Markets And The Super Bowl Indicator

Paul Vigna over at the Wall Street Journal asked me to come by this morning to discuss how important the Super Bowl Indicator is to the stock market. Fortunately 2013 is a win/win for this barometer as both the Baltimore Ravens and San Francisco 49rs franchises came from the NFL before the merger.

We jokingly went over the stats, but then had to get a little serious about how we’re actually positioning ourselves going forward:

 

 

Source:

Markets And The Super Bowl Indicator (WSJ)

 

Stocks or Commodities???

When we look at the various asset classes, we want to ask ourselves where we’d rather be? Bonds? Stocks? Commodities?

Today’s chart of the day has to be the S&P500 vs CRB Index. To me, it looks like we’re at a critical level of resistance where (for now) it appears that the smarter direction to lean is towards commodities.

1-30-13 CRB vs SPX

We’ll let prices guide us from here of course. A big piece of the $CRB index is in Oil. So let’s keep that in mind. Also, a bunch of these Ags have started to look attractive, so it makes sense to us. Meanwhile, the Transports, Small-caps and Mid-caps that led Stocks higher over the last few months have been diverging negatively vs the S&P500 and Dow Industrials.

Something to think about…

 

Related Posts:

Are Corn Prices Ready to Soar? (Jan 29th, 2013)

Metals vs Miners (Jan 24th, 2013)

Mid-Caps & Small-Caps at All-time highs (Jan 3rd, 2013)

Tags: $CRB $SPX $SPY $IYT $SPY $MDY $IWM $DJIA $DJP $DBA

 

NYC Appearance: Market Technicians Association February 12th

If you’re going to be in the New York City area on Tuesday February 12th, I’ll be speaking at the Market Technicians Association New York Chapter Meeting at 5:30 that night. There is no cost to attend and anyone interested in technical analysis is welcome to come.

For those who don’t know, the MTA holds monthly meetings around the world and invites a different guest speaker to each event. I’ve been going to these things for years and have learned so much watching some of the top technicians in the business get up there and share their wisdom with us. So it truly is an honor for me to be invited as the guest speaker.

During the presentation we’ll discuss Technical Analysis, of course, including some of our favorite strategies and setups. Then we’ll go over how we incorporate social media into our day to day activities. I think it should be fun and hopefully you’ll find some value in it.

***

Date:  Tuesday, February 12, 2013

Time:  5:30 – 7:30

Location:  The New York Society of Security Analysts

                            1540 Broadway – Suite 1010

                            New York, NY 10036

                            *Entrance on 45th Street between Broadway & 6th Avenue

 

Please RSVP to info@eaglebaycapital.com

 

I’m really looking forward to it. Hope to see you there.

MTA Members can Register online

 

Are Corn Prices Ready to Soar?

We’re watching these Corn futures very closely right here around 730. There’s a lot going on in this space and I think the daily chart for $ZC_F breaks it down nicely.

The first thing we notice is this giant symmetrical triangle that formed off the July lows and August highs. Prices in December were approaching the apex of these two converging trendlines and broke down pretty hard. The sell-off took prices below a rising 200 day moving average and down to last year’s former resistance. This level turned into new found support and Corn was able to recapture its 200 day Moving Average a couple of weeks ago.

1-28-13 ZC

The reason this chart is exciting is the fact that we’re back up towards this 5 month downtrend line and have been hanging out here for two weeks. This is now the 4th (5th?) attempt to breakout. And the catalyst that may allow for that may just be the false breakdown that took place between December & January.

The number to watch here has to 735. A solid close above that could set the stage for a nice move to the upside. Until we see that, I don’t think there’s anything to talk about. But when something like this sets up, we have to stalk it.

Meanwhile, we’re watching the Powershares DB Agriculture Fund $DBA. Corn represents over 12% of it. Last week this ETF briefly broke below January support, only to reverse much higher on Monday. This level also represents the 61.8% Fibonacci Retracement from the June-August move. This along with the bullish divergence in its Relative Strength Index confirms some of what we’re seeing from Corn. We were pointing to this on Stocktwits Monday:

1-28-13 dba tweet

Obviously a rollover in $DBA and/or lack of breakout in Corn above 735 and there’s no trade to be had here on the long side.

 

Tags: $ZC_F $CORN $DBA

Let’s Not Forget About Emerging Europe

As we watch the Germanys and Frances of the world break out to new highs, we wonder how some of the less developed countries are doing out there. Standard and Poors has an Emerging Europe Fund – $GUR with companies like Lukoil from Russia and Turkish Bank Garan. The concept is interesting but the chart is really what screams out.

We’re going on test #5 of this 44.5 – 45.5 level:

1-28-13 GUR

This is basically what Germany and France looked like in early December (see here). So it appears as though inevitably we should see a breakout. The question here is whether they’ve been lagging the others for good reason and will continue to do so? Or whether the emerging areas will be forced to play catch-up and begin to outperform?

Either way, it’s certainly an interesting chart pressing up against some important levels. This is something I don’t think we should ignore.

 

Tags: $GUR $EWG $EWQ $FEZ

Weekend Thinking Out Loud

There are a few things on my mind that I wanted to share with you guys. Nothing too crazy, just some thoughts from this week.

A big question that I think we need to ask ourselves is what would surprise us the most. In other words, what is it that could happen to this market (stocks or otherwise) that would catch me completely off guard. What’s the last thing that I would expect to happen this year, so I can prepare myself for such an occurrence. Right now I think it would have to be a stock market crash. I just don’t see that in the cards at this moment, and I would be really surprised if we saw more than a 20% correction. So I’m committed to mentally preparing myself for that possibility. What are you so sure of right now, that you might just be wrong about?

Let’s talk about Coal. Man I’ve been stalking these guys for months and not a single breakout to speak of. This space has been really disappointing (see here). A lot of the names have a solid base and plenty of potential, but they haven’t done anything. There are are two possibilities here; either the bases are bigger, and therefore we should get an even bigger eventual breakout. Or, if the stock market rolls over without these guys doing a thing, guess who’s going to get smoked the worst on the way down? These guys. Something to keep in mind.

Speaking of big bases, how about those Transports? Let this be a lesson to all of us. THE BIGGER THE BASE, THE HIGHER IN SPACE. We say this all the time. But we’re seeing this one take place in real time. Here were my thoughts on it in November. When something bases for that long, the resolution is extremely powerful. It has happened before and will happen again. We can’t ignore this stuff.

I went to the Rangers/Bruins game on Wednesday and had to miss my Hurricanes destroy Duke. Two things I learned that night. When you tivo a big game like that, make sure you turn your phone off because all of your friends will ruin it and give you the results (especially if it’s the outcome you want). And two, that guy Zdeno Chara for Boston just might be the biggest human being I’ve ever seen on skates. I grew up in Miami where there isn’t much (any) Hockey, but I do know that he is one scary dude.

And what about the Yen? This is the epitome of markets staying irrational longer than we can stay solvent. Here’s what I’m thinking. I think the long Yen trade will come simultaneously with the short US Equities trade. There have been some strong negative correlations here in the past and I think we could see it again. Ive had a 92 target for $USDJPY, but we could easily see it go further. Watch a turn on this one as a possible tell. The Nikkei keeps ripping and appears to be headed to 11400. Again, just my target and could go further, but a level to watch nonetheless.

I wanted to take this time to give kudos to Mr. Market. Remember, its #1 job is to frustrate as many participants as possible. For some time (too long?), the market was rewarding people for blindly throwing money at $AAPL. In just a few months, the stock has given back almost 40% of it’s value. Poof, it’s gone. It goes to show you that the market doesn’t care about your product(s) or how much cash you have on the books. As it shouldn’t. The market is here to punish you if you’re being lazy. And those that rode apple all the way down with no risk management in place have no one to blame but themselves. It’s Real Estate in 06, Financials in ’08. And I promise you that we will see it happen again in another space. And then again. And then again.

This takes me back to my first point. Asking the question about what would surprise you the most? I think for a lot of us last summer, it would have been that come January, the Stock Market would be at all-time, or 52-week highs depending on your Index of choice, while $AAPL was chilling on the 52-week low list. I may have been bearish Apple, but I did not see this massive dislocation coming. Kudos to the market once again for making us look like fools for thinking that Apple and the Stock Market would remain so positively correlated.

Speaking of fools, how foolish are all those NFL teams for passing on Colin Kaepernick. Is this kid fun to watch or what? And big time props have to go out to Jim Harbaugh for benching Alex Smith, who was having a terrific year, to put in young Kaepernick. That had to take a lot of guts. Good for him and good luck to both of them next Sunday.

What about Bonds? Everyone is waiting for this turn in the Bond market, a secular turn nonetheless. We’re talking about a 30 year bull market folks. This turn is not an event, it’s a process. It’s going to take time. Trust me, when it turns, you’ll know. I think the risk here is that yields see 1%, not 4%. Just a thought, but everyone is waiting for this turn. Everyone is trying to short bonds (including myself). And listen, there will be and have been some awesome short Treasuries trades. But as far as the secular Bull market being over? Don’t fight the fed, let it happen. It’s a secular shift, not cyclical, so you’ll have plenty of time to participate. But it will come when you least expect it, not as everyone is waiting for it.

Finally, my last thoughts are on the market of stocks that we all get to participate in again. It’s been a cliche for a long time that this is a “market of stocks” and not a stock market. But we had lost that for a while with those ultrahigh correlations. Isn’t it nice that we get a soaring Netflix and RIMM, with Coals doing nothing, Apple getting destroyed, and Financials making new relative highs? There are places to be and places to stay away from again. It seemed like for a while that would never happen again. It was that whole risk-on, risk-off nonsense. We laugh about it now, but a few years ago if you wanted to know how your Microsoft stock was doing, or your Oil long, you had to look at the Euro. What a joke. Happy to be back in a fun market again.

Have a good weekend everybody!

 

Tags: $KOL $RIMM $NFLX $XLE $EWJ $IYT $DJT

Metals vs Miners

Wednesday afternoon I had a nice little back and forth about the markets with my friends Phil Pearlman and Josh Brown using Google Hangout. We discussed the Apple earnings, the Netflix rally, and then some of our favorite trades. I know I might be boring and everything because I don’t tell sexy stories, but my vote was for a the continuation of the precious metals vs miners pair.

Last summer I wrote a post about the long-term trend in this beast, and it continues to work through today. The argument might be that we just don’t need gold mining stocks as a vehicle to get long gold since we now have the $GLD, one of the biggest ETFs on the planet. At the end of the day it doesn’t matter why, but the $GLD:$GDX pair continues to work.

Here’s the chart going back a couple of years:

1-24-13 GLD vs GDX

I think it’s pretty clear that the pair is breaking out to the upside above a pretty standard flag/downtrend channel. This week the pair also took out the horizontal resistance going back to this Fall.

Fueling the breakout was that false breakdown in September (circled in Green), along with upward sloping 50 & 200 day moving averages. The first measured move is probably somewhere around 4.10 based on the height of the channel. There should be should be some horizontal resistance left from those two peaks in July at 3.80 and May at 3.90. We’ll be watching the pair’s reaction to those areas to see if they consolidate nicely in order to add.

Risk management-wise, we’re watching this horizontal resistance that was broken this week. We definitely want to see them hold on to that for this breakout to be valid.

The leader in this metals vs miners world has to be the Platinum vs Junior Miners pair. If you can stomach the volatility, this has certainly been the better one. But if you can’t, I would at least watch $PPLT:$GDXJ as a guide for the more conservative pair. Either way, I think they just make sense. And the best part, to me, is the lack of correlation with anything else. This one is in a world of its own. We love that.

 

Related Posts:

Will Platinum Start To Outperform Gold? (Dec 4, 2012)

Decision Time For Gold Is Approaching Quickly (July 29, 2012)

Tags: $GLD $GDX $PPLT $GDXJ $GC_F $PL_F

 

Is Aussie Dollar Ready To Rock?

Take a look at the Australian Dollar vs the US Dollar. Nothing here tells me to be short Aussie, and everything is telling me to do the opposite. We don’t have a breakout to speak of just yet, but it certainly appears that one is coming. Let’s get right to the charts.

The first one is a monthly $AUDUSD bar chart showing a breakout above the 2008 resistance and a successful retest of that new found support in 2011 and then again in 2012. These retests took the form of a potential symmetrical triangle formation that would give us a measured move in Aussie up to 1.22 (17 point base 0.94 – 1.11 added to a 1.05 breakout).

1-23-13 audusd

Now, we certainly don’t know that this indeed is the breakout, but we’re really watching closely. Here are the weekly bars for the same chart. I think if it starts to take out 106.23, which represents the September highs, that would be some pretty solid confirmation of a continued uptrend:

1-23-13 audusd weekly

Now to the downside, I would like to see it hold 104.6, or there is some more downside risk to 103 and even 101.50. Fortunately we have the ability to be patient with this one, because if we do breakout, I think there will be plenty of opportunity to jump on board. We don’t have to be the first ones in.

 

Tags: $AUDUSD $FXA

Comparing This Dow Rally To Others

With the US Stock market ripping higher, it’s always fun to compare it to similar rallies throughout history. Currently, this move in the Dow Jones Industrial Average off the 2009 bottom is in fourth place when adjusted for Inflation/Deflation. The comparisons here are nicely done by Doug Short and take us back to 1896:

“The charts below compare the current Dow recovery since the March 2009 low with fifteen other major recoveries dating from the origin of this legendary index in 1896.

At this point the Dow is 974 market days beyond the 2009 low. The last time I checked, in mid-September, the index had risen to a solid third place in our Sweet Sixteen competition and was very close to overtaking the Dow rally off the 1921 low. Now, 83 sessions later, the current level is a nominal gain of 108.5% since the 2009 trough, which is a new interim high. However, since we’re comparing such a diverse set of market eras with such a wide patterns of inflation/deflation, the real numbers provide greater comparative insights.

The three rallies with higher real gains at the equivalent post-trough point were the troughs in 1932, 1982 and 1921”

1-22-13 dow recoveries since 1896

What I find the most interesting about this study is that of the other 3 periods of time beating the current rally (1932, 1982 & 1921) all of them kept going much higher beyond their 1000 day mark. Something to consider I suppose before calling something “overbought”.

Make sure you go check out the full post at Advisor Perspectives

 

Tags: $DJIA $DIA $YM_F

Why Does Technical Analysis Make Some People So Angry?

Why does a discussion about technical analysis bring out such anger in some people? I’m always so amazed at how quickly a form of market analysis gets dismissed by certain members of the investing community. Is there something criminal about analyzing price action or market sentiment that I’m not aware of? How do people manage risk in a portfolio without studying prices? It must be extremely difficult, if not impossible. And if you’re one of those people that figured out a way to do it, great. I won’t ever tell you to stop if it works. But I’m more of a keep it simple stupid, common sense sort of guy. If I want to manage my risk, I’m going to look at supply and demand to find areas where demand deteriorates (or supply if we’re short). To me that’s as basic a solution as getting glass of water if I’m thirsty, or eating something if I’m hungry.

1-21-13 angry manThe reason I bring up this anger is because I see it whenever a discussion about technical analysis comes up in the in the media, both social or otherwise. My friends Phil Pearlman and Josh Brown each put up blog posts this weekend about Technical Analysis. The Comment section in these posts are hilarious. And it’s not just in these blog, I’ve witnessed this for a long time. It’s amazing how misinformed some people are about what technical analysis is and what it isn’t.

Guys, backtesting MACD and not coming up with a profitable outcome does not mean technical analysis doesn’t help manage risk. Think about how ridiculous that sounds. First of all, I am a full time market technician and have never used MACD once. And even if I did, it would be just one of many many data points that I would consider before making a decision. Anyone who uses one indicator to make all of their decisions will inevitably go broke. And this may seem like common sense, but you’d be surprised at some of the things I read out there.

Let’s go over one more time what technical analysis actually is. As I mentioned before, it is NOT looking at one indicator and making all trading decision based off it. It is NOT looking for cup and handles and head and shoulders patterns. It is NOT voodoo with circles and lines. It IS the study of the behavior of the market and its participants. I am a technician. At our shop, we look at all asset classes, not just stocks, but commodities, currencies and fixed income markets. There is information that we generate from these intermarket relationships that I promise you will not be found in a balance sheet, income statement or company conference call. We look at market sentiment, and not just retail investors, but institutions, sell side analysts, commercial hedgers and financial advisors. There are trends in seasonality that if you ignore, you’re only hurting yourself. And all this before we’ve even looked at the most basic form of securities analysis: supply and demand.

Guys, Supply and Demand has run the world since the cavemen. This is not voodoo. If there is more demand than supply, guess which way the asset in question is going to go? Is this not common sense? Am I missing something? Is there something crazy about watching price action to find areas where demand clearly dominates supply? Or recognizing that every time a stock, or Oil, or Aussie Dollar gets to a certain price area, the sellers come in hard? These are signs of an abundant amount of supply. I think these are pretty basic solutions to risk management. No?

I know this argument will never end. We’re all human and stuck in our ways. I for one, will never have any respect for the Florida Gators or the New York Jets. I just won’t. Never have, never will. I guess those journalists, fundamental analysts, and academics that have criticized the act of analyzing price to manage risk are going to continue to do so. There’s nothing anyone can do about that.

But please, for goodness’ sake, do yourselves a favor and at least get it right when you criticize it. Do your homework about what it is that you’re even talking about before you start arguing against it. Like Biff said in the movie Back to the Future, “You sound like a damn fool when you say it wrong”.

Technical Analysis, behavioral finance, the study of the market, whatever you want to call it helps manage risk. That’s it. We’re not doing magic tricks. But ask yourself a question: does momentum in something moving eventually slow down before it reverses? So isn’t it obvious that we should probably look at momentum in the stocks we own to make sure that it’s not slowing down? I don’t know. Call me crazy. I’m almost speechless sometimes at the lack of common sense in some of the things I have to hear or read.

And can someone please explain to me why people get so angry about technical analysis? Where does this hatred come from?

 

Also See:

On The Absence of Formal Technical Analysis Education (Phil Pearlman)

Academia vs Technical Analysis (ReformedBroker)

Equal-Weighted Indexes Are Winning

It’s important to understand how our favorite averages are being computed. Some are Cap-weighted like the S&P500 and others are price weighted like the Dow Jones Industrial Average. I always find it funny that $IBM is over 20 times more important for the Dow than Alcoa ($AA) only because one is $190/share and the other is just $9. But the averages doing the best during this bull market are neither one of these. The winners here are the Equal-weighted averages that give each stock in the index the same value.

Last month we pointed to the Nasdaq100 Equal Weight Index making new highs, while its Cap-weighted counterpart ($QQQ) was being held back by the bear market in $AAPL. Pull up the charts, nothing’s changed since that post. Just higher highs from the Equal Weight Index and more underperformance out of Apple and the Triple QQQs.

Today I wanted to take this notion a little bit further and look at the Equal Weight S&P500 ($RSP). Carl Swenlin has a killer post up this weekend breaking down the differences:

I have long been a cheerleader for equal weighted indexes versus cap-weighted ones, and now seems like a good time to demonstrate why. In a cap-weighted index stocks influence the price of the index based upon their market capitalization (price time number of shares). For example the top 50 stocks in the S&P 500 Index represent about 70% of the index value, with the remaining 450 stocks providing only 30%. With an equal-weighted index all stocks carry the same weight — all the horses are pulling the wagon.

Below is a chart of the Guggenheim (formerly Rydex) S&P500 Equal Weight ETF. Look at the Equal Weight taking out and pushing beyond its 2007 highs while the $SPX continues to trade well below it. According to Swenlin, the S&P500 is up 114% from its 2009 lows. Meanwhile, the Equal Weighted version is up 175% during the same period. The 3rd chart below shows the relative performance between the two ($RSP:$SPX) since 1999:

1-20-13 Cap vs Equal Weighted spx

Swenlin makes a good point in that the Equal Weighted Averages may not always be the best choice as they tend to move faster to the downside than their Cap-weighted counterparts. But in Bull markets, they clearly deserve some close consideration. I think this chart above shows that well.

 

Source:

Equal Weighted Beating Cap Weighted Again (StockCharts)

Tags: $SPX $SPY $QQQ QQEW $AAPL $IBM $AA $RSP

Wall Street is Still Bearish

The stock market might be making fresh nominal highs, but Wall Street strategists aren’t yet buying into the hype. Historically this is great for stocks, because sell side consensus is usually wrong. We look at their stuff as contrarians and shoot to position ourselves in the opposite direction, as long as our risk management procedures allow for it of course. So when strategists have been extremely bullish in the past, we look at that as a reliable sell signal. The same goes for times when they’re too bearish. This is typically the best time to ignore the pessimism and do some buying instead.

Bank of America Merrill Lynch has a Sell Side Indicator that measures Wall Street’s consensus equity allocation. Their model closed out the year at 47.0, which is still near a historic low. This is telling us that although equities keep melting up, bearishness on equities remains at extremes and firmly in “Buy Territory”, according to the model (click chart to embiggen):

1-18-13 sell side consensus indicator

This data goes back to 1985 and hit an all-time low this past summer. As you can see, we haven’t bounced much. Historically when the indicator falls below 50, total returns over the subsequent 12 months have been positive 100% of the time. BofA/ML’s model suggests a 26% 12-month price return based on the current bearish sentiment readings.

I felt this was an interesting take as we hear some of the opposite things out there on The Street: Citi’s technician Tom Fitzpatrick sees the current price action as too similar to 2007, the VIX is at multi-year lows and short interest is falling fast. It’s important to us to make sure we consider both sides.

 

Source:

Sell Side Indicator Jan 17, 2013 (Big Picture)

Tags: $VIX $SPY