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From: Number Sleuth
Source:
All The World’s Gold (Chartporn)
Tags: $GC_F $GLD $GDX $GDXJ
Expert technical analysis of financial markets by JC Parets
by JC
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From: Number Sleuth
Source:
All The World’s Gold (Chartporn)
Tags: $GC_F $GLD $GDX $GDXJ
by JC
by JC
Uh-oh, Investors are getting complacent again. The new sentiment data is out and the number of optimistic Newsletter writers rose back above 51% this week. This means there are more investment newsletter writers positive on equities than we’ve had since May of last year. Bulls reached 57.3% on April 5, 2011 and the stock market peaked later that month. From a contrarian point of view we’ll chalk this one up as a negative for equities, at least for the short-term:
From Bloomberg:
The 12 percent rally in the Standard & Poor’s 500 Index since November has pushed optimism to a level last seen when the U.S. stock market began its biggest retreat since 2009.
The proportion of investment newsletter writers who are optimistic on equities rose to 51.1 percent this week, the highest since May, according to a report from New Rochelle, New York-based Investors Intelligence yesterday. Last year’s peak in bullishness was just before the market’s top in April.
Some analysts say sentiment serves as a contrary indicator given that optimistic investors have already purchased shares, leaving less money to help drive prices higher. The S&P 500 ($SPY) has climbed in four out of the past six weeks, touching a five-month intraday high of 1,296.46 on Jan. 10, as data on manufacturing and employment raised optimism the world’s largest economy will weather Europe’s sovereign debt crisis.
“Sentiment is getting more extreme,” Arthur Huprich, an analyst with Raymond James & Associates Inc., wrote in a note yesterday. “Trading will remain choppy, especially as overhanging selling pressure looms.”
Bulls reached 57.3 percent on April 5, 2011. At the end of that month, the S&P 500 hit its 2011 peak at 1,363.61 before plunging as much as 19 percent through October. It has since jumped 18 percent to 1,292.48.
Michael Krauss, head of technical research at JPMorgan Chase & Co., said S&P 500 faces “resistance” at the 1,305 to 1,318 range. A failure to break through these levels may lead to a loss of 50 to 100 points in the S&P500, he said.
“The sentiment in the market is somewhat hopeful, but there is a lot of fear in the background,” he said in a telephone interview yesterday. “I’m not expecting a crash, but I could see a risk-off trade in February, March.”
Also See: AAII Invividual Investors Survey (Bespoke)
Source:
by JC
Losers Average Losers: Misconceptions of Dollar Cost Averaging (JoeFahmy)
Why a Short-term Decline is Highly Probable (SlopeOfHope)
S&P500 Percentage of Stocks Above 50 Day Moving Average (Bespoke)
Greg Harmon: US Equities are Benefiting from China $SSEC (DragonflyCapital)
Essential European Charts – Are We About to Breakout Soon? (ZeroHedge)
Vulcan Materials $VMC Hard Like a Rock (ZorTrades)
Secular Shifts: US Dollar, $CRB Index, S&P500, Govt Bond Yields, Silver (MarketAnthropology)
Robert Sinn: $70 Crude Oil is a Thing of the Past (StockSage)
John Melloy: Highest Close Since July Could Fuel More Buying (CNBC)
Biotech Fever $GILD $CELG $AMGN $AGN $BIIB (UpsideTrader)
Oil vs Natural Gas Ratio Goes Parabolic (Bespoke)
Louise Yamada: Gold & Silver Bulls Continue to Stampede (KingWorldNews)
Cable Could Finally Be Rolling Over $GBPUSD (PeterLBrandt)
Recession Odds Are Plummeting (PragCap)
This is How You Can Create Your Own Luck (ILoveCharts)
Tags: $GLD $GC_F $SLV $Si_F $SPY $CHINA $FXI $CL_F $USO $DJP $UNG $NG_F
by JC
Not sure if you’ve noticed, but there are a ton of stocks out there that look just like this:
I was walking down Broad Street yesterday with JB (@reformedbroker) and I was telling him about this. He laughed when I mentioned some of the names specifically. But of course he laughed – these stocks got destroyed last year. But if they aren’t going to zero, guess what – they’ll probably revert to their mean.
Josh brilliantly asked, “yeah but the 200 day can go down to meet price too right?”. And I said “sure, but the moving average is twice the current price”. We have a long way to go before the reversion to the mean process is complete. Also, don’t forget, we’re in a reversion beyond the mean business – they typically overshoot.
I’m also seeing bullish divergences in the RSI for these stocks. The recent lower price lows made in December are diverging bullishly with their Relative Strength Indexes by putting in higher lows.
I cut out the names and and prices of these stocks just to make the point: there are a ton of stocks out there that look just like this. If the reversion to the mean process has begun, there is still plenty of momo left. Here’s another example:
by JC
Here is my recent article for the Trading Deck at MarketWatch.com
By J.C. Parets
You hear about it everywhere you go: Santa Claus rally, January Barometer, First Five Days Indicator. These are all signs of a new year.
Some market participants find it pointless to remember that the market behaves in different ways during certain times of the year. But I think you’re selling yourself short if you ignore the fact that stocks do act in predictable seasonal patterns. The bottom line is that these patterns occur far too frequently to be just a coincidence. How else would you explain the fact that all of the stock market gains since 1950 have been during the months of November through April, compared to a loss May through October? (Think about that for a second before you keep reading)
With the Santa Claus rally boosting stock prices into year end, we can check that off and turn our attention now to the ‘First Five Days Indicator’. According to the Stock Trader’s Almanac, the last 38 “UP” first five days of the year were followed by full-year gains 33 times. This is an 86.6% accuracy ratio and a 13.9% average gain in all 38 years. I think these stats are nice to keep in mind as we close out the ‘first five days’ of 2012 with a 1.8% gain for the S&P 500 ($SPY).
Going forward, the final tally at the end of January should give us some further insight as to how the rest of the year should turn out. History shows that, as January goes, so goes the year . In other words, if the S&P500 closes positive for the month of January, then there is a high likelihood that the rest of the year should close in the black. According to the Trader’s Almanac, since 1950 this indicator has an 88.5% accuracy ratio.
There are some good reasons for this too. It isn’t just obsessive compulsive data mining like some casual market observers might believe. Remember, it is important for there to be correlations WITH causation. In the case of January, investors have typically just gone through a period of tax loss harvesting. By selling their dogs and going into the new year with some cash, they need to question whether they want to put money to work right away (if they believe the market is going to do well for the full year), or take a more conservative approach (if they are less optimistic about the new year).
If investors are willing to put money to work right away, not just for the month of January, but also in the first five days of the year, this shows conviction and a risk appetite out of an investment community that stands to benefit by holding on to stocks for a full year in order to receive the long-term tax benefits.
You can use the same logic to figure out why the top performing industries in the market for the month of January typically outperform the S&P 500 over the next 11 months. Sam Stovall from Standard & Poors does some great work on this indicator and calls it the, “January Barometer Portfolio”.
Seasonality is just one tool of many for a technical analyst. We analyze the behavior of the markets in order to give ourselves the best chances possible to manage risk while also trying to position ourselves to profit from market movements. This is a very difficult task.
Now it doesn’t always work out exactly the way history has shown, but the statistics are too convincing to ignore. In fact, according to the Stock Trader’s Almanac, every down January in the S&P 500 since 1950, without exception, preceded a new or extended bear market, flat market, or a 10% correction. If those numbers don’t make you look at least a little bit closer, then I don’t know what will.
If you had the choice of either having Jose Reyes and Ryan Braun in your batting lineup or on the other team’s line up, which would you choose? Well with those two guys leading the National League in batting average last year, I would hope that you’d choose to have them on your squad. Of course, in a given game can these guys go 0-8, and the minor league subs on the other team each hit for the cycle? Sure, but would you put your hard earned money behind that or would you prefer to be in the direction of the trend? (correlation with causation)
When analyzing these seasonal tendencies, we’re not going all in or making bold predictions about future market prices. But understanding the behavior of the stock market during certain times of the year can only help us to manage risk, and that is all we can ask for.
So far so good for the S&P 500 this year as the Santa Claus rally and First Five Days Indicator are showing positive signs for 2012. More importantly, the leadership has been in the right places. The best performing sectors of the year have been Basic Materials, Financials, and Industrials. The weakest areas have been in the defensive names like Staples, Healthcare, and Utilities. The market is telling us that money wants to flow into stocks and more specifically, into the offensive sectors. You want to see more of the same if these January Indicators are going to be proven right come a year from now.
Source:
Do Not Ignore Seasonal Trends (MarketWatch)
by JC
I just came across an excellent post by Evan Lazarus from T3Live. As I read through his Bio I learned that he graduated from the University of Miami (I’m a huge Canes fan) so I had to put it up. Definitely worth the read – loved the comparison to skiers. Nice job Evan.
I have been a trader for about 14 years and in that time period I have seen many strategies fail because traders only have to have a couple losing trades in a row before they throw out the whole system and go back to trading on impulse. Once a trader gets into this situation, they tend to head in a downward spiral and quick. Our emotions tend to get people in at dead highs and then our emotions tend to get us out at the dead lows as we continually buy tops and sell bottoms out of impulse, panic and fear. It is this cycle that tends to happen over and over again. Additionally, this cycle WILL NEVER STOP.
The stock market (and all financial markets for that matter) naturally take advantage of and prey upon our human nature, especially when it comes to greed, hope and fear. The key is to remember that the biggest movements in the markets occur not when traders “feel like buying.” They occur because groups of traders (and machines programmed by humans) are all getting smoked at the same time and are forced out of a position. In reality, traders are not trading the stocks, futures or options. They are trading other traders. The very fine line that separates the profitable traders from the herd is that those that learn to be aware of the psychology and emotions behind the person taking the trade on the other side. The herd (or the average market participant) only understands their own side of the trade. The stronger minded traders (code for profitable trader) understands what’s happening on both sides and understands how to take advantage of human weakness, and therefore they are able to grind most others into the ground. In short, winners take money from losers. I know this may sound harsh but in a business or up, down or sideways, sometimes it just that basic.
Good skiers rarely worry about a route down a mountain. They just go, confident that they’ll react to changes in the trail as they come upon them. It’s the same thing in trading: Traders have to have the confidence in their technique. That’s the beauty of mustering the right mindset before a trader starts the day. This enables you to feel like a good skier, nice and relaxed for the next unexpected turn.
Source:
by JC
I was taught early in my career not to disregard my trendlines once support (or resistance) is broken. More often than not, these extended trendlines come back into play at some point in the future.
Now remember, we like to draw our trendlines with crayons and not sharp pencils, so we use this strategy to find potential ‘areas’ of support or resistance. This is a logarithmic chart of the S&P500 with two former trendlines that I extended:
And here is a closer look:
The intermediate-term red uptrendline matches up the 2010 peaks with the 2011 troughs. It was finally penetrated around the holidays after failing at every attempt throughout the Fall.
The Longer-term blue trend-line takes us from the 2009 July lows, up through the 2010 summer lows where the market found support in June and then again in August. This trendline turned into key resistance this August and is coming into play once again today.
These trendlines are supposed to be drawn with crayons, and theoretically should be a little bit thicker, but I think the charts still get the point across.
Remember to extend your trendlines.
Tags: $SPY