Why US Stocks Are Dirt Cheap

JT with Tesla

Once again, the hedge fund industry got it completely wrong. Once they loaded the boat with shares in September, the stock market launched on a long awaited 10% correction, the first in three years. Remember when congress forced the US government to nearly default on the national debt? That was the last time we saw one of these. After promising all year to buy the first 10% … [Read more...]

Bidding for the Stars

Fishing Nets

A few years ago, I went to a charity fund raiser at San Francisco’s priciest jewelry store, Shreve & Co., where the well-heeled men bid for dates with the local high society beauties, dripping in diamonds and Channel No. 5. Well fueled with champagne, I jumped into a spirited bidding war over one of the Bay Area’s premier hotties, whom shall remain nameless. Suffice to … [Read more...]

My End 2014 Stock Market Forecast

Uncle Sam - Fist

If anyone had any doubts about the future direction of stocks this year, you better take a look at the chart below for the S&P 500. It shows a very convincing trend upward at almost a perfect 45-degree angle going back for the past year. The range is 100 points wide. It’s almost as if an architect drew it with drafting tools. To take maximum advantage of this trend, you … [Read more...]

Why US Stocks Are Dirt Cheap

JT with Tesla

Many commentators are warning of a top, a bubble and Armageddon to come in the stock market. There has not been a 10% correction in the indexes since the debt ceiling crisis three years ago. But I think that we are just getting started. Share prices have the rocket fuel for the Dow average to make it to 18,000 by the end of 2014, and possibly 100,000 by 2025. To understand … [Read more...]

The Twelve Day Year

Man Sleeping on Couch

I have reported in the past on the value of the Friday-Monday effect, whereby the bulk of the year's performance can be had through buying the Friday close in the stock market and then selling the Monday close (click here for “The Friday-Monday Effect Exposed”). Well, I have discovered a further distillation of this phenomenon. During 2010, the S&P 500 rose by 143 points. … [Read more...]

Bonds or Stocks: Who’s Right?

Wrong-Right  Sign

Treasury bonds spike to new one year highs, closing at a 2.40% yield, and trading as low as a 2.30% yield in the overnight market at one point last week. Clearly, serious deflation is continuing for the indefinite future. Buy more bonds! US corporate profits are at all time highs, just closing one of the strongest reporting periods in history. What’s more, the outlook they … [Read more...]

Why I’m Covering My Stock Shorts

Putin

I’ll take the home run, thank you very much. Ten handles in the (SPY) on the downside in ten days totally works for me. We have milked this trade for all it’s worth, so it’s hasta la vista baby! Thank you Vladimir Putin! This is not a bad place to de-risk on the short side in stocks. Take a look at the charts below, and you will see a convergence of 100 day and 200 day support … [Read more...]

Mad Day Trader Jim Parker’s Q3 Views

Jim Parker

The stock markets are on the verge of a small correction, perhaps less than 5%, which should unfold over the next six weeks. There is just not enough juice in a mini crisis triggered by one lousy Portuguese bank, the Banco Espiritu Santo, to take us any further. Bonds globally should put in their highs for the year during this period. After that, it will be off to the … [Read more...]

Why is the S&P 500 Beating the Dow?

Mickey Mouse

I often see one stock index outperform another, as different segments of the economy speed up, slow down, or go nowhere. Sometimes the reasons for this are fundamental, technical, or completely arbitrary. Many analysts have been scratching their heads this year over why the S&P 500 has been moving from strength to strength for the past year, while the Dow Average has … [Read more...]

Time to Take Another Ride with General Motors

Corvette

It is safe to say that all of the bad news is finally in the price at General Motors (GM). In the wake of the latest batch of recalls last week, the total number of cars slated for mandatory repairs now equals virtually all of the company’s production of the last five years. Woe to the outside supplier who provided those faulty, but cheap ignition switches to the beleaguered … [Read more...]

Why I’m Selling Short Treasury Bonds

Shocked

This has really been one of those incredible, jaw dropping, knock your socks off kind of years. It seems like every asset class is doing exactly the opposite of what it should do. A slowing economy delivered a huge move up in bonds, which is fine. The extent of the damage the harsh winter wrought on the economy was confirmed this morning, with a full one-point drop in Q1 … [Read more...]

Watch Out for the Head and Shoulders

Head & Shoulders Shampoo

Every technical analyst in the world is pouring over their charts this weekend and coming to the same conclusion. A “head and shoulders” pattern is setting up for the major indexes, especially for NASDAQ (QQQ) and the S&P 500 (SPY). This is terrible news for the stock investors, as well as other owners of risk assets like the US dollar, commodities, and real estate. It … [Read more...]

Piling on the Shorts Again

Burning Building

This is a bet that the S&P 500 does not rocket to a new all time high by the May 16, 2014 expiration. The news flow this morning is giving us an opportunity to re enter the short positions that I covered on Friday. Half of the opening 80-point pop in the Dow came from Citibank (C), which surprised to the upside with its Q1 earnings report. We also got March retail … [Read more...]

Where’s This Market Bottom?

Girl with Chopsticks

After yesterday’s 267 point swoon, the S&P 500 (SPX) has fallen 4.2% from its late March peak. It looks like the “Sell in May” crowd, of which I was one, is having the last laugh after all. Is this a modest 5% correction in a continuing bull market? Or is it the beginning of a Harry Dent style crash to (SPX) 300 (click here for the interview on Hedge Fund Radio … [Read more...]

A Very Bad Chart Day

monks

I spoke to the best traders I know in the market Thursday night, and to a man they said the market looked terrible. Although prices were high, the momentum was totally gone and volume was shrinking. Worse, these conditions prevail as we head into May, the onset of the traditional “RISK OFF” season (click here for “The Hard Numbers Behind Selling in May”). Best case, it … [Read more...]

Mad Day Trader Jim Parker’s Q2 Views

Jim Parker

Mad Day Trader Jim Parker is expecting the second quarter of 2014 to be an uneventful, low volume, range trading affair. There is insufficient momentum in the major indexes to substantially break out of the ranges established in Q1. He does see a modest upward bias to the market. But it is going to have to fight for every point. Sector leadership will change daily, with a … [Read more...]

It’s Time for a Strategy Change

Strategy Change

There is absolutely no doubt that both risk and volatility are rising in the financial markets. The higher the indexes rise, the sharper the intraday breaks. That is never a healthy sign for a bull market that has thrived for more than two years without a 10% correction. The Crimean referendum should have been a yawn, not worthy of the 400 point swan dive that the Dow … [Read more...]

Three Charts That Will Turn the Markets

Hula Girls

I wrote at length yesterday about why this is not a new bear market, but a traditional 7%-10% correction instead. Now, I’ll show you three charts that will call the exact turnaround. The ten-year Treasury bond (TLT), (TBT) is clearly the lead contract. It has, far and away, been the most accurate in anticipating the future direction of all asset classes. Get this one right, … [Read more...]

2014 Annual Asset Class Review

JT at work

I am writing this report from a first class sleeping cabin on Amtrak’s California Zephyr. We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I am headed for Emeryville, California, just across the bay from San Francisco. That gives me only 56 hours to complete this report. I tip my porter, … [Read more...]

I was Wrong…But it Didn’t Matter

Money Printing

Ben Bernanke finally did the deed. He tapered his quantitative easing program, from $85 to $75 billion a month. I thought he would wait until next month for incoming Fed governor Janet Yellen to take the helm, and the responsibility. It was not to be. The good news for followers of my Trade Alert Service was that it didn’t matter. $85 or $75 billion is really six of one and … [Read more...]

Buy Flood Insurance With the VIX

Man-Pogo Stick

I am one of those cheapskates who buys Christmas ornaments by the bucket load from Costco in January for ten cents on the dollar because my eleven month return on capital comes close to 1,000%. I also like buying flood insurance in the middle of the summer when the forecast here in California is for endless days of sunshine. That is what we are facing now with the volatility … [Read more...]

Taking Profits on the Yen….Again!

Woman - Hari Kari

This is my 14th consecutive closing Trade Alert, and the 20th including my remaining profitable open positions. I have only six more to go until a break my previous record of 25. It doesn’t get any better than this. The yen is now in free fall, and the Japanese stock market is going ballistic, as I expected. Both the ProShares Ultra Short Yen double short ETF (YCS) and the … [Read more...]

When Great Minds Think Alike

Goldilocks

Exactly 84 years ago from yesterday, the Great 1929 stock market crash occurred. The Dow Average plunged a stunning 30 points to 230, a one-day decline of 12%. The ticker tape lagged the market by two hours, and the newly bankrupt were jumping out of downtown windows. I remember it like it was yesterday. Well not really. But a number of friends over the decades lived … [Read more...]

The Worst is yet to Come

White House in Decay

I was not surprised to see the belated September nonfarm payroll come in at a miserable 148,000. It clearly shows that companies were already hunkering down with their overheads in the run-up to the recent DC slugfest. The figure had been delayed by the Washington shutdown, which froze all government data releases. In fact, the job market is weaker than even this number … [Read more...]

What to Do Now?

Airplane Seat

I am completing one of the best trading years of my 45-year career in the stock market. The Trade Alert service is up by a stunning 41.5% so far in 2013 and by 96.55% since inception 35 months ago. Pretty much every forecast I made for the year came true (click here for “My 2013 Annual Asset Class Review”). The question now is: “What to do here?”  How do I beat the … [Read more...]

Cutting Back My Risk

Fed Govt Closed

By now, you have figured out that I executed a major “derisking” of my model trading portfolio today, cutting my exposure by two thirds. Most of these positions only had a few basis points in maximum profit left, so bailing here was a no brainer, a case of “Basic Risk Control 101.” Better to laugh about the market in a few days or weeks, than cry. My profits this year are so … [Read more...]

The Government That Cried Wolf

Obama

Treasury Secretary, Jack Lew, is warning us that the government will run out of money on Monday. Maybe, by rearranging the deck chairs on the Titanic, he can continue crucial payments, like Social Security and veterans benefits, through October 16. After that, we are officially broke. Bills for what the government has already spent will go unpaid. Welcome to the deadbeat … [Read more...]

My 2013 Stock Market Outlook

Wall Street Bull

It’s time to put on your buying boots and throw caution to the wind. The S&P 500 (SPY) is likely to rebound as much as 9% from the recent 1,630 low to as high as 1,780 by the end of December. What’s more, stocks could add another 10%-20% in 2014. The nimble and the aggressive here will be rewarded handsomely. Those who keep their hands in their pockets will sadly watch the … [Read more...]

Why You should Buy This Dip

Fight-Fish

There’s nothing like coming home and getting slapped in the face with a fresh mackerel the second I step off the plane. That’s what happens when you travel from a continent that is universally positive about US stocks, to one that is largely negative. Take a look at the chart below from my friends at Bespoke Research, showing that 66% of all investors are now bearish on … [Read more...]

The Death of the Consumer

Sleep at Computer

I often get asked why I never put out “BUY” recommendations on consumer discretionary stocks. I promptly send them in search of the latest consumer spending figures at the Bureau of Economic Analysis, which do not paint a pretty picture (click following link  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm). Since 2008, quarterly spending has come in at a scant … [Read more...]

Bring Back the Smoke Filled Rooms

Ronald Reagan button

In days of old, when congressional impasses presented themselves, the Speaker of the House, rosy-cheeked Tip O’Neil, would meet his counterpart in the Senate for a night of poker. Several bottles of Scotch later, a deal would get struck, and the two would be photographed together shaking hands the next morning, talking about the good of the country. The process moved … [Read more...]

End of the Commodity Super Cycle

Gold Coins

Traders have been watching in complete awe the rapid decent of the price of gold, which is emerging as the most despised asset class of 2013. But it is becoming increasingly apparent that the collapse of prices for the barbarous relic is part of a much larger, longer-term macro trend. It isn’t just the yellow metal that is hurting. So are the rest of the precious and semi … [Read more...]

Trade Alert Service Posts Two Year 90% Profit

SPX 4-29-13

The Trade Alert Service of the Mad Hedge Fund Trader has posted a 90.6% profit since the inception of the service 30 months ago. That compares to a modest 21% return for the Dow average during the same period. This raises the average annualized return for the service to 36.2%, elevating it to the absolute apex of hedge fund ranks. My bet that the stock markets would continue … [Read more...]

“Sell in May” Has Started

Sherlock Holmes

You don’t have to wait until May for the next correction in the stock market, which is only four trading days away. Take a look at the charts below prepared by my good friends, Arthur Hill and John Murphy at Stockcharts.com, and you’ll see it has already started. In fact, it might be almost over. Only 42% of stocks listed on the New York Stock Exchange are now above their … [Read more...]

Japanese Cash Tsunami Hits US

Punch Bowl

When Japanese central bank governor, Haruhiko Kuroda, announced the most aggressive monetary stimulus program in history last week, he no doubt expected Tokyo share prices to head for the moon. In that, he has succeeded admirably, the yen hedged Japanese equity ETF (DXJ) soaring by 13.4% in the five trading days since he lobbed his bombshell. What the bespectacled bureaucrat … [Read more...]

Here Comes the Rolling Top

Gorilla

The S&P 500 is now at 1,564, and most strategist forecasts for the end of 2013 hover around 1,550-1,600, plus or minus some spare change. So the next nine months are going to be incredibly boring. Or they won’t. Even in a bull market, one expects to see pullbacks of at least one third of the recent gain. Apply that logic towards the 224 points the (SPX) has tacked on … [Read more...]

Buy Stocks on the Cyprus Dip

Aircraft Carriers

I’ll never forget the last time I was in Cyprus. I landed my twin Cessna 340 and asked for a fill up, hoping to make it back to Rome in one hop. An hour later, a truck dumped three 45-gallon drums of 100LL avgas on the tarmac with a hand pump, and asked to be paid in US dollars, cash. When I asked how to get the fuel into the plane, the driver responded with a rotating … [Read more...]

Taking Profits on Stocks

Man - Toothless

With the (SPY) approaching an all time high, there are just a few pennies to go, I am going to take the money and run on my position in the SPDR S&P 500 (SPY) April, 2013 $145-$150 deep in-the-money bull call spread. At $4.97, there is only 3 cents left in potential profit, and I would have to run the position for another month to get it. We have already captured 93% of the … [Read more...]

The Elton John Market

Elton John

I remember 1997 like it was yesterday. Bill Clinton was president, the US government was running a balanced budget, and the Dotcom IPO bubble parties in Silicon Valley were happening almost every day. The Florida Marlins beat the Cleveland Indians in a seven game World Series, where the last game went to a heart stopping 11 innings. Elton John scored the top hit of the year … [Read more...]

Black Swans Are Circling

The Birds, Crows

Basking in the glow of my 31% gain so far this year, I have to start wondering what could go wrong. Call me a pessimist, a paranoid, and worrywart, but whenever things got this good in the past, they were about to turn very bad. It is not my intention to ruin your day. But I may well do that if you read the rest of this piece. Traders are piling on new longs with reckless … [Read more...]

Why the Stock Market is Still Going Up

Party

I have had an extremely hot hand this year, pushing the 2013 performance of my Trade Alert Service above a stellar 30%. So I am going out on a limb here and predict that the S&P 500 is about to grind up to a new all time high. Since 2009, Federal Reserve governor, Ben Bernanke, has clearly made our central bank’s top priority jobs and growth, at the eventual expense of a … [Read more...]

The Death of Gold, Part II

Gold Man

I have been pounding the table trying to get readers out of gold since early December. Now, my friend at stockcharts.com, Mike Murphy, has produced a stunning series of charts showing that this may be more than just a short-term dip and another buying opportunity. Mike explains that a number of traditional chart, technical, and intermarket signs are flashing serious warning … [Read more...]

Suddenly Those Italian Lessons Are Paying Off

Black Swan

Welcome to the first black swan of 2013! You couldn’t mistake the meaning of the cries of topless female protesters as they flung themselves at police guarding Italian polling stations on Monday. Basta! Basta! Enough! Enough! The purpose of their demonstration was visibly scrawled in large letters across their nubile bodies in black ink for all to see. Mille grazie … [Read more...]

How This Bull Market Will Die

Bull

The universal question in the market today was “Why is it down” when all the news was good? The weekly jobless claims dropped 5,000 to 366,000, near a five-year low, confirming that the jobs recovery is still on track. Activist shareholder, David Einkorn’s, lawsuit against Apple (AAPL) to unfreeze its cash mountain should have boosted the market’s major buzz kill. Sure, ECB … [Read more...]

February is the Cruelest Month

Lady Liberty

Actually, it is the second cruelest month. September is the worst, as indicated by the table below, put together by my friends at Stockcarts.com. I think you have to get some sort of pullback between now and March 15, like of the 2%-4% range. It’s not that we are without fundamental reasons to do so. Don’t forget, we have a sequestration deadline looming on March 1, when the … [Read more...]

Why Gold is Dead

Golden Girl 2

It certainly has been a year of gnashing teeth and tearing hair for inveterate gold bugs (GLD). They got everything they wanted on the fundamental side. Runaway printing presses from the Federal Reserve, profligate spending from the US government, and a series of unending crises threatening our oil supplies in the Middle East. Yet, the barbarous relic has barely budged. It … [Read more...]

Goldilocks Delivers a Nonfarm Payroll

EMSPAY 2-1-13

Does it get any better than this? First, the hometown San Francisco Giants win the World Series in a four game sweep. Then the San Francisco 49er’s play in the Super Bowl. Finally, I win the World Series/Super Bowl of investing by capturing an absolutely pyrotechnic 21% year to date performance, boosting me once again the top ranks of the hedge fund industry. Hey, two out of … [Read more...]

The Race to the Bottom for Currencies Means a Race to the Top for Stocks

Clint Eastwood

Even the Old Hands, like myself, are somewhat amazed by the strength of the global equity markets this month. The S&P 500 has risen 11 out of the last 12 trading days, and is up almost every day this month. It has been the best January in 18 years. The first week saw the biggest inflows to equity mutual funds in 10 years. Yet, the market went up so fast, most of the … [Read more...]

SPX 1,600, Here We Come!

TESLA

Take a look at the chart below for the S&P 500, and it is clear that we are gunning for an all time high between 1,550 and 1,600. With the debt ceiling crisis now cancelled, you really have to look hard to find any near term reasons to sell stocks, so we could hit those lofty numbers as early as March. A perusal of the short-term charts certainly demands one to conclude … [Read more...]

The 30-Year View on What’s Happening Today.

Bubble Dude

Take a look at the 30 year chart of the S&P 500 below, and it’s clear that the market is approaching a critical juncture. With the closely watched index closing at 1,460 today, we are a mere 140 points from the iron ceiling that has been unassailable for the past 13 years. The chart is a roll call of past disasters for American investors. The 2000 peak was the apex of … [Read more...]

The “Safe” Trade Beats All

corn

I certainly hope you took my advice to load your portfolio with corn and gold and to dump your equities five years ago. What? You didn’t? Then you have almost certainly suffered on the performance front. According to data compiled by my former employer, the Financial Times, corn was the top performing asset class since 2007, bringing in a stunning 146% return. Who knew that … [Read more...]

The Volatility Death Spiral Continues

high_dive

Mr. Market sometimes speaks in mysterious tongues, and you really have to wonder what he is struggling to tell us by taking the Volatility Index (VIX) down to a subterranean $13 handle on Friday, a new five year low. A number of advisors have been recommending that investors load up on the (VIX) in recent months to give them downside protection from an imminent market crash. … [Read more...]

When Bad Becomes Good and Worse is Even Better

medal-1

Welcome to the “Heads I win, tails you lose” market. The prospect of imminent quantitative easing by the US, Europe, China, and even Japan is supporting asset prices globally. The worse the economic data reports, the greater the likelihood of such action, and the higher prices can rise. In this topsy turvey world, bad becomes good, and worse is even better. The only reason … [Read more...]

This Party is About to End

sc5

They are really rocking the market today, with the Dow up nearly 200 points off the back of a non-disastrous Chinese GDP growth figure of 7.7%. However, there is a serious disconnect going on in our markets which suggests to me that our own party may be about to end. Yesterday’s blockbuster weekly jobless claim took applications for unemployment benefits down to a four-year … [Read more...]

Why I Am Chopping My US GDP Forecast to 1.5%

roller_coaster-Copy2-1

For the past two years, I have maintained a GDP growth forecast for the US of 2% a year. I have not stuck with this figure because I am stubborn, obstinate, or too lazy to update my analysis of the future of the world’s largest economy. I have kept this number nailed to the mast because it has been right. I have watched other far more august institution with vastly more … [Read more...]

No Fed Action Disappoints QE Bulls

Ben-Bernanke_1

It’s always nice when intelligent people agree with you. That was my feeling after the Federal Reserve gave notice today that it was downgrading its forecast of US economic growth for 2012 from 2.6% to 2.15%. That is a major step down from the 3% and higher predictions they were hanging on to earlier. The news came in the written statement that followed the Fed’s somewhat … [Read more...]

Nonfarm Bombshell Sends Markets Scampering

yvonne_fitzner-460x307

Say goodbye to 2012. That was the harsh conclusion of the marketplace after the release of the devastating May nonfarm report that forced the Dow to give up its entire year to date performance. The cat was really set among the pigeons this morning when the Department of Labor informed us that only 69,000 jobs were gained in the previous month. The unemployment rate ratcheted … [Read more...]

My Tactical View of the Market

300px-Italian_battleship_Roma_1940_starboard_bow_view

The abject failure of the equity indexes to breach even the first line of upside resistance does not bode well for the “RISK ON” trade at all. Only a week ago I predicted that the markets would be challenged to top 1,340 in the (SPX) and $78 for the Russell 2000 (IWM). In fact, we made it up only to 1,335 and $77.90 respectively. To see the melt down resume ahead of the … [Read more...]

My Tactical View of the Market

plastic-surgery-star-trek

The easy money has been made on the short side this year for a whole range of asset classes. While we will probably see lower lows from here, the risk/reward ratio for taking short positions in (SPX), (IWM), (FXE), (FXY), (GLD), (SLV), (USO), and (CU) are less favorable than they were two months ago. Of course, the ultimate arbiter will be the news play and the economic data … [Read more...]

Charts Are Breaking Down All Over

Europeecon0012

They say a picture is worth a 1,000 words, so here are 4,000 words worth. My friends at www.stockcharts.com put together this series of charts establishing beyond any reasonable doubt that the “RISK ON” trade is breaking down across all asset classes. Everything is breaking down, simultaneously and in unison, including the S&P 500 (SPX), Gold (GLD), Silver (SLV), Oil … [Read more...]

Check Out (HDGE) to Limit Downside Exposure

garbage_naples_01

While scouring the markets looking for great ways to participate in the current slide in the equity indexes, I discovered a real gem. The Advisor Shares Active Bear ETF (HDGE) offers a rifle shot at the true garbage in the market, low dividend companies with deteriorating fundamentals. Run by former Bass Brothers associate Brad Lehmansdorf, it includes such well known losers as … [Read more...]

Euro Crash Warns of More to Come

dtabbey

A few years ago on the Old Square in Brussels, a delicious luncheon of moules marinières paired with an excellent white burgundy with some European Central Bank officials ran far longer than expected. They were attempting to convince me of the long term viability of the Euro, to no avail. That seriously delayed my departure from Belgium to Salisbury in the English … [Read more...]

The Hard Numbers Behind Selling in May.

sunbathing

If I had a nickel for every time that I heard the term “Sell in May and go away” this year, I could retire. Oops, I already am retired! In any case, I thought that I would dig out the hard numbers and see how true this old trading adage is. It turns out that it is far more powerful than I imagined. According to the data in the Stock Trader’s Almanac, $10,000 invested at the … [Read more...]

Cross Asset Class Analysis Warned “RISK OFF” Was Coming

aapl-14

Last week saw a dramatic deterioration in the economic data that has been the foundation of the Great Bull Market of 2012. First, we read minutes from a Federal Reserve meeting suggesting that QE3 has been put on a back burner. Then the Department of Labor’s Friday nonfarm payroll report poured gasoline on the fire, coming in at 120,000, versus an expected 210,000. Until … [Read more...]

If You Sell in May and Go Away, What to do in April?

bull-2

That is the conundrum facing traders, investors, and individuals as we enter the new quarter. For some hedge fund managers, Q1, 2012 was clearly the quarter from hell. I have been in the market for four decades, long enough to collect an encyclopedia worth of words of wisdom. One of my favorites has always been “Sell in May and Go” away. On close inspection you’ll find there … [Read more...]

Where to Play From the Short Side

497909

This time I am going to start with the fundamental argument first, then follow up with the Trade Alert. We are getting perilously close to a substantial pull back in global risk assets. While this has already started in commodities, the ags, oil, copper, and precious metals, we have yet to see the whites of their eyes in equities. I believe at these levels stocks are the … [Read more...]

Risk Control for Dummies

200day

Whenever I change my positions, the market makes a major move, or reaches a key level, I look to stress test my portfolio by inflicting various scenarios upon it and analyzing the outcome. This is second nature for most hedge fund managers. If fact, the larger ones will use top of the line mainframes powered by $100 million worth of in-house custom program to produce a real … [Read more...]

The Benefit of the Doubt Market

Alarm Bells Ringing

It is already January 24, and the S&P 500 has seen a grand total of two down days so far in 2012. Are we on the eve of one of the great bull markets of all time? Is it off to the races once again? I follow dozens of fundamental and trading research services and the number that are flashing warning lights right now is close to an all-time high. For example, the AAII … [Read more...]

The Weekly Jobless Claims Blockbuster

BlackSwan2

Traders were taken aback this morning when the Department of Labor announced a 50,000 drop in weekly jobless claims to 352,000. The street had been expecting a decline of only 19,000. It was the lowest report in almost three years, and the sharpest weekly decline in seven years. I tell people that, if stranded on a desert island, this is the one weekly report I would want to … [Read more...]

Welcome to Nosebleed Territory

everest19760012

When climbing peaks in the Alps, the High Sierras, or the Himalayas, you know you’re getting close to the top when the air becomes thin, it is difficult to breathe, and your nose suddenly starts to bleed. I remember trying to smoke a cigarette at 20,000 feet on Mount Everest. If you didn’t keep puffing it went out immediately because of the lack of oxygen. I am starting to … [Read more...]

Cross Market Correlations Are Breaking Down

The-a-team

Today was a real head scratcher for long time market observers, including myself. Cross market correlations that have served me so well this year are breaking down, and their predictive power has suddenly gone blind. I blame this on the liquidity drought that has plagued the market since the beginning of the month that has confined markets to frustratingly narrow … [Read more...]

Bear Trap Sprung

lemmings

The coming bear trap that I warned about last week sprung this morning on the non-subscribing unwary, triggering panic buying by short sellers in all “RISK ON” assets. Oil (USO), gold (GLD), silver (SLV), copper (CU), and foreign currencies all moved in lockstep to the upside. The trigger was news that leaked out over the weekend that the International Monetary Fund would make … [Read more...]

“RISK OFF” Strikes Again

tlt-11

You would think that this was going to be a good day. Weekly jobless claims fell to 388,000, a new six month low. New permits for home construction in October were up 10.2%. The October CPI even fell by 0.1%. But the second that Spanish bond yields spiked, it was all over but the crying. The S&P 500 opened weak, and then proceeded to plunged 25 points, decisively … [Read more...]

Meet the Teflon Market

guillotine

Pound away at this market all you want, and it just refuses to go down. In recent weeks we have received a torrent of bad news from Europe, including the fall of governments in Greece and Italy, and the S&P 500 index keeps migrating back to the 1,260 level, as if attracted by some supernatural, magnetic force. It is no coincidence that this is where the closely followed big … [Read more...]

The Stock Market’s Dream Scenario

SPX

I’m sitting here with a mountain of technical analysis reports that are causing my desk to buckle this morning, all shouting “breakout”, “buy”, and “uptrend”. So I’m wondering, “is there a scenario out there where these might actually come to pass?” At this point I thought it might be useful to engage in what Albert Einstein called “thought experiments” and come up with a … [Read more...]