are down, or are not up significantly year-to-date. Copper is flat. Gold (GLD) is up about 2%.
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