Monday, April 22, 2013

April 22nd 2013: SPX is range bound and down!

This weekend, I had an epiphany of sorts.  The stock market is just like Smokey and the Bandit.  The Bandit is constantly trying to steal your money and stay a few steps ahead of Smokey.  If I ever get my hands on the Bandit, I'm going to wring his filthy neck...



From the recent $SPX chart, it appears that we're range bound and down!  [sorry, i couldn't resist]

After 2 failed breakouts, the FORCE index has turned blood red as volume blew out last week.  I could point out the bearish divergences on the chart, the chorus of secondary indicators (like accumulation/distribution days, bullish percent indexes, summation indexes, new highs vs. new lows) but I won't.  It all boils down to price.  The box (range) that I'm looking at now is 1540-1600.  Ideally, I'd like to see a weekly close that exceeds one of those numbers and holds.  Nothing else matters.  If I were a betting man (and I am), I'd bet that we close down.  However, I'll keep my opinions out of this one and let price decide where it wants to go.

Here's the chart and box (range) highlighted in blue outline:


For more of my charts and to read a disclaimer, please see my public chart list on stockcharts.com:
http://stockcharts.com/public/1109955

Saturday, April 13, 2013

April 13th 2013: News flash! Gold miners are in trouble!

In case anybody missed it, gold miners are in trouble.  Energy costs are still relatively high and gold is getting cheaper.  Their costs for getting the metal out of the ground are going up - not down.  Ever helpful Goldman suggested shorting gold this week (but not 300 pts ago).  To make matters worse, large holders of gold and GLD (ex. John Paulson) haven't sold enough and GLD itself is selling into the market to match its index.  GLD has become the 6th largest holder of gold in the world behind France.  Canada, which has been historically known for gold production, has a paltry 3.4 tons of gold in reserve.  If GLD with 1158.56 tons of gold gets whacked 3%, that's equivalent to forced selling of ~34 tons of gold (or 10X Canada's entire holdings!).  But that's old news....

The big question is where do we go from here?  My short answer:  down (see chart)


Here's why:
  • We've broken a huge trading range to the downside that took ~3 years to construct.
  • There's an obvious head and shoulders pattern which projects much lower.
  • In terms of historical similarity, the peak of 54.69 in Oct 2012 looks similar to the peak of 50.70 in July of 2008.  Using similar price destruction estimates, projects to ~17.5(!)
  • We're into the monthly bar of the 15.48 low in Oct 2008 and often that leads to eventual testing of the low.
  • The US dollar was down this week.  Imagine how much gold would be down if the dollar was actually up(!).  What if it gets back to the old highs of $88-$89??
Here's what we need for a bottom:
  • ~1 month of rapid price destruction where almost every single day the price of GDX is lower.
  • Margin calls.
  • Large holders of GLD to throw in the towel.
  • GLD to get materially smaller.
  • Central banks to start buying heavily to counteract the compounding effects of GLD.
  • Calls of removing gold from "diversified" portfolios
  • Gold miners to announce they are stopping production en masse.


Sunday, April 7, 2013

April 7th 2013: Japan declares war on its own currency!

Does everyone hate their currency?  It certainly seems that way - at least in governments around the world.  The citizens that elect the governments might say otherwise, but I digress...

This week, Japan unleashed the world's most aggressive easing policy (so far).  They plan on DOUBLING their money supply from 135T YEN to 270T YEN(!) by December 2014(!).  In GDP terms, this equates to a 1% increase every month this year and increases to 1.1% every month next year(!).  To put this in perspective, the US is currently expanding its already HUGE balance sheet by 0.54% every month.  In short, Japan has just announced a 2-year war on its own currency and it won't quit until it achieves 2% inflation.  This is big news for Japan and currency markets, in general.

So, how could you play it?  Well, you certainly could go short the yen.  Either in the FX market or by an ETF like YCS (just be aware of the tax complications).

Another option is with a currency-hedged Japan ETF like DXJ.  This has been a popular trade already this year - especially with hedge funds.  Last week, we had a shakeout in DXJ which quickly retraced and closed higher after news from Japan about their new anti-Yen policy.  My take is that governments are bigger than hedge funds and this already crowded trade can get even more crowded with the government behind the move.

Let's go to the chart.  I already noted the shakeout which set-up the bottom edge of a nice box.  We reversed sharply on the news and had follow-through the next day to close up and out of the box.  In an uptrending market, upside box breaks act as continuation patterns and target a box length move to come.  That equates to a price target of $47.85 where I would lock in some gains and let the rest run with a stop.

For more of my charts and to see a disclaimer, please check out my public chart list at stockcharts.com:
http://stockcharts.com/public/1109955

Here's the chart:




Monday, April 1, 2013

April 1st 2013: Boring is the new high-beta???

I'm sure that I'm not the only one that's noticed that boring stuff is on a tear in the market.  Staples, Health-Care, Utilities, Low-Vol.......they're all red hot.  These are the sectors that are driving the $SPX higher - not momentum, not growth - boring is the new high beta.

Generally, at the start of rallies, we see things like small caps, the nasdaq, recent IPOs, etc. leading.  The fact that we're seeing boring stuff leading means that we're at the tail end of this leg higher.  To be clear, I'm not calling a top.  I plan on enjoying the ride while it lasts and focusing on the strongest sectors in the market place.

I could put up ratio charts of the SPHB:SPLV or XLP:SPY, but I think this one says it all.  Almost every week, the XLP is higher regardless of the noise out of Europe or political hand-wringing in the US or real estate bubbles in China.

Here's the chart:

To see more of my charts, please visit the public chart list section of stockcharts.com and see my disclaimer there, too.
http://stockcharts.com/public/1109955