May 16th, 2013

Healthcare Providers and Suppliers

image

When it comes to stock selection I usually fall back on the following slogan: “50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own”.

I believe the stock market is in the early phase of a major secular bull market.  This is when you want to jump on a trend early and stick with your proven winners for the long haul and earn those large percentage gains.  To do this, you want to try to identify industry groups that contain many individual stocks.  Finally, you use charts to identify those stocks that have had large percentage moves in the (long-term) past but have been held back in consolidation zones for a number of years.

There are many stocks that meet these criteria but the few shown below are representative.  Granted, these charts cover eight years but they are similar to how the financial and homebuilder stocks look several years ago before their run.

In short, there seems to be something dramatic building in a wide range of stocks in the healthcare field over the past several years that could lead to a large number of breakouts across levels that could lead to significant price appreciation for some time:

 

  • HMA,HMA - 20130515
  • UNH,UNH - 20130515
  • AMSG,AMSG - 20130515
  • BKD,BKD - 20130515
  • HGR,HGR - 20130515
  • MD,MD - 20130515
  • BRLI,BRLI - 20130515
  • OMI,OMI - 20130515
  • LH,LH - 20130515
  • ESRX,ESRX - 20130515
  • DGXDGX - 20130515

May 8th, 2013

Auto and Truck Parts Suppliers

I believe I’ve finally made some sense of how to differentiate between the Weekly Recap Reports offered to Members, the Stock Chartist blog and the articles I begun to write for SeekingAlpha.com. I believe the answer was provided by Seeking Alpha when they made clear that their preference is for fundamental as contrasted with technical analysis.

Every investment decision begins with a clear vision of the market’s near-term direction, or what Seeking Alpha calls “Market Orientation”. My last two articles met the prerequisites of that category and were well accepted by the Seeking Alpha readers. Once you have a market point-of-view, the next step is stock selection.

If market timing indicates that the time is opportunity for new investments then the next challenge is choosing from among the 7000 stocks and ETFs. One can do attempt to narrow the search down to a few of the best stocks by, what Cramer calls, “doing your homework”. Or you can use my approach of finding stocks that appear to be ready to cross out of consolidation or reversal areas (i.e., patterns) by crossing above resistance zones (i.e., trendlines) focusing first among the Industry Groups that seem to be most desirable at the time to the “herd”, or Wall Street’s institutional investors. The approach I use for this final step is, of course, my various scans and a continual search through literally hundreds of charts.

Instant Alerts members have the benefit of both market and stock selection plus an inside view of how I manage my Portfolio.

Bottom line, the blog will now focus on individual stocks based on my own Industry Group and stock chart analysis. Some blog posts will focus on an individual stock while other posts might include several stocks. The following is the first:

================================================================

imageThe stocks of several truck and auto original and replacement parts suppliers have advanced smartly since the beginning of the year, like AXL, DORM, SMP, LKQ and DLPH. Even though these have significant momentum, I avoid them because these are now far above what I consider breakout entry points where initial positions can be safely established.

However, a few have recently or are about to break out of consolidation areas.  I consider them consolidations since there’s nothing to indicate that the market is anywhere near making a significant reversal.  Those stocks include:

  • BWABWA - 20130508
  • LEARLEA - 20130508
  • DANDAN - 20130508
  • WBCWBC - 20130508
  • THRMTHRM - 20130508

It goes without saying that these stocks and their charts were selected exclusively on the basis on a technical analysis of price action and timeliness of an investment. There’s no attempt to rank them as to prospective appreciation of each nor the time needed to achieve those gains. Investors should assess their own tolerance for risk and perform their own assessment of their suitability to be included in a portfolio.

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April 5th, 2013

Gold (GLD) in an “Indecision Zone”

I was recently accepted as a “columnist” for the subscription portion of SeekingAlpha.com, a well-respected stock-oriented editorial site, and quickly got my first submitted article accepted.  Much to my disappointment, however, my second submission was wrongly rejected, I believe.  The rejection notice stated:

As a fundamental investing site, Seeking Alpha doesn’t publish articles based primarily on Technical Analysis.  Feel free to post this piece to your instablog.  Thanks!

Sincerely Yours,

SA Editors

As you might expect, this response raised my blood pressure on several counts.

  1. First, I thought that I had summarized most of the fundamental arguments, bullish and bearish, covering the subject of the future direction of gold prices.
  2. Second, I can’t imagine any site that doesn’t take technical factors into account when presenting content about stocks, markets, commodities and forex can do so without including a heavy dose of technical factors and opinion.
  3. Finally, why isn’t there a site that features articles contributed by vetted contributors focusing on technically-based market and stock opinions?  It might even be called www.stockchartists.com

In any event, the rejected article appears below. What say you? Should it have been rejected? Would you be interested in reading or even contributing to a technically-based content market opinion site?

========================================================================

imageI know both the bull and bear fundamental arguments surrounding gold, you’ve heard alll of them before.

  • The Bulls point to the fact that gold is both a commodity used by industry and consumers and, perhaps even more so, a safe haven alternative for fiat money and store of accumulated wealth.
    • Central banks around the world flooding the market with currency that eventually will lead to inflation and rising commodity and gold prices
    • A fixed world-wide supply of gold in a world of ever increasing demand
    • Increased demand resulting from the growth of ETFs
    • Increased demand due to increased wealth from emerging market consumers
    • Increased demand from governments beginning to accumulate
    • Continued political uncertainty
    • Finally, the price of gold is still only around 70% of its inflation adjusted peak price of $2300 reached during the 1970′s energy crisis.
  • The Bear’s argue that the price of gold has quadrupled with only minor corrections from less than 50 in 2005 when the GLD ETF was first made available.
    • Hedge funds are reportedly unloading their large cache of GLD
    • There will be better places to invest your money than gold as stocks and commodities continue to reflect an improved economic environment
    • The bull market for gold paralleled the secular bull market for bonds therefore a reversal in fixed income secular trend will also lead to reversal in gold prices.
    • QE and monetary easing will end soon and the excess money supply that the Fed pumped into the economy will begin to be drained
    • Governments are actually unloading their gold hoards

Rather than trying to second guess the experts and come up with my own prediction of gold’s future direction, I believe price action and trend best represents the consensus of how the world’s investors actually act on their beliefs. There’s no question that the price of GLD has stalled but what isn’t as clear is whether this the beginning of a reversal leading to sharply lower prices or whether this period could be actually represent the end of a consolidation pattern.

In the chart below, there’s not question concerning the top boundary of the pattern … it’s clearly defined.  There are two possibilities, however, for the zone’s lower boundary. The blue dashed line assumes the zone is a descending triangle reversal top pattern while the green dashed line assumes the zone is a flag consolidation pattern. We will be left in the dark as to which pattern interpretation is correct until GLD declines to approximately 137, or down another 7.4%, at which point GLD will likely find some support.

It’s said that “the longer the pattern the stronger the trend out of that pattern”. If the price stabilizes around 137 and then reverses, a major bull move could be launched that could finally carry GLD substantially above its previous high of 182. But if it again fails after that reversal at around 150, or today’s price, then a reversal top would be confirmed leading to further declines possibly to under 100. GLD is clearly in an “indecision zone” (click on image to enlarge) and I would wait to make any further commitments either way (bullish long or bearish short) until investors drive the price out of the zone one way or another.

Bull and Bear Gold Case

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December 11th, 2012

Our Discipline: A Case Study in MED

As I’ve written here often, I believe the best approach for the typical individual investor is to manage their portfolios employing the following three steps: 1) a well-founded, unemotional approach to market timing, 2) the notion of industry group rotation and 3) diversification that spreads risk among a fairly large number of individual stocks (i.e., investing approximately equal amounts among stocks in the portfolio).

Put another way, the portfolio management effort down to answering the following questions: How much money should be put at risk in the stock market at any particular moment and, if new money is to be put to work, which stocks should be added to the portfolio? 

I solved the first question for myself several years ago.  I collected data back to 1963 on the daily S&P 500 Index and, by asking a series of “what-if” questions determined when it would have been better to have invested money in the market making an average return than having it sit idle on the sidelines.  Or, stated in the reverse, when would having money sit on the sidelines been better for long-term returns than had it been invested earning an average market return?  The analysis resulted in my Market Momentum Meter, an unemotional barometer of market sentiment, that allows me to shut my ears to all the media noise and hype about what they claim is “Breaking News” and focus instead on the truth about conditions conducive to momentum-driven markets over the past 50 years.  Following the Meter’s signals over the long run, investors could have avoided market crashes while still taking advantage of the bull market runs.  I can attest to the fact it helped me avoid the worst of the 2007-09 Financial Crisis Crash.

Once the Meter signals that it’s relatively “safe” to put new money to work in the market,  I use a two-step approach for finding the stocks best for carrying that risk.  I scan all stocks to find those that meet one of four different sets of criteria and, once having narrowed down the population of publicly-traded stocks, I look at their charts to find those that might have a good chance of crossing above levels that stymied their past advances (in other words, those that look like they could soon breakout across significant, long-term resistance trendlines). The first stocks to breakout are first in line as investment candidates.  The discipline requires me to sometimes be fairly active and at other times to do nothing but unemotionally watch the Portfolio run with the market or sit idle safely protected in cash.

The debate/negotiations in Washington has brought us again to a crucial market pivot point.  The Meter indicates that when market conditions look as they do today it might have been best for us to have money invested.  I have begun running those scans to begin finding those stocks that look like they’re ready to trigger Buy Points in their charts by crossing above key resistance levels.

While 75% of the stocks currently in the Portfolio show gains and 69% have outperformed the S&P 500 since their purchase, few have delivered the sort of results as has MED since its purchase last March.  I had never heard of Medifast when it dropped through one of the Scans and presented a compelling chart.  When I purchased the stock, I wrote in the Instant Alert to Members that the stock is “a product of yesterday’s Stocks-on-the-Move scan.  It has formed an inverted head-and-shoulders reversal pattern at what I hope will be the bottom of a multi-year descending wedge pattern.”  Since then, the stock has advanced 95%:

As the usual disclaimer says, “Past performance is no guarantee of future performance”.  But, I believe in the discipline and am using it today to find the next batch of stocks some of which, with some patience and luck, will hopefully deliver what turns out to be the outstanding performers over the next nine months or a year.

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November 29th, 2012

Head-and-Shoulders Patterns: FDX Case Study

The key point in yesterday’s discussion of the GLD and AAPL head-and-shoulders patterns can be summed up in the post’s last paragraph:

“……. no matter how good these chart patterns may look a year from now, unless and until they cross their necklines, there’s no certainty today that they won’t fail to deliver.  While getting in early will produce a greater return, the trade entails significant risk that the stock actually winds up moving in the opposite direction.”

The point perhaps not made emphatically enough is that even though head-and-shoulders stock chart patterns appears on the surface to be similar to the results of a series of random coin tosses there is a major difference between the two should the price/value cross the neckline.  The result of coin tosses merrily continues on a random path, the path in the prices/values in stocks, indexes and commodities subsequent to a cross of the neckline usually becomes impacted by a feedback loop know as “momentum”.

When they see new highs or lows being set as the price/value crosses the neckline, investors expect, even anticipate, a continuation of the prevailing trend.  That predisposition causes them to place trades (either buy if a cross above or sell if a cross below the neckline) in anticipation of being able to close those positions some time in the future at a profit.  Coin tosses have no connection with the future but investors do.

The trading rule, therefore, is that investors should wait to commit to their prospective position until momentum is launched and the signal in the form of a neckline cross is evident.  [This presumes that a neckline is something obvious and concrete but that's the topic for the next post.]

Let’s look at another example of that trading rule.  One advisory service recently substantiated their large position in FDX (Federal Express) by arguing that FDX was restructuring their operations so that their Express division is “refined” and their Ground operation “will lead to better margins and more market-share take against UPS.”  Somebody has to perform good fundamental analysis but it’s not clear whether individual investors are equipped or has the time to uncover and evaluate such information.  Large institutional investors (what I call “the heard”) do and what we can do is to follow their footprints in their hunt for big game.

If only a small percentage of the herd know or arrive at the same conclusion as the above the FDX analysis then price action in FDX shares will not be impacted dramatically.  If the analysis is correct and is reflected in operating results, the rest of the herd will join the chase and price momentum will begin.  If its efforts, the FDX shares will languish at best and fall at worst.  I would want to buy the shares only after, and not before, sufficient numbers of investors begin to believe in the FDX transformation and the shares begin to rise.

FDX stock has been restrained from continuing its uptrend by a resistance trendline (“neckline”) for over 5 years.  It isn’t relevant to the trading strategy whether you envision an emerging inverted head-and-shoulder pattern (square 1) or the longer-term ascending triangle (square 2).  To believe the story, you have to “show me the money”. You need to see the shares cross above the resistance trendline (the “neckline”) to have confidence that the uptrend momentum is sufficiently sustainable before foregoing other opportunities and putting your good money into FDX stock.  As my slogan says, “fundamental analysis is subjective, momentum is a fact.”

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November 28th, 2012

Head-and-Shoulders Patterns: AAPL and GLD Case Studies

In my book, Run with the Herd, I retell the coin toss experiment from Burton Malkiel’s book, A Random Walk Down Wall Street.  In it, he asked students to

“continuously toss coins with heads arbitrarily representing a move up in a stock’s price and, conversely, tails a move down.  All the price changes were assumed to be of equal magnitude and all were recorded in a line chart.  After an unspecified number of tosses, the students began to see patterns in the charts that looked similar to those of stock charts.”

One of the most talked about, recognized and perhaps most reliable stock chart patterns are the head-and-shoulders and its mirror image the inverted head-and-shoulders. What makes these patterns so important is that they fall into the reversal category (as contrasted with the continuation or trending patterns).  In these patterns, the price/value of the stock, index or commodity makes three different attempts to reverse the direction of the prevailing trend.  Characteristically, the price/value reaches approximately the same level the first two times and then falters; it succeeds in the third attempt and crosses the level reached the previous two attempts. The elements of the pattern include a shorter left “shoulder”, a longer middle “head”, and a shorter right shoulder; all are connected by a trendline at what is called a “neckline”.

As you might expect, as a chartist I believe that comparison between the randomness of coin tosses and stock chart patterns is a false one using the wrong logical argument (incorrectly using deductive reasoning rather than inductive reasoning).  But it is true, however, that the head-and-shoulder chart patterns are easier to perceive in retrospect and not as readily discernable in real-time.  Furthermore, when the pattern has evolved sufficiently in order to actually intimate its future likely outline, the practical question remains as to when might be the best (highest probability of being realized with the lowest risk of being failing) time to act on that perception.  Here are two cases in point:

    • AAPL: At the beginning of the month, I wrote a piece entitled “AAPL Gets a Cold, the Market Gets …..?” when the stock was at 563 in which I included a chart showing a partially formed head-and-shoulder pattern and wrote: “Has the stock hit bottom and is it poised for a turn around (a large Wall Street firm recently called on CNBC for AAPL to more than double over the next year)?  Double it might but in the near-term it’s setting up for another 25% decline below what might be consider the neckline of an emerging head-and-shoulder topall the way down to 390 (nearly 30% from current levels).”Compare the chart in that post with the one below and you’ll find that AAPL is closely following the course outlined there:

      Although Robert Weinstein of Cramer’s theStreet.com wrote today that investors should “Put Away the Prozac, Apple’s Just Fine”, this emerging pattern continues to look to me uncannily like an emerging head-and-shoulders top [Cramer's Action Alerts Plus service has been a long-term AAPL investor with a 90+% profit].  There’s no way to tell whether the stock will follow-through but it pivots and starts declining again, I would order a refill from the pharmacy.

    • GLD: I wrote a piece at the beginning of the summer entitled “When It Comes to Technical Analysis, Accuracy Depends on Time Horizon (GLD)” in which I included a chart of GLD with a pattern that looked like a descending channel and wrote: “I look at a possible breakout from my flag and see a long-term move equal to the preceding the neckline.  I see the possibility of a 75-80% move to the 250-270 level over a year or two.  It all depends on how much time you want to spend managing your portfolio and making trading decisions.”

Today that channel has morphed into what might turn out ultimately to be an inverted head-and-shoulder pattern.  The hesitation in calling it that is that the pattern is developing after a major bull run rather than at the bottom of a major decline.  Consequently, this inverted head-and-shoulder will further morph a consolidation pattern or some type of reversal top pattern.

Bottom line, no matter how good these chart patterns may look a year from now, unless and until they cross their necklines, there’s no certainty that they won’t fail to deliver.  While getting in early will produce a greater return, the trade entails more risk that the stock moves in the opposite direction.  [In fact, even after a trendline is crossed, the stock will often reverse and test the trendline in what is called a "Buyers'/Sellers' Remorse Correction".]

 

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November 8th, 2012

AAPL Gets a Cold, the Market Gets …..?

I searched this blog to see what I may have written about AAPL over the years and found that there have been 15 individual posts since 2006, many comparing AAPL and GOOG (search other terms by using the search button in the lower left panel).

But situation is dramatically different today than it’s been at any previous time [haven't people gotten into a lot of trouble when they claim "this time it's different"?]:

  • Jobs is no longer the creative or leadership head of the company,
  • the company now has competition for its products (e.g., Samsung) and its services (iTunes vs. Pandora, Spotify and Amazon)
  •  the stock became the largest capitalized stock in the world and held a dominant role in all market indexes
  • the stock is considered “overbought” being a large position in nearly every mutual, pension and hedge fund,
  • finally, some blowback is now being heard and felt about the product introduction rate and design [note: the discontent with the connection format change and the mapping service disappointment].

So, I’d like to toss my stock chartist’s view of the “bear market” that has captured the AAPL driving it down 18% over the past two months.  Has the stock hit bottom and is it poised for a turn around (a large Wall Street firm recently called on CNBC for AAPL to more than double over the next year)?  Double it might but in the near-term it’s setting up for another 25% decline below what might be consider the neckline of an emerging head-and-shoulder top all the way down to 390 (nearly 30% from current levels).

Supporting this negative view is the long-term negative divergence existing between the trends between the two price peaks in 2012 and the comparable peaks in the OBV volume trend.  OBV indicates the relative volume between buyers (closes higher) and sellers (closes down).  In other words, as AAPL churned higher it was on less volume than those days when it closed lower.

Unfortunately, AAPL represents a large component of the major indexes so “when AAPL sneezes, the market gets a cold”.  Let’s hope that cold doesn’t turn into pneumonia.

October 10th, 2012

Assessing Market Opportunities and Risks

It’s been some time since I last posted because, well, because there wasn’t much new or much positive to write about.  As a matter of fact, the last time I wrote about the market was on August 29 in “Every Trading Range Is Not a Reversal Top“; the market is a mere 1.56% above the level at that close.

I pretty much fully invested now; I like most of the stocks I own since I’ve been cleaning house as this bull run has progressed.  There are a ton of stocks that look like they, along with the over-all market are struggling to clear an intermediate sort of resistance level (the market Index may actually be stuck in the claws of a tiny “buyers’ remorse” correction after having barely crossed above that resistance at 1420-1425.

One must always evaluate the market in two ways : what are the upside opportunities and what sort of downside reversal risks are there.  When I step back today from the market’s day-to-day noise, I see upside potential to the 1567 all-time high level.  However, I also see what I hope will be only short-term obstacles.

My longer-term optimism comes from the fact that the market has steadily crawled up the lower boundary of an ascending channel emanating from last year’s low connecting with this year’s March low.  The parallel upper boundary of the channel conforms nicely.

Furthermore, this spring’s correction can be interpreted as a flag pattern.  Traditional chart reading rules of thumb suggest that the consolidation pattern will be approximately midway between the trough of the channel and the peak.  If that turned out to be true, then the peak should be somewhere in the 1600 area (1410/1125*1280), or not far from the all-time high.

The fly in that ointment is volume which just doesn’t seem to be cooperating so far.  Since 2011, the 50-dma of daily volume of the S&P 500 stocks has been trending lower (with the exception of last summer’s correction).  Even more ominous is the divergence that’s emerged between the Index levels and the on-balance-volume.  For those who need a refresher, OBV is Joseph Granville’s indicator in which volumes on up days are added and volumes on down days are subtracted from a rolling total.  A declining OBV indicates that volume on days when the market closes lower tend to exceed the volume on days when the market rises.  A divergence indicates that a rising market isn’t supported by adequate volume.

There’s sufficient cash on the sidelines waiting to be put to work and fixed income with it’s low rates isn’t the place to put it anymore.  ZeroHedge had an interesting piece this morning entitled “Are Businesses Quietly Preparing For A Financial Apocalypse?” about all the cash sitting on corporate balance sheets.  If the uncertainty coming from Presidential Election, Fiscal Cliff and continuing Eurozone saga then a good chunk of that money, both investor and corporate, could come into the stock market and make up for the volume drought.

While prices haven’t indicated a reversal process emerging yet, there sure are a lot of risks out there, both fundamentally and technically.

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September 12th, 2012

Fundamentals Trumped Technicals in XHB; Avoid Mistake in XLF

I could kick myself.  I allowed what people said was the fundamental realty get in the way of clear contrary picture in the charts and it cost me a bundle.  Not real dollars but only an “opportunity cost” for not having put my money to work there; but it hurt almost as much regardless.  I’m talking about the near perfect bottom reversal patterns that most home builders were building over the past three years and from which most broke out during the first quarter.

At the end of 2010, the home ownership affordability index (the number of Americans who could afford purchasing a home) was nearly the highest ever recorded.  According to a February 2011 RISMedia report:

“Nationwide housing affordability during the fourth quarter of 2010 rose to its highest level in the 20 years since it has been measured, according to National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) data. The HOI indicated that 73.9% of all new and existing homes sold in the fourth quarter of 2010 were affordable to families earning the national median income of $64,400. The record-setting index for the fourth quarter surpassed the previous high of 72.5% set during the first quarter of 2009 and marked the eighth consecutive quarter that the index has been above 70%. Until 2009, the HOI rarely topped 65% and never reached 70%.”

And yet, most of the talking heads and business media throughout 2011 and 2012 continued to look at home prices and sales statistics and wonder whether and when housing would hit bottom.  For example, USNews on April 26 reported:

Is the housing market in good shape or is it retreating back into recession territory? That’s the question on many observers’ minds as they try to sift through several reports this week that gave a somewhat murky picture of the state of the housing market…..Just this week, the widely followed Case-Shiller Home Price Index showed that values continued to erode in many metropolitan areas, with prices falling to a near-decade low nationally. Several cities registered new post-crisis lows on the index, further evidence that the “housing market bottom” remains elusive.Sales of new homes also disappointed this week, dropping more than 7 percent in March after a healthy gain in February. Overall, sales are still way short of the 700,000 or so units experts consider evidence of a “healthy” housing market.

So I continued to be leery of the home building stocks even though I’d been following and writing about them for some time.  Way back in May 2011 I called homebuilders and financial stocks the economy’s missing fourth wheel saying “If you believe that these two sectors will be able to successfully cross their resistance hurdles and begin advancing to levels last seen in 2008 then you should be “all-in” believing the market will continue heading towards the all-time high.”  I reposted that blog in January 2012 saying “If those groups [homebuilders and financials] start advancing this time, the rest of the market may not be much far behind.”

I must confess I was scared off by the various fundamentalist-based talking heads who kept looking at the trees (i.e., home prices and sales statistics) and therefore couldn’t see the forest (gaining momentum in homebuilding stocks).  I should have stuck with the charts and jumped on the unbelievable, steady move in homebuilding stocks which are up 45% this year, about the most of any industry group:

Last month I wrote that money flow is beginning to be “directed into financial stocks gives hope that, absent a new major crisis (although our own Federal debt and budget debate is still looming on the horizon), the market will be able finally to continue to the previous all-time highs and ultimately break the grips of the 12- going on 13-year secular bear market.  A cross of the XLF above 16 will trigger for me the another clear indication that financials will begin leading the market higher.”  I can report that XLF is making progress in its base-building and edging closer to the breakout level:

I missed out on that very clear-cut opportunity but don’t plan to miss the new one in the financials.

 

August 29th, 2012

Every Trading Range Is Not a Reversal Top

One of the “Talking Heads” regularly trotted out by CNBC to share his wisdom is Dennis Gartman.  He usually makes some sort of esoteric, useless recommendation like “I’m not buying gold in Dollars but am buying it in [Australian Dollars, Indian Rupee, Thai Baht, Japanese Yen or some other currency which is equally meaningless to his US audience but meant to make him sound like a true authority.  Instead, I just chuckle at his pomposity.

In any event, he's been taking a different tack recently calling for a market decline.  One June 4, Gartman announced the beginning of a new Bear Market:

"The weak U.S. jobs report for May and a deterioration in the U.S. economy will lead the U.S. Federal Reserve to announce another round of quantitative easing as early as this month....could come as early as the Fed’s next meeting on June 19-20, or at the following meeting on July 31-Aug. 1. The central bank will want to ease as “far ahead” of the U.S. presidential election in November as possible, so it doesn't come off as being "politically amenable" to the current administration...."I'd much rather be optimistic than pessimistic, but I think the European governments have forced me into being somewhat pessimistic,....But will [QE3] have a bullish effect on the stock market? Probably not. The fact that they need to do it alone is very disturbing.”

On June 4, the S&P 500 was 1278.18, or 10.35% lower than today’s close.  Not having changed his mind (nor learned his lesson), Gartman went back on the CNBC air to reiterate his nervousness:

“We saw divergences between the transports and the Dow Industrials — old-style, Dow-type theory things — a lot of people having been bullish.  Now I’m just neutral.  I’m flat, and I’m nervous.”

So what’s causing all this angst for those who are supposed to be cool and collected?  I’d say it’s their superimposing what they see in the global macro-economic environment onto the market’s narrow range.  A friend of mine used to say that “if the only tool you have is a hammer then everything looks like a nail”.  In a similar paraphrasing vein, “if you’re basically a pessimist then every trading range looks like a reversal top.”

The market must be offering a lot of fodder for pessimist these days because, if you are so inclined, you can envision a “double-top” emerging from the huge trading range the market’s been stuck in since March:

Yes, if I squint hard enough I can can perhaps begin seeing the possibility of an emerging double-top.  But the market is far from clearly completing the left shoulder.  The May trough is the single pivot “defining” the lower boundary of the horizontal channel (two, if you consider the pivot point at the November 2011 peak to be a part of this emerging pattern) and that is a long way from a fully formed congestion pattern.

I don’t deny that there may be a correction around the corner but it’s a long way to a fully formed reversal top.  I’m also cautious but not so worried as to be ready to start dismantling my portfolio of excellent stocks.  One of the reasons I’m not ready yet to see the market’s reversal top is that, at the individual stock level, I see too on my watchlist as if they’re ready to finally break above key resistance levels.  One typical example of many is SRCL, one a leading momentum stock:

So let’s not walk around with a hammer breaking everything because all you see are nails.  Let’s not allow our basic caution mistake every trading range as a reversal top.