Juggling Dynamite

Surely Jordan Belfort is a born again, upstanding, honest guy, right?

His life as a corrupt stockbroker came under the spotlight in The Wolf of Wall Street, and now the heat of a 60 Minutes interview proved too much for Jordan Belfort as he stormed out of an interview with reporter Liz Hayes.

Claiming he’d been hit with ‘‘a hatchet job’’, Belfort stormed off after questioning from Hayes over his current financial set-up which has repeatedly come into question over his earnings and the amount he is repaying to his victims, who lost more than $200 million.

Here is a direct video link to the interview attempt.

Today’s rebound notwithstanding, the headline levels are glossing over a bear market already underway in many stocks…

Most market-watchers prefer the S&P 500 over the Dow Jones Industrial Average. But the fact that the S&P 500 is down just 1% from its all-time high of 1,897 belies the fact that many stocks in the index and in the market as a whole are way down.

“When we examine breadth in terms of new highs, more specifically stocks that are in ‘striking distance’ to a new high, we see a completely different picture,” writes J.C. O’Hara, of FBN Securities. “Often at the end of bull markets, large cap stocks continue to rise and the smaller stocks begin to flatter.”

The S&P 500 is cap-weighted, which means larger companies like Apple and ExxonMobil have a much larger impact on how the index moves.

“High cap stocks influence the averages more thus can mask internal weakness,” continued O’Hara.

O’Hara’s research found that the average S&P 1500 stock is down by more than 12% from their recent 52-week highs. The average stocks in the Russell 2000 and Nasdaq Composite are down by more than 20%, which means you can say they are in bear markets. See: The average stock is in a bear market

With tech and small cap shares down heavily the past few weeks, today many are staging a classic counter-trend rally on vapid volume. Its important to keep in mind however, that no matter what financial sales people tell us, regaining some losses is not the same as making money. This chart of the NASDAQ offers perspective, with volume shown in orange at bottom.

Lance Roberts offers a similar appraisal here, see: Is the market consolidating or topping?

While it is certainly possible that the markets could ratchet higher from here due to the “psychological momentum” that currently exists, the likelihood of a runaway bull market from here is remote. What history tells us is that when markets are attaining new highs, the end of a particular bull market cycle is closer than the beginning. It is also worthwhile to remember that getting back to even is NOT an investment strategy.

It is easy to get lured into the casino as the flashing lights and cries of barkers send out the siren’s call that “everyone’s a winner.” However, the difference between a successful gambler and everyone else is knowing that “hot hands” eventually run cold. Knowing when to walk away from the table is what separates success from failure. In both cases, by the time a winning streak gets you back to even, it has generally run the majority of its course. As Nick Dandalos once said:

“The house doesn’t beat the player. It just gives him the opportunity to beat himself.”