Transformers: Edge of Extinction is the fourth installment of the Transformers series, and its fair to ask: Have the Transformers overstayed their welcome? Based on the reviews alone, it would seem so. Some 83% of critics on Rotten Tomatoes panned the film: Richard Roeper calls it “one of the most relentless movies” he’s ever seen, and no that’s not a compliment; the St. Louis Post-Dispatch’s Joe Williams calls it “an homage to such ‘cinema of cruelty’ classics as Andy Warhol's real-time Sleep,” that runs nearly three house and “abandons all pretense of a plot;” and the Detroit News’ Tom Long compares it to a hammer on the skull. Still, Transformers: Age of Extinction is going to make oodles of cash–its set to rake in more than $90 million this weekend alone, according to BoxOfficeMojo.com–so the answer would seem to be no.
Agence France-Presse/Getty Images What about the current bull market? It’s been running for more than five years now, and that alone has some questioning how much longer it can go on. Don’t look for answers in the market’s performance this week. The S&P 500 dipped just 0.1% to 1,960.97, while the Dow Jones Industrial Average fell 0.6% to 16,851.84. The Nasdaq Composite gained 0.7% to 4,397.93 and the small-company Russell 2000 ticked up 0.1% to 1,189.50. Make sense of that jumble.
Investech Research’s Jim Stack expresses his discomfort with the five-year bull market:
…with the market hitting new all-time highs almost daily, the majority of dark clouds have seemingly disappeared from the investment horizon. Yet this is when we tend to become most uncomfortable. Not bearish – just uncomfortable. It's not that we disagree with the evidence – which supports a bullish outlook. We simply know that, historically, market tops are accompanied by maximum levels of bullish consensus. One can't base their investment decisions solely on "sentiment" or "complacency" – but one also shouldn't ignore such extremes when they start to appear.
Societe Generale’s Albert Edwards extols the life of a Bear:
I’ve long felt being an equity bear is more like a vocation, especially as I have now been underweight equities for 17½ years. Being an equity bear is about as popular as being an estate agent or indeed even worse – a politician. But I believe we remain trapped in a secular valuation bear market and the Ice Age theme will continue to dominate in the near term. The flip side of this is that I remain a bull of long government bonds. As my colleague Andrew Lapthorne points out, the nature of the beast is that I am wrong 90% of the time as equities outperform bonds, only to be correct in the long term as many years of equity outperformance are savagely unwound in a matter of months.
JPMorgan’s Arjun Mehra and team wrote think there could be some short-term pain ahead after the S&P 500 experienced a “key reversal:”
In general terms, a key reversal occurs when a security completely changes its recent pattern during the course of a trading day. Specifically, for a day to be classified as a key reversal day in an up-trending market, 2 things need to happen: 1) the security must trend higher and take out the previous all-time highs, and 3) the direction must then reverse with the closing tick falling below the previous day's low price. A reversal day can also occur in a down-trending market, with the exact opposite direction in each step mentioned above.
We looked at price history for the S&P 500 since the beginning of 2000 and discovered that key reversal days in up-trending markets (like the one we are in the midst of currently) are rare and have only occurred in 5 total instances, with June 24, 2014, being the most recent occurrence. The data shows that the S&P 500 underperformed immediately following the triggering of each of these days. As such, we think it is prudent to buy short-dated puts/ put spreads on the index to hedge against any potential downside in the coming few days, particularly with implied volatility close to cycle lows.
That’s something Barron’s Steve Sears has been recommending.
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