Archive for the ‘Corrections’ Category

Video: Stock-Bond Signal Still In Play

Tuesday, March 5th, 2013

Stocks did break out Tuesday, but markets closed with extended charts on numerous shorter-term time frames (15-60 minute charts). The video below describes a concerning risk-reward signal that is still in place.

Exhaustion Signal Has Good Track Record

Video provides a historical review of DeMark exhaustion signals for the ratio of stocks vs. bonds (SPY vs. AGG). The most recent signal appeared on March 1, 2013, making it relevant to the market’s current risk-reward profile. DeMark charts and indicators are proprietary tools from Market Studies, LLC

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Insiders Selling Extended Market

Wednesday, February 6th, 2013

From a Mark Hulbert MarketWatch article:

This is worrisome because corporate insiders — officers, directors and the largest shareholders — presumably know more about their companies’ prospects than the rest of us do. If they were confident that the shares of their companies would soon be trading markedly higher, they wouldn’t be selling them now. Yet selling they are — at an alarming pace.

Market Leadership Still Questionable

Tuesday, February 5th, 2013

Sustainable rallies tend to be led by economically-sensitive and higher beta ETFs, such as small-caps IWM, emerging markets EEM, materials XLB, and energy XLE. The past few weeks have seen more defensive plays step up, such as Treasuries TLT, shorts SH, and consumer staples XLP. Despite the very impressive rally in stocks on Tuesday, so far this week the ETFs below are leading the market.

While a more typical “risk-on” leadership list may emerge later in the week, the list above is saying the market’s risk appetite is waning. Waning risk appetite is not good for stock rallies. Chasing the markets higher based primarily on the “fear of missing out” is not prudent.

We have been searching high and low for new ways to redeploy our recent gains. We can find stocks and ETFs that appear to have more upside. The problem lies in their potential downside after the market’s recent vertical ascent. If we can find something attractive, we are happy to make some moves.

Locked In Some China Gains

Friday, October 26th, 2012

Little evidence in hand concerning a flip back to risk-on. Consequently, we locked in a 7.95% gain on a portion of our China (FXI) holdings Friday. Recent tweets have some links and stats about Friday’s session. Will try to get a video out Saturday or Sunday. Kathy (an Auburn grad) and I are heading to AU vs. Texas A&M Saturday. Despite Auburn’s struggles, it should be fun.

Higher Highs Likely Before Year-End

Sunday, October 7th, 2012

Could stocks experience a pullback soon? Yes, but the evidence does not support a major top.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Why China Is Back On Our Radar

Thursday, July 19th, 2012

The iShares China 25 ETF (FXI) remains 26% below its 2010 high, leaving the door open to a possibly attractive opportunity to “buy low”. As we noted late in Thursday’s session, the short-term risk-reward ratio for most risk assets is unfavorable. Therefore, some patience may be in order relative to considering all new positions, including China. Like the United States and Europe, growth in China is slowing, which has prompted speculation that stimulus is on the way. From BusinessWeek:

“The government may use measures other than interest rates to boost the economy,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “There are some company earnings that are quite bad.” China’s Premier Wen Jiabao will probably decide to cut banks’ reserve requirements and encourage corporate lending as the cabinet meets to discuss efforts to revive economic growth, the swap market indicates. The Shanghai Composite has fallen 11 percent from this year’s high recorded on March 2 as two interest-rate cuts failed to assuage concerns that earnings growth will slow. The measure is valued at 9.7 times estimated profit, compared with the 17.5 average since Bloomberg began compiling the data in 2006.

From a technical perspective, FXI is trying to flip from a negative trend (red lines below) over to a positive trend (green lines). A formal trend change would be established if FXI clears 40, but we have seen enough to at least put China on our watch list. The chart below is a weekly chart going back to 2010.

The Chinese economy expanded 7.6 percent last quarter, which represents the slowest pace of growth in more than three years. From Gulf News:

China has “relatively large” room to boost fiscal spending to spur growth, Zhang Peng, a researcher with the Fiscal Research Institute at the Ministry of Finance in Beijing, said yesterday in an interview. China needs to adopt a “moderately easing” policy when growth is below 8 percent, the Shanghai Securities News reported on Thursday, citing Fan Jianping, chief economist at the State Information Centre.

As shown below, FXI has cleared two important moving averages on its daily chart. The green arrows show a higher high; the blue arrows highlight a higher low, which is indicative of a possible bullish turn. Downside momentum, or the desire to sell, has weakened as FXI was moving sideways from late May to late June. The waning bearish momentum can be seen in the slopes of lines B and C. We recently purchased crude oil based on similar divergences shown in early July.

Similar potentially bullish divergences appear on the chart below tracking China’s performance relative to the S&P 500 Index. The slopes of lines B and C below tell us to be open to a rally in Chinese stocks.

FXI’s 60-minute chart was a little extended at the close on Thursday. Therefore, some weakness in the next day or so would not be surprising. We would like to see any FXI pullback remain above 32.59.

Will Armageddon Come When Most Are Positioned For It?

Wednesday, July 11th, 2012

Some excerpts from a recent Yahoo Finance article that takes a contrarian view of the markets:

The 10 year Treasury yield was more than 2 percentage points higher after Lehman Brothers filed for bankruptcy in September 2008. Are things really more scary out there today than they were 4 years ago? “Around the world, the single narrative of collapse has taken hold,” says Ed Dempsey, chief investment officer at Pension Partners. “Everyone is positioned for collapse.”

In a note to clients Tuesday, Stifel Nicolaus’ David Lutz writes ”asset allocators at major retail firms have their equity weighting the lowest in over 15 years - well below 2009 levels which was a big mistake.”

“I’m not saying that the event can’t happen or it won’t happen, I’m simply saying that bond investors are positioned as if it [the cataclysmic event] has already occurred, and therein lies the opportunity,” Dempsey says, painting a scenario that could see the S&P 500 finishing the year with a 30-40% gain.

Next Pullback Could Yield Buying Opportunity

Wednesday, June 27th, 2012

We have no idea about: (a) what will happen in Europe over the next four days, and (b) the market’s reaction. We do know the DeMark exhaustion setups discussed at the 12:17 mark of the June 22 video below remain viable. Numerous markets could see exhaustion counts in the coming days. Stocks have not made a new high since early April. Even if the bears win in the end, counter-trend rallies can be strong and last several months. We have to be open to all outcomes, including another pullback followed by a respectable rally in risk assets.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video: Bull Bear Check Points

S&P 500: 1,266 Still Important

Friday, June 22nd, 2012

We are working on a video that continues to support a bull/bear demarcation line between 1,293ish and 1,250ish. The video should be completed sometime later today (if market conditions allow). This post and the chart below remain relevant.

More to come…

Spanish Yields May Bring Central Bank Moves

Monday, June 18th, 2012

Last week we noted Spanish bond yields and stock market momentum were still raising caution flags for risk assets. On Friday, stock momentum cleared an important level, but European yields are still headed in the wrong direction. The yield on a ten-year Spanish bond sits at 7.25%, which is something policymakers cannot and will not ignore. We can expect more bailouts and central bank action this week.

The Fed has a policy announcement Wednesday. The market is leaning toward an extension of Operation Twist, another in a long series of bond-buying programs.

Williams %R, a measure of momentum, closed last week at -51.11 on the S&P 500’s weekly chart, which is indicative of a bottoming process.

We showed the chart below on June 13. Williams %R (above) has now cleared both -56.86 and -53.92, which means we should be more open to a sustainable rally in risk assets. On subsequent weakness, we would like to see Wm %R remain above -62.

The text below was originally posted on June 13 - it explains the possible significance of Wm %R closing above -53 last week:

The noisy weekly chart of the S&P 500 below is easy to understand if you look at each piece in isolation. The top portion shows the stock market. The bottom portion shows a momentum indicator, Williams %R (Wm %R). The colored arrows are described in detail below the chart.

  1. The green arrows show stock market bottoms, or buying opportunities, in 2010 and 2011.
  2. The red arrows show “it’s too early to buy aggressively” signals from Wm %R. In 2010, Wm %R reached -56.86 on a false rally; in 2011 it reached -53.92. That tells us to be careful until Wm %R can close above -53.92 on a weekly basis.
  3. The purple arrows show “confirmation” that a bottom is in place. On the subsequent decline in stock prices, Wm %R stayed above -62, which was indicative of slowing downside momentum in stock prices. Significant gains in stock prices followed.

The charts we presented on Friday afternoon and the video from Sunday night also align with a possible bottoming process. As noted in the past, “process” implies time may be needed before a rally can take hold.