Elaine Garzarelli is one of the few analysts that called the 1987 bear market and got out before the crash 20 years ago today. (See 20 Years After Black Monday: October 19, 1987)
During a CNBC interview today, Elaine Garzarelli had this to say:
- Market in '87 was 35% over valued
- Today it is 28% under valued
Her indicators today are at 75% for a major buy signal
- 1987 they were at 9%
- Below 30% is a sell signal
- Above 65% is a MAJOR buy signal
Elaine has 14 indicators in 4 areas with 25% weighting for each area. The areas are:
- Economic Cycle: Earnings will bottom this quarter and next. Near the bottom not the top. Bullish
- Monetary Policy: Fed is easing. Before the crash the Fed was raising rates; Bullish
- Valuation: Market via the Fed Model is 28% under valued using her "Street low" earnings estimates. This is Bullish
- Sentiment: Neutral hence the 75% reading.
She thinks oil is near a peak now and will come down since everything outside the US is slowing down too. But she she said the economy could handle oil going to $125 per barrell and still grow as long as it gets there slowly.
Kirk,
ReplyDeleteThanks for the post. More about here model (all 14 points) can be found at her web site: http://www.garzarelli.com/index.php
On the surface, and I appreciate your take, her model looks amazingly similar to Bob Brinker's LTSMTM, which has served well. Also, it would appear much of her model is eclipsed by the ECRI WLI and FIG indicators, which, of course, you make publically available.
JK
Thanks for the thanks Jim.
ReplyDeleteThere is a reason Brinker's LTSMTM resembles Elaine's model...
Bob Brinker went to 100% cash in 1988 AFTER the 1987 black money bear market crash. He didn't get back to fully invested until 1991.
I heard him explain in the 1990's that he "updated" and "backtested" his timing model after he added "sentiment indicators." I think Bob found out what worked for Elaine and added them. I'd love to find a Marketimer newsletter from the 1980's to see if he used the other three "indicators" of if he did a full overhaul to make it more like Elaine's model.
Kirk,
ReplyDeleteReading about Elaine's model more carefully, the thought has occurred to me that Bob Brinker may be a subscriber (@ $1,000/year) to her newsletter. She became a public icon of market timing in 1987 about when Bob announced a new and improved model. What do you think?
JK