Intermediate Trend Up, Relative Strength Positive, in Technology, Materials, Industrials, Energy, and Financials

Thursday, August 16th, 2012

by Donald Vialoux, Tech Talk

Interesting Chart

The uranium ETF came alive yesterday. Nice break to the upside on higher volume, a move above its 20 and 50 day moving average as well as early signs of outperformance.

Mark Leibovit’s Recommended List Changes

Bulletin

Adding UEC and NLR (both uranium plays) to the recommended list at the market. I know we’re weighted heavily in uranium, but I’m looking for some further diversification. We already own URRE, USU and DNN.

Stop 1.75. Target 3.75 in UEC.
Stop 13.00. Target 18.00 in NLR.

Gold Seasonality

“So while gold has its monthly ups and downs, you can see that, on a historical basis, we have arrived at gold’s peak performance period of the year. Based on 10 years of data, gold bullion has historically increased 2 percent in August and 4 percent in September.”

– Frank Holmes

Source: BullionBuzzeNewsletter

Yesterday, Gold moved above its 20 and 50 day moving averages.

Adrienne Toghraie’s “Trader’s Coach” Column

More Isn’t Always BetterFor Traders

By Adrienne Toghraie, Trader’s Success Coach

www.TradingOnTarget.com

While it is important to have a good education in trading, you must know when to stop and execute what you have learned. Education junkies will not become the best traders unless they have already proven themselves to be successful at being a trader before adding additional information to their memory bank.

Education junkie Ray

Ray is a highly educated man in several professional fields. As a scientist, where he has mainly focused his attention, addictively gathering information has been a good strategy for success in his field.

When Ray was introduced to trading, he decided to read every book that was recommended by professional traders he encountered at trade shows and other events. Four years into his studies he still has not been able to develop a clearly defined strategy. The reasons are:

· He is trying to come up with the perfect system

· The information he has learned very often is in conflict

· If he uses all of the filters that are recommended, he will never find a decent opportunity

· He is afraid of being wrong

· He is afraid of loss

· Loss for him is an indication that he needs more information

· Knowledge itself has become an addictionWhen I met Ray at an Expo, I asked him if he wanted to be a trader who earned money, or if he wanted to be a trading academic? He, of course, said that he wanted to be a trader. When I suggested to him that he put down the books and come up with a strategy, he found it impossible. This is when he called me to invest in coaching.

On the first day of our coaching, which was mostly dedicated to gathering information on how he thinks, he said, “What will I do with my evenings if I can’t read my books?” I handed him a short mystery novel. This started a debate and ended with him wanting to prove to me that he was not addicted. Of course, I knew that he would not be able to read the novel. This was another wake up call for Ray.

Ray was also addicted to energy deprivation. He trained his neurology to adapt to living life with a high level of stress and little sleep. In other words, he was borrowing energy from his future, and he was almost bankrupt. His addictive behavior of cluttering his mind with more information added to his stress. When he stopped pushing, all he wanted to do was sleep. He was so sleep deprived it was not easy to keep him awake during our second day session.

Ray had to learn how to simplify, plan, de-stress and be willing to study in an area other than trading.

Other areas of trading where you might be doing too much

If traders can be honest with themselves, they may find out that their over-kill behaviors are the reason that they are not earning profits from trading. Here are some to consider:

· Too many systems or strategies

· Too many indicators

· Too many time frames

· Too many commodities

· Too much time spent on trading in a day/week

· Too much listening to the advice of others

· Too much environmental stress

Conclusion

There are many reasons you might not be making profits in trading. Consider the possibility that perhaps you are doing too much in one or more areas of trading.

New Free Monthly Newsletter

More Articles by Adrienne Toghraie, Trader’s Success Coach

Sign Up at – www.TradingOnTarget.com

Don Vialoux on BNN Television Yesterday

Following are links to the interview:

http://watch.bnn.ca/#clip740726

http://watch.bnn.ca/#clip740727

http://watch.bnn.ca/#clip740729

http://watch.bnn.ca/#clip740733

http://watch.bnn.ca/#clip740735

http://watch.bnn.ca/#clip740736

http://watch.bnn.ca/#clip740740

http://watch.bnn.ca/#clip740744

Weekly SPDR Select Sector Review

Technology

· Intermediate trend is up.

· Units remain above their 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Materials

· Intermediate trend is up.

· Units trade above their 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains neutral.

Consumer Discretionary

· Intermediate trend is neutral. Support is at $41.58 and resistance is at $46.11

· Trades above its 20, 50 and 200 day moving averages

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains negative.

Industrials

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Energy

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Financials

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains neutral.

Consumer Staples

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought and showing signs of rolling over.

· Strength relative to the S&P 500 Index remains negative.

Health Care

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought and showing early signs of rolling over.

· Strength relative to the S&P 500 Index remains negative.

Utilities

· Intermediate trend is up

· Trades above its 50 and 200 day moving averages and below its 20 day moving average.

· Short term momentum indicators are trending down.

· Strength relative to the S&P 500 Index remains negative.

Special Free Services available through www.equityclock.com

Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices.

To login, simply go to http://www.equityclock.com/charts/

Following is an example:

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

Don and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc

Horizons Seasonal Rotation ETF HAC August 15^th 2012

Tags: Frank Holmes, Gathering Information, Gold Bullion, Good Education, Intermediate Trend, Memory Bank, Moving Average, Moving Averages, oil, Peak Performance, Performance Period, Professional Fields, Professional Traders, Ray Ray, Relative Strength, Seasonal, Seasonal Trades, Seasonality, Success Coach, Target, Technology Materials, Ups, Ups And Downs
Posted in Markets | Comments Off

Don Vialoux: Increase in Volatility Between Now and October Seasonally Common

Friday, August 10th, 2012

by Don Vialoux, EquityClock.com

Upcoming US Events for Today:

1. Import/Export Prices for July will be released at 8:30am.
2. The Treasury Budget for July will be released at 2:00pm. The market expects -$71.0B versus -$129.4B previous.

Upcoming International Events for Today:

1. German CPI for July will be released at 2:00am EST. The market expects a year-over-year increase of 1.7%, consistent with the previous report.
2. Canadian Net Change in Employment for July will be released at 8:30am EST. The market expects an increase of 8,000 versus an increase of 7,300 previous. The unemployment rate is expected to remain unchanged at 7.2%.

Recap of Yesterday’s Economic Events:

The Markets
Equity markets ended flat on Thursday despite better than expected reports in the US pertaining to employment and international trade. Volume was once again deadly, amounting to the lowest four-day volume in 5 years. In an article posted by Zerohedge.com, the website notes that “the last 4 days have been the lowest volume for a non-Xmas holiday week since 2007 in futures and NYSE volumes are just remarkably bad compared to even normal cyclical seasonal dips.” Looking at the 4-day simple moving average of the S&P 500 ETF (SPY) volume, the last time the average was this low outside of a Christmas holiday week was October 2007, the last market high prior to the significant decline in the months and years to follow in 2008/2009. Volume confirms conviction, of which very little exists. Conviction to equities remains low as debate grows over the sustainability of the present rally that appears based solely on hope of further monetary stimulus from one of the major central banks around the world.

The divergence between price and volume can also be picked up on the NYSE Cumulative Advance-Decline Volume line, which is derived from the volume of advancing stocks less the volume of declining stocks. The NYSE recently managed to break firmly above the high of early July, yet the NYSE Cumulative Advance-Decline Volume Line has yet to accomplish the same. The pattern of this breadth indicator and price typically match each other, showing similar highs and lows, therefore this divergence just adds to the concern that conviction to equities is lacking, often a precursor to market declines should buyers fail to accumulate.

Sentiment on Thursday, according to the put-call ratio, ended bullish at 0.86. The apparent declining wedge pattern that can be derived from the ratio over the past three months is reaching a peak, which could imply a significant jump higher should the tendencies of this pattern be fulfilled. A significant move higher in the put-call ratio would likely be accompanied by an increase in volatility, a pattern that is seasonally common between now and October.

S&P 500 Index

Chart Courtesy of StockCharts.com

TSE Composite

Chart Courtesy of StockCharts.com

Horizons Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $12.37 (down 0.24%)
• Closing NAV/Unit: $12.39 (up 0.18%)

Performance*

* performance calculated on Closing NAV/Unit as provided by custodian

Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.

Copyright © Don Vialoux, EquityClock.com

Tags: Canadian, Canadian Market, Central Banks, Christmas Holiday, Conviction, CPI, Dips, Divergence, Don Vialoux, Economic Events, ETF, ETFs, Export Prices, Import Export, International Trade, Moving Average, Nyse, Stimulus, Trade Volume, Treasury Budget, Unemployment Rate, Volatility, Xmas Holiday
Posted in Markets | Comments Off

Pivotal Point for Bonds…and Friday Rallies

Sunday, August 5th, 2012

The TLT ETF is one of the most watched in the market, since it’s the easiest way for institutions to quickly move in and out of U.S. Treasury bond exposure.   For many months during these rallies the fly in the ointment has been the U.S. dollar and Treasuries which constantly had a bid.  The TLT had not been below its 50 day moving average since early April which is just about the time the equity markets began weakening materially.  This instrument is now sitting on it for the second time in just over a week so it is at an important juncture.

As for the market as a whole you just have to tip your hat – I went back to review and 4 of the past 6 Fridays have seen monster moves up negating most/all of the moves down earlier in those weeks.  The Friday after the Euro summit, last Friday after Draghi’s comments, this Friday, and one other Friday that I don’t recall the reason for the big move.  Strangely each of the past 9 Mondays has seen markets close in the red.

However each time the market has been on a cusp like this of a breakout, the next few sessions have led to serious selloffs.  We’ll see if this time around it is for real.  This market is very similar to last summer/fall’s market in that the moves are violent and gaps are constant, but that market had a sideways to down bias whereas this one somehow has been going up with most of the gaps being to the upside instead of balanced between up and down (since June).  To put into perspective 15 of the past 22 sessions (68%) have been selloffs in the S&P 500 – but the 7 up sessions (4 of them on Fridays) have been so ferocious, the market is actually up 20 S&P points over those 22 sessions.  There is certainly little memory from day to day as each day’s headlines or rumors take everything with it.

Today the money is moving back into the pro cyclical areas which was another sign one would want for a sustained move.    The euro is also strong today and that inverse trade has been the key one for markets.

Copyright © Market Montage

Tags: Bias, Bonds, Breakout, Cusp, Draghi, ETF, Fly In The Ointment, Fridays, Gaps, Juncture, Last Friday, Moving Average, Pivotal Point, Rallies, S Market, Second Time, Selloffs, Trad, Treasuries, Treasury Bond, U S Treasury
Posted in Markets | Comments Off

Dow 30 Trading Range Screen (Bespoke)

Monday, July 30th, 2012

by Bespoke Investment Group

This screen allows users to quickly identify which stocks in their portfolio have upside or downside momentum, and which ones may be getting overheated or deeply oversold.  For the Dow, 16 of the 30 members are now in overbought territory, although just two (KO and WMT) are in extreme overbought territory.  Just three Dow stocks are oversold — AA, CSCO and HPQ.  Of these three, CSCO still has downside momentum, while AA has seen a pickup lately and may have more upside.  Of the stocks in Neutral territory, American Express (AXP), Caterpillar (CAT) and IBM currently have the most upside momentum, while McDonald’s (MCD), Pfizer (PFE) and United Tech (UTX) have downside momentum.

Bespoke Premium Plus members have the ability to run their portfolios through a number of screens that we provide.  One of these screens is our trading range screen, which allows clients to view where a large number of stocks are trading from an overbought/oversold perspective on one simple page.  Below we have run the screen on the 30 stocks that make up the Dow Jones Industrial Average.  For each stock, the light and dark green shading represents oversold territory, while the light and dark red shading represents overbought territory.  The Neutral line represents the 50-day moving average.  The dot for each stock shows where it is currently trading, while the tail shows where it was one week ago.

Become a Premium Plus member today to have Bespoke run your portfolio through our trading range screen!

Copyright © Bespoke Investment Group

Tags: American Express, Axp, Bespoke Investment Group, Caterpillar Cat, Csco, Dow 30, Dow Jones, Dow Jones Industrial Average, Dow Stocks, Hpq, Investment Group, Mcd, Momentum, Moving Average, Neutral Line, Neutral Territory, Pfe, Pfizer, Shading, United Tech, Wmt
Posted in Markets | Comments Off

Global PMI: The Trend is Your Friend

Tuesday, July 10th, 2012

by Frank Holmes, CEO, CIO, U.S. Global Investors

Manufacturing around the world weakened in June, according to the JP Morgan Global Manufacturing Purchasing Managers’ Index (PMI). Its reading of 48.9 was the lowest in three years and the first dip below 50 since September 2011. The current reading is also below the three-month moving average for the second month in a row. As you can see on the chart, PMI crossed below the three-month in May.

While Europe, China and the U.S. were primarily responsible for the slowed activity, we believe the trend is your friend. In April, global PMI crossed above the three-month moving average, and historically, when a “cross-above” has happened, it’s signaled higher prices for many commodities. Take a look at the chart below which shows the following:

Ninety percent of the time, copper rose 10 percent over the following three months. Eighty-five percent of the time, West Texas Intermediate oil has also increased. Its median three-month change has been an increase of 11 percent.

Materials and energy were also positively affected, with modest results: When the PMI crosses above the three-month average, 70 percent of the time, the S&P 500 Materials Index rose, with a median return of about 3 percent. The S&P 500 Energy Index had a median three-month return of about 5 percent, with an 80 percent chance of the three-month change being positive.

Using history as a guide, this suggests that by the end of July, we could see strength in these commodities and energy and materials stocks. Although volatility and uncertainty rule the markets these days, we believe that the world’s central bankers are taking note of slowed activity and will act if deemed necessary.

The trend is your friend only if your portfolio is “resourceful” enough to benefit. Read the Financial Planning article, which showed how U.S. Global Investors’ Global Resources Fund strengthened a diversified portfolio over the past 10 years. Read the article.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Diversification does not protect an investor from market risks and does not assure a profit.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.

Tags: Amp, Commodities, Copper, Diversified Portfolio, Energy Index, Financial Planning, Frank Holmes, Global Resources, Jp Morgan, Moving Average, Nbsp, Pmi, Purchasing Managers Index, Resources Fund, S Central, Three Months, U S Global Investors, Uncertainty, Volatility, West Texas Intermediate
Posted in Markets | Comments Off

The Odds Are Against You

Monday, July 9th, 2012

by Guy Lerner, The Technical Take

I define the price cycle as the path prices take from low to high and back to low again.  To help determine where I am in that cycle I use investor sentiment.  Typically, extremes in bearish sentiment often define cycle low points leading to bullish gains, and extremes in bullish sentiment often define cycle high points leading to a loss of price momentum at best and more commonly, a retracement in price of the price move from low to high.  This is the price cycle — “wash, rinse, repeat”.

The most recent bullish price cycle hit a low on October 7, 2011 and it did not peak out until April 20, 2012.  Since April 20, 2012, the market (i.e., SP500) has sold off a little bit and has bounced little bit, but prices are still below the sell point.  We are at that point in the price cycle where the bullish gains have been made and price momentum has been lost.  We have yet to hit an extreme in bearish sentiment that would define a low point in the price cycle, and as I have stated for months now , the only way we can get there is to have lower prices.   To understand what I am talking about, I will quantify these price dynamics.

So let’s create a study that looks at the part of the price cycle where upward price momentum has already slowed and prices have yet to hit a low point.  In essence, what I am doing is looking at the part of the price cycle when prices are above the 200 day moving average and momentum has fallen out of the trend.  For the study then, our buy signal occurs when the upward price thrust of the price cycle has ended and prices are above the 40 week moving average.  Our sell signal is either new extremes in bearish sentiment (i.e., the bottom of the price cycle) or prices have closed below the 40 week moving average.  What I want to know is what happens to price in the period  after momentum of the upward thrust of the price cycles wanes to the next buy signal.  This would replicate the current conditions in the market.  The study is based upon the SP500 data starting in 1991.

Figure 1 shows the equity curve for this strategy, and it is not pretty.  So once momentum of the initial price thrust is over, buying the market just because price is above its 40 week moving average is a poor idea.

Figure 1. Equity Curve

Figure 2 shows the maximum adverse excursion (MAE) graph.  The MAE graph shows every trade from a particular strategy, and it is a measure of how much a trade moves adverse to its entry position.  MAE is a measure of investor angst.  For example, take the one trade inside the blue box.  This trade had an MAE or draw down of 6% before being closed out for a 1% loss.  We know it was a losing trade because the caret is red.  Now look at the 13 red carets to the right of the orange line.  This tells us that 13 out 38 total trades had an MAE greater 5%.  In other words, if you buy at the top or when everyone else is bullish or when the upward initial price thrust has diminished, it is likely that you will experience an excessive draw down.

Figure 2. MAE Graph

There are several take away points here.  Buying just because prices are above the 200 day moving average is a bad play.  Momentum needs to be present.  One way to have momentum develop is to have investors out of the market wanting in; these are the investors on the sidelines willing to pay up for prices. The best way to put investors on the sidelines is to have lower prices.  Unfortunately, the problem with the current market is that it has not done a good job of putting investors on the sidelines as the persistent belief in the “Bernanke put” has put a floor under this market.  Unfortunately, this dynamic is also responsible for the current listless price action.  Furthermore, buying the market when prices are well above the 200 day moving average, which is usually when the pundits and TV analysts are signalling the all clear, is probably a poor idea most of the time.

From this perspective, the data from this study is consistent with the notion that we are in a range bound market at best or in a process where we need to see lower prices before heading meaningfully higher.  The odds of success would be in your favor if you are buyer when others are bearish.

Tags: Bearish Sentiment, Bullish Sentiment, Curren, Extremes, Guy Lerner, Investor Sentiment, Little Bit, Moving Average, Odds, Path, Price Cycle, Price Cycles, Price Dynamics, Price Momentum, Price Move, Retracement, Trend, Upward Thrust, Wash Rinse
Posted in Markets | Comments Off

Investor Sentiment: Bull Signal Awaits

Sunday, June 10th, 2012

by Guy Lerner, The Technical Take

The “dumb money” indicator is now showing that investors are extremely bearish, and this is a bull signal. On average, the best time to buy is 1 week after the signal. Several caveats are worth noting.

First, about 80% of the signals will produce positive results within a reasonable draw down. What is meant by “reasonable”? The SP500 should bottom within 6% of next week’s buy point. If the SP500 drops below next week’s buy signal by more than 6%, then this is a failed signal. A failed signal is the market’s way of saying that what we expect to happen has not happened, and failed signals can lead to very strong moves opposite to those expectations.

Second, the current extreme reading in the “dumb money” indicator is not supported by other measures of investor sentiment. For example, the Rydex market timers are still showing extremes in bullishness and in some sense, they have been unwinding their bullish positions over the past several months. By no means are they bearish, and this data series is looking more like a market top than a market bottom. Corporate insiders did hit extremes in buying 2 weeks ago, but like the current “dumb money” indicator reading, these were only “mild” extremes. So what does it mean? The resulting snap back rally is likely to be weak and unlikely to carry as far as a rally that begins when all of our measures of investor sentiment are showing much greater extremes of bearishness.

The market has bottomed where one would expect it to have bottomed — near its 200 day moving average. I am sure this has brought a sense of order and relief to the bulls and to those investors who were buying the kool-aid only 2 short months ago. Ahh, this is how bull markets function. Now that this temporary blip (mis-pricing) is over, we can get back to the business of being bullish. I am not trying to discount the current bull signal. A bottom is being forged. It would be nicer to have seen greater extremes in bearish sentiment at the bottom as this leads to stronger future returns. I could just as easily make the case that this is the last gasp of an aging bull market.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator is showing extreme bearishness.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “S&P 500: Sentiment Remains Positive But Volume Declines…. Russell 2000: Number of Buyers Drops But Sentiment Remains Positive. ”

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 62.78%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops. It should be noted that the market topped out in 2011 with this indicator between 70% and 71%.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

TheTechnicalTake offers a FREE e-newsletter:

Tags: Bearish Sentiment, Best Time, Blip, Bull Markets, Bulls, Caveats, Corporate Insiders, Dumb Money, Extremes, Guy Lerner, Investor Sentiment, Investors, Kool Aid, Market Bottom, Market Timers, Measures, Moving Average, Rally, S&P500, Signals, Snap Back
Posted in Markets | Comments Off

S&P 500 Quick Fibonacci Peek

Monday, June 4th, 2012

Just as a reminder the S&P 500 broke the 38.2% Fibonacci retrace of the Oct-March move Friday and now is is no man’s land between that level and the 50% retrace which comes in below 1250.  All major moving averages are also below their 200 day moving average of course.   Futures were down sharply Sunday evening but recovered this morning for whatever reason but this selloff is taking the S&P 500 back to where it was at the lows of the overnight session.

The “easy” trade today would have been a very bad open where shorts could cover and traders could flip long for a quick oversold bounce, but the market doesn’t like to make it easy.   The farther we go down from here the more ‘stretched’ we become in the very near term, and difficult for bears as well – it’s been nearly straight down since last Tuesday – almost 70 S&P points.  See chart for the Fibonacci levels I am referring to:

Tags: Amp, Bounce, Fibonacci Levels, Futures, Last Tuesday, Lows, Moving Average, Moving Averages, Overnight Session, Peek, Reminder, Selloff, Sunday Evening
Posted in Markets | Comments Off

Chinese, European Data Continues to Weaken as Market Potentially Forming New Bear Flag

Thursday, May 24th, 2012

First we’ll go to the technicals.  Back in mid April I had opined a ‘bear flag’ formation was being created. [Apr 17, 2012: Potential Bear Flag Forming]  But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs.  This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market.  Generally a bear flag will resolve relatively quickly but the longer that one lasted the more doubt it created and potentially transitioned into a market that was creating a new range before a new move up.  Hence, why it was so tricky.

I speak of this only because we potentially are forming a new bear flag.  After extreme oversold conditions the markets finally held a previous low Monday and rallied.  This had been expected for a few days but anyone trying to catch the knife last week had their fingers chopped off… repeatedly.   We had mentioned a potential bounce level to 1338 minimum [May 22, 2012: Market Bounce Arrives - How Durable?] but as of Tuesday mid day the rally only hit 1328 as it was rejected by the quickly falling 10 day moving average.  Then yesterday started horribly as news surfaced that discussions / preparations for a Greek exit from the EU are formally starting behind the scenes, and it really looked like the bears would take charge.  Instead it was a trap, as rumors out of Europe that (a) Merkel supports backstopping all EU bank deposits (b) Italy and France support Eurobonds [May 22, 2012: Are Eurobonds Coming?] and/or (c) pick your rumor, hit.

The larger picture is this environment is akin to summer 2010 and latter 2011 where headline rumors, European comments, intervention hopes dominate the landscape and the market is herked and jerked around while in a downward path.   The action is violent in sharp contrast to January and February of this year.   Stocks are moving en masse as correlations return, and individual stock picking is nearly useless again.  Meanwhile the safe havens – the U.S. dollar and Treasury bonds, surge.  Therefore, unless you know the rumor/intervention hope of the day ahead of time it’s really not a place anyone with intermediate term views is going to risk a lot of capital.

Speaking of the bear flag, yesterday’s sharp rally to take markets out of steep losses to very modest gains helps define a current potential bear flag range of about 50 points: S&P 1290 to 1340.  While we did not reach the 1338 in the S&P 500 I am still going to include that in the range as that is a multi month resistance/support level the market has been dealing with throughout the year.   So just as I said in mid April what happens WITHIN that range means nothing.  The market could be UP 25 S&P points or DOWN the same, but as long as it’s within that range it is only a basing activity and nothing but “white noise”.  And until further notice it is has the potential of a new bear flag forming.   Of course we sit almost smack dab in the middle of said range today.

If you turn this chart upside down you would call this very bullish…. we’d be saying after a large move up, the market is going sideways for a few days to digest the move.  Hence, it is only fair to lean bearish when we have the inverse situation.  The market can always differ and change things – technicals are only a roadmap and in a world of massive intervention they can quickly be obliterated as said roadmap.  So if we hear that to stop bank runs every single cent of bank deposit in the Eurozone will be backstopped by the ECB or “Germany” (with what money???) you will get a ‘face ripper’ type rally I am sure.  You can see that from yesterday where nothing but rumors got the Dow up 200 points from the low.  We repeat the same pattern year after year now, downfall, bad news, crisis, intervention, rally.  Rinse, wash, repeat.

As for economic news overnight – it continues bad.  China continues to weaken, but I think commodities have been telling us this for months.  Expect more easing in the future although they cut reserve requirements 50bps a week and a half ago.  And Europe data is also very weak, but this should come to no surprise to anyone.  I think some/much of this is ‘priced in’ the market but the mess that is the Eurozone remains the key issue.  Everyone awaits the authorities to swoop in and “fix it” (kick the can).  My thesis that QE3 is arriving has not changed since last fall, and is only being strengthened by the day.  In fact we might get coordinated global central bank action since the level of worries are global – we’ll see in a few weeks.

• The euro zone composite PMI, a combination of the services and manufacturing sectors and seen as a guide to growth, fell to 45.9 this month from April’s 46.7, its lowest reading since June 2009 and its ninth month below the 50-mark that divides growth from contraction.
• Markit, which complies the PMIs, or purchasing managers indexes, said the reading was consistent with gross domestic product, which stagnated in the first quarter, falling by at least 0.5 percent across the region in the current quarter.
• “The flash PMI figures for May look horrible and provide a clear warning that euro zone GDP will almost certainly show a contraction in Q2 after stagnating in Q1,” said Martin van Vliet at ING.
• Across the channel, official data showed Britain’s economy shrank more than first thought between January and March, after the deepest fall in construction output in three years, while government spending made the biggest contribution to growth.
• PMI data from Germany, Europe’s largest economy, showed its manufacturing sector contracted at a far greater pace than was expected, and its service sector saw minimal growth. In neighboring France, both sectors contracted faster than predicted by most economists.
• German business sentiment also dropped for the first time in seven months in May, the Ifo think tank said, missing even the most conservative forecasts, in a sign that Europe’s largest economy is vulnerable to euro zone turmoil despite holding up well until now.
• HSBC’s Flash China PMI, the earliest indicator of China’s industrial sector, retreated to 48.7 in May from a final reading of 49.3 in April. It marked the seventh straight month that the index has been below 50.  ”The series of highly disappointing April activity data – exports, imports, industrial production and retail sales indicators all fell short of even the most pessimistic forecasts – the first gauge for economic activity in the current month is a further signal that internal and external headwinds are still biting into economic momentum,” said Nikolaus Keis at UniCredit.

Tags: Bank Deposits, Bear Flag, Bears, Beast, Bounce, Doubt, Downward Path, Environment, Eurobonds, Europe, Few Days, Fingers, Italy And France, Landscape, Merkel, Mid Day, Moving Average, Rally, Sharp, Technicals
Posted in Markets | Comments Off

Goldman’s Jim O’Neill Frazzled That Reality Refuses To Go Away

Monday, May 14th, 2012

Just because it is always amusing to watch the cognitive dissonance in the head of a permabull, here is Jim ‘Soon to be head of the BOE… allegedly’ O’Neill’s latest missive to (what?) GSAM clients. Yes, the same O’Neill who week after week, letter after letter kept on saying that 2012 is nothing like 2011, finally being forced to admit that 2012 is, as we have been saying since January 1, nothing but 2011, as the central planners’ script writers prove painfully worthless at coming up with anything original. That, of course, and that the lifelong ManU fan had to suffer the indignity of interCity rivals picking up the trophy this year after a miraculous come back win against QPR. Oh, the horror…

Is it One of Those May’s Again?

Not another one, surely? It is almost too simple to be true. I have been saying to people all year that we would have a great rally into May. Then, it might be quite a challenge for the Summer and, like clockwork, we could come back in the Autumn to take the markets to fresh highs. I had expected that the S&P would get to the 1470-1480 area before the correction would set in. In this sense, it has happened quicker, because of the fact that “May” started in April, just as it did last year? While I have read a few articles recently trying to dismiss the “May” factor, the evidence is annoyingly persuasive that if the May to October months could just be 6 month holiday periods, and we picked up our investments as though nothing had
changed, the long term annualized return would be notably higher. Of course, it is difficult to find a coherent reason why this occurs so often. And, as some doubters correctly point out, it often doesn’t occur.

Anyhow, as can be seen in the attached chart, the momentum in the S&P has clearly turned lower, but interestingly, we sit just above trend line support (and well above the 200-day moving average). So, this is probably just a correction.

For some of us spoilt Manchester United fans, for the best part of the past 20 years at least, we have been able to take solace with the May issue, because around about this time, we are usually picking up the Premier League Trophy, and often there is a European Champions League Final to be thrown in as well as an FA Cup Final. Alas, this year, the cupboard might be empty and, of course, City could be picking up the League for the first time in 44 years.

Europe. Could it get any Messier?

I went to visit a rather weird play with my wife early last week, and I found myself thinking at one point “This is nearly as screwed up as the Euro Area.” I did warn last weekend that the French, and especially the Greek election, might have some impact this past week. It is quite ironic, as a couple of people pointed out to me given that I am always dismissing Greece’s economic relevance, that I suggested it might be more important in the short term than the French election. I shall discuss the French election issue more below, but given we all knew this was coming for months, and that Hollande won with the majority reasonably similar to the polls, I am not sure what was really new last week on this score (except for the German reaction).

Greece

Greek voters appear to now face another election in a few weeks with some simple choices. Do you want to remain in the EMU and stick with the commitments and support that your international allies have generously given you? Or, do you want to recreate the Drachma and run the risk of a massive banking collapse and lots of other unpredictable consequences? Polls appear to suggest the far left is likely to do well, so these questions are pretty real ones. As for the Euro, as I argued last week, it is not entirely clear to me that, once the dust settles, Greece leaving would be material either way. But we shall see.

French Election and Germany.

As I said above, there was not really a lot of new information about Hollande’s plans last week. Therefore, in some ways, it was all discounted. Quite a few contacts of mine suggested that, despite the rhetoric, France under Hollande will not do anything dramatic against the spirit of the Fiscal Compact, although they will push the issue of a supplementary plan for a Growth Pact. And as I reminded many of my colleagues, they are probably more fundamentally “pro Euro” than Sarkozy, which many people seem to have forgotten. Importantly, in this regard, this Administration is another one now in power in Europe that supports a true

Euro bond at the core of a more integrated Europe.

As I found myself thinking as the week wore on, this means that the German elections in the Autumn of 2013 are going to be really important. Anyone who wants to be in a coalition with either the SPD or Greens (or both) is going to have to support the idea also. I suspect Chancellor Merkel will be more than happy to support it. A number of meetings that I coincidentally had this week added to my confidence on this score.

Against this “big picture” background, the most interesting aspect of the French election is how German policymakers responded. Suddenly there is a fresh tone of what I would regard as welcome realism and open mindedness. First of all, Finance Minister Schauble talked about the need for higher German wages, which would help rebalancing within the EM. And a few days later, some Bundesbank officials acknowledged that Germany would probably have to accept inflation above 2 pct for some time. As one of the people I was referring to above put it to me, it would be through “gritted teeth,” but the reality is that they really have no alternative if the EMU is to persist following the shifting ground demanded by European voters. All of this should be good, and it will probably mean that the ECB will be less hawkish as a result.

Tags: Amp, Annualized Return, Autumn, Boe, Central Planners, Cognitive Dissonance, Coherent Reason, Goldman, Holiday Periods, Indignity, January 1, Manu, Missive, Momentum, Moving Average, O Neill, Rally, Rivals, Script Writers, Trend Line
Posted in Markets | Comments Off