December 27th 2013: So, what's in store for the market next year??

Answer:  How the heck would I know; I don't have a crystal ball.

Here's something that I wish someone had told me when I was younger:  most predictions for next year will be wrong.  Here's another one:  humans suffer horribly from bias.  They're biased by where they get their paycheck, they're biased by the need to predict the future, they're biased by recent history, etc., etc.  As an example, if Year 1 was up 25%, your friend the stock broker from big bank brokerage A will jump on TV and predict Year 2 will be up 10-15% based on X,Y, Z logical and usually fundamental arguments.  Similarly, the guy from the bear shop will say stocks are going to crash.  Every year, he'll say the same foolish thing and he'll be right 1 or 2 years out of 10.  The guy from the bond shop will say to buy bonds for the long-term to reduce volatility in your portfolio.  You can watch them on mute and fill in the words yourself because on average they'll all say the same thing depending on their individual biases, employers, and current portfolio position.

Anyway, my main point was not to rip on talking heads on TV....

I think it's much more valuable to talk about possibilities for 2014.  There's an important distinction between possibilities and predictions.  Possibilities offer a potential road map.  Predictions are an imperfect attempt at defining the future.  The key distinction for me is that the charts will tell me if I'm on the wrong potential path and I can get the heck out of the way.

Here's some possibilities for 2014 (and a brief rationale):
- $SPX:$USB ratio tags its 1999-2000 high of ~16.  (Trend is in place and can hit top of prior range - especially if money flows out of bonds and into stocks).
- $COPPER gets a bid after 3 years of neglect and runs up to the top of its range @ $4.50 per pound.  (Some nice bullish divergences showing on the monthly RSI(2) chart.)
- $XJY (japanese yen) continues to slide against major currencies until it finds support in the low 80's.  (Breaking down below $96 and trend is in place).
- $GOLD (& $SILVER) experience a vicious short-covering rally.  ($SILVER is finally outperforming $GOLD and historically, that's been a clue that prices can rip higher.)
- $TYX (30-year bond yield) hits 4.5%.  (Trend is in place and can hit top of prior range).
- $WTIC continues sideways between $115 and $75.  (Competing RSI(2) monthly chart divergences suggest range bound trade for now).
- $NATGAS surprises to the upside despite reports of large supply.  (Cup and handle target is close to old resistance at $6.11).
- Industrials, XLI, (led by shippers: SEA) outperform the $SPX in 2014.  (Trend is already in place for XLI, shippers could add more fuel.)
- Metals (XME, SLX) are surprise leaders for 2014 and play catch up to the rest of the materials sector.  (Monthly charts look bullish for the first time in 3 years).
- $VIX remains trapped in the 10-20 range.  Brief forays above 20 will be buying opportunities for equities.  (Monthly $VIX chart looks bearish to flat.)

So those are some of things that I'll be watching for in 2014.  IF the right set-up comes along, I'll be jumping on a few of these.  Good luck to all!

December 7th 2013: What's up with energy stocks?

Once again this week, there's too much for me to cover in a single blog post....

In no particular order:
- The relative out-performance of industrials &  health-care vs. almost every other market sector
- The relative out-performance of large caps on Friday (vs. small & mid caps)
- The relative out-performance of low-vol vs. high-beta on Friday (SPLV vs. SPHB)
- The accumulation day on Friday and what that means for the market (short version:  as long as Friday's lows hold, I expect a grind upward into year-end.  Accumulation/Distribution days act as anchor points.)
- Gold & Silver & related miners
- Bonds & Yields
- Trends in Natgas, Crude, and the Gasoline:Crude spread

The most surprising thing to me that happened this week was the action in energy stocks.  Forget IOC blowing up; check out the action in the former energy leaders.  For example, on Friday, the INDU's are up 200 pts and many of the former leaders in energy, including:  OAS, PXD, EOG, not to mention solar names, were getting hammered.  That's the epitome of poor relative strength in the face of rising oil prices and buoyant stock market - a big, giant red flag.  The large caps energy names (XOM, CVX) and refiners were holding up the whole sector so the headline prices of the energy index were well-contained, but the action under the surface was ugly.  It won't take much for the energy sector to completely rollover.  Technical indicators for the broader market suggest to me that the probabilities are for higher prices, but if we do rollover watch for energy to lead on the downside.  They also have the potential as a hedge while playing other sectors (like industrials).

Here's a chart:

Here's what I see:

- Poor RSI

- Nested box formation

- Small box is a tight range consolidation

- The bottom of the large box is the target on a break of the small box

For more charts and to read a disclaimer, please visit my public chart list on stockcharts.com....

http://stockcharts.com/public/1109955