Top Line: Since last Wednesday's reversal, stocks have stayed under the high set that day. We will look to that September 23rd high as our ceiling.
Today's action gave us more questions than answers due to the early freefall followed by a churn higher. That up move took stocks back to where they were in the morning.
The market is struggling with several items this week. The Big one is the jobs' report on Friday but today's end of quarter probably had something to do with the somewhat wild ride. The quarter was very strong and the big money needed to do their final adjustments to show they managed to participate in the big rally. The morning's news provided the media with enough reasons to be confused and you can read their accounts for yourself.
Last week's highs should hold. We have seen a continued rally for the entire third quarter. No, it hasn't been studded with a lot of big days but just a steady churn higher. This gives people a sense of security and gets them to buy. The media have been calling for a high for a long time and we have been bearish for most of this rally, too. This has not been a good quarter for the Update. Maybe fourth quarter will be better.
Let's take a look at two of our indicators, GDX and TLT. GDX seems to have topped two weeks ago while the broader market seems to have topped a week ago. This is very compatible with the leading nature of GDX. As for TLT, it continues to be strong, putting in new highs for the move around 99. This action means the TLT has rallied over 10% from its lows. Higher prices for TLT, our long bond proxy, means that the safety play is still happening. That implies that the smart money is probably moving out of the stock market and into safe positions.
These two indicators are still lined up with our thinking process that we are in the early stages of a stock selloff. The next two days should be interesting. The first day of the quarter may give us clues to the rest of the quarter but the second day will provide some hesitation as we get the September jobs' report. What would you want to get into tomorrow. We generally say that the jobs' report marks an important point in the month. This month could continue that tradition. We expect October to have a down trend so Friday morning could give us an effort to best last week' highs and fail...or, it could give us something else. We prefer the former.
Take care and we'll be back on Sunday evening.
Wednesday, September 30, 2009
Wednesday, September 23, 2009
What Do You Know, a Reversal
Top Line: Huge Downside Reversal. Well, maybe not So huge but still it is a step in the right direction for the market, that would be down.
[Editor's note: We will Not post on Sunday evening but will be back Next Wednesday evening. We apologize for continuing on our Summer schedule but the market has been tough to read over the past month, at least for us. We were out of sync as you know from reading our posts. Since the July lows, which we were predicting and didn't buy, we have been struggling. Today's move puts us back insynch so to speak, at least we think so. We are thinking of adding a emoticon to indicate if we Feel insync or out of sync but haven't decided for sure. Maybe we will be insync for the rest of time...Right.]
Going into the Fed's announcement this afternoon, the market was holding onto modest gains, especially in the NASDAQ 100. After the announcement, stocks exploded to the upside for about a half hour and then it happened...finally...a Reversal which took stocks down the rest of the day. The decline was about 2% from top to bottom which isn't a lot and may not be convincing to some but it did give us some indication that the turn may have happened.
Today's trading represents an outside down day which is a good reversal day. Outside down means that compared to the day before the trading was both higher and lower and then finishing down below the previous day's low. With the market signalling its turn today, many were expecting something a lot different right after the announcement, but the market couldn't support the earlier buyers leading to significant selling in the final hour.
Things have been coming to this point for quite some time and the Fed announcement gave us the ideal reversal situation. First, with ever continuing zero interest rates, the dollar has been getting punished. Then today there seemed to be no relief and it plunged to new lows for the move. The sellers were then exhausted and the dollar rallied, basically leading the stock market but in the opposite direction. (See DXY on the bigcharts for a reverse image of the stock market move today.)
The telltale leader was GDX. As gold moved higher and higher GDX moved up too until a couple of days ago when both started to find trouble rallying to relative highs. Today's high in gold was near last week's high but was just too much to hold onto. Gold and GDX fell along with the market which should make some sense to readers.
What else should make sense is that the Treasury bonds moved with the dollar and opposite the stock market. TLT, our proxy for the long bond, has been trading in the 95.5 to 96.5 ranger for about a week and today it started to drop through 95.5 going to 95.2, again scaring the bulls a little. What is missed in the analysis is that TLT traded in the high 80's back in early June when the SP500 was 950. Today the SP500 was at 1080 before reversing.
The last piece of the pie is the volatility indexes which really traded with the dollar and Treasury bonds...also making sense to long time readers. The VIX found a new 52 week low today at 22.19 before reversing Up to close at 23.49. We expect a 3 handle on the VIX before this selloff is over. (For those of you who read this "handle" stuff and wonder what that means, we use it to indicate the Front number on the price, in this case that would be 3 if it was in the 30's.)
We sold the rest of our long positions except for a large quantity of UNG, we did sell some UNG today as well but only part of our position. With commodities about to drop due to dollar strength, we expect we can sit out of our long positions for at least a while.
We want to emphasize our long standing position that we don't want to ride this next wave down and there is a greater than zero probability that today's high was The high so we want to be out of our longs. We are strictly short (except for some UNG) and now we have a little cash to take advantage of the opportunities that present themselves.
We do have it in the back of our minds that public sentiment for stocks is still not giddy enough and we expect people to come back into the market full force before this rally completes itself. This Could happen after we see a good sized correction in the current rally. That's a while off but we want to be clear that we still think GDX will have a good run which will come when inflation worries hit the market.
We say inflation worries because the Fed, no matter what they may have implied today, will Not pull the punch bowl of easy liquidity because they do Not believe the worst is behind us. They want to Make Sure that the economy has survived this test well before they do anything to jeopardize the recovery. Again, we think this is a major possibility but we will assess this position as we find out how much the market can actually go down now...that should be a lot. Yes, it's a technical term. We will know more when we see how the first wave presents itself. Then we can at least take a guess. For now, we would say that the September move from just under 1000 in the SP500 should be completely erased and then it's just a question of how deep we get to the July lows around 870.
While we wait, here are some new pictures of Jackson. It was grandparents' day last week so we had frosted doughnuts with Jackson at his school. He enjoyed them as much as the grandparents did :-)
[Editor's note: We will Not post on Sunday evening but will be back Next Wednesday evening. We apologize for continuing on our Summer schedule but the market has been tough to read over the past month, at least for us. We were out of sync as you know from reading our posts. Since the July lows, which we were predicting and didn't buy, we have been struggling. Today's move puts us back insynch so to speak, at least we think so. We are thinking of adding a emoticon to indicate if we Feel insync or out of sync but haven't decided for sure. Maybe we will be insync for the rest of time...Right.]
Going into the Fed's announcement this afternoon, the market was holding onto modest gains, especially in the NASDAQ 100. After the announcement, stocks exploded to the upside for about a half hour and then it happened...finally...a Reversal which took stocks down the rest of the day. The decline was about 2% from top to bottom which isn't a lot and may not be convincing to some but it did give us some indication that the turn may have happened.
Today's trading represents an outside down day which is a good reversal day. Outside down means that compared to the day before the trading was both higher and lower and then finishing down below the previous day's low. With the market signalling its turn today, many were expecting something a lot different right after the announcement, but the market couldn't support the earlier buyers leading to significant selling in the final hour.
Things have been coming to this point for quite some time and the Fed announcement gave us the ideal reversal situation. First, with ever continuing zero interest rates, the dollar has been getting punished. Then today there seemed to be no relief and it plunged to new lows for the move. The sellers were then exhausted and the dollar rallied, basically leading the stock market but in the opposite direction. (See DXY on the bigcharts for a reverse image of the stock market move today.)
The telltale leader was GDX. As gold moved higher and higher GDX moved up too until a couple of days ago when both started to find trouble rallying to relative highs. Today's high in gold was near last week's high but was just too much to hold onto. Gold and GDX fell along with the market which should make some sense to readers.
What else should make sense is that the Treasury bonds moved with the dollar and opposite the stock market. TLT, our proxy for the long bond, has been trading in the 95.5 to 96.5 ranger for about a week and today it started to drop through 95.5 going to 95.2, again scaring the bulls a little. What is missed in the analysis is that TLT traded in the high 80's back in early June when the SP500 was 950. Today the SP500 was at 1080 before reversing.
The last piece of the pie is the volatility indexes which really traded with the dollar and Treasury bonds...also making sense to long time readers. The VIX found a new 52 week low today at 22.19 before reversing Up to close at 23.49. We expect a 3 handle on the VIX before this selloff is over. (For those of you who read this "handle" stuff and wonder what that means, we use it to indicate the Front number on the price, in this case that would be 3 if it was in the 30's.)
We sold the rest of our long positions except for a large quantity of UNG, we did sell some UNG today as well but only part of our position. With commodities about to drop due to dollar strength, we expect we can sit out of our long positions for at least a while.
We want to emphasize our long standing position that we don't want to ride this next wave down and there is a greater than zero probability that today's high was The high so we want to be out of our longs. We are strictly short (except for some UNG) and now we have a little cash to take advantage of the opportunities that present themselves.
We do have it in the back of our minds that public sentiment for stocks is still not giddy enough and we expect people to come back into the market full force before this rally completes itself. This Could happen after we see a good sized correction in the current rally. That's a while off but we want to be clear that we still think GDX will have a good run which will come when inflation worries hit the market.
We say inflation worries because the Fed, no matter what they may have implied today, will Not pull the punch bowl of easy liquidity because they do Not believe the worst is behind us. They want to Make Sure that the economy has survived this test well before they do anything to jeopardize the recovery. Again, we think this is a major possibility but we will assess this position as we find out how much the market can actually go down now...that should be a lot. Yes, it's a technical term. We will know more when we see how the first wave presents itself. Then we can at least take a guess. For now, we would say that the September move from just under 1000 in the SP500 should be completely erased and then it's just a question of how deep we get to the July lows around 870.
While we wait, here are some new pictures of Jackson. It was grandparents' day last week so we had frosted doughnuts with Jackson at his school. He enjoyed them as much as the grandparents did :-)
Great Gramma was here for a couple of weeks and she enjoyed some time with Jackson, too.
Of course, new pj's are always good, especially if they come from Gramma and have a monster on the front. At least you know where the monster is and it's not under the bed.
Remember, our next post will be next Wednesday, September 30th.
Of course, new pj's are always good, especially if they come from Gramma and have a monster on the front. At least you know where the monster is and it's not under the bed.
Remember, our next post will be next Wednesday, September 30th.
Sunday, September 20, 2009
Market Trying to Continue Advance
Top Line: With options' expiration behind us, the stock market should be free to trade with some normalcy...ok, maybe with the Fed's announcement on Wednesday the market still can be a little temperamental.
The market has had a pretty good September and it seems that we have been waiting and waiting for a break. Our position is that as the market goes up, we think it is becoming more and more dangerous. Meanwhile, there seems to be some complacency and outright bullishness.
We see that the overnight markets are a little skittish with the stock futures down just a little and gold down about $6. There are so many reasons for the market to go down but as long as it is continuing its run we have to respect it. Pullbacks have been opportunities to buy, not the start of a down move. With this uptrend in place, it does have an end and we will be waiting to see the trend switch from up to down.
With that in mind, we remind you that we are still looking for some more upside but we can not be Sure about that. We are pretty sure but, with stocks in a more and more precarious position, this could be the actual top. That is why we are so cautious and getting more cautious by the day.
As for the Fed, we think they don't carry the same weight as they once did. With short term rates virtually zero, what can they say to move the market? We don't think there is anything they can say. The market has given them the benefit of the doubt as to whether their money policies are the right thing to do or not. Only time will tell but the market seems to believe that what they are doing is ok.
We will reassess after the Fed's announcement on Wednesday.
The market has had a pretty good September and it seems that we have been waiting and waiting for a break. Our position is that as the market goes up, we think it is becoming more and more dangerous. Meanwhile, there seems to be some complacency and outright bullishness.
We see that the overnight markets are a little skittish with the stock futures down just a little and gold down about $6. There are so many reasons for the market to go down but as long as it is continuing its run we have to respect it. Pullbacks have been opportunities to buy, not the start of a down move. With this uptrend in place, it does have an end and we will be waiting to see the trend switch from up to down.
With that in mind, we remind you that we are still looking for some more upside but we can not be Sure about that. We are pretty sure but, with stocks in a more and more precarious position, this could be the actual top. That is why we are so cautious and getting more cautious by the day.
As for the Fed, we think they don't carry the same weight as they once did. With short term rates virtually zero, what can they say to move the market? We don't think there is anything they can say. The market has given them the benefit of the doubt as to whether their money policies are the right thing to do or not. Only time will tell but the market seems to believe that what they are doing is ok.
We will reassess after the Fed's announcement on Wednesday.
Thursday, September 17, 2009
Market Tried to Reverse Today
Top Line: Stocks are moving ahead but the pace of the advance is labored at best. There are so many reasons for the market to stall and turn down, at least for a small correction.
The trading over the past few days has included the effects of options' expiration coming up Friday, the 18th. As we move into next week, a more normal trading pattern should emerge. That's not to say that the market will be easier to figure out, just that the multiple personality of the market will be reduced by one.
Let's take a look at the usual suspects, starting with GDX. Trading in GDX has become wild with huge volume and big moves, up, that is. We have seen this stock jump over the past couple of weeks from 38 to 48, a pretty healthy move. The move in GDX is not surprising because the broad market has gone up and GDX has been leading it for about a year now. The move in GDX gives you some idea how this stock can move if it wants to. We still expect a modest pullback in gold itself and GDX. Depending on how deep these corrections are, we will be buyers.
The volatility indexes have not done much of anything for the last week and have only modestly moved even as the indexes have run up 10% over the last couple of weeks. We don't believe the options' players are reading this correctly because the VXX has been dropping with the advance in the stock market. VXX is basically a volatility futures proxy while the volatility indexes we follow, VIX and VXO, are based on the options values.
Our constant companion, TLT, has stayed strong over the past several weeks, too, even though the market has gone straight up. Some have suggested that, at least on the front end of the curve, you know, the one to three month rates, with the expiration of some of the Fed programs, investors want to stay in the safety of Treasuries.
We see the dollar has also dropped to a significant low amid much dollar bashing in the media. This is indicative of a near term low being put into place.
The higher prices go, the more dangerous it becomes to be long stocks. We can't say that we have played this right at all over the past couple of months but the market is starting to become very overbought. The prices in some of these stocks have moved plenty far. Confidence is briming and very little fear remains. This fact alone is enough to drive a market in the other direction.
Confidence and the stock market should not be present in the same sentence. Every trade is a way to lose money and fear is a very good thing to have when your hard earned cash is on the table so to speak. Of course, we like to take advantage of good prices both on the entry point and the exit point but patience has never been a strong suite for us.
We are "confident" that we will be wrong in the future but we also think the market will have some struggles as we move into 2010 and beyond, with a possible low sometime in late 2011 or 2012. So, even though we think that the market will pull back here, we are much more likely to see it go down hard during the next two years. The market is doing much as we have said it would do...and didn't pay attention to our own words. Now, we think prices are just Too High to own them.
On Thursday the market did manage to reverse lower after a little bit of a run early on, which took the market to new highs for the move. The final couple of hours did manage to cut those losses but the market closed off its highs for the day, something new for a change.
The trading over the past few days has included the effects of options' expiration coming up Friday, the 18th. As we move into next week, a more normal trading pattern should emerge. That's not to say that the market will be easier to figure out, just that the multiple personality of the market will be reduced by one.
Let's take a look at the usual suspects, starting with GDX. Trading in GDX has become wild with huge volume and big moves, up, that is. We have seen this stock jump over the past couple of weeks from 38 to 48, a pretty healthy move. The move in GDX is not surprising because the broad market has gone up and GDX has been leading it for about a year now. The move in GDX gives you some idea how this stock can move if it wants to. We still expect a modest pullback in gold itself and GDX. Depending on how deep these corrections are, we will be buyers.
The volatility indexes have not done much of anything for the last week and have only modestly moved even as the indexes have run up 10% over the last couple of weeks. We don't believe the options' players are reading this correctly because the VXX has been dropping with the advance in the stock market. VXX is basically a volatility futures proxy while the volatility indexes we follow, VIX and VXO, are based on the options values.
Our constant companion, TLT, has stayed strong over the past several weeks, too, even though the market has gone straight up. Some have suggested that, at least on the front end of the curve, you know, the one to three month rates, with the expiration of some of the Fed programs, investors want to stay in the safety of Treasuries.
We see the dollar has also dropped to a significant low amid much dollar bashing in the media. This is indicative of a near term low being put into place.
The higher prices go, the more dangerous it becomes to be long stocks. We can't say that we have played this right at all over the past couple of months but the market is starting to become very overbought. The prices in some of these stocks have moved plenty far. Confidence is briming and very little fear remains. This fact alone is enough to drive a market in the other direction.
Confidence and the stock market should not be present in the same sentence. Every trade is a way to lose money and fear is a very good thing to have when your hard earned cash is on the table so to speak. Of course, we like to take advantage of good prices both on the entry point and the exit point but patience has never been a strong suite for us.
We are "confident" that we will be wrong in the future but we also think the market will have some struggles as we move into 2010 and beyond, with a possible low sometime in late 2011 or 2012. So, even though we think that the market will pull back here, we are much more likely to see it go down hard during the next two years. The market is doing much as we have said it would do...and didn't pay attention to our own words. Now, we think prices are just Too High to own them.
On Thursday the market did manage to reverse lower after a little bit of a run early on, which took the market to new highs for the move. The final couple of hours did manage to cut those losses but the market closed off its highs for the day, something new for a change.
Wednesday, September 16, 2009
Delay This Evening
Top Line: Stocks continued their upward movement with steady progress.
Lucky for you, there are some pictures of Jackson with his Sponge Bob Square Pants pillow and his Grampa and his stuffed chocolate Lab that stays at Grampa and Gramma's house.
We have been out of internet access this evening so we will need to postpone our post until Thursday evening.
Lucky for you, there are some pictures of Jackson with his Sponge Bob Square Pants pillow and his Grampa and his stuffed chocolate Lab that stays at Grampa and Gramma's house.
Sunday, September 13, 2009
Down Monday Morning?
Top Line: The stock market continues to try to hold up with ever diminishing power. Tonight's futures and the Asian markets are down with the possibility that a down start to Monday may occur.
The main idea tonight is that the market is ready to take a breather. We have been waiting for that since, well, a long time. Our portfolio has gradually moved from extremely long to its current nearly completely short position.
With the volatility indexes barely breaking below their earlier lows, the market is set up for a good drop. When the volatility indexes are low that indicates some investor complacency, in other words, No fear. With prices drifting higher and volatility slightly lower, we expect a reversal in both of these directions.
Stocks, in terms of the SP500, should drop back down about 10% or down to about 900. If a selloff does occur, we sort of expect a sharp decline but we will be watching closely for a tradable bottom.
We still think the public is not sure about the market and a selloff would scare them off even more. What this tells us is that the market is not at its top but we can not be sure. With the market, you need to be careful about making predictions about what happens after the current move...but we seem to be disregarding that recommendation.
We think the public will find some optimism later in the year as prices take out the current highs and move a bit higher, yes, to SP500 1234 level. When this occurs, we will be watching to see if the public truly is buying heavily. If so, we will have more confidence that a high is at hand.
Right now, there is some exaggerated insider selling and the market feels overbought so we remain heavily short getting ready for a sizable pullback.
The main idea tonight is that the market is ready to take a breather. We have been waiting for that since, well, a long time. Our portfolio has gradually moved from extremely long to its current nearly completely short position.
With the volatility indexes barely breaking below their earlier lows, the market is set up for a good drop. When the volatility indexes are low that indicates some investor complacency, in other words, No fear. With prices drifting higher and volatility slightly lower, we expect a reversal in both of these directions.
Stocks, in terms of the SP500, should drop back down about 10% or down to about 900. If a selloff does occur, we sort of expect a sharp decline but we will be watching closely for a tradable bottom.
We still think the public is not sure about the market and a selloff would scare them off even more. What this tells us is that the market is not at its top but we can not be sure. With the market, you need to be careful about making predictions about what happens after the current move...but we seem to be disregarding that recommendation.
We think the public will find some optimism later in the year as prices take out the current highs and move a bit higher, yes, to SP500 1234 level. When this occurs, we will be watching to see if the public truly is buying heavily. If so, we will have more confidence that a high is at hand.
Right now, there is some exaggerated insider selling and the market feels overbought so we remain heavily short getting ready for a sizable pullback.
Wednesday, September 09, 2009
09-09-09 Update Failure, One of Many
Top Line: The stock market seems to have some strong buying interest on dips the last few weeks. The has been little net progress in the indexes but a pop to finish the move is possible.
We have been saying for months that the SP500 would go up to 1234 on this day, 9-9-09. Well, we missed by about 20% but we did get the direction right. We went back to our March posts to see when we were suggesting this level. It was on Sunday evening, March 22, go check the archives at the left for yourself. In fact, take a look at how bullish we were back then during the weeks surrounding the low on 3-6-09, SP500 of 666.
But, that was then and this is now. We have become much more bearish in our thinking over the past few weeks and have moved to a net short position which has just been painful as the market continues to defy gravity. What does the market tell us now?
The market has done very little in the way of net gain for several weeks. It has frustrated the bulls and the bears but maybe it has opened the door for some resolution now that full September trading is here. We say that but we realize that trading is not very strong in general. Citigroup continues to dominate trading (day trading probably) as it contributes greatly to the daily volume every day, at a price around 4 dollars. This is what the volume on the NYSE has come to, one stock trading around 4 bucks. This isn't something for stock technicians to be hanging their bullish hats on day after day.
But, we digress. The stock market may have some upside left. We thought that the market would take a breather when it got to an overbought position and it did but it was more like a shallow breath. The NASDAQ indexes as well as some other broader indexes did break their August highs today even though the SP500 and the Dow did not. We think it shows the wrong message if you are bearish. For bearish thinking you want the generals to be leading not the troops. So, we are again on the wrong side of this move. We can't say how far it will go from here but there certainly doesn't seem to be any real selling in sight.
From a contrarian's viewpoint, that is one of the most important considerations, complacency in sentiment. There seems to be no fear in the market as the volatility indexes hang around here in the low 20's. The other interesting event has been the GDX. We recommend a quick look at a ten day chart of GDX. You will see it sitting around 38-39 for the early part of that period and then a rally that culminated on Tuesday morning on a jump to nearly 47.50 and now followed by a close around 44 today.
One of the hedged gold miners, ABX, (American) Barrick Gold, one of the largest miners, announced that it would be unwinding its downside hedge. These miners like to protect themselves from a drop in the price of gold which is why they hedge. ABX has said it thinks the price of gold is going up. It is so strong in its belief that it is willing to unwind its downside hedge. In fact ABX is selling stock to pay for the unwind. This story seems to be part of the craziness in the gold mining stocks over the past seven days or so. Fascinating story for the contrarians. So bullish because gold can't go down...sounds like gold may be nearing a top.
We hope you enjoyed your 9-9-09 even though the SP500 did not reach our target for that day. We are still cautious and will be watching for more signals from the market.
We have been saying for months that the SP500 would go up to 1234 on this day, 9-9-09. Well, we missed by about 20% but we did get the direction right. We went back to our March posts to see when we were suggesting this level. It was on Sunday evening, March 22, go check the archives at the left for yourself. In fact, take a look at how bullish we were back then during the weeks surrounding the low on 3-6-09, SP500 of 666.
But, that was then and this is now. We have become much more bearish in our thinking over the past few weeks and have moved to a net short position which has just been painful as the market continues to defy gravity. What does the market tell us now?
The market has done very little in the way of net gain for several weeks. It has frustrated the bulls and the bears but maybe it has opened the door for some resolution now that full September trading is here. We say that but we realize that trading is not very strong in general. Citigroup continues to dominate trading (day trading probably) as it contributes greatly to the daily volume every day, at a price around 4 dollars. This is what the volume on the NYSE has come to, one stock trading around 4 bucks. This isn't something for stock technicians to be hanging their bullish hats on day after day.
But, we digress. The stock market may have some upside left. We thought that the market would take a breather when it got to an overbought position and it did but it was more like a shallow breath. The NASDAQ indexes as well as some other broader indexes did break their August highs today even though the SP500 and the Dow did not. We think it shows the wrong message if you are bearish. For bearish thinking you want the generals to be leading not the troops. So, we are again on the wrong side of this move. We can't say how far it will go from here but there certainly doesn't seem to be any real selling in sight.
From a contrarian's viewpoint, that is one of the most important considerations, complacency in sentiment. There seems to be no fear in the market as the volatility indexes hang around here in the low 20's. The other interesting event has been the GDX. We recommend a quick look at a ten day chart of GDX. You will see it sitting around 38-39 for the early part of that period and then a rally that culminated on Tuesday morning on a jump to nearly 47.50 and now followed by a close around 44 today.
One of the hedged gold miners, ABX, (American) Barrick Gold, one of the largest miners, announced that it would be unwinding its downside hedge. These miners like to protect themselves from a drop in the price of gold which is why they hedge. ABX has said it thinks the price of gold is going up. It is so strong in its belief that it is willing to unwind its downside hedge. In fact ABX is selling stock to pay for the unwind. This story seems to be part of the craziness in the gold mining stocks over the past seven days or so. Fascinating story for the contrarians. So bullish because gold can't go down...sounds like gold may be nearing a top.
We hope you enjoyed your 9-9-09 even though the SP500 did not reach our target for that day. We are still cautious and will be watching for more signals from the market.
Wednesday, September 02, 2009
GDX Screams
Top Line: The market did decide to slide on Tuesday after all the "good" news on the economy earlier that day. Now what? The stock market still needs to go down to get rid of some of the bullishness.
Yes, the switch from hugely bullish on Tuesday morning with a reversal from the down open to the positive situation an hour after the open. Then we see the Real reversal going from the 50 plus to the 200 minus. People are fickle and change their minds easily. It's a trader's mentality. The way a person decides what to do can't be something that happens with a 200 point swing in the Dow Jones Industrial average. Going from bullish to bearish in a couple of hours. Please.
The stock market seems to have put in a top on Tuesday morning. We won't be sure until we see some more selling but the idea that the market should go down is still in effect for the Update. As we patiently wait for the market to continue what it started on Tuesday, we will probably see a few days of upside going into the holiday weekend. This, of course, is Not guaranteed.
There is this one other Thing that we need to discuss, GDX. Did you notice that GDX was up nearly 10% today? We are not that happy about it since we don't own very much of it anymore. We were hoping to get most of it back in the area of 36 but that will now need to wait and possibly need to be raised. Gold itself jumped as it looked like it wanted to break out of its recent tight range. Gold mining stocks usually signal the move but actually followed this move today which doesn't confirm this move...still, the 10% move is convincing.
Treasury bonds have had a good few days and now are getting to a place where we might be willing to start thinking about selling them. We have been watching the TLT and have seen about 10% rally in the last couple of months with possibly some more to go. We will be looking to sell them as the market goes down. We'll keep you posted.
Meanwhile, the market continues to keep people guessing. That's the way it works, keep most of the people losing money.
This weekend is Labor Day and the Update will not be posting on Sunday evening as usual. We will post on Wednesday evening next week. We are not sure when we'll get back to a normal daily schedule or if we should. We'll keep you informed and if you have any thoughts, let us know in comments. Have a great weekend.
Yes, the switch from hugely bullish on Tuesday morning with a reversal from the down open to the positive situation an hour after the open. Then we see the Real reversal going from the 50 plus to the 200 minus. People are fickle and change their minds easily. It's a trader's mentality. The way a person decides what to do can't be something that happens with a 200 point swing in the Dow Jones Industrial average. Going from bullish to bearish in a couple of hours. Please.
The stock market seems to have put in a top on Tuesday morning. We won't be sure until we see some more selling but the idea that the market should go down is still in effect for the Update. As we patiently wait for the market to continue what it started on Tuesday, we will probably see a few days of upside going into the holiday weekend. This, of course, is Not guaranteed.
There is this one other Thing that we need to discuss, GDX. Did you notice that GDX was up nearly 10% today? We are not that happy about it since we don't own very much of it anymore. We were hoping to get most of it back in the area of 36 but that will now need to wait and possibly need to be raised. Gold itself jumped as it looked like it wanted to break out of its recent tight range. Gold mining stocks usually signal the move but actually followed this move today which doesn't confirm this move...still, the 10% move is convincing.
Treasury bonds have had a good few days and now are getting to a place where we might be willing to start thinking about selling them. We have been watching the TLT and have seen about 10% rally in the last couple of months with possibly some more to go. We will be looking to sell them as the market goes down. We'll keep you posted.
Meanwhile, the market continues to keep people guessing. That's the way it works, keep most of the people losing money.
This weekend is Labor Day and the Update will not be posting on Sunday evening as usual. We will post on Wednesday evening next week. We are not sure when we'll get back to a normal daily schedule or if we should. We'll keep you informed and if you have any thoughts, let us know in comments. Have a great weekend.
Sunday, August 30, 2009
We Still Recommend Selling At Least Some Of Your Stocks
Top Line: Last Friday's action looked like the start of a downtrend as we mentioned in the comment section in our last post. The stock market should now retrace a great deal of the rally from the July lows down around 870 in the SP500.
The stock market's reversal on Friday didn't lead to much in the way of net selling but the opening blast followed by a cliff dive fits our definition of an important reversal. This reversal came at the right time and could be a harbinger of near term selling. The Asian markets, other than Japan, are down with China down over 5% as we write. The Chinese market has been the source of a lot of movement this year and that continues this evening.
We want to point out that the best course of action right now is to get out of at least some of your long stock positions. There will be lower prices in September to get back in. We sound like we know that will be the case and we Don't know for sure. The market's position Seems to be poised for a reversal. We are short and would certainly like there to be some selling.
What we do know is that sentiment has grown to a level that is too high to ignore. This sends chills down a contrarian's spine and keeps us firmly in the bearish camp. This message will be lost as the market drops over the next several weeks but for now it rings loud and clear...Sell.
What we do not see is full public buying of stocks. There may be some bullish sentiment in the press and among investment advisors but we still don't seem to see the public enamored with stocks. This would be the final piece in the puzzle for now but it just doesn't seem like there is much buzz about the market. This type of behavior will take more than a four digit Dow, which is one reason we are not convinced these current highs are the final ones for the countertrend move. This should start the chatter back up at work and in your family discussions. If bullishness is the conversation already, please let all of us know. That would definitely put us in a longer term bearish mood.
That thinking does not allow us to hold stocks here because the probability of a high here is just too high to ignore. As the market drops, or if it does, we will then see how the world reacts to lower prices. If there is a huge build up of negative sentiment, then we will get bullish again. If the volatility indexes go up very fast to levels of March, then we will probably get bullish again. But, if the market heads down and people continue to buy the dips and volatility does not go up, meaning there is no fear of a larger down move, we will have to conclude that the market will go into the abyss. We don't have to worry about that thinking just now but we will be watching it closely.
Right now we are watching the Treasury bonds, or our proxy for them, the TLT. We have seen a nice rally and this provides us with some confidence in the stock drop. Our other consideration is the GDX which popped over 40 on Friday but is well off its early June highs around 45. We continue to think its lows for the move are in down around 34 and will be looking to buy it back if it gets into the 36 range. We'll keep you posted.
The stock market's reversal on Friday didn't lead to much in the way of net selling but the opening blast followed by a cliff dive fits our definition of an important reversal. This reversal came at the right time and could be a harbinger of near term selling. The Asian markets, other than Japan, are down with China down over 5% as we write. The Chinese market has been the source of a lot of movement this year and that continues this evening.
We want to point out that the best course of action right now is to get out of at least some of your long stock positions. There will be lower prices in September to get back in. We sound like we know that will be the case and we Don't know for sure. The market's position Seems to be poised for a reversal. We are short and would certainly like there to be some selling.
What we do know is that sentiment has grown to a level that is too high to ignore. This sends chills down a contrarian's spine and keeps us firmly in the bearish camp. This message will be lost as the market drops over the next several weeks but for now it rings loud and clear...Sell.
What we do not see is full public buying of stocks. There may be some bullish sentiment in the press and among investment advisors but we still don't seem to see the public enamored with stocks. This would be the final piece in the puzzle for now but it just doesn't seem like there is much buzz about the market. This type of behavior will take more than a four digit Dow, which is one reason we are not convinced these current highs are the final ones for the countertrend move. This should start the chatter back up at work and in your family discussions. If bullishness is the conversation already, please let all of us know. That would definitely put us in a longer term bearish mood.
That thinking does not allow us to hold stocks here because the probability of a high here is just too high to ignore. As the market drops, or if it does, we will then see how the world reacts to lower prices. If there is a huge build up of negative sentiment, then we will get bullish again. If the volatility indexes go up very fast to levels of March, then we will probably get bullish again. But, if the market heads down and people continue to buy the dips and volatility does not go up, meaning there is no fear of a larger down move, we will have to conclude that the market will go into the abyss. We don't have to worry about that thinking just now but we will be watching it closely.
Right now we are watching the Treasury bonds, or our proxy for them, the TLT. We have seen a nice rally and this provides us with some confidence in the stock drop. Our other consideration is the GDX which popped over 40 on Friday but is well off its early June highs around 45. We continue to think its lows for the move are in down around 34 and will be looking to buy it back if it gets into the 36 range. We'll keep you posted.
Wednesday, August 26, 2009
Sell Into Whatever Strength the Market Gives
Top Line: There is significant lack of upward momentum but the stock market seems to float higher every day. The wind should be blowing in a different direction very soon.
We saw the big announcement that Bernanke is being allowed to run the Fed for another term. And, while that may not have been the reason for the early rally that day, it seemed like a good high profile news story to bring the last of the bulls in to buy. We don't always get a bell to ring signaling the high for the move so this may not be it.
The market started getting tired this week, no more tired than we are...waiting for the market to turn over. The first moves are not going to be big but the turn should be very close if not very noticeable. This is giving you a good chance to get out of your positions. We think there could be a significant drop, enough to warrant selling some of your holdings. We do think there will be a good chance to get back in a little later, say later in September.
If you want to hold onto your positions through this sell off, you can, but the odds of this recent move being a top are more than zero. We are pretty sure that the market will make new highs near our target of 1234 in the SP500 because the public is just now starting to get excited about the bull move. There needs to be a sell off to scare some of them off but then a large rally should spring out of the next low. This rally should get Everyone excited about the possibilities and that's when we will unequivocally sell our long stock positions. The point being that you can close your eyes for this drop especially if you are in taxable positions that could be long term gains if you hold them for another few months.
For now, we recommend selling at least some of your holdings, especially if they're in a retirement account where gains are not taxable right now.
We saw the big announcement that Bernanke is being allowed to run the Fed for another term. And, while that may not have been the reason for the early rally that day, it seemed like a good high profile news story to bring the last of the bulls in to buy. We don't always get a bell to ring signaling the high for the move so this may not be it.
The market started getting tired this week, no more tired than we are...waiting for the market to turn over. The first moves are not going to be big but the turn should be very close if not very noticeable. This is giving you a good chance to get out of your positions. We think there could be a significant drop, enough to warrant selling some of your holdings. We do think there will be a good chance to get back in a little later, say later in September.
If you want to hold onto your positions through this sell off, you can, but the odds of this recent move being a top are more than zero. We are pretty sure that the market will make new highs near our target of 1234 in the SP500 because the public is just now starting to get excited about the bull move. There needs to be a sell off to scare some of them off but then a large rally should spring out of the next low. This rally should get Everyone excited about the possibilities and that's when we will unequivocally sell our long stock positions. The point being that you can close your eyes for this drop especially if you are in taxable positions that could be long term gains if you hold them for another few months.
For now, we recommend selling at least some of your holdings, especially if they're in a retirement account where gains are not taxable right now.
Sunday, August 23, 2009
Is It Possible for the Market to Go Down?!?
Top Line: We didn't get any selling at all and the market seems like it wants to go even higher. The market may Feel like it wants to go higher but that's not an emotion that you should be paying attention together.
With the market moving higher, we deem the market to be ever more dangerous. We would recommend taking the opportunity to sell into this strength. We know that the most likely situation is that the market will resolve to the upside over the next few months but it is well overbought right now. So, if you decide to get off the risk for now, there may be a rush to get back in if we get an opportunity.
The possibilities are endless about how the market will move. This is the last week of the month and the market has been strong recently. Last Monday's big drop was severely bought and gave the market four days of straight up to make up for that loss and then some. This evening the futures are higher after the Japanese market jumped on the gun, up 3% as we write.
The end of the month is coming and the end of vacations is also over. The real traders will be back soon. Friday's volume was a little heavier than we've seen over the past few weeks but it was options' expiration which normally boosts trading. The next week or two should start to see some higher volume as people come back from the Hampton's or where ever they are. We have not been trading nearly as much over the past few weeks due either.
When the market dropped last Monday, many bears came out of hiding. This was a clue that the bullishness had dissipated at least little. We are surprised that this was enough to push the market up as much as it did and with possible more upside early this week. We are patiently waiting for a pullback that is worthy of the rally we have seen over the past week.
Our main focus is the level of the market. Last week we thought that 1018 in the SP500 would hold any rally but that obviously did not hold. Now, the market has thrown itself over that level and created a lot of extra bullishness...this Should be enought to get us a selloff. We'll see.
With the market moving higher, we deem the market to be ever more dangerous. We would recommend taking the opportunity to sell into this strength. We know that the most likely situation is that the market will resolve to the upside over the next few months but it is well overbought right now. So, if you decide to get off the risk for now, there may be a rush to get back in if we get an opportunity.
The possibilities are endless about how the market will move. This is the last week of the month and the market has been strong recently. Last Monday's big drop was severely bought and gave the market four days of straight up to make up for that loss and then some. This evening the futures are higher after the Japanese market jumped on the gun, up 3% as we write.
The end of the month is coming and the end of vacations is also over. The real traders will be back soon. Friday's volume was a little heavier than we've seen over the past few weeks but it was options' expiration which normally boosts trading. The next week or two should start to see some higher volume as people come back from the Hampton's or where ever they are. We have not been trading nearly as much over the past few weeks due either.
When the market dropped last Monday, many bears came out of hiding. This was a clue that the bullishness had dissipated at least little. We are surprised that this was enough to push the market up as much as it did and with possible more upside early this week. We are patiently waiting for a pullback that is worthy of the rally we have seen over the past week.
Our main focus is the level of the market. Last week we thought that 1018 in the SP500 would hold any rally but that obviously did not hold. Now, the market has thrown itself over that level and created a lot of extra bullishness...this Should be enought to get us a selloff. We'll see.
Wednesday, August 19, 2009
We Need Some Selling
Top Line: The best we can say this evening is that the SP500 still has that 1018 level overhead which should not be touched before we see lower prices.
Stocks opened lower on China's weakness overnight. That didn't last too long and buyers came in to bid up stocks. Halfway through the day another burst of buying occurred taking stocks positive on the day.
We follow and trade the NASDAQ 100 and various funds that are based on it like QQQQ. We have been patiently waiting for some movement in the market over the past month or so and noticed that the QQQQ has traded in a narrow range of about two points during that time. Monday saw that index drop but it stayed in that two point range.
There was some movement in some of the stocks/funds we watch. Even GDX had a wide range today with a start near 37 moving up to the 38.50 range. Ok, maybe it's not a huge range but it was a really good trade. We have been talking about buying GDX in the 36 range so we are very close to start our buying campaign, but we're not there just yet.
With options' expiration coming on Friday, there could be some volatility in prices just because there has been such a tight range over the past month. There is no obvious strong conviction on either call or put buyers so there may not be much in the way of options' driven trading.
But, the market has failed to move up over the past month and has just this week broke down a bit. The last couple of days have corrected the out-sized move on Monday. We say out-sized based on the trading of the past month.
Now, we are coming to the end of the earnings announcements and the market may be free to trade on its own. We think the market could be weak over the next week...so a weak week on the horizon in our view. Going into September we should see a 8 handle on the SP500. It may not drop too far into the 800's but we think that a move down would at least put a scare into some of the bulls allowing for another run up into the fall.
We have thought there has been too much bullishness and now we have seen a flat market for a month. That is enough to relieve the bullishness but in order to see the price levels we are expecting there has to be some out and out bearishness which can only be generated by much lower prices. These small pullbacks like Monday are still buying opportunities to the players. This is Not bearishness...
Stocks opened lower on China's weakness overnight. That didn't last too long and buyers came in to bid up stocks. Halfway through the day another burst of buying occurred taking stocks positive on the day.
We follow and trade the NASDAQ 100 and various funds that are based on it like QQQQ. We have been patiently waiting for some movement in the market over the past month or so and noticed that the QQQQ has traded in a narrow range of about two points during that time. Monday saw that index drop but it stayed in that two point range.
There was some movement in some of the stocks/funds we watch. Even GDX had a wide range today with a start near 37 moving up to the 38.50 range. Ok, maybe it's not a huge range but it was a really good trade. We have been talking about buying GDX in the 36 range so we are very close to start our buying campaign, but we're not there just yet.
With options' expiration coming on Friday, there could be some volatility in prices just because there has been such a tight range over the past month. There is no obvious strong conviction on either call or put buyers so there may not be much in the way of options' driven trading.
But, the market has failed to move up over the past month and has just this week broke down a bit. The last couple of days have corrected the out-sized move on Monday. We say out-sized based on the trading of the past month.
Now, we are coming to the end of the earnings announcements and the market may be free to trade on its own. We think the market could be weak over the next week...so a weak week on the horizon in our view. Going into September we should see a 8 handle on the SP500. It may not drop too far into the 800's but we think that a move down would at least put a scare into some of the bulls allowing for another run up into the fall.
We have thought there has been too much bullishness and now we have seen a flat market for a month. That is enough to relieve the bullishness but in order to see the price levels we are expecting there has to be some out and out bearishness which can only be generated by much lower prices. These small pullbacks like Monday are still buying opportunities to the players. This is Not bearishness...
Sunday, August 16, 2009
Back to Work, and BTW Tiger Lost
Top Line: The stock market should have topped back at the SP500 level of 1018 and so far the market has respected that line. The slow turn down has started. This move will be faster later in the move, in September.
The stock market showed some signs of price declines, especially on Friday. There was some bounce back late on Friday but we think that bounce was just a little countertrend correction of the down move. What that means is that a decline, or advance, will not go in a straight line. There will always be Corrections in the move that go against the main trend.
We just thought we would mention how GDX has been trading. Over the past ten days GDX tradeded up to nearly 42 and last week it broke 38.50. Back in mid-July GDX nearly got down to 34 which represented good value and now looks like it may be the low for the move. The stock will most likely suffer some further declines as the stock market drops but we do not think that the 34 low will be taken out. Another way to say that is GDX has probably put in its low for the move and will not go below it in the next month. Another way to look at it is that if it gets down to the 34's or so, BUY IT. We'll keep an eye on it, too.
We have been on vacation and have not been watching the market during the trading day. [We have been at the PGA Championship this week and no cell phones were allowed. Not only that, today Tiger Lost.] We hope to be more on top of it starting Monday. Any thoughts from you?
The stock market showed some signs of price declines, especially on Friday. There was some bounce back late on Friday but we think that bounce was just a little countertrend correction of the down move. What that means is that a decline, or advance, will not go in a straight line. There will always be Corrections in the move that go against the main trend.
We just thought we would mention how GDX has been trading. Over the past ten days GDX tradeded up to nearly 42 and last week it broke 38.50. Back in mid-July GDX nearly got down to 34 which represented good value and now looks like it may be the low for the move. The stock will most likely suffer some further declines as the stock market drops but we do not think that the 34 low will be taken out. Another way to say that is GDX has probably put in its low for the move and will not go below it in the next month. Another way to look at it is that if it gets down to the 34's or so, BUY IT. We'll keep an eye on it, too.
We have been on vacation and have not been watching the market during the trading day. [We have been at the PGA Championship this week and no cell phones were allowed. Not only that, today Tiger Lost.] We hope to be more on top of it starting Monday. Any thoughts from you?
Wednesday, August 12, 2009
Short Update
Top Line: We are on vacation this week...so the market is still trying to put in a top. Today's new relative high in the NASDAQ 100 was not confirmed by the other indexes. The market is struggling to stay up. Even with the Fed's announcement today and the real estate news, the market is still struggling. Full Update on Sunday.
Sunday, August 09, 2009
Just Waiting for Downside Confirmation
Top Line: The stock market seems to pivot on those employment reports and last week's report could be one of those pivots. We expect to see lower prices over the next few weeks, maybe into September.
The market failed to hold onto all of its gains late Friday and went out a little weak. The SP500 hit 1018 mid-day Friday and closed near 1010. The 1018 should represent extreme overhead resistance even though the market could rally Monday morning. The week end news was pretty bullish, meaning we would be very bearish, so most of the public is now confident in a market advance even though the market has already gone up 50% in a little over four months. Welcome to the party, but it's about over for now.
The message of the market is clear right now...tough sledding for the up move. More likely, the market is about to take all of those buyers down with it. The bullish consensus could bring more late buyers in after the weekend but there aren't many left, especially after Friday's capitulation buying.
Our comments on Friday morning still hold. The dollar has put in a pretty good bottom, it seems, and this gives us some confidence about the rest of the market. Strong dollar means weak stocks and commodities but strong Treasury bonds. We are looking for an increase in volatility due to falling stock prices.
GDX fell below 40 once again which should lead the way for stocks in general to follow lower. We are light on GDX after selling some of it last week so we are going to be looking to buy some more back here in the 30's, hopefully down in the 36 range. We'll keep an eye on it. We don't think it will punch through the low near 34 but it could give us another great buying opportunity down around that 36.
For now, we will continue to hold our bearish positions and expect the market to turn down from here. We say the turn will be subtle for a few days but it will eventually turn into serious selling. Too much bullishness will give way to selling and then Too much bearishness...which will be the time we want to get excited about the rally going into the fall or early winter.
We do need to see some downside to confirm our position that the market is going down. That would include a continued move in the indicators we mentioned above.
The market failed to hold onto all of its gains late Friday and went out a little weak. The SP500 hit 1018 mid-day Friday and closed near 1010. The 1018 should represent extreme overhead resistance even though the market could rally Monday morning. The week end news was pretty bullish, meaning we would be very bearish, so most of the public is now confident in a market advance even though the market has already gone up 50% in a little over four months. Welcome to the party, but it's about over for now.
The message of the market is clear right now...tough sledding for the up move. More likely, the market is about to take all of those buyers down with it. The bullish consensus could bring more late buyers in after the weekend but there aren't many left, especially after Friday's capitulation buying.
Our comments on Friday morning still hold. The dollar has put in a pretty good bottom, it seems, and this gives us some confidence about the rest of the market. Strong dollar means weak stocks and commodities but strong Treasury bonds. We are looking for an increase in volatility due to falling stock prices.
GDX fell below 40 once again which should lead the way for stocks in general to follow lower. We are light on GDX after selling some of it last week so we are going to be looking to buy some more back here in the 30's, hopefully down in the 36 range. We'll keep an eye on it. We don't think it will punch through the low near 34 but it could give us another great buying opportunity down around that 36.
For now, we will continue to hold our bearish positions and expect the market to turn down from here. We say the turn will be subtle for a few days but it will eventually turn into serious selling. Too much bullishness will give way to selling and then Too much bearishness...which will be the time we want to get excited about the rally going into the fall or early winter.
We do need to see some downside to confirm our position that the market is going down. That would include a continued move in the indicators we mentioned above.
Wednesday, August 05, 2009
Market Ready to Drop
Top Line: The stock market needs to go down. The spike we saw last week was not the top as the market decided to push a little bit higher this week. Now, let's go down.
The main news item came after hours in the form of CSCO's earnings. The normally effervescent CSCO CEO John Chambers was less than sure about the bottom being in just yet. He wanted to see some more data before making a determination.
This revelation was not well received in the after hours as CSCO dropped about 3.5%. This move dragged down the overnight futures but only modestly. The bulls still think these little pullbacks are buying opportunities...which brings us to our post.
The stock market has been struggling to maintain the upside over the past week or more. Most bulls say that this means that the market can go higher right now. Well, yes it has gone higher for the past few days generally but it's not making progress. Today (Wednesday) it was down slightly and yesterday (Tuesday) was mostly flat.
As the market goes higher, the Update is continuing to sell its stocks. We have become very bearish in our positions. We do hold some modest long positions but we are mostly short right now. We were using our short position to hedge against a drop in the market and as the market went up, we started selling our stocks and buying more hedges until now we are heavily short.
We're not exactly sure how this happened which is a bad thing. But, we do feel like the market has a fair amount of downside over the next four to six weeks.
For those of you who held onto your stocks, good for you. Now you should have some pretty nice profits. We want to say you should lighten up for the downturn but, if you do, you will need to make sure to get back in later. We are looking for a nice pullback and then a good sized run up going into the fall.
For those of you who sold some of your stocks, you may want to sell the rest of them here. We assume you are agile enough to try to get back in as prices drop. We will need to be patient.
Today, the market is trying to put on a brave face rallying in spite of any and all bad news. This week's employment report coming out Friday morning is expected to show a modest improvement in the job losses but a little uptick in the unemployment rate, a number already very close to 10%.
Our perspective is that the market is ready for a pullback to correct this huge run-up over the past month or so. It will start slowly, like yesterday, with a little weakness and then it will get some legs. We expect the volatility indexes, our main fear gauge, to rally strongly, as people begin to wonder if the sell-off will test the March lows. We don't think that will happen but just having people talk about it will be enough for us.
We will be watching the volatility indexes for confirmation of the drop. We also expect the Treasury Bonds to go up along with the dollar. Commodities, such as gold and oil, may drop along with the stock market. We would not like to see UNG drop now that natural gas has reached $4 again but it could drop, too. We have sold much of our GDX holdings again but will aggressively buy it back if it drops back into the 38 range. We'll keep an eye on it to get as good of a price as we can.
Take care and we'll be back on Sunday evening.
The main news item came after hours in the form of CSCO's earnings. The normally effervescent CSCO CEO John Chambers was less than sure about the bottom being in just yet. He wanted to see some more data before making a determination.
This revelation was not well received in the after hours as CSCO dropped about 3.5%. This move dragged down the overnight futures but only modestly. The bulls still think these little pullbacks are buying opportunities...which brings us to our post.
The stock market has been struggling to maintain the upside over the past week or more. Most bulls say that this means that the market can go higher right now. Well, yes it has gone higher for the past few days generally but it's not making progress. Today (Wednesday) it was down slightly and yesterday (Tuesday) was mostly flat.
As the market goes higher, the Update is continuing to sell its stocks. We have become very bearish in our positions. We do hold some modest long positions but we are mostly short right now. We were using our short position to hedge against a drop in the market and as the market went up, we started selling our stocks and buying more hedges until now we are heavily short.
We're not exactly sure how this happened which is a bad thing. But, we do feel like the market has a fair amount of downside over the next four to six weeks.
For those of you who held onto your stocks, good for you. Now you should have some pretty nice profits. We want to say you should lighten up for the downturn but, if you do, you will need to make sure to get back in later. We are looking for a nice pullback and then a good sized run up going into the fall.
For those of you who sold some of your stocks, you may want to sell the rest of them here. We assume you are agile enough to try to get back in as prices drop. We will need to be patient.
Today, the market is trying to put on a brave face rallying in spite of any and all bad news. This week's employment report coming out Friday morning is expected to show a modest improvement in the job losses but a little uptick in the unemployment rate, a number already very close to 10%.
Our perspective is that the market is ready for a pullback to correct this huge run-up over the past month or so. It will start slowly, like yesterday, with a little weakness and then it will get some legs. We expect the volatility indexes, our main fear gauge, to rally strongly, as people begin to wonder if the sell-off will test the March lows. We don't think that will happen but just having people talk about it will be enough for us.
We will be watching the volatility indexes for confirmation of the drop. We also expect the Treasury Bonds to go up along with the dollar. Commodities, such as gold and oil, may drop along with the stock market. We would not like to see UNG drop now that natural gas has reached $4 again but it could drop, too. We have sold much of our GDX holdings again but will aggressively buy it back if it drops back into the 38 range. We'll keep an eye on it to get as good of a price as we can.
Take care and we'll be back on Sunday evening.
Sunday, August 02, 2009
Intermediate Top May Be In
Top Line: As we mentioned in our comment last Thursday morning, we do think the market reached an intermediate high and will now "correct" the rally of the past several weeks.
As we have been repeating for the past few posts, the media has pumped up the bullishness in the marketplace. The contrarian in us generally gets the chills when bullishness gets so high. We have sold a bunch of our long positions but have kept a core position in most of our favorite stocks.
We point to our standard warning systems, as boring as it is, but they have told us nothing different over the past few sessions. Treasury bonds are showing some surprising strength. Our standard proxy for the long dated T-bonds is the ETF TLT. Last Monday, TLT traded near 90 and by Friday it was near 95. This is the boring T-bond, up 5% in a week.
Meanwhile the volatility indexes seem to have put their lows in about five or six trading days ago even as the market climbed to its peak on Thursday. This shows that relative increases in prices of stocks has not improved the volatility and should be showing that the a turn is now in the works. We expect the turn occurred on Thursday morning.
The market should turn down and trade lower over the next couple of weeks. Now we just need to see the turn develop and try to estimate the low. We would normally say that the minimum distance would be about 38.2% of the prior move. From the 869 low to the 996 high is about 127 points so roughly 50 points down would be our absolute minimum down move, about 950 (basis the SP500).
We think the drop may gather some steam and could possibly drop much more than that even to the extent of going below 869, although that would be an outside chance. We don't know where it will go but we do think the bullishness is too much for it to stay up here for now.
Ultimately, when this correction plays out, we expect that bullishness will wane dramatically and we will then see a huge rally that takes the SP500 up to our initial target around 1234. It looks like our date of 9-9-09 will be more like 11-10-09 but we still like the 1234 level.
We'll be back on Wednesday evening as we continue our summer schedule.
As we have been repeating for the past few posts, the media has pumped up the bullishness in the marketplace. The contrarian in us generally gets the chills when bullishness gets so high. We have sold a bunch of our long positions but have kept a core position in most of our favorite stocks.
We point to our standard warning systems, as boring as it is, but they have told us nothing different over the past few sessions. Treasury bonds are showing some surprising strength. Our standard proxy for the long dated T-bonds is the ETF TLT. Last Monday, TLT traded near 90 and by Friday it was near 95. This is the boring T-bond, up 5% in a week.
Meanwhile the volatility indexes seem to have put their lows in about five or six trading days ago even as the market climbed to its peak on Thursday. This shows that relative increases in prices of stocks has not improved the volatility and should be showing that the a turn is now in the works. We expect the turn occurred on Thursday morning.
The market should turn down and trade lower over the next couple of weeks. Now we just need to see the turn develop and try to estimate the low. We would normally say that the minimum distance would be about 38.2% of the prior move. From the 869 low to the 996 high is about 127 points so roughly 50 points down would be our absolute minimum down move, about 950 (basis the SP500).
We think the drop may gather some steam and could possibly drop much more than that even to the extent of going below 869, although that would be an outside chance. We don't know where it will go but we do think the bullishness is too much for it to stay up here for now.
Ultimately, when this correction plays out, we expect that bullishness will wane dramatically and we will then see a huge rally that takes the SP500 up to our initial target around 1234. It looks like our date of 9-9-09 will be more like 11-10-09 but we still like the 1234 level.
We'll be back on Wednesday evening as we continue our summer schedule.
Wednesday, July 29, 2009
To REIT or Not To REIT
Top Line: The stock market continues to cling to the high prices. With a possible burst up to fresh highs, the market would be free to go back down. Or, it could just go down from here.
The past few days have seen the SP500 trade in a very tight 15 point range, about 967 to 982. This type of action sometimes leads to a pop and then a good sized drop should follow. If not, the market is ready to drop about 10% over the next month or so.
Yes, we know we missed the rally over the past couple of weeks because we didn't heed our own advice, but the current message is fairly clear...down move ahead. The bullishness in the media is too strong to think anything else, in our contrarian opinion.
GDX continues to go down signalling a drop for the market. The volatility indexes are refusing to go down anymore. The dollar is close to a low and Treasury bonds are holding or even getting stronger.
The Treasury auctions of the past couple of days did not go as well as they thought Monday's auction went but still the long bond is stronger. The Treasury is trying to sell a mountain of debt this week and still the long bond holds its price.
We had a question in an email today that related to a 7-9 year time horizon and what we think would be a good investment for this period. Please understand that the best advice we can offer at the moment, or at any time really, is to buy value and sell strength. Over the next 7-9 years, or 10 years as we expect, the market will be in a roller coaster ride with the ultimate lows to be registered in the 7-9 year period probably with a higher low in about 10 years.
In this environment, we think that buy and hold is a poor strategy no matter who the buyer is. The next 10 years will present several opportunities to make very high percentage moves such as have been made in the past year or two. Buy and hold will come back as soon as the media and your friends start telling you they will never put another dollar into the market again. That should happen after they've lost a lot of money and be in about 2019.
For now, if you think a particular stock looks good, because it is cheap and it has the potential to run up a long ways, then by all means buy it. We don't see many stocks like that now because we think the market is going down for the next few weeks.
The stock that was mentioned was a real estate investment trust (REIT) which as you might imagine invests in real estate. Our particular position is that real estate is to be avoided in this market but we do Not follow REIT's, although we've heard of the one mentioned. In this case the dividend is near 15% which seems too good to be true. Like we said, we don't follow these vehicles and can not give you good advice on them.
What we can do is to advise you to be nimble with those funds. Assume that the T-bonds will perform in the opposite direction as stocks and trade back and forth between the two investments as conditions warrant. Or, come back here and we'll try to nail down the timing for you...or maybe we'll just try do that and you can take or leave our advice. Right now, we're headed down in our opinion so holding TLT may be an ok idea for about a month. Then we might switch to GDX or some other commodity for the wild ride we expect from August to October or November.
The past few days have seen the SP500 trade in a very tight 15 point range, about 967 to 982. This type of action sometimes leads to a pop and then a good sized drop should follow. If not, the market is ready to drop about 10% over the next month or so.
Yes, we know we missed the rally over the past couple of weeks because we didn't heed our own advice, but the current message is fairly clear...down move ahead. The bullishness in the media is too strong to think anything else, in our contrarian opinion.
GDX continues to go down signalling a drop for the market. The volatility indexes are refusing to go down anymore. The dollar is close to a low and Treasury bonds are holding or even getting stronger.
The Treasury auctions of the past couple of days did not go as well as they thought Monday's auction went but still the long bond is stronger. The Treasury is trying to sell a mountain of debt this week and still the long bond holds its price.
We had a question in an email today that related to a 7-9 year time horizon and what we think would be a good investment for this period. Please understand that the best advice we can offer at the moment, or at any time really, is to buy value and sell strength. Over the next 7-9 years, or 10 years as we expect, the market will be in a roller coaster ride with the ultimate lows to be registered in the 7-9 year period probably with a higher low in about 10 years.
In this environment, we think that buy and hold is a poor strategy no matter who the buyer is. The next 10 years will present several opportunities to make very high percentage moves such as have been made in the past year or two. Buy and hold will come back as soon as the media and your friends start telling you they will never put another dollar into the market again. That should happen after they've lost a lot of money and be in about 2019.
For now, if you think a particular stock looks good, because it is cheap and it has the potential to run up a long ways, then by all means buy it. We don't see many stocks like that now because we think the market is going down for the next few weeks.
The stock that was mentioned was a real estate investment trust (REIT) which as you might imagine invests in real estate. Our particular position is that real estate is to be avoided in this market but we do Not follow REIT's, although we've heard of the one mentioned. In this case the dividend is near 15% which seems too good to be true. Like we said, we don't follow these vehicles and can not give you good advice on them.
What we can do is to advise you to be nimble with those funds. Assume that the T-bonds will perform in the opposite direction as stocks and trade back and forth between the two investments as conditions warrant. Or, come back here and we'll try to nail down the timing for you...or maybe we'll just try do that and you can take or leave our advice. Right now, we're headed down in our opinion so holding TLT may be an ok idea for about a month. Then we might switch to GDX or some other commodity for the wild ride we expect from August to October or November.
Sunday, July 26, 2009
Bulls Are Out In Big Numbers
Top Line: The market didn't take long to jump with the Dow jumping up over 9000. We are looking for a pullback. When it occurs, we will estimate the distance it can travel.
The stock market jumped with the SP500 going from about 870 to last week's 980 about 13% in just two weeks. We are not happy to have missed this. Now we need to know if there is some downside and how much. We do think the downside is more possible than apparent. We have our reasons for this thinking...
The first is that the volatility indexes are having trouble dropping much more as the market jumped. With the SP500 jumping up 30 points last week while the volatility indexes hardly moved.
Our favorite stock for the 2009 is GDX and it has been our leader since October. With GDX not participating in the rally, as in, not making it back to 45, we think the market needs to back off a little to allow GDX to get back into its lead role.
Also, there seems to be a lot of bullishness. No one is really considering that the market can go down from here. If it does, the prices won't go down much at all, or so they think. These things raise the hair on the back of our contrarian necks.
Lastly, we don't think that the T-bond market is giving a clear signal of lower prices. They bottomed back about a month ago and even with the stock market continuing to march higher, the T-bonds have not been inclined to decline.
We will keep an eye on this market over the next few days.
The stock market jumped with the SP500 going from about 870 to last week's 980 about 13% in just two weeks. We are not happy to have missed this. Now we need to know if there is some downside and how much. We do think the downside is more possible than apparent. We have our reasons for this thinking...
The first is that the volatility indexes are having trouble dropping much more as the market jumped. With the SP500 jumping up 30 points last week while the volatility indexes hardly moved.
Our favorite stock for the 2009 is GDX and it has been our leader since October. With GDX not participating in the rally, as in, not making it back to 45, we think the market needs to back off a little to allow GDX to get back into its lead role.
Also, there seems to be a lot of bullishness. No one is really considering that the market can go down from here. If it does, the prices won't go down much at all, or so they think. These things raise the hair on the back of our contrarian necks.
Lastly, we don't think that the T-bond market is giving a clear signal of lower prices. They bottomed back about a month ago and even with the stock market continuing to march higher, the T-bonds have not been inclined to decline.
We will keep an eye on this market over the next few days.
Wednesday, July 22, 2009
Rally is Getting Very Tired
Top Line: Unbelievable...NASDAQ is up eleven days in a row. There is an end to such moves.
Yes, the Dow was down on the day after its own seven day up move. Is it possible that the market could turn down for a few days?
You may be feeling it, too, all the bullishness after a big up move. Where is that bullishness before the up move? Normally, people don't get bullish until After the move. Complacency is at a peak as well as measured by the volatility indexes. Maybe we should say Fear is at a low point as people now believe the market will go up some more.
We don't believe that the market has much upside in the short term but now the question is more about how low can it go. The answer is that the market can go down just like it went up. As people notice the market has gone down, they will get more bearish...amazing how this works.
We look back over the past couple of weeks and notice our own advice about how the market would go down to about 850 and probably lower. Then there was the talk about how the world was expecting a break down from the supposed head and shoulders top and were setting up for such an event. We thought that as the market dropped below 880, people would start anticipating such a move down to 800 in the SP500. We also mentioned that these short sellers would not be rewarded for their thought process because the market would not fulfill the normal head and shoulders pattern. We should read what we write and take that advice.
But, what to do now after a 10% up move in two weeks? We believe that the path of least resistance really is down with so many bullish, or should we say relieved, stock owners. The volatility indexes have struggled to go down although they have dropped a little over the past few sessions. This summer rally is almost over and we'll have to wait and see what kind of down move we can get. The next two days should be revealing.
Back on Sunday.
Yes, the Dow was down on the day after its own seven day up move. Is it possible that the market could turn down for a few days?
You may be feeling it, too, all the bullishness after a big up move. Where is that bullishness before the up move? Normally, people don't get bullish until After the move. Complacency is at a peak as well as measured by the volatility indexes. Maybe we should say Fear is at a low point as people now believe the market will go up some more.
We don't believe that the market has much upside in the short term but now the question is more about how low can it go. The answer is that the market can go down just like it went up. As people notice the market has gone down, they will get more bearish...amazing how this works.
We look back over the past couple of weeks and notice our own advice about how the market would go down to about 850 and probably lower. Then there was the talk about how the world was expecting a break down from the supposed head and shoulders top and were setting up for such an event. We thought that as the market dropped below 880, people would start anticipating such a move down to 800 in the SP500. We also mentioned that these short sellers would not be rewarded for their thought process because the market would not fulfill the normal head and shoulders pattern. We should read what we write and take that advice.
But, what to do now after a 10% up move in two weeks? We believe that the path of least resistance really is down with so many bullish, or should we say relieved, stock owners. The volatility indexes have struggled to go down although they have dropped a little over the past few sessions. This summer rally is almost over and we'll have to wait and see what kind of down move we can get. The next two days should be revealing.
Back on Sunday.
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