Saturday, December 21, 2013

Market Analysis December 22 2013

Have We Topped Out?

Those who played the Fed drama from the long side this past week (or, even better, shorted the VIX) once again were rewarded. Even the most stubborn traders are beginning to get the hint. The brief knee-jerk downward move after the Fed announcement was incredibly perfunctory, showing that the Bears are getting worn out and rattled from all their abuse. The market remains dangerous, but the Fed is hammering home month after month that it has no intention of raising rates and no intention of doing anything again (as opposed to the horror of May 2013) to spook the market any more than it has to.

Having learned those lessons, what do they imply about the future? We need to decide if the market is over-extended, fairly valued, or under-valued. After that, it is up to random events, corporate earnings and overall economic realities to deliver our profits and losses.

Where's All the Money?

We are going to tackle this question, of market valuation, from a couple of different angles. First, the chart below, "Taper Fears Halt Fund Flows," is quite illuminating.The top panel, "Cumulative bond+equity+balanced flows," shows that when the uncertainty of taper talk started going into overdrive last summer, cumulative money flowing into bonds and equities went flat. That money is sitting under mattresses, in gold, or overseas. Or, perhaps, it is sitting somewhere else of significance to us. Which leads us to the bottom panel.

The bottom panel, "Money Market Mutual Fund Assets," shows a rise in money market mutual fund assets during the same period, since last summer. It started going up when Bernanke decided to scare the pants off everyone and sent REITs into a tailspin due to fears he was on the verge of madness suddenly allowing rates to rise. What a coincidence! Actually, it's no coincidence at all. Rather than stick money into bonds or equities while the specter of a market break and collapsing bond prices due to taper was hanging over everyone's heads, savvy investors were parking their money in that "someplace else," namely, the parking lot of money market funds.

Note also in that bottom panel what happens at the start of each year - 2010, 2011, 2012, and 2013. The money market funds go down. Where do they tend to go? Why, into bonds and equities! This is the "January Effect."

One might, in simplistic technical analysis terms, see the recent sideways action with a slight upward bias of money market fund holdings as being a bear flag for such holdings (Bullish for stocks, that is). If it is, the money market outflows easily could resume into 2014, at least to the lows of earlier this year. If that happens, then the market will start to run out of ammunition. But it has to happen first.

Taken together, these two panels suggest to me that there is a lot of money sitting on the sideline because the Average Joe has not trusted the gains we have seen since May, when Bernanke made such foolish comments that spooked the market badly. Joe's been waiting for the other shoe to drop ever since, which would cause an avalanche of selling, enabling him to get in the market at choice lower prices. The problem with that thinking is now plain, as Bernanke and company actually did learn something from last May and this time dressed up their mini-taper and made it seem almost like a non-taper. The market spurted higher, and once again Average Joe is left with his pile of money in his money market funds, watching the market run away from him yet again. Will he finally give in and start moving some of that money into stocks and bonds? What do you think?

Market volume has been atrociously low during this period. Average Joe is too scared to risk his money, so primarily the pros are benefiting from this market rise.The pros are counting on the "dumb money" to start flowing into the market again.

In summary, the top panel suggests that the flow of money that was interrupted over the past six months could easily resume it's upward trajectory. The bottom panel shows where such money is available and ready for action.

Is the Market Pricey?

Our other approach to valuation is a historical one. The market fluctuates in value over time between extremes of prices as a ratio to corporate earnings. The correlations are astonishingly similar over a span of 150 years - when the same limits are reached, the same things happen, over and over and over.

The above chart, courtesy of, "Real S&P Composite: 1871-Present with P/E10 Ratio" is informative. It shows that the market tends to bottom in roughly the same area, 4-8 PE/10, while it tends to top in a similar zone, 22-44 P/E10. P/E10 is different than straightforward P/E only in the use of a 10-year average of real earnings.

Currently, the S&P P/E10 is shown as 24.7. This is within the zone of previous market tops, though in the lower part of that zone. This chart suggests that the market is fully valued, in fact could be getting toward over-valued. However, it also shows that the market is not in bubble territory such as in 1929 or 2000. The uptrending regression line also suggests that the market is relatively less over-valued now than it has been at previous such over-valuations in the past, i.e., the market has tended to become more comfortable with slight over-valuations over time, making them less over-valued. Whew.

The bottom line is that earnings are vital to carrying the market higher. The January earnings season this time around is incredibly important, perhaps much more so than usual. A good earnings season will help to justify current valuations and pave the way to higher ones.

Let's look at another chart to see how over-valued the market might be, or whether the chart above is simply scaring us.

This chart, courtesy of Business Insider, "Markets Chart of the Day," shows the S&P 500 Forward 12-Month P/E Ratio over the past 15 years. The three horizontal dashed/squiggly lines are: 1) the 5-year average at 13.0; 2) the 10-year average at 14.0; and 3) the 15-year average at 16.2.

First off, the 15-year average is skewed a bit higher than the others because of the mania. However, that period of time is as much a part of stock market history as the catastrophic collapse of spring 2009, so don't discount it too much.

What this chart shows us is that the market currently is fairly valued. In fact, if we throw out the 15-year average for the reasons above, it is slightly over-valued. However, the market has been much more over-valued in the past, as you can see on the chart itself. If it is currently over-valued, it is not over-valued by much. That suggests that current valuation is of little significance in predicting future market direction. In fact, it is quite reasonable to conclude that for a market to get very overvalued first has to be a little over-valued, so a little over-valuation is a necessary precursor to much higher valuations later. Or, the market could get spooked by earnings, realize it is slightly over-valued, and tumble until it is under-valued.

Notice the double-bottom on the lower chart, when the market actually did get under-valued. That happens during times of sheer panic. We see no signs of such panic brewing because of fundamentals at the moment that are comparable with the housing etc. crisis of 2008 (the "Great Recession"). The economy may be sputtering a bit, but it is absolutely undeniable that it is in recovery mode. That is when it tends to head towards becoming over-valued, as it did following the recession (not so "Great") of 1990-1991 and the Recession of 1982.
Taken together, the valuation charts suggest that the market is properly valued, but it is nowhere near a bubble state. It very easily could get a lot more over-valued, i.e., go higher from here. Valuation really is not a determinative factor in this middle range of valuation.

Bottom line: there is no reason to think the market is going to abruptly stop increasing its valuation here - though anything is possible. Betting your money on the market suddenly coming to its senses and realizing that it is getting ahead of itself, and collapsing because it has a moment of Jungian clarity, is a great way to lose that money, though anything is possible.

The Nikkei

The Nikkei 225 is a market that you ignore at your peril. It is where a lot of US funds are parked, and it is easy to invest in, directly through Japanese stocks that trade in the US like SNE, or through ETFs and the like which track it and other Japanese indexes. The unhedged EWJ is perhaps the largest and most well-known such fund, but there are many others.

If you aren't invested in the Nikkei, but are curious, consider hedged funds such as DXJ and DBJP. The reason to consider a hedged fund is that the Nikkei 225 and the Yen have a very strong tendency to move in opposite directions. If you are unhedged, a large fraction of your gains from a move higher of the index will be wiped out by a depreciating Yen (though, should the Nikkei fall, that implies an appreciating Yen, which would cushion the blow to your portfolio). Do your own due diligence, don't make investment decisions without it.

Many analysts are projecting the Yen to weaken substantially over the coming years. That implies a strengthening Nikkei 225.

I don't have a lot to say about where the Nikkei 225 currently is that the chart below doesn't say, so let's have a look.

As you probably don't need me to say, but I will anyway, the Nikkei currently is at a hugely important juncture. It has been in a megaphone pattern since its collapse in the early 1990s and is hanging at the very top of that pattern.

Megaphone patterns are usually considered topping patterns. However, in this instance, that's not very likely, considering this megaphone followed the epic collapse of the bubble of the 1980s. This megaphone is much more likely to be a reversal pattern, so that when it is breached, it will show a distinct change of trend. The change of trend here would be higher.

Without going into a lot of fundamentals, the Abe programme in Japan appears designed to bust the Nikkei 225 higher by stimulating consumption and exports by depreciating the Yen. Unlike in the US, the Japanese monetary stimulus is just beginning. It literally has years to go, and traders know all about what the US QE did to US stocks. If the Abe stimulus affects the Nikkei 225 anything like the US Fed QE experiment affected the US markets, the Japanese markets could shoot higher for some time to come. Of course anything is possible, the downtrend line could hold, and the Nikkei 225 could fall to new lows. We need a break above 16000 for confirmation.

So, minus all the gobbledy-gook, the bottom line is: if the trend line shown is breached, that would be very Bullish for the Nikkei 225. A break above 16000 is going to trigger an awful lot of buy stops by robots around the world, and a break back below 13000 would trigger an awful lot of selling. Be on the watch right now for any break above 16000, which the odds (fundamentals) seem to favor happening.

Sunday, December 15, 2013

A Look at the Market December 15, 2013


I don't really worry too much about fancy technical studies. You can do a lot more with simple trend lines, volume profiles and market tempo. Studies just get in the way.

However, with the overwhelming consensus among the chattering class being that the market has nowhere to go but straight down, it's always nice on a weekend, when there's nothing better to do, to look at a study or two. The weekends are when the Bogeymen come out and fill the chat rooms with doubt and fear.

Above, we present the McClellan Oscillator (this is courtesy of Financial Iceberg, a great site). It is pretty self-explanatory. The market may or may not be bottoming out for the medium term right now, only time will tell. However, this particular indicator, for what it is worth (and there are many, many other indicators out there for everyone to use to prove whatever point they are trying to make at any particular point in time), suggests that the market is oversold. Naturally, it could get more oversold. If you like to play the odds, you look at stuff like this and act accordingly.
Let's look at that again, this time in color

In a general sense, there is absolutely no indication anywhere that I can find, using objective indicators rather than truisms like "the market is too high" or "the Fed is running out of money," that the longer-term trend higher is over yet. If you call a top every time you see a small pull-back, eventually you'll be right. However, that's no way to trade and succeed.

Bubble Bubble Toil and Trouble

I am going to get Socratic here for a moment, it's just more engaging that way in a narrative sense.

It is not different this time. When it is time to sell, you sell, take whatever gains or losses you have, and get out. OUT. I can't remember if it was the movie "Poltergeist" or "The Exorcist" that had the demon entity saying "GET OUT" in that classically malevolent way, but that's what I'm thinking of here. You get out, and you don't look back. That is, unless you are prepared to wait for a decade more or less to get your money back.

I am reminded of the guy who walked into his broker's office in 1955 or thereabouts to sell his RCA stock. When asked why he wanted to sell all of a sudden after holding for years, he replied that he had bought it in 1929 and vowed then never to sell it until he got every single penny back.

Is there a bubble in the market right now? Actually, yes, I think there is.

Is the market itself in a bubble? I don't see one. Valuations overall are not extreme. This does not strike me as a 1999 with the Nasdaq suddenly at 5000. I would instead say that it is properly valued, given company earnings.

So, how can I say there is a bubble, but there isn't?

Because there almost always is a bubble either brewing or in full maturation.

Well, where is the bubble at the moment then? Here, I am going to ruffle some feathers. Sorry about that. Again: where is the bubble right now?

I think that valuations of the social media stocks and some alternative energy issues are dramatically over-inflated. Markets vastly overshoot. That's what they do. That's what they always do and have done since at least Roman times. I think if you are looking for a bubble, look in those areas. But don't assume that means the entire market is in a bubble. Bubbles in individual sectors do have the potential to drag the entire market down for a while. Those kinds of limited bubbles, though, don't drag the entire market down for too long - just long enough to ruin whoever actually was over-leveraged in the actual bubble sectors, like dot.coms in 2000 or real estate in 2008 or silver in 1979 or the Nikkei in 1987 or....

The things about bubbles is that they can last far, far longer than any smart guy thinks they will. But when they pop, they pop and fall so fast you will never catch the balloon before it hits the ground. And then you have to wait. And wait. And wait some more. Along with everyone else. And probably wind up selling right at the absolute bottom because it's obviously never going to come back and you could use the money to buy lunch that day.

No, I'm not going to name any names, though I could. Do your due diligence.

Incidentally, in terms of bubbles lasting longer than you would ever think, below is a video of Ron Insana (brought to my attention by ChessNwine on Stock Twits) pointing out the real estate bubble over five years before it burst. The smart play at that time was not to short real estate - that only became the smart play five years later. Our brains are often far ahead of reality.

Event Risk

We obviously have to watch for what the Fed does, because most unfortunately the government has assumed control over the direction of the market without anyone realizing it at the time. If the Fed really wants to wreck the market, it can do so at any time with one twitch of Bernanke's eyebrows. Do I like that? NO. I'd be much happier if the government had never started meddling with the market and the S&P 500 were somewhere like 1620. We have this overwhelming event risk now that is oppressive. That said, we must trade the market as it is and not how it should be.

One interesting aspect is that the event risk alone is keeping a lid on the markets. I know you will find this hard to swallow, but so many people are staying on the sidelines, afraid of losing their life savings, and so many keep going short because of the sheer precariousness of the underpinnings, that the market might just be exactly where it should be. Market volume has been terrible because of that, when you would think it would be going crazy. Fear is rampant. That's what happens at market tops - you get crazy volume leading into it. Remember 2000? I do. Crazy volume happened, crazy volume that has been declining ever since (yes, still). We have seen just the opposite of that craziness in 2013. It is very weird.

Price-earnings do not suggest a bubble ready to crash. Valuations are roughly where they should be, with sectors rotating up and down fairly normally.

Yes, maybe I'm a crazy loon too.

Game This Out

I don't believe the Fed and Obama and all the rest want to wreck the market right now. They don't have to, and they have enough troubles. Employment is only okay, is is hardly great. Yes, unemployment dropped to 7%, but only because hordes of people have dropped out of the work force. That's hardly terrific.

The MO of the current Fed is that, when they want to do something that will be market-changing, they send very discrete signals. You get the drip-drip-drip of Fed Governors coming out and making speeches that roil the market. We haven't had any of that so far this time around. That makes me think they aren't going to do anything decisive.

The last thing that Bernanke wants to do is cause a crash right before his handover to Yellen by tapering, right during the holiday season. People will go and burn down his house if he does that. Yellen won't want to cause a crash as her first act. Nobody wants to go down in history as "the crazy crash lady." Besides, she has a reputation of being even softer on this issue than Bernanke.

The Fed's accumulation of assets is working wonderfully from a balance-sheet perspective. If they keep this up long enough, they could fund the entire government with the income from the assets they are acquiring (I'm only partly joking there, I have no idea how far these crazy loons will go with this). I think that Paulson and Bernanke and this entire crew should be tried and convicted of something. It can't end well.

But that doesn't mean it ends now.

If we have to be mind-readers, then be a mind-reader.

Play the odds.

Saturday, December 14, 2013

Post-Thanksgiving Market Performance

Seasonality Post-Thanksgiving

Always nice if you can position yourself with the odds in your favor.

The chart above for the S&P 500 suggests that the day after Thanksgiving - always a light volume half-day for the market - is statistically half-and-half for gains and losses. Thus, we don't have any edge in either direction.

Once December hits, however, the odds swing decisively into the Bullish camp. Only two of the previous ten Decembers have been down, and one of those, in 2005, was basically even.

Anything can happen in any particular year. 2013 was notable for its lack of pullbacks of any strength. That is the kind of year when an unusual December might happen. However, I wouldn't bet on that, not given the heavy statistical odds of a Bullish December.

You need an edge when you trade.

Sunday, November 24, 2013

Thanksgiving Week Stock Performance

Thanksgiving Usually is Good For Stocks

Just a few charts showing that Thanksgiving week is usually pretty bullish. In 2008, strangely enough, it was up an astonishing 12%, which kind of distorts the figures. If the market doesn't hit the lottery this year, though, expect more like a 1-2% gain.

Thanksgiving stock performance

Thanksgiving stock performance

Thanksgiving stock performance

Tuesday, September 3, 2013

SPY September 3, 2013

State of the Market

Tuesday, September 3, saw bleary-eyed traders greeted by a hyper market. A huge gap up from the weekend peace talk degenerated into an epic gap fill after House Speaker John Boehner gave his support to President Obama's war plans, raising the probabilities of death and destruction and punishment and retribution. A late recovery disappointed Bears but didn't really excite Bulls too much, either.

The technicals right now signal solid support in the (futures) 1630 region. The recovery of SPY back over 164 was an epic achievement that spoiled a lot of traders' lunchtimes, helped along by another spurt of mysterious last-second buying, as was the case on Friday.

The Arguments

The Bullish case is this: once again, we saw higher highs and higher lows, plus a higher close. All this war talk is a complete sideshow, which is being magnified by the unnecessarily melodramatic presentation by the Administration (led by tough-talking Count Dracula clone John Kerry) into some epic confrontation between Right and Wrong. Regardless of the intraday volatility, the indisputable fact is that the market closed higher after a weekend when many either expected or simply pretended to expect an unleashing of Armageddon. Economic news from China over the weekend was stellar, and US economic news in the morning beat expectations. Even the Nikkei is getting some vigor again as the Yen, a traditional safe currency, loses ground as war fears dissipate. The intraday sell-off was a simple gap fill, spurred on by the spineless John Boehner's caving to a misguided attempt by US leaders to become (or remain) the world's Lethal Enforcers.

The Bearish case is this: today was another red candle, and there was another look above that failed in epic fashion (as has been the case often this summer in this classically overbought market). War is inevitable, and it will produce a sell-off of Biblical proportions due to the proximity of defenseless hostages in the person of innocent Israelis and others. SPY couldn't even close above the 10-day moving average after trading above it all weekend. The market short-term is overbought, QE is ending, and interest rates are rising, signalling that the economy will cave in like a house of cards due to Fed Chairman Ben Bernanke running out of ammunition to prevent the inevitable. The housing market, the backbone of the economic recovery, will take a huge hit from rising mortgage rates. The market simply has run too high, too fast, and the downtrend from the August 2 highs remains very much intact. A rest is needed, and statistically September is the worst month of the year for the market.

Eventually, one line of thought will prevail, though the other side inevitably will say that they just need a little more time for their analysis to prove correct. And they may be proven right, as virtually anything you predict about the market will come true - eventually.

The Bottom Line

Quite simply, the Bullish case is more convincing right now, as we began saying quite openly after last week's huge Syria sell-off. The decisive points are that, even during Friday's Kerry sell-off (could the guy have been any more menacing?), the lows from earlier in the week held. Today, the market saw new highs during trading hours, not just highs overnight when volume is light. Yes, there was a vicious gap fill, instigated by, but most likely not really caused by, Boehner - he just lit the match for something that looked likely even before his news headlines hit the wires. That happens all the time.

A lot of Bears make the mistake of trying to be both economists and traders, and given my own degree in Economics I can tell you that is a very dangerous thing to do. This is a two-way market, and betting too hard in either direction, especially once it starts to look "safe," will get you singed or burned. Badly. Not all Septembers are calamitous, the numbers are skewed by some really bad years.

The Bearish case does not become convincing until one thing happens: the congestion area support that we drew out on the chart last Tuesday must fail. That's the bottom line. It has held rock solid. If that support is breached for any length of time, then we might actually see those 1600 or even 1560 levels that the Bears chirp about after every ten-point drop. Until then, we are stuck in the mid-1600s, and it's a good idea to get used to it.

What the Market is Actually Doing

The market is respecting technicals. That is not a sign of a market out of control, nor one driven by panic or desperation, which is what the Bears really need for it to blast through that congestion support in the 1620s. Now, the joker in the deck is Syria, and the market remains hostage to it, but relying on a Black Swan to happen is not playing the probabilities. It is gambling, plain and simple. Sometimes gambles pay off, longshots do come in, but we play the probabilities here.

Notice on the chart below how the futures hit the downtrend line and stopped cold, then sought out the fib line and reversed.The lines in question have been on my chart since last week (obviously not the lowest trend line, I put that one in today).

Let's look at that a little closer, just for effect, this time on the one-hour chart:

What is happening is the formation of a wedge. It most likely will continue to play out, with perhaps false breakouts and perhaps formation of another wedge slightly higher or lower, until the Syria thing resolves, one way or the other. If you expect a huge move before then, you might be disappointed. The resolution might not take the actual war votes of Congress, but a consensus on what will happen.

Even then, it's a bit mystifying why everyone simply assumes we get a huge sell-off due to Obama lobbing a few cruise missiles in a somewhat token gesture of despair. Clinton did it, Reagan did it, and the world did not end and the market did not collapse. But this market has proven itself extremely sensitive to the Syrian crisis for whatever reason, so we are extremely sensitive to it, too.

Chart of the Day

Someone posted this chart showing that SPY volume has hit a 15-year low. Lowest since the 1990s! That's pretty impressive - right?

Mark Twain famously said that there are lies, damned lies and volume charts. No wait, he didn't say that, I said that. Anyway, chirping about fifteen-year lows sounds mighty important until you notice that volume has been cratering since... wait for it... 2009. In fact, you could make the case that volume has been declining since 2001 or so.

This is not to belittle volume as a vital part of trading. Anyone who trades without taking volume into account in some fashion is a fool or a tool. The point is that, if you see something that has been declining steadily for three (or maybe 12) years, then claiming that it means that this month it will cause a sell-off - you are reading way too much into it.

But the chart is there, make of it what you will. Others "are concerned" about it. Maybe you should be, too, think it through for yourself.

Friday, August 30, 2013

September Strong/Weak Days


This is an interesting chart. Everybody nowadays seems to know that, statistically, September is the worst month of the year for market returns. The above chart takes this idea a step further and shows which days historically have been the best and the worst. Make of it what you will, but the folks at Marketsci Blog claim that incorporating historically strong and weak days into your trading can help make you more profitable.

As they state on their blog:

"The strategy was a real dog last month, but generally speaking, real-time results since I began sharing the calendar in October, 2012 have run inline with the historical test.

The S&P 500 has averaged 0.08% (23% annualized) on the best half of days versus 0.04% (12% annualized) on the worst half.

Quartile 4 days (the worst of days) have been particularly bad, with an average return of -0.09% (-21% annualized)."

They have posts for other months, too, maybe worth a look.

Thursday, August 29, 2013

SPY August 29 2013

SPY daily chart August 29 2013

Thursday August 29 2013 saw a repeat of the pattern of August 28 2013: a quick headfake lower at the open, followed by a strong grind higher, until a mid-day high was followed by mild but steady erosion. It was a another green day with a green candle shaped much like the previous day.

Higher Lows and Higher Highs

There was at least one huge difference between Wednesday's action and Thursday's, however. We said that we were looking for higher lows and higher highs, and that's exactly what we saw on Thursday. Despite the best efforts of the Bears, they could not bring the futures down far enough to even approach Wednesday's lows at the open, after which the market quickly reversed in the opposite direction. The Thursday higher were about five points higher than on Wednesday. Thus, we saw higher lows and higher highs on Thursday.

A good omen for Bulls was that SPY closed above its 100-day moving average. The market is acting in standard technical fashion, respecting key technical levels such as value areas, and there is no panic or euphoria, and both Bulls and Bears remain energized. That means that we have a healthy market that is going to be two-sided, and there's nothing wrong with that - it's healthier than the alternative.

The erosion during the afternoon on both Wednesday and Thursday simply means that there are a lot of weak hands remaining in this market. A little distribution out of their hands and into stronger hands simply strengthens the Bulls' case, since the fact that the market abruptly reversed and turned higher after Tuesday's debacle shows that the Bulls are stronger in general since the sell-off.

Another positive omen for the Bulls is that SPY keeps taking out downtrend lines and forming what might be viewed as a Bullish cup pattern, as shown on the futures chart below.

Futures ES 4-hour chart August 29 2013

With the weekend approaching, virtually everyone is anticipating a down day on Friday August 30. When everyone expects something, it usually doesn't happen, but that's being a bit too carefree about the matter. Everyone has a load of anxiety these days, induced by the spectre of the Evil September and Syria and Tapering and all that. That said, mild weakness on Friday would have virtually no long-term significance because it is standard procedure for some to close out positions ahead of a holiday weekend, especially one accompanied by as much saber-rattling as is Labor Day 2013. The afternoon after the bond market closes should be particularly dull, with the big action taking place in the morning around the open.

The Bears still have a case, but they have to start making it. The higher the market bounces, the more shorts will hit the exits or change sides. If the market does not drop on Friday, with everything in the Bears' favor, that's a pretty solid indication that the Bulls retain the initiative for now.

Our longer term view is that the markets will continue to recover higher, and nothing that happened on Wednesday or Thursday challenged that assumption. Volatility has increased, which means larger intraday swings, but it is long way from suggesting any kind of rampant fear in the market. More volatility generally is good for short-term traders.

A test of the long-term downtrend line currently at 1672 is not out of the question if things get in gear and we get some good news. Markets in the past usually reacted well to US missile strikes against defenseless countries, at least in the intermediate term. A peaceful resolution would probably be the best for the markets.

Wednesday, August 28, 2013

SPY August 28 2013

The Day the SPY Didn't Bark

SPY daily chart August 28 2013

SPY opened weak after indecisive overnight trading. After giving a swift peek slightly below Tuesday's low, it abruptly reversed and headed higher. Once futures crossed 1630, they did not drop below there for the remainder of the day. After hitting the high of the day in the early afternoon, choppiness followed, with a moderate sell-off into the close.

First things first. This is a case of Sherlock Holmes and the barking dog. Most folks know that story, about how Holmes investigated a murder with no good suspects. However, he did know one thing: a dog that always barked at the sign of any intruder hadn't barked the night of the murder. This, of course, solved the case by identifying the one person the dog wouldn't have barked at. It is one of the more famous Sherlock Holmes stories.

The non-barking dog here was the absence of a continued sell-off. If traders really were fleeing for the hills ahead of some apocalyptic images of conflagration in the Middle East, or they simply finally (and way too late for the taste of perma-bears) came to their senses and realized that the US economy has become nothing but a hollowed-out Potemkin Village (sorry, I'm in a literary mood today), you would have expected the reverse of what happened today: a quick failed peek higher, then a slow grind lower. That the markets eeked out any gain today was nothing short of miraculous after the Tuesday rout.

Since that dog didn't bark, we were left with a cautious move back over the 100-day moving average as more and more traders who actually are worried about Syria left the table and sold their shares to stronger hands. Bears will point to the final-hour sell-off, during which the VIX climbed back off its lows of the session, but even that was hardly inspiring or particularly notable.

One can talk about dead-cat bounces, and that might be what happened today. But there was a lot of technical damage to the Bears' case today, despite the late weakness. If you draw downtrend lines from the recent highs, today's action smashed through all of them. The formation developed yesterday and today looks suspiciously like a double bottom when you include the overnight session (as I always do), as shown on the chart below.

Futures chart August 28 2013

This is not to say that we can expect to see 1700 again any time soon. However, if the market holds steady and the fools valiant leaders in the worlds' capitals can hold it together and find a way to resolve their differences without lobbing missiles at each other - at least during trading hours - the market appears a lot firmer than it did at any point yesterday. At the very least, it could go either way, which was not the common sentiment yesterday, with a slight bias higher.

So, yes. Cautiously bullish, though everything is against the Bullish case right now, including Syria, Labor Day, September, and the recent weakness. Keep an eye on today's lows, if they don't hold for any length of time during the cash session all bets are off, with the caveat indicated below.

Chart of the Day

Josh Brown, a well-known CNBC personality, distributed the below chart today that was prepared by Jonathan Krinsky of Miller Tabak + Co in New York. Tuesday saw 92% of New York Stock Exchange stocks have declining volume. That is pretty rare, and only occurred on the days shown during the past year.

SPX chart with days of 90% NYSE volume in declining stocks indicated

The takeaway appears to be that such days are blow-off type days to the downside. Note that those days weren't the actual bottoms (neither was yesterday, today's low was lower), but they were within a few days of that bottom each and every time during 2013. So, even if there is some lingering carryover weakness this week despite today's robust recovery, that doesn't necessarily imply that we are headed straight back down to the 2009 lows. Instead, it may simply be part of a typical and even routine bottoming process.

Tuesday, August 27, 2013

SPY August 27 2013

Tuesday, August 27 2013, was a rough day for the markets. Futures sold off overnight after the weak close on Monday. The catalyst for the sell-off was late news about Syria and possible missile strikes which all sounded very apocalyptic. The market fell throughout the morning, and continued edging lower until the final hour, when it found a little stability and closed just off the low of the day.

In past summers, we saw a lot of volatility, which hasn't been the case this year until today. Many remember a few years ago when 500-point Dow down moves were followed by similar up moves. The summertime is ripe for volatility, because volume is low and many people are off doing other things. This sharp Tuesday drop appeared to be a perfect example of a catalyst (Syria news) hitting a low-volume market (last week of August) that has been drifting aimlessly in the 1600s for some time. In that environment, you can expect volatility in both directions as short-term traders take control.

The downtrend since the early August highs remains intact. However, downtrends can get over-extended just like uptrends. With the big Tuesday drop, we find ourselves smack dab in the big congestion zone formed earlier this year. It is centered right around where SPY closed. Heavy congestion is one of the most reliable forms of support, as a lot of value was established there.

Ever since the move out of this area (1620s) around July 4th, technicians have noted the many areas of little congestion along the way upward that needed to be "repaired." If nothing else, this move lower could help repair those areas if the market makes a stand here.

But that's getting too technical, nobody wants to hear about poor highs and things like that. SPY did break through the 100-day moving average (and also the key 50% Fib line), but that doesn't mean they suddenly become meaningless. Even when you break support, if it is only a temporary break, the support can still serve to create a rebound. Don't count this market out quite yet.

The next Fib line is down around 1615. Should the market fail to find any strength tomorrow, that is a likely stopping point, at least temporarily. With the Syria news digested and not much else going on, this low-volume market just as easily could rebound to the downtrend line which it was aiming for just a couple of days ago. That is, if the Syria thing turns out to be over-blown and nothing else bad turns up.

The chart could be forming a massive head and shoulders, with the left shoulder topping out in May and the head the early August all-time high. That's something we will be watching in the weeks ahead.

In the short term, watching for higher lows and higher highs. If such a pattern emerges, many shorts will find themselves "in the hole" and forced to cover, starting a chain reaction to the upside. Otherwise, we might simply digest the downward move and move sideways for a day or two within this congestion zone. A quick move below today's low of 1626.5 would suggest significant further downside.

Thursday, August 22, 2013

SPY August 22 2013

SPY Daily chart August 22 2013

Thursday August 22 2013 was a wild day, with a huge bounce off of oversold conditions overnight that continued into the morning. After that, the market drifted higher throughout the afternoon, closing not far off the highs for the day. The Nasdaq was down for much of the afternoon with computer problems, but when it opened, it shot higher.

Some quick points:

First, we were talking about the importance of the 100-day moving average. Everybody out there is watching these major levels, so that is why we do. It can really make all the difference in your trading to keep track of these levels and play them. Of course, to play this bounce, you had to be watching and trading futures after hours last night; wait 'til this morning and you miss the party. General rule of thumb: first time you hit support (or resistance), it works. Second time, not so much, with lesser effect with each test.

Second, we scored a perfect touch and go on the 50% Fib level shown below. If you have key support such as the 50% Fib level and the 100-day moving average in roughly the same spot - that's good support.

Third: we closed the day right at the key resistance level that we've bumped up against several times this week, and that quickly sent the market reeling lower. Since this is the third or fourth test of the 1656 level of the futures, we need to watch it carefully for a break higher. You can call this the 50-day moving average resistance if you wish, too, it's in the vicinity.

Fourth: if we do crack higher through resistance, there is an air pocket above us. If the Bulls really get rolling, the futures could see 1680 before you know it. That's not a prediction, just an assessment of the lack of resistance above 1660.

Fifth: there was a huge amount of buying at the Closing Bell. That suggests that retail is hopping back on board after being scared earlier this week. Make of that what you will, retail has been right a lot this year.

That this market is confounding all sorts of knowledgeable people is beyond question. When insiders sell in droves, and the market bounces back - that's strength, baby. We are maintaining our quasi-Bullish stance simply because this market just takes a lickin' and keeps on tickin'. It should go down and it must go down - but it doesn't. We must play reality, not our hopes and feelings.

Don't assume that because you saw some knowledgeable pundit being all Bearish (or Bullish) for days or weeks, that they are going to remain that way under the circumstances we saw overnight. They'll change sides faster than you can say "Tom Sosnoff." You'll find out later that they switched sides when they're smiling and you're not. They are under no obligation to maintain a "foolish consistency," as Emerson would say. Keep the key support and resistance levels on your charts and respect them, everyone else does.

Below are a couple of charts to illustrate the points made above. I've had those fib levels on my charts for days, I think since some time last week. Notice how perfectly they worked.

Futures 4-hour chart August 22 2013

Futures daily chart August 22, 2013

Tuesday, August 20, 2013

SPY August 20, 2013

SPY daily chart August 20 2013

On Tuesday August 20, 2013, the market started off strong, reaching a peak at 1:00 EST. After that, it pulled back a bit, chopped sideways, then broke lower in the final half hour.

The day was all about key support and resistance levels. After finding support at the 38.2% Fib level, SPY moved higher until it ran into the 50-day moving average around 1656 - which also happened to be a congestion zone. After being rebuffed there once, the Bulls gathered their forces and snuck above that level, but the surge didn't last long at all. After that, volume declined until final there were no buyers left and futures fell 5 points.

There's a danger in reading too much into intraday movements as a read on the broader direction. SPY failed at a key resistance level, and then some news come at late in the day that encouraged sellers. That often happens when the "common wisdom" is that the market should go one way or the other - news that helps the market close in that direction just happens to appear late in the day. Go figure.

Looking at things a bit more broadly, however, Bulls should be encouraged by the day's trading. It was a weak bounce, and a weak-looking candle, for sure; but that is how several big rebounds have started. The initial bounces on February 26, April 19, June 25 and several other turnaround days this year weren't very impressive, either. They all ushered in strong moves higher in the days that followed. On the Bearish side, there was the late-day weakness which has become fairly common recently to give encouragement, and the fact that overall it was a fairly tepid bounce off of oversold conditions and on declining volume throughout the day until the final sell-off.

Which is not to imply that the market is going to surge to 1800 any time soon. It is simply meant as a kindly suggestion that nobody should get complacent about where this market is heading, because it is giving conflicting signals all around. Very slight edge to the Bulls after today.

Some of us were posting during the day on Twitter about the intraday head and shoulders that was forming on the 5-minute futures chart, which is reproduced below. Noticing patterns like this and trading them is one route to daytrading success.

Futures 5-minute chart August 20 2013

With the Fed meeting this week, Wednesday is likely to be fairly quiet until they say whatever they are going to say.

Cash on the Sidelines

Saw this chart on Stocktwits today. The information was being presented as a proxy for "cash on the sidelines." Household cash levels aren't an exact match for cash with no other purpose than to be thrown at equities, but let's assume for a moment that it is.

If you look at the chart and match the tops and bottoms with actual market peaks and valleys, it may have have some usefulness. If you accept the reasoning that relatively little cash "on the sidelines" implies overbought conditions, and that a lot of cash "on the sidelines" implies an oversold market, the chart allows you to draw some inferences.

Notice how the red line bottoms out in 1999-2000, then rebounds. That was the market top, so it makes sense that people were throwing cash at stocks then. They ran out of ammunition, got scared, and the market tanked big time.

The market hasn't approached those levels since. The "cash on the sidelines" again peaked around 2008-2009. This matches nicely with the market bottom during those two years.

So, what might this imply for our market? We can all draw our own conclusions. However, it suggests to me that the market is not wildly overbought by this measure, and in fact is fairly valued. If the "cash on the sidelines" were down around 1999 levels, it might be time to head for the bunkers. However, current levels are in the central zone, not much lower, in fact, than in the 1950s. That seems pretty normal.

It's not wise to try to read too much into charts like this, either. However, if this "cash on the sidelines" says anything at all, it gives a little support for those who think SPY isn't at some natural limit or anything in the 1600s, and in fact easily could run higher before truly becoming overbought. On the other hand, the chart also implies that the market also isn't wildly oversold as it was in the 1970s and early 1980s, either, but nobody thinks that in any event.

My own tactic is to forget the numbers at the front of the market averages - the "16" in SPY for instance - and just focus on the following numbers, the "50" and so forth. That gives a better read for short- and intermediate-term trading.

Sunday, August 18, 2013

SPY August 18, 2013

SPY daily chart through August 16, 2013

As I write this, it is the weekend, and traders who follow equities online know one thing: that's when fear and pessimism run wild. If you are a Bear, and you want to feel better about your positions, the weekend is the time to check in at online forums. Just gabble something about Egypt, the debt ceiling or use the word "tapering" and you are good to go.

Bears are some of the best traders in the business. They usually get paid, they just have longer to wait for their earnings than Bulls, and their proceeds come in big, sloppy buckets of honey all at once. Permabears are their own breed altogether and, no matter how low the market goes, they say it will inevitably go lower. They're sometimes right.

SPY is at the 50-day moving average. Either that holds, or we will see the 100-day moving average about 20 points lower. Wherever SPY does hold, the odds of a bounce increase the lower we go. Having held 1650 on Friday August 16, a bounce off that level remains possible. The late-day weakness, however, was a Bearish indication.

Fundamental data is something chartists usually avoid. It clouds the purity of the charts, which are assumed to incorporate all factors. Of note, though, is Barron's reporting net insider sales of over $500 billion dollars in the first two weeks of August. That is a lot of selling - to put it in perspective, half a billion dollars is about six-months worth of the Fed's current QE program. What this tells us is that a) the people who have the best insight on what they are buying and selling are, in fact, selling, and b) eventually they will be buying back in. The thing about their buying back in, though, is that it usually doesn't occur until things get really cheap. Oh, and c), even the Fed isn't big enough to really control the stock market, which either will reassure you or scare the daylights out of you.

Bottom line: we are at a decisive support point, at the 50-day moving average. It is necessary to see whether that holds before making any larger predictions. In the short term, SPY may be oversold, but that does not mean we should expect to see new all-time highs any time soon. Essentially, everyone is watching the 50-day moving average. When everyone is watching support like that, it tends to break, because nobody wants to buy until it is "safe," and it isn't safe until after things look darkest.

I look at a few more general topics below that may be of interest.


As stated previously, IBM has been and remains a fairly good bellwether for the market in general. The chart below suggests that IBM is at a make-or-break third retest of its recent lows. Watching IBM will usually give a clue where the overall market is heading, particularly since it is such a key component of the Dow Jones Industrial Average. Warren Buffett hasn't made much noise recently about his stake in IBM, but he's on the record (perhaps facetiously, who knows, but more likely not) as saying he would like the price lower anyway.

IBM daily chart through August 16, 2013

Long-Term Trends

Stocktwits posted the below chart, thank you, stocktwits (a great trading site). The chart pretty much speaks for itself. My interpretation is that, within the sort of longer-term sideways move we are in now, the market also tends to go sideways in a much compressed fashion after recovering from the final sell-off. This can take years, which can be necessary to "wring out the excess" and bring down multiples until they are attractive to new buyers again. So a breakout will have to wait. If we do get a real correction, it will be a doozy.

Only then does the market finally break out to a new, higher plateau with a good multiple expansion. The odds of a sharp break higher from here  (to, say, SPY 2500) in the intermediate term are not high. We remain within the plateau founded in 2000 and could see extended consolidation within the SPY 1600-1700 range, with a feint lower before the power drive higher. The sideways move is getting fairly long in the tooth. This is a good chart to revisit now and then.


The charts below speak for themselves. We are entering what traditionally is the weakest part of the year for stocks. Why? It doesn't really matter, it just is. Some good guesses are: expenses related to the start of the school year, Jewish holidays, and paying for summer holidays.

Declining Volume

Volume this past week was lower than any week since 1997. That seems odd - but volume has been declining steadily for years, so maybe it's not so odd. And it is the summer holiday season - right when you would expect volume to hit a low. Not sure this means anything at all, but it is of interest.

Thursday, August 15, 2013

SPY August 15 2013

SPY August 15 2013

The markets sold off on August 15, 2013, hitting levels they had not seen since July 11, 2013. SPY sold off hard right from the open and bottomed out about 40 minutes into the session. The rest of the session was basically sideways chop with a succession of bounces that were quickly sold off. The lows of the day were hit during the afternoon, and the close was near the lows of the day. The old uptrend channel is now history, the market is now simply choppy and indecisive with a downward short-term bias.

Overall, it was a big rinse. The Bears were in control, and 1700 now is a distant memory. After all the sideways action over the past two weeks that took us nowhere, it was clear that energy was building for a break one way or another. The outcome was downward, and there were some hints this might happen that we pointed to yesterday. Hopefully, longs lightened or terminated their positions before the big drop this morning, in which case they could watch today's sell-off with equanimity, play shorts if that's your thing, buy the dips after the first hour, and generally have a pretty good day watching the carnage and subsequent chop.

The danger is to think that there will be an immediate bounce-back after a day like this. That can happen, but the probabilities suggest at the very least a little consolidation in the futures in the 1650s region before the tone changes. The real congestion/support is in the 1630s, then in the 1610s. You want to buy into weakness, but patience is required if you want to make real coin on the bounce back up. Today's sell-off was a bit too orderly to be a real, panicky type of bottom. We keep saying this, but it's important: September is the weakest month of the year for stocks.

To the upside, 1666 on the futures is the key level. It was not breached after the drop today, challenged but never touched. A move above that which is not a feint that is immediately sold off is a potential signal to go long. Shorts would likely cover above there, and we would get some hot money along for the ride. A quick ride up to fill the gap is among the more likely outcomes.

To the downside, we watch, first, today's low at 1655.25, and second, a drop below 1650 in the futures. If selling develops momentum, more and more traders with big profits will start to believe this sell-off and prepare for paying their bills for the coming school year while they still have a little change in their pockets. The more time ES spends down in the 1650s, the more likely we see more downside. A rip back up at some point is likely, because that's been the pattern, but the probabilities say we get at least a quick, scary death ride lower first.

Tuesday, August 13, 2013

SPY August 13, 2013

SPY daily chart August 13 2013

More and more traders are noticing the daily dips and recoveries in the market and trading accordingly. Tuesday August 13 2013 was no exception, as the futures dipped to their usual spot in the low 1680 region and then recovered. The majority of the day, though, was occupied with sheer sideways chop, in the area marked out on the profile as having the spike in volume - the high volume node at the top. This area has drawn the market in for ages, and that trend shows no signs of ending.

This market is giving hope to everyone. Bears seem uncannily convinced that the market has to roll over, while Bulls have the past eight months of continual new highs to rely upon. The probabilities are slowly shifting over to the Bearish side, but just on the margin. The Bulls remain very much present. If you are daytrading, you should not be losing money this month during this sideways action.

Several have noticed that the market has been going sideways for the past week and also the past month. Actually, SPY hasn't gone anywhere since the late-May 2013 run higher after one of Fed Chairman Bernanke's virtuoso performances on Fed day. That May top didn't last more than a few minutes and was followed by a steep drop, but you can draw a line from that top to where we traded during most of today and it would be a horizontal line on your chart. The market may not have dropped permanently during that time, but it hasn't surged higher, either.

The continued failure to match the all-time highs of the first week of August isn't really concerning yet, but if it continues, that would be a good sign that the burden of proof has shifted to the Bulls. SPY now is in the very bottom of its uptrend channel, and if that breaks for good, it may be a sign that we are approaching the terminal phases of this Bull run. It's about due, of course. A dip to around the 1650 congestion area would be a good sign that the buyers are thinning out for now. We could also overshoot, and if true panic buying occurs for the first time this year, the 1500s are not out of the question. That might well just create a launching pad to new all-time highs this fall, though.

The head and shoulder pattern that tops at SPY 1709 is something we need to keep an eye on. It is one of the things keeping the Bears positive, but one good one-day run higher would take it out permanently. We just haven't seen one of those days in quite a while. Even the run a couple of weeks ago to the all-time high was lackluster. Market tempo has been tepid for weeks.

Standing back a bit, this remains a very good summer for the Bulls. "Sell in May and go away" was not a good plan at all. We haven't had the wild dips we had a few years ago, but on the other hand we haven't seen the crazy up days, either. It has become a dull market, with intraday moves that go nowhere, controlled by short-term traders scalping for their daily wages. A non-volatile summer is actually kind of welcome. That won't last forever, but it easily could continue through the end of the month. Just remember that September traditionally is the worst month of the year for stocks.

Thursday, August 8, 2013

SPY August 8, 2013

SPY August 8 2013

For those who watch the market closely, Thursday August 8, 2013 was the same story we've been seeing recently. Market moved lower off the open, found support above recent lows, and then spent the rest of the day grinding higher. The close was toward the top of the day's range, but the morning highs at the open were never bettered. Yesterday's lows held, which was the most important outcome. Both Bulls and Bears are frustrated by days like this.

The market appears to be attracted to the value area of about 1690 on the futures, give or take a few points each day. When this has happened before during this rally, lulling everyone to sleep, it invariably has resolved to the upside with some weird, out-of-the-blue take-off. So far, obviously, we haven't seen that.

The failure to recover 1700 on the futures is interesting but not a worry at this point for Bulls. The below chart of the futures shows that the market is forming another rising wedge. Last time, as you can see, that resolved to the upside. What you look for as a resolution is one of those out of nowhere parabolic take-offs. You certainly don't want to ride one of those short if you can help it.

S&P 500 Emini Futures August 8, 2013 

So far, if you are trading, the proper play has been to buy the dips and sell the rips. That seems like a reasonable strategy to continue until it stops working. Still Bullish, but that doesn't mean we won't continue seeing these little corrections that can be a bit scary if you are on the wrong side of the trade.

A Curiosity From the Past

Saw an interesting chart that somebody posted in a Youtube video in November, 2010. It's kind of eerie how this guys - whoever he is - plotted everything out back then.

You know the old saying - a stopped clock is right twice a day - but this guy was spot on about what has happened to date. I don't know who he is, but kudos to him. Credit where credit is due, dude. Incidentally, his plot suggests the top of this drive higher is going to be around 1820 in "late spring 2014" - which, actually, sounds quite possible and almost, dare I say it, probable.

You may view the video here.

Wednesday, August 7, 2013

SPY August 7 2013

SPY daily chart August 7 2013

Wednesday, August 7 2013 saw a continuation of the pullback from the all-time highs set last week. SPY was weak early and relatively strong late, closing near the top of the day's range. The day's gains were particularly impressive given the sell-off of the Nikkei 225 last night, though that seemed more based on the unexpected strength in USD/JPY than anything going on in US markets.

Today, SPY quickly headed down to the bottom channel trendline that we've been following for months, and then abruptly reversed to the upside. That is initial confirmation that the old uptrend channel remains of use.

It was a tricky day to trade in some ways, but it followed the pullback pattern we have seen so often during this rally: weak early, strong late, with an abrupt low and reversal in the early/middle part of the day. There was never a hint of panic selling, and indicators like the VIX did not show undue uncertainty. Short-term traders were in control.

The day's trading formed a Morning Doji Star. This is a Bullish reversal pattern. It suggests that sellers exhausted themselves on the trip to the lows, and then Bulls reasserted control. We could get confirmation tomorrow if the market is reasonably strong. If the pattern is confirmed, the low is in for now and would be today's low at 1680.75 on the futures.

A couple of possible Bearish formations in development deserve mention simply because we must be ready for anything. One is that the several days we spent above 1700 may be the start of an Island Reversal Pattern. This would be Bearish. That pattern will be quickly eliminated, though, on any significant move higher from here.

Another possible pattern is a head and shoulder pattern, formed the same way, with the top of the head above 1700. Anything is possible, but it is unlikely that a six-month Bull Market is going to end on a three-day top, especially given the lack of any fear in the market today. However, if we are unable to get past the mid-1690s on the futures in any reasonable time frame, that pattern might come into play for real.

If you've been watching the markets closely this year, you'd likely agree that today's sell-off seemed like business as usual, a perfunctory rinse to clean out weak hands. It could develop into more selling, but during this rally, the flushes that saw a quick reversal like this have been met with more buying.

The key is a break above 1690 on the futures, which was the pre-market morning high. Resiliency above that most likely portends another test of the all-time highs above 1700.

The fears du jour were the usual ones about the Fed tapering. That is always a possibility, and who knows, the Fed may have cut back their buying already for all we know. It is interesting that the Fed Governors seem to be engaged in an organized attempt to beat down expectations of POMO (Permanent Open Market Operations). This may be due to their realization that the market would tank if word came out unexpectedly that the Fed is tapering or even ending QE, so they are giving these warnings to try to blunt or even sterilize the blow when it does happen.

A report after the close tomorrow will provide some insight on where the Fed is at right now, and its imminent release may freeze trading late in the day. However, the Mantra among some that is developing that the Fed is going to start tapering in September seems to be based on facts in only a very tenuous fashion. Please note, though, that September is traditionally the weakest month of the year for the market.

SAN August 7, 2013

SAN daily chart on August 7, 2013

Haven't updated my chart for Banco Santander recently, so here we go.

As you will know if you've been following me, I like SAN for a variety of reasons (which you may or may not agree with). I was talking up SAN several months ago, and since then it has dipped but then recovered nicely. It was a nice buying opportunity, and if you got in at the right time, you could have copped the hefty quarterly dividend. Here is my last update, you can do a label search for the others.

It is a banking play - and banks have been hot. It is a European play - and Europe seems to be coming along, though perhaps not in spectacular fashion so far. Some things just take time, and SAN is a cornerstone of European finance. It's pretty close to being too big to fail - and there's really no danger of that in any event. It also is a South American play, as a good fraction of SAN's earnings come from there. Finally, it is a dividend play, paying a very nice dividend, especially if you take the scrip shares instead of a cash payment.

My main point in this update is that, if you look at the chart above, you'll see that SAN has just crossed the 200 day moving average with authority. This is usually considered by technicians such as me to be Bullish. I don't pay too much attention to picky fundamentals (they are reflected in the chart), but my understanding is that Europe has pushed through some banking law changes that should help SAN. Also, SAN simply is recovering on its own, and it's not as if Spain is going to sink into the Atlantic. Spain will recover. It's only a matter of time - though it could be a long time, who knows.

The 8's for SAN look doable on this run, though anything is possible. Still lots of uncertainty in European markets.

This play is best for a retirement account because you get a hefty dividend which is promised to continue at least through the end of this year, with no hint so far of any cut thereafter, either. That's trickiest aspect of this play, you should do your due diligence before committing to this. SAN is a classic buy-and-hold position play, though you could also trade it if you are quick on your feet.

Monday, August 5, 2013

SPY August 5, 2013

The trading session on August 5, 2013 was extremely quiet. The tempo was slow, and the moves were measured. Buyers were unwilling to take the market higher, but sellers were not strong enough to bring it lower. SPY closed in the middle of its daily range.

Last month, we noted that we thought that the SPY might make a lunge over 1700, then be exhausted and fall back. That remains a distinct possibility, especially given the day's indecisive trading. Being all cash, we are waiting for a direction. We are in buy the dip mode should the market weaken.

Just because we expect a pullback does not mean we are suddenly becoming Bearish in the intermediate term. Should the market drop, we would buy when it looks safe to do so. There are larger forces in play that are keeping this market rising that are likely to frustrate anyone looking for a sudden move back to the 1500s. Below is a chart and a video from Rick Santelli of CNBC that pretty much sums up our view of why the market is rising, and why that is likely to continue for the time being.

Courtesy of

Here is Rick Santelli of CNBC explaining the chart.

Thursday, August 1, 2013

SPY August 1, 2013

SPY August 1 2013

Bulls finally caught the break for which they had been looking over the past couple of weeks. The futures surged overnight and continued through the morning, barely pausing at the open. They ended the day near the highs - the all-time highs - with the usual slow grind higher throughout the afternoon.

Being at all-time highs, there aren't a lot of reference points. What we do have is a very solid base of support in the 1670s-1680s. That should cushion any downside. Well, that and the fact that there are many traders who simply refuse to believe that the market has any right being this high and are short from all points north of 1600 (and maybe lower). Yes, there are shorts who went short months ago and refuse to, um, cave. Many went short today at 1700. They will probably be right one of these days.

We would see any move back to the 1680s as a potential buying opportunity, given the usual factors supporting a buying decision (at support lines, a review of market internals and so forth).

We do have the old uptrend channel to guide us. We will be keeping an eye on extreme moves within it, though the past couple of months showed that it is hardly inviolable.

If the "pros" are still selling to "retail," well, they just missed another all-time high. If I were their client, I would want to know why. Then withdraw my funds.

Saw an interesting chart posted on Stocktwits the other day:

Federal Reserve Assets vs. S&P 500

For those wondering why on earth we would worry so much about the sacred uptrend channel we've been following all year, the above chart is a clue. There is money being pumped into the system. It is filling up the averages at a steady rate, like water into a bathtub. As long as the tap stays open, the averages rise.

At least, that's the theory. It's never wise to get too cute with charts and unrelated phenomena moving in concert for periods of time - the relationship can break or even reverse at any time, especially if someone suddenly pulls the plug (war/assassination/flash crash/etc.). But it's an interesting chart which might explain a few things.