Frank Cochrane: Scary Stock Market Correction Starting Soon

By on August 20, 2012

The Nightly Business Report featured Frank Cochrane, President of Investment Timing Consultants, as their guest market monitor on Friday.

Cochrane said central bankers, including the Fed’s Bernanke, have done a marvelous job of levitating the stock market over the last six weeks or so. However, Cochrane believes the rally is totally unfounded. If you look at the employment picture which is 8.3 percent, participation rate at 63 percent, today, for example, the BLS announced that 44 states had higher unemployment than the previous month in June, according to Cochrane.

Economic statistics are up one month, down one month, but overall the trend is lower and if you look at the amount of money the government and the Fed have thrown at this economy over the past four years, growth is really, really pathetic, said Cochrane. He added the U. S. is $16 trillion in debt, $800 billion thrown in by the government.

Cochrane believes that with the election coming up people will sit on their hands and wait. Looking at the technicals of the market, they’re extremely weak as well, he added. Participation, the advance/decline line, new highs, new lows; everything is contracting in this advance which causes Cochrane to believe a market apex has been reached and it will hit a wall. If we haven’t already, we will certainly (peak) over the next week or two, he said.

Cochrane said he was expecting a short term correction (3 months) going into the election, perhaps into the middle of November. He added it could start at any time and believes a decline from 15 to 20 percent is not out of the realm of possibility.

When NBR’s Susie Gharib commented on the size of the correction, Cochrane responded “it will be will be fast…it will be furious and it will be scary.” However, we may hit a bottom and then grudgingly go up towards the end of the year into the spring, he stated. I think the next 2-3 months could be very interesting for the bears, Cochrane added.

The interview continued with Cochrane suggesting where investors could place their money in anticipation of the correction (two-year notes and 10-year Treasuries – “a gift”). Cochrane also mentioned VelocityShares Daily 2x VIX ST ETN (TVIX) as an attractive short-term play.

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