February 10th, 2017

Subscribers Alerted to the New Bull Market

I’m sorry for those of you who aren’t subscribers.  On August 7, 2016…..before the elections, and way before the “Trump bump” was launched……my subscribers were alerted to the fact that the market appeared to be building a head of steam and getting ready to melt up.

On the previous Friday, August 5, the S&P 500 closed at 2182.87. Since then, the market has advanced above 2300, or 5.9% higher. Furthermore, as explained in that report, we envisioned an interim target of 2450, or an advance of 12.2%, for some time in 2017. We began assembling a balanced portfolio of over 50 stocks since then that, almost unanimously, have performed as well or better than the average S&P 500 stock.

But  the only thing you can be sure of is that circumstances continually change. To not be caught off guard, subscribe to the Stock Chartist newsletter.

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Heating Up On the Way To A Bubble Melt-up?

Because I’ve been looking down for so long that it feels uncomfortable to lift my head and start looking up.  The market isn’t yet shouting but has begun whispering that something has changed, something both fundamental and technical, action that’s been confirmed by a Perfectly Bullish alignment in the Momentum Meter’s moving averages.  Rather than being rebuffed at the 2175 level, a favorable jobs report Friday morning helped push the average to a new all-time high close of 2182.87.  The change could be as simple as investors no longer viewing “good news as bad” (since it gives the Fed room to raise rates) but instead “good news as good” (since it means strength in the economy and possibility of resumed sales and earnings growth).

S&P 500 - 20160805 ST

Rather than looking backwards for the correction that has yet to materialize, it may be possible that the market is warming up and heading towards the long-awaited melt-up.  What sort of technical obstacles or resistance levels might there as the market advances further into uncharted, all-time new highs territory?  About the only clues are in the “reversion to the mean” trendlines:

S&P 500 - 20160805 LT

The orange trendlines (solid for outer boundary and dotted for the mid-point) in the above chart ascend at approximately 7.5% and have contained all the market’s movement since 1939 through two Secular Bear Markets (1970′s and 2000′s), four wars (WWII, Korean, Viet Name and Middle-East Wars) and countless political and economic upheavals, domestic and international.  So they are “reliable precedent” indicating the possibility that the market’s next move could actually be an assault on the mid-point trendline at around 2450 in the S&P 500 Index, or 12% above Friday’s close?

Without getting carried away and turning euphoric, there are many rationales about why a move of this magnitude is possible, the primary of which is that the world is awash in cash looking for a place to be invested.  Before there’s general inflation of hard assets and wages there could well be an acceleration in financial asset inflation:

    • According to Moody’s, five companies, ( Apple, Microsoft, Google, Cisco and Oracle) were sitting on $504 billion, or 30%, of the $1.7 trillion in cash and cash equivalents held by U.S. non-financial companies in 2015, most of which was overseas to avoid taxes.  Both political campaigns may propose tax incentives for repatriating and investing the cash.

Corporate Cash Holdings

  • Institutional investors have been sidestepping equities and investing in fixed income instead.  With interest rates on the verge of moving higher and equities continuing to advance, they will begin rebalancing in favor of equities.
  • Foreigners continue to look at US equities as a safe haven.
  • Mergers, corporate buybacks and a dearth of IPOs have all contributed to a stock shortage just when demand is beginning to increase.

So rather than fighting it, we have to face “reality” and embrace it:

Reversion to Mean - lt

The market could be heading up the mid-point trendline and, if a bubble melt-up in equities does materialize, head all the way up to the upper boundary above 3500 in the next year or so.

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February 11th, 2016

Subscribers Alerted to Imminent Market Sell-off

For those of you who aren’t subscribers, I’m sorry for you.  I’ve been warning my subscribers since last summer about the major correction we’re now suffering through.

You’re skeptical?  Here’s the post sent to members on Sunday, August 16, 2015.  The market closed at 2091.54 the previous Friday and within 7 trading days, on Tuesday, August 25, it closed at 1867.61, or 10.7% lower.

The question now is “Are we close to the bottom?” and “Is this a opportunity to pick up stocks at a discount?”  For my answers to whether the correction has bottomed and other questions, why don’t you join the other lucky investors who subscriber to Stock Chartist.

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Next Chapter In Saga About to Begin

The longest novel, according to Wikipedia, was something called “Artamène ou le Grand Cyrus” written by Georges and/or Madeleine de Scudéry in 1649–53.  It was in 10 volumes, had 13,095 pages and 1,954,300 words.  Reading any long book takes patience and perseverance, about the same patience and perseverance demanded by the flat market we’ve had to work with over the last six month’s.

Even though the market is up 1.59% YTD, almost half of which resulted from last week’s 0.57% increase, I believe it’s the prelude of a “market reversal” that will begin soon after the Labor Day break and after everyone has returned from their summer vacations.  We’re about to open the next chapter in this correction saga (click image to enlarge).

 

S&P 500 - 20150814

 

I know this is beginning to sound like a broken record but there’s clearly been an erosion of bullish momentum.   We’ve can’t predict but what we are seeing is that the market is losing its bouyancy:

  • the lower boundary of the grand channel since the 2009 Crash bottom was broken in May,
  • pivoting channels emerged as the slope (small dashed lines) switched from ascending to horizontal (and looks now to on the verge of pivoting again to fully descending),
  • the 50- and 100-dma’s reversed their direction and are now descending,
  • the 50-dma has reversed alignment crossing under the 100-dma (average of past 50 days is now less than average of past 100 days).
  • Finally, adding to the weight of evidence, the 50- and 100-dma’s last week appeared to be acting as resistance obstacles preventing the market from checking its downward trend.

It seems to be so obvious to the naked eye that the market is losing steam that I can’t imaging anyone not seeing it and acting.  I can’t believe that every day that the market bounces on recovery, the CNBC or CNN Talking Heads are trotted out to give their “stock up on discounted stocks” spiel.  As quoted in a recent CNN Money article, for example:

  • “The U.S. is exhibiting tremendous resiliency and a lot of independence from the rest of the world,” said Seth Masters, chief investment officer at AllianceBernstein, and
  • “It leaves the U.S. looking attractive in relative terms. There’s a valuation premium on U.S. equities but perhaps that valuation is justified,” said David Lebovitz, head of the global market insights strategy team at JPMorgan Funds, and
  • “There’s every reason to believe this bull market continues. Unless you think we’re going to have a bear market soon — which we think is highly improbable — almost by definition the next move is higher” said Troy Gayeski, senior portfolio manager at SkyBridge Capital

We all know that charts reading is subjective but it’s incredible how there can be two so diametrically different interpretations of the same chart.  On the one hand there’s the my view of the chart we’ve been looking at for the past several months shown above.  Then there’s the following comment and chart from StockCharts.com:

“an inverse head-and-shoulders pattern could be taking shape since late May [in the SPY etf whose value is 1/10th of the S&P 500 Index]. With an overall uptrend, the inverse head-and-shoulders represents a consolidation within an uptrend and a bullish continuation pattern. A break above neckline resistance would confirm the pattern and target further gains. Typically, the height of the pattern (213 – 204 = 9) is added to the breakout for an upside target (213 + 9 = 222) [translated into a target of 2220 for the S&P 500 Index]…. The right shoulder looks like a falling wedge, which is typical for corrections after sharp advances. SPY surged from 204.5 to 213 in mid-July and then pulled back with a falling wedge the last few weeks. ”

StockCharts.com Inverse Head and Shoulders

 

An “inverted head-and-shoulders consolidation”?  A wedge after a sharp advance from 204.5 to 213?  Give me a break!  Both interpretations (the short-term StockCharts.com or the longer-term Stock-Chartist.com) can’t be right; one is going to be wrong.  “But that’s what makes a market.”  Obviously, we’re hoping we’re right.

The world economic fundamentals continue to deteriorate.  Oil and other commodities are falling stocking renewed fears of deflation.  And the Fed apparently may be “out of bullets” to fight it.  The Chinese currency revaluation put a scare in many central banks, the most significant of which are their neighbors in the Asian emerging economies, causing new fears of a currency war.  There are also rumblings again about Greece and its negative impact on the Euro and European economies.  Rather than their being a possible silver lining in these clouds, the next shoe to drop will more likely be a negative surprise.

We believe to be fortunate in having embarked on a conservative plan, taking “risk off” by liquidating positions to add to cash reserves and, selectively as conditions confirm our longer-term view, adding to our index short position.  When the “Death Cross” finally arrives [50-dma crossing under 200-dma], we’ll probably have wiped the Portfolio clean and add to the speculative Index short positions.

Only a few more trading days to suffer through and then, when the page is turned to a new chapter, the story could get really exciting.  At least I hope so because this has been an awfully boring book that I’m just about ready to give up on.

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June 22nd, 2015

The True Reserve Value of Gold

For thousands of years, in countless cultures around the world, gold has been recognized as an exceptional store of value and, as such, accepted in all forms of transactions.  Up until the twentieth century, most nations were still using the gold standard and the gold standard has historically provided long-term stability and inflationary controls.

However, as a result of central banks around the globe issue incredible amounts of debt in an effort to prop up or to stimulate their economies (and to not let their currency be left behind in a rush to the bottom in terms of exchange value), there just isn’t enough gold to support all the fiat currency that’s been created.

A recent article in Business Insider very graphically explains the problem in the following:

 

Gold

 

You read that correctly.  The price of all the 184,000 ounces of gold estimated to have ever been mined would have to increase 30x to around $34,000 per ounce if all the currency created would be converted into (spent to buy) that gold.  Clearly that’s never going to happen but it’s also true that the price of gold will have to increase from the current $1200/oz if it’s to continue backing up fiat money.

The only way this won’t be the case is if a global, recognized and accepted digital currency (like Bitcoin) replaces gold.

Check out the article here.

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