I think this cartoon is hilarious. The stock market bears are out there and they’ve been dead wrong for years now. It’s been fascinating to witness.
Source:
Expert technical analysis of financial markets by JC Parets
by JC
I think this cartoon is hilarious. The stock market bears are out there and they’ve been dead wrong for years now. It’s been fascinating to witness.
Source:
by JC
I came across an interesting blog post this week that reminded me a lot about why I became a technician in the first place. I hit that fork in the road early in my career when I realized that I didn’t know a damn thing about making money in the market. “OK JC, we gotta learn something”, I told myself. So do I go the route of fundamental analysis and force myself to believe that the data we’re analyzing is the truth? Or do we study pure price action, where no one can argue the data is incorrect or false in any way?
If xyz closed at $12, then guess what? It’s worth 12. Why do I know that? Because buyers and sellers world wide took all of the known information available and concluded that it was worth 12. That’s what one side paid for it and another side sold it for. So I don’t want to hear about your cash flows and multiples and all that nonsense that means absolutely nothing when it comes to managing risk. Besides, all of that “fundamental” analysis is done using numbers that you can’t fully trust anyway. Who knows if they’re right? No one, and that’s a problem.
The post that reminded me of this dilemma came from The Zikomo Letter. Zikomo means “Thank You” in Africa, which I think is appropriate because I am, and we all should be, “Thankful” for this friendly reminder about which data we can fully trust and not trust. Here are a few gems I pulled from the post:
“Let us start with company-provided information. If the history of public corporations tells you anything, it is that anything a corporation tells you should be treated as a lie. Sometimes it is deliberately misleading, sometimes it obscures the truth, and sometimes it just lies to your face. If you do not believe me, then I point you to some of those who were caught: Enron and Lehman Bros stick in the mind, but the list is long.
Do not kid yourself that these are the rogues in an otherwise healthy bunch: every public corporation twists and tortures their information to meet their objectives. In a previous life I was a company auditor, and I can attest that there is plenty of scope for maneuver within the law.
…Just as pertinent are the revisions. Fundamental data is often revised. Corporations restate their earnings. GDP and employment figures are adjusted materially months later. If data can be revised long after the fact, it makes little sense to base investment decisions on the originally announced variable.
…Every computer programmer knows that if you input garbage, you output garage. Doing analysis based on discounted cash flows, or price/earnings multiples or supply/demand components is all well and good, but if you cannot trust the data, you cannot trust the output it produces.
…I use fundamental analysis every day. It can be an important part of the trading process. However, I treat all fundamental data with a strong pinch of cynicism, a healthy sense of skepticism and a highly-refined BS Detector. When placing my own money at risk, I think it is better to see the world as it is, rather than how I might want it to be.”
I think it was a great post and finishes up on an important note. It’s not that this fundamental data is completely irrelevant. It’s just that you need to be careful how much validity you give something that you can’t fully trust. Price however is pure. No lies. No BS. If xyz is at 12, then guess what ladies and gentlemen? It’s worth 12. Period.
Go check out the post in full at The Zikomo Letter
by JC
We’ve had quite the sell-off in Crude prices this week. Three days and 7% lower so far. But how long is this going to last? And was that it?
Taking a look at the chart below, it appears to me like we’re probably in store for more of a sideways boring market than anything else. And that’s OK considering we just saw a 30% rally in a couple of months. Corrections are normal and necessary. I wouldn’t force anything here on either side, long or short. Wednesday’s selling ended right at the 38.2% Fibonacci retracement from the June lows up to last week’s highs. This area also represents former resistance and consolidation that took place in July and early August. So it looks to me like some pretty decent support:
The problem I see is that flat 200 day moving average (red line) that we’ve had in this market for over a year. If you want a range-bound market, here you go. But it’s not for me. We’re looking elsewhere for time being.
Tags: $CL_F $USO
by JC
Sometimes we look at the major averages and can’t come up any strong conclusions about the short-term direction. There isn’t always a brilliant setup in terms of risk/reward. And that’s OK, there isn’t supposed to be. I see people constantly driving themselves nuts trying to decide whether to go long or short the S&P. But if you don’t know, chill out a bit and take a quick look under the hood.
We like to look at the components of the stock market to see what kind of information we can gather. If the market has rallied hard, and one might call it “overbought”, we want to see if the defensive names are showing some signs of a rally or bottom in terms of relative strength.Typically if the S&Ps are going to roll over and correct, you’ll find the defensive names rallying relative to the rest of the market. But we’re not seeing that strength yet in Utilities, Staples, or Healthcare – sectors that would outperform during a correction. In fact, we see weakness and zero signs of a bottom:
The bearish divergences that showed up in early summer helped with our bullish conviction on the overall market. If the stock market today was about to correct, we would expect to see the opposite occurring – but we don’t. $XLU $XLP & $XLV relative to the $SPY are showing oversold readings (bearish characteristics), new lows relative to $SPY (bearish characteristics) and no bullish divergences, just confirmations of downtrends (bearish characteristics). This is a good thing for the stock market.
Now turning it over to the more offensive sectors like Financials, Tech and Energy, we’re seeing bullish confirmations:
After the bullish divergences this summer, we now see overbought readings in RSI and multi-month highs in relative strength. All good things that tell us to stay in.
Sure, some may say that we’re overbought in the market – and we might be. But remember – that’s a good thing. This means there is clear evidence of an extreme amount of buyers. Is that such a bad thing?
So until we start seeing some divergences, we don’t see any reason to get bearish stocks as an asset class.
Tags: $XLU $XLP $XLV $XLF $XLE $XLK $SPY
by JC
Long time readers of this site know that we’ve consistently maintained a bullish bias when analyzing precious metals. The Dow/Gold ratio in particular is one of the more intriguing long-term charts that we look at. But today I would like to point to some recent comments made by Citi Technical Analyst Tom Fitzpatrick.
From King World News:
“You can still have corrections and track sideways occasionally, but to us the trend is solid. The pattern is quite clear, and we still believe this $1,791 area is really quite critical in terms of the next leg higher for gold, as well as the $37.48 level on silver.
When we get a weekly close through both of those critical levels, we anticipate that will give us an acceleration which will take us up toward the targets on gold to the $2,055 area (see chart below), and silver back to the old highs near $50. However, on a longer-term basis we believe we have a setup here which suggests that gold could continue to go higher for some time to come.
We’ve always been of the view, and are still of the view that gold is first and foremost a hard currency more so than it is a commodity. So the building blocks are there for gold to continue to go higher, not just against the dollar but against all of the other paper currencies as well.
Given the dynamics that we have in the background, the similarities that we to the 70s, we would argue the combination of the similarities, and the major difference which is the money printing being exercised by all of the developed world’s central banks, we can see gold continue to follow a trend equal in magnitude to what we saw in the 70s.
Ignoring the final move, which was caused by a Russian invasion of Afghanistan, we need to get to $3,400 just to replicate the core move seen in the 70s. We don’t see that, at the end of the day, as a particularly aggressive call.
When it comes to silver, if we see the moves we are looking for in terms of the next leg of the metals, which is $2,050 for gold and $50 for silver, then you are looking at a gold/silver ratio of around 41. This suggests the classic trade for silver to the upside as the ‘poor man’s gold.’
When gold breaks above $1,790, many people will feel they have missed the boat, and they will go to silver instead. So silver should outperform gold. People have to remember that we are only at the midpoint of the gold/silver ratio of the last 45 years. So it is not inconceivable that we could still go lower in terms of that ratio.
If we see gold move to the $3,400 level, it is not inconceivable that we may see silver closer to $100. Investors have to remember that at the end of the 70s the gold price doubled in a mere five or six weeks. If 3 to 5 years down the line we see that the base policy of the developed world is to continue printing money, then the gloves are off in terms of what levels gold and silver could actually go to.”
I can’t really disagree with any of this stuff. Most of what he says has been exactly how I’ve felt for years. The trend here is higher and has been for a long time. I don’t see any reason why we wouldn’t continue to give the bulls the benefit of the doubt in the precious metals space. And this goes for both absolute performance as well as relative to equities. I think it’s important to recognize and be cognizant of both of these ongoing trends.
Source:
Gold & Silver Will Smash Through All-Time Highs (KWN)
Tags: $GLD $SLV $GC_F $SI_F
by JC
Early last month we had said that it was “Show Me” time for commodities and the $CRB Index. We laid out the laundry list of resistance that this space had in front of it, and wanted to see the battle take place before jumping to conclusions. By this point, we had already come full circle from where we were earlier in the summer when commodities had underperformed equities for 9 consecutive months. Bottoms are a process, both relative and absolute, and we can see what a little dollar destruction can do to help these guys.
John Murphy over at Stockcharts.com put both of these charts up together so we can see just how much the US Dollar impacts commodities. That July “false breakout” in the dollar has created a sharp and fast move in the opposite direction. Take a look at how well commodities have done in that environment:
John Murphy:
“The Fed announced that it will purchase $40 billion a month in mortgage backed securities which adds to its holdings of long-term securities and ushers in another round of quantitative easing (QE3). The markets have all reacted in predictable fashion. The dollar and bond prices are falling while commodities and stocks are rising. Chart 1 shows the PowerShares Dollar Index Bullish Fund (UUP) threatening to fall below its spring lows. As is normally the case, the falling dollar is giving a strong boost to commodities. Chart 2 shows the DB Commodities Tracking Index Fund (DBC) climbing to the highest level in six months. It has also broken a down trendline extending back to May 2011. Not surprisingly, precious metals are leading the commodity charge. Economically-sensitive industrial metals are also rallying.”
Source:
Dollar Plunge Gives Big Boost to Commodities (StockCharts)
Tags: $UUP $DBC $CRB $USDX
by JC
Remember right after Labor Day when we were waiting for Net New Highs to stop declining? Wow that feels like a century ago. Just a couple of days after we were complaining that the internals weren’t confirming the new highs in price, boom – net new highs start to breakout. Right on cue.
At the time, we were worried that the divergence we were seeing was way too similar to what we saw in the Spring, just before the market corrected sharply. But, “no sir, not this time”, said Mr. Market. Take a look at the breakout in new highs just after our post that has certainly continued throughout this week.
And if you’ve been watching some of those sectors that were underperforming this summer, you don’t really even need to look at this chart. You can easily see the financials, Industrials and some of these other weak links no longer lagging.
Impressive stuff
Tags: $SPX $SPY $QQQ $DJIA $IWM
by JC
Today’s guest post comes to us from Alex Tarhini, a young trader that I’m proud to say I work with every day. And by trader, I mean analyst, strategist, tech superstar, portfolio manager and good friend. I couldn’t have written this blog post below any better. So I didn’t. He tells it like is:
***
I WAS WRONG!
See how easy that was? Apple just made a new high, and our trade idea didn’t work out. Of course one part did of it did, the stop loss. It was a simple trade where we knew we’d be wrong quickly but had a very good risk : reward scenario. Typically we want even more “check marks” in our favor to make it higher probability, but so what? Make the position smaller. Cut it off at the stop. Next trade.
The lesson here is that you need to be flexible. We were calling for a mean reversion back towards the 100 -200 day moving average. And so came out the AWNGDGS (Apple-will-never-go-down-
The point is that everyone gets trades right and wrong. What this entire game boils down to is if you are willing to admit it when you’re on the wrong side and sticking to the trade when you’re right. That’s it. Apple stock doesn’t care about you or me, so I don’t care about it. If we get another (hopefully stronger) setup in the name, maybe we will take it, or maybe we will get long. It doesn’t matter what side as long as we have our set up.
Never get married to a position, a theme, or a name. History says you’ll be wrong until you can’t handle how bad you’re wrong. So stick with discipline and be wrong small.
***
Well said Alex.
Make sure to follow him on Stocktwits & Twitter @tarhinitrade
Tags: $AAPL $FXE $EURUSD $UUP