Six Signals of a Market Bottom

Given the current depressed mood on Wall Street, it was refreshing to get a great compliment this morning from a recent subscriber from Merrill, who said that especially right now, The Sevens Report was “awesome” because it is helping him:

  1. Navigate this historically challenging market, and
  2. Strengthen his relationships with his clients by demonstrating he has a plan for client portfolios.

That is the kind of customer feedback that makes me want to work harder for my subscribers.

This is the third time I’ve seen the Dow Jones Industrial Average trade down over 700 points, and it never gets easier, but we’ve all been through worse percentage declines and more dire economic back drops.

Our job during times like this is to cut through the short term noise each trading day and deliver the unemotional fundamental and technical analysis that can help our paid subscribers reassure clients, protect portfolios and seize opportunities across asset classes:

  • Stocks
  • Bonds
  • Currencies
  • Commodities

And we are delivering this macro research each day at 7 AM because as we saw again this morning with China cutting interest rates, this is a quickly changing landscape and waiting a few days for a macro update from the firm’s CIO or global strategy team simply isn’t going to cut it.

Over the past 4 trading days we’ve made sure that our paid subscribers have known:

  • What Really Made Markets Drop (It was more than China)
  • Why the Declines Have been So Violent and
  • What Needs to Happen for this Correction to End

They’ve had this information spelled out for them in plain English, at 7 AM each day, along with a clear conclusion regarding whether we think this is the start of a bear market (we do not).

We did this so that when clients call in a panic, our subscribers can show them that they 1) understand what is happening in markets, 2) know what it will take for a bottom to form, and 3) have a plan for their portfolio depending on what happens.

Our subscribers are using this opportunity to solidify relationships with new and old clients by demonstrating their control of the situation, and we believe that will lead to more lifelong clients and greater referrals.  Now is the time to do the work that will help your business for years to come.

Stocks are up today but beware of anyone calling this a bottom.

We have identified six steps to a real, tradeable market bottom and we sent that analysis to our paid subscribers first thing Monday morning, so they could communicate it to their clients before the Dow opened down 1000 points.  We have included an abbreviated version of that analysis in an excerpt below:

Six Steps to A Market Bottom & When to Expect Them (Sevens Report Excerpt)

First:  Markets need to see competence from Chinese authorities. More so than the actual data, it’s the loss of the perception that Chinese authorities know what they are doing that’s fueled this spread of China-related angst.  And, part of the reason for Monday’s rout is because we heard nothing from Chinese authorities over the weekend.

  • When Can We Expect It: Just Happened.  China just announced it is cutting 1 year lending rates and more importantly dropping reserve requirements.  This step alone won’t solve the developing confidence problem with Chinese authorities, but it is a positive step.

Second:  Economic data does need to stabilize in China. Chinese economic data needs to stop getting incrementally worse before we can expect stability from that region.

  • When Can We Expect It: Not Until Early September. Unfortunately, the next round of Chinese data won’t come until Sept. 8, with the August Trade Balance, so this step can’t occur until then.

Third:  The Fed needs to get on one page. As we said last week, even if they don’t know what they are going to do, just PRETEND.

  • When Can We Expect It: Saturday (Hopefully).  Fed Vice Chair Stanley Fischer will speak Saturday at the Jackson Hole Central Bank conference, and he needs to project confidence and certainty in the Fed’s outlook and strategy.

Fourth:  US economic data needs to stay decent. Economic data needs to refute this growing perception that China is outsourcing the next great financial crisis (which there is very little evidence it is actually doing).

  • When Can We Expect It: Early September: This week for starters, but really the next big number is Sept. 3 (the August jobs report).

Fifth:  Oil needs to bottom. Oil forecasted this decline, and it needs to bottom before stocks can stabilize.

  • When Can We Expect It: As we described to paying subscribers last week, there are signs of fundamentals turning more positive, and a bottom could form in the next few weeks.

Sixth:  People need to get back to work. Make no mistake, algorithms and a lack of liquidity are making these declines worse than they should be. The outlook for the US economy and US based companies is not 10% worse than it was a week ago, and much of these waterfall declines are thanks to algos crushing futures and ETFs, which is dragging the entire market down.  We need people back on desks.

  • When Can We Expect It: After Labor Day (Tuesday Sept. 8).

We will be watching these six steps each and every day for our subscribers, because we don’t think that a tradeable bottom will be “in” for stocks until all six of these steps are met.  Today, we got one of the six, but more work remains.

We are committed to helping our subscribers navigate this challenging environment, protect client portfolios and seize opportunities to outperform on this historic market correction.

Click this link to subscribe for just $195 for the next three months.  If all we do is help you get this market “Right” between now and Thanksgiving, it will be well worth the cost. 

Staying Focused on Leading Indicators

For weeks we have stayed focused on two key leading indicator ETFs that forecasted this decline, because each is uniquely exposed to the main causes of this correction.

Leading Indicator #1:  A Real Time Barometer on China and Global Economic Growth Fears

This leading indicator is a specific commodity ETF that has large exposure to specific industrial commodities – which are a proxy for:

1) Chinese growth and

2) Emerging market sentiment.

It has been a strong leading indicator for China in 2015, and most recently broke a four month uptrend in early July, right before the rest of the market got dragged down by “China” worries.

Yesterday it hit a new all-time low, and we are very confident that the stock market won’t bottom until this leading indicator bottoms first. 

Leading Indicator #2:  A Real Time Measure of Financial Stress in the US

With oil plunging to fresh, 6 ½ year lows Monday below $40/bbl. concerns continue to rise that we will start to see stress in the junk bond markets, as a lot of risky “junk” loans have been extended to small oil companies over the past several years and bought up by bond funds who were starving for higher yield, and the health of those loans is now being called into question with oil under $40 barrel. 

The potential exists for a stampede out of overvalued junk bonds that could grow into a bigger bond crisis here in the US, given the still over owned nature of bonds.

To monitor this risk, we are watching a specific bond market ETF that has been a fantastic leading indicator of market pullbacks for over a year, and it correctly forecasted the July 2014 pullback, the Sept/October 2014 pullback, and the December/January 2015 pullback.

Most importantly, though, it’s also bottomed each time before the broad market, and we expect that to happen again this time. 

Bottom line, key leading indicators for these two risks to this multi-year stock market rally are in the currency and bond markets, and you need to have an analyst who knows those markets and who is watching those indicators for signs of further stress or for signs of a bottom. 

Our subscribers know that we will do that for them, and we will tell them when those indicators in currencies and bonds go from flashing a “warning” sign to flashing a “crisis” sign.

Click this link to start your quarterly subscription and learn which two leading indicator ETFs we identified for our paying subscribers last week.

Value Add Research That Can Help You Grow Your Business

our subscribers have told us how our focus on medium term, tactical opportunities and risks has helped them outperform for clients and grow their books of business.

In three years of doing this the absolute best feedback I’ve ever received was when a client (an FA from a bulge bracket firm based in Florida) called me late last year and said our Report helped him land a 25 Million dollar client!

But, while obviously not as monetarily impressive, we continue to get strong feedback that our report is: Providing value, Helping our clients outperform markets, and Helping them build their business: 

Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!” – FA from a Bulge Bracket Firm.

“Let me know if there is anything else that you need from us. Thanks again for everything. I really enjoy the Report – it is helping me grow my business and stay on top of things.” –  Independent RIA.

“Great service from a great company!!” – FA from a Bulge Bracket Firm.

“Great report. You’ve become invaluable to me, thanks for everything…!  –  FA from a Bulge Bracket Firm”

If reading The 7:00’s Report each day helps you retain just one client with an average balance of $80,000 (based on an assumed 1% management fee), then you’ve already more than paid for the subscription price.  Subscribe today and give yourself the market intelligence you need to help reassure your current clients, and acquire new ones.

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Best,
Tom

Tom Essaye,
Editor of The 7:00’s Report

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