Friday, May 10, 2013

SPY May 10 2013

SPY May 10 2013

May 10 continued the "riding the upper band" trend we have been talking about recently.

I believe in watching the market and what it has done in the past to inform me what it might do in the future. Note the previous recent instances where the SPY clung to the upper band for weeks at a time. They lasted 4-6 weeks each before breaking down into fairly perfunctory corrections. If the old patterns hold true, we should be good with the current move until early or mid-June. Each move was roughly 100 points. Since we stared the current move roughly around 1600, we could see the vicinity of 1700 before this move ends.

Needless to say, this is not normal behavior for markets or equities or anything else. Something unusual is causing this weird market behavior. Ours is not to figure out precisely what, but to adapt to it.

Naturally, the move could end tomorrow. Or, we could rocket up to 2000. Anything is possible in the market. I am giving you a fairly conservative read, based on what has happened before as informing us what might happen next - which nobody actually knows, but will seem all-too-obvious to everyone in hindsight.

Calling tops is pointless, though always fun. Until conditions change, this rally will continue. Nothing has changed, and, if anything, recent rate reductions overseas has just increased the money inflows to the US markets. Think of it as a garden hose, continually squirting money into a bathtub, which only drains at a certain rate. The hose is squirting more than sellers can handle, and until that stops or lessens, we go up.

We also haven't seen any blow-off top or any other indication this run is anywhere near ending. You need to see advances with quick pullbacks, and regions that are not covered by renewed advances within a day or two. With these small daily gains we keep getting, or tiny pullbacks that don't even last a day, every previous gain is consolidated. That builds the foundation for further advances.

One more point: putting your hopes in QE ending as the axeman who is going to cut the head off this rally may be wishful thinking. I know that runs counter to "common sense," but we are talking market sense, not common sense. Even if Bernanke stops priming the pump, the Japanese are engaged in their own ruthless campaign to reflate their economy. The Europeans are likely to follow suit - witness their own recent rate reduction. (They have legal obstacles to that which could be overcome.) My point is, this is a global phenomenon. People overseas see the US returns and are hopping on board to avoid losing ground, That, believe it or not, may be the true driving catalyst of this market, not Bernanke. He just lit the match, now the world financial world is ablaze, for better or worse. Ben is throwing a party, and you be there or be square. Who ultimately pays the tab, well, I don't know, and nobody else does, either.

If this all sounds insanely Bullish, so be it. One must confront reality. At the very least, until QE ends, this rally has every possibility and even likelihood of continuing. Even then, it might not completely stall out.

Wednesday, May 8, 2013

SPY May 8 2013

SPY May 8 2013

We just look at what is happening, without value judgments. Market is grinding higher. We take that as the status quo until it changes. Since we are at the upper band, gains will be limited until we get a pullback - but as we saw earlier this year, those grinding days can stretch out over weeks.

It seems unnecessary to say this, but the obvious should be said once in a while. Protecting your gains is very, very important. This market is stretched to historic levels above the 20-day moving average (the blue line) - about 50 handles or something like that. These always have reversed in the past, and hard. Rest assured, the SPY will meet its 20-day moving average again.

Those of us who have been watching the market for years and years and ... well, for too many years remember days when everything looked great in a stretched market, then suddenly you see a sudden, inexplicable selling surge that in the recent past always stopped and reversed - but this one just doesn't. These often happen late in the trading day, during the final hour. They also can happen during the night session, when the Europeans get the ball rolling. They usually are not news-related, or the news is something that would have been shrugged off at other times and is just used as a pretext for the selling. The newscasters, after all, need a "reason." An example was the 1987 market break, which at the time was blamed on a minor interest-rate adjustment. We all saw the dangers of stops in the recent flash crash, but some sort of downside protection is vital.

SAN May 8 2013

SAN May 8 2013

SAN is forming a "W" pattern. This is a bullish formation. It is not a classic "W" because the middle is higher than the left side, and one could also argue it is forming a giant head and shoulders - but it is acting more like a "W" pattern, particularly given it is coming off a major decline. In any event, we look for a move higher to the height of the left side. There, we see if resistance develops and watch how it fares. If it fails, you stop out with nice profits, if it surges past, you are working off of a huge Bullish base with potential huge returns. And as you wait, it pays a nice dividend. As one of the largest banks in the world, it will be around a lot longer than we will.

Tuesday, May 7, 2013

SPY May 7 2013

SPY May 7 2013

SPY has moved back toward the upper channel line. If SPY follows its previous patterns during this uptrend, further daily gains, if any, from this point should be incremental rather than huge up days. May 7 was such a day. We look for a correction down toward the bottom of the channel before we see another huge trend day up. Look for a breach of the 10-day moving average and previous resistance as an indication a correction is in progress.

By any traditional market measure, this market is overbought, but we have to play what we see, not what we expect. Don't short just because valuations are crazy, the policymakers in Washington may be crazier. Protect the downside, but realize this market is moving upwards on what looks like autopilot.

Monday, May 6, 2013

X May 6 2013

X May 6 2013

If you feel that everything is becoming over-valued with the market marching ever-higher, fear not: there are still plenty of value plays. US Steel is a prime example. X is coming off a complete melt-down but appears to have turned the corner. A good play for a recovering world economy.

UNG May 6 2013

UNG May 6 2013

UNG is correcting after its run off the double bottom. Note that it is at the 38% Fib line, which, if that held, would be a shallow correction. Am watching it to see if it continues down to the more normal 50% correction Fib line. In any event, it is "on the watch list." This might also provide a hangout in case the broader market takes a breather from its massive run higher.

SPY May 6 2013

SPY May 6 2013
SPY May 6 2013

The market chugged slightly higher on May 6, but it probably disappointed ardent Bulls and Bears alike. We still expect at least a short-term reversal soon based on location within the upper channel and the Shooting Star we discussed over the weekend, but those types of things take time to develop. Some runs higher, perhaps to the 1620s, with immediate pullbacks, are what we are looking for in terms of setting up a true reversal. Once the averages start spending time in their new locations, though, they probably won't pull back right away.

Sunday, May 5, 2013

Stock Market Quotes

We've Seen This Film Before

Just to be annoying, because everyone knows that this stock market can never stay down as long as the Fed is throwing money into it, I have assembled some quotes from the past. They will seem odd and cranky now, since they are a bit darker than things you would expect to see during such a wonderful stock market world where everything is bright and new and the sun is shining and the scent of jasmine is in the air. Who knows, though, perhaps they will seem a little more pertinent in a year or two - maybe sooner. I'm just having a little fun with this, so kindly don't read any market predictions into it.

(My other passion in life, beside trading, is film, so I will throw in an occasional odd movie quote here and there. If you don't recognize them, no matter, the rest of the narrative should work anyway.)

The logic of "the market must go up because of endless Fed liquidity" is absolutely inescapable. It's an airtight case. Absolutely infallible. As long as HRH Ben Bernanke, who holds the fate of the entire financial world in his hands, is in charge, we have no worries. "Major Eaton: We have top men working on it now. Indiana: Who? Major Eaton: Top... men."

Below are my reactions to some quotes, followed by the quotes in question. Think of it kind of like Carson's old routine with the "visitor from the East," where he gives the answers, then Ed reads the questions.

Nah, Jeffrey, this new thing called "The Internet" is going to make all that "bubble" talk obsolete:

We had a booming stock market in 1929 and then went into the world's greatest depression. We have a booming stock market in 1999. Will the bubble somehow burst, and then we enter depression? Well, some things are not different.
Jeffrey Sachs

Wow, I'm so glad the Great Father Ben is looking after us. Is this cocky, or what?:

The economic repercussions of a stock market crash depend less on the severity of the crash itself than on the response of economic policymakers, particularly central bankers.
Ben Bernanke

So equity markets mean nothing to capital formation and investment? My Economics professors would disagree, but they were so "last century," before endless "stimulus" could fit into their theories which always boiled down to "increasing money supply endlessly = bad thing." Seriously, I'm not sure what Ben was trying to say here, but I will give him the benefit of the doubt that he is not, in fact, the most clueless economist of all time. Not sure if he's second worst, though. Thanks for sharing, Ben:

A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily.
Ben Bernanke

Ron, meet Ben. Ben, meet Ron:

After 1929, so many people had been traumatized by the stock market crash that there was a lost generation.
Ron Chernow

I know we can't criticize Saint Warren, so I'll just note it probably helps if you are a Billionaire. Oh, and let them eat cake, too - as long as Warren is selling it::

Wide diversification is only required when investors do not understand what they are doing.
Warren Buffett

All right, before you think I have it in for The Great Man, here's another quote from him that is quite interesting these days (he said it back in 2000):

Nothing sedates rationality like large doses of effortless money.
Warren Buffett

I understand Mr. Cuban said that he rarely invests in stocks. The quote below probably sounds so stuffy and outdated now, doesn't it, with market dividend payouts as a percent of price at record lows?

I rarely think the market is right. I believe non dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.
Mark Cuban

Do you hear this guy's name mentioned much these days?

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.
Benjamin Graham

Stock market declines? This guy must have been trading in the last century:

You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.
Peter Lynch

I am no fan of George Soros, but you can't argue with his financial success in life:

Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.
George Soros

This has to sound so dull and old-fashioned now. Or does it? Ivana didn't do so badly in life, either:

I made a tremendous amount of money on real estate. I'll take real estate rather than go to Wall Street and get 2.8 percent. Forget about it.
Ivana Trump

Oh, but this time is different, just ask Ben Bernanke:

Actually, one of the better indicators historically of how well the stock market will do is just a Gallup poll, when you ask Americans if you think it's a good time to invest in stocks, except it goes the opposite direction of what you would expect. When the markets going up, it in fact makes it more prone toward decline.
Nate Silver

Well, Mr. Bernard Baruch, you would probably know:

The main purpose of the stock market is to make fools of as many men as possible.
Bernard Baruch

The below quote by Mr. Cramer reminds me of a quote from an old movie in a way that nobody probably is going to understand, but I'll post it anyway:

                         Good morning, my American friend!
                         There will be trouble if you go
                         this way. A good Turk always walks
                         to the right. Left is communist.
                         Right is good. You must go the
                         other way... It's Good.

All right, here's what made me think of that:

We are all wrong so often that it amazes me that we can have any conviction at all over the direction of things to come. But we must.
Jim Cramer
This is the truest stock market quote you ever will read in your life. Ever:

"I know that to be successful, I have to be frightened." - Paul Tudor Jones
Amen. Can I get an AMEN to that????