The market is lower in early trading, which would mark a rare 5th consecutive down day for the major indexes if we closed at current levels. The S&P 500 is approaching its 50-day average near 1372, having hit 1375 earlier. Interestingly, the Dow, S&P mid-cap, and Russell 2000 are all already below their respective 50-day averages.
The Nazz is outperforming again, being helped by Apple (AAPL) which continues to defy gravity and trade higher to new record highs. Priceline (PCLN) is similarly spectacular but doesn't receive a fraction of the mentions in the media that AAPL does.
There hasn't been much in the way of market moving news this morning. Earnings season kicks off tonight with Alcoa, which is a bit of a bore if you ask me. Later this week we hear from Google, JPMorgan, and Wells Fargo which should all be interesting.
Action in Asia overnight was mixed, with only China gaining on the session after reporting an unexpected trades surplus (imports were weaker than expected). Europe is lower this morning as Italian and Spanish bond yields continue to rise.
The dollar is stronger vs. the euro, and most commodities are pulling back. Oil prices are lower below $102. Gold prices are down near $1638. Silver and copper prices are lower too.
The 10-year yield has once again fallen back below the 2.00% level as investors question the strength of our economic rebound. The VIX is up another 3% to 19.35.
Trading comment: The SPX is getting closer to its 50-day average and I am still expecting a bounce from these levels. Often times a pullback ahead of earnings season sets the market up well to rally if those earnings reports come in at or above expectations. I hope we get a good report from Google on Thursday, as that would help sentiment. The put/call ratio is fairly low this morning at 0.81. I would prefer to see more fear and a reading above 1.0 to help the market bottom. But yesterday we did see a reading above 1.0 by the close, the first such reading in a week.
KAM Advisors has long positions in AAPL, GOOG, PCLN, JPM, and WFC
10 Nisan 2012 Salı
9 Nisan 2012 Pazartesi
Monday Morning Musings
The market is selling off on a delayed reaction to Friday's nonfarm payrolls report. Our markets were closed on Friday so this is the first chance traders have had to react to the news. Nonfarm payrolls grew by 120,000 in March, which was well below expectations for 200k jobs added. The unemployment rate was steady at 8.2%.
Overnight selling in Asia was also affected by concerns about slowing US economic growth. Japan and China were both lower, with China's CPI coming in above expectations at 3.6%. European markets are closed for the Easter holiday.
Bonds are rallying hard on the payrolls data, with prices up and yields plunging. We had begun to see the 10-year yield moving higher from that 2.00% level where it had been stuck for so long. But today we are back down to that key support area with the 10-yr trading near 2.03%.
Not much in the way of corporate news, but AOL (who still owns that stock?) did sell $1 billion worth of patents to Microsoft (MSFT).
Commodities are mixed, despite the dollar being lower. Oil prices are down near $104.40. Gold prices are higher to $1645, but silver and copper prices are down.
The VIX is seeing a big bounce, up 11% so far today back above its 50-day average to 18.60. Looks like we were stopped out of our VXX hedge a little early.
Trading comment: The S&P 500 is down for a fourth straight day, which is about the most consecutive down days we have seen in the index since last November. Currently at 1379, that's about a 3% decline from the recent highs. I have been expecting a mild pullback in the 3-5% range, so we are now in that zone. The 50-day average for the SPX comes into play around 1371 while a full 5% pullback takes the index down to 1350. Of course, we could easily see something more but I think in that area buyers will step in and we will get a bounce. The key to determining if we will get a bigger correction this spring/summer is the tone of the ensuing bounce and if it is able to take the indexes back to new highs or if it runs out of steam and leaves a double-top looking formation. But in the near-term, I would be looking for a bounce in the markets.
Overnight selling in Asia was also affected by concerns about slowing US economic growth. Japan and China were both lower, with China's CPI coming in above expectations at 3.6%. European markets are closed for the Easter holiday.
Bonds are rallying hard on the payrolls data, with prices up and yields plunging. We had begun to see the 10-year yield moving higher from that 2.00% level where it had been stuck for so long. But today we are back down to that key support area with the 10-yr trading near 2.03%.
Not much in the way of corporate news, but AOL (who still owns that stock?) did sell $1 billion worth of patents to Microsoft (MSFT).
Commodities are mixed, despite the dollar being lower. Oil prices are down near $104.40. Gold prices are higher to $1645, but silver and copper prices are down.
The VIX is seeing a big bounce, up 11% so far today back above its 50-day average to 18.60. Looks like we were stopped out of our VXX hedge a little early.
Trading comment: The S&P 500 is down for a fourth straight day, which is about the most consecutive down days we have seen in the index since last November. Currently at 1379, that's about a 3% decline from the recent highs. I have been expecting a mild pullback in the 3-5% range, so we are now in that zone. The 50-day average for the SPX comes into play around 1371 while a full 5% pullback takes the index down to 1350. Of course, we could easily see something more but I think in that area buyers will step in and we will get a bounce. The key to determining if we will get a bigger correction this spring/summer is the tone of the ensuing bounce and if it is able to take the indexes back to new highs or if it runs out of steam and leaves a double-top looking formation. But in the near-term, I would be looking for a bounce in the markets.
7 Nisan 2012 Cumartesi
STOCKS HAVE REACHED THE EUPHORIA STAGE
The last bull ended when the leading stock, GOOG, entered a parabolic "bubble" phase. That was the signal that the bull had reached the euphoria stage. When the GOOG bubble popped it signaled the end of the bull market.
Two stocks, AAPL and PCLN, have been the leaders of this bull market. Both have entered the euphoric "bubble" stage. When the Apple and Priceline parabolas break it will almost certainly signal the end of this bull market.
Apple is now stretched 49% above the 200 day moving average. Anything between 50 and 60% above the mean is extreme dangerous territory.
As I pointed out in my last article the dollar is beginning its second daily cycle up in what could very well be a cyclical bull market. This should correspond with the stock market topping and the next leg down in the secular bear market.
My best guess is that we will see a sharp sell off over the next 2 to 3 weeks, followed by a sharp rebound (QE3?) that may, or may not, move stocks to marginal new highs, similar to the 2007 top.
The poor employment report on Friday is the first warning shot across the bow that the economy is slowing in preparation for moving down into the next recession/depression.
Bernanke is in the same position he was in 2007. Printing more money won't stop the collapse. It will only continue to spike the price of energy and exacerbate the decline.
Two stocks, AAPL and PCLN, have been the leaders of this bull market. Both have entered the euphoric "bubble" stage. When the Apple and Priceline parabolas break it will almost certainly signal the end of this bull market.
Apple is now stretched 49% above the 200 day moving average. Anything between 50 and 60% above the mean is extreme dangerous territory.
As I pointed out in my last article the dollar is beginning its second daily cycle up in what could very well be a cyclical bull market. This should correspond with the stock market topping and the next leg down in the secular bear market.
My best guess is that we will see a sharp sell off over the next 2 to 3 weeks, followed by a sharp rebound (QE3?) that may, or may not, move stocks to marginal new highs, similar to the 2007 top.
The poor employment report on Friday is the first warning shot across the bow that the economy is slowing in preparation for moving down into the next recession/depression.
Bernanke is in the same position he was in 2007. Printing more money won't stop the collapse. It will only continue to spike the price of energy and exacerbate the decline.
5 Nisan 2012 Perşembe
A King Dollar Tax Cut
You wouldn’t know it from falling stocks, but the Fed’s apparent decision to hold off on future bond buying, or QE3, in response to an improving economy may turn out to be a very bullish omen for the equity market and the economy.
In fact, less stimulus from the central bank sets up a potential tax-cut effect. Here’s why: Limits to the Fed’s $3 trillion balance sheet will bolster the value of the dollar.
The beleaguered greenback has fallen roughly 40 percent over the past ten years as a result of the Fed’s interventionist go-stop-go policies. Since the banking crisis of 2008, the dollar has dropped 8 percent.
But as the Fed ended QE2 last year, and as its bond-buying “operation twist” comes to an end in June, the dollar has started rising. In response, gold prices have been falling significantly. Slower money creation will do that.
And along with gold, oil prices are now slipping lower, with West Texas crude approaching $101. Still too high, but much less scary. Wholesale unleaded gas prices also could fall in response to the drop in crude, which might take the pressure off retail gas at the pump. If that’s the case, and the King Dollar scenario plays out, the recent energy-price shock could reverse, imparting a mild tax-cut effect on consumers and businesses.
Although Bernanke & Co. do not target the dollar, a stronger greenback is the surest way to bring down energy and food prices, which all too often have plagued households and the economy.
The Joint Economic Committee has estimated that the cheap dollar has contributed about 45 cents to the rising gas price. Lately, with the drop in crude oil, nationwide gas prices could be starting to level off at just over $3.90 -- even though refiner closings and bottlenecks in some parts of the country have pushed that price much higher.
No, a stronger dollar won’t offset the failure to implement the Keystone Pipeline. But it could provide some motorist relief at the pump.
The point is, if the Fed quits printing new money, the value of dollar money will go up. And the inflation tax will go down. Despite Ben Bernanke’s economic worries, the Fed is beginning to see that the economy is at least growing by roughly 3 percent. That’s not fabulous, but it’s not bad either.
The latest ISM surveys for manufacturing and services, the decent 209,000 ADP employment report for March, and pretty good car sales all suggest that the first-quarter economy was just as good as the fourth-quarter economy. And these economic stats are moving the Fed away from more easing moves. Hence, King Dollar is recovering at least a bit.
The dollar view on the economy and stocks is a minority case, but a very important one that should not be overlooked. During prior stock market booms, particularly in Reagan’s first term and Clinton’s second term, King Dollar rose and gold fell, oil prices came down, and foreign capital sought out dollar investments in the U.S. because of the reliability of the currency.
For investors, a strong dollar helps.
In fact, less stimulus from the central bank sets up a potential tax-cut effect. Here’s why: Limits to the Fed’s $3 trillion balance sheet will bolster the value of the dollar.
The beleaguered greenback has fallen roughly 40 percent over the past ten years as a result of the Fed’s interventionist go-stop-go policies. Since the banking crisis of 2008, the dollar has dropped 8 percent.
But as the Fed ended QE2 last year, and as its bond-buying “operation twist” comes to an end in June, the dollar has started rising. In response, gold prices have been falling significantly. Slower money creation will do that.
And along with gold, oil prices are now slipping lower, with West Texas crude approaching $101. Still too high, but much less scary. Wholesale unleaded gas prices also could fall in response to the drop in crude, which might take the pressure off retail gas at the pump. If that’s the case, and the King Dollar scenario plays out, the recent energy-price shock could reverse, imparting a mild tax-cut effect on consumers and businesses.
Although Bernanke & Co. do not target the dollar, a stronger greenback is the surest way to bring down energy and food prices, which all too often have plagued households and the economy.
The Joint Economic Committee has estimated that the cheap dollar has contributed about 45 cents to the rising gas price. Lately, with the drop in crude oil, nationwide gas prices could be starting to level off at just over $3.90 -- even though refiner closings and bottlenecks in some parts of the country have pushed that price much higher.
No, a stronger dollar won’t offset the failure to implement the Keystone Pipeline. But it could provide some motorist relief at the pump.
The point is, if the Fed quits printing new money, the value of dollar money will go up. And the inflation tax will go down. Despite Ben Bernanke’s economic worries, the Fed is beginning to see that the economy is at least growing by roughly 3 percent. That’s not fabulous, but it’s not bad either.
The latest ISM surveys for manufacturing and services, the decent 209,000 ADP employment report for March, and pretty good car sales all suggest that the first-quarter economy was just as good as the fourth-quarter economy. And these economic stats are moving the Fed away from more easing moves. Hence, King Dollar is recovering at least a bit.
The dollar view on the economy and stocks is a minority case, but a very important one that should not be overlooked. During prior stock market booms, particularly in Reagan’s first term and Clinton’s second term, King Dollar rose and gold fell, oil prices came down, and foreign capital sought out dollar investments in the U.S. because of the reliability of the currency.
For investors, a strong dollar helps.
3 Nisan 2012 Salı
THE BEGINNING OF THE END
As convincing as this rally has been I am confident this is an ending phase and not the start a new secular bull market. Actually the bear market began last year in May but was temporarily aborted by massive central bank printing. Let me explain.
The last four year cycle that started in 2002 and bottomed in 2009 was the longest four year cycle in history. It was stretched to these extreme lengths by Bernanke's desperate strategy of debasing the currency to avoid the bear market that should have begun in 2006. Instead the stock market cycle stretched all the way into the spring of 2009.
I have mentioned before that often a long cycle will be followed by a short cycle. This being the case the current four year cycle should have bottomed in the fall of 2012. That process had begun last summer.
However, central banks around the world, in the futile attempt to avoid a global depression again cranked up the printing presses. The bear market that had begun in May was temporarily aborted. Amazingly I think we are going to see another stretched four year cycle. And this one is going to end just like the last one when the price of oil spikes far enough to collapse the global economy and another market crash. The next economic downturn won't be a Great Recession, it will be a Great Depression.
At the moment the stock market is in a runaway move very similar to what unfolded out of the summer 2006 yearly cycle low. These runaway moves are characterized by uniform mild corrections all of similar magnitude and duration. For this particular rally the corrective size has been roughly 25-35 points. This could continue for weeks or months, but all runaway moves end in the same fashion, with a crash or semi crash that wipes out months of gains in a matter of days or even minutes.
Generally speaking, once a corrective move has run 20% beyond the normal correction size that is the signal that the move is over. Unfortunately, at that point you are usually already into the 'crash day'. This is why at some point one has to say enough is enough, and stand aside, or you risk getting caught in the crash.
When this runaway move comes to an end I'm pretty sure it will signal the beginning of the end for this cyclical bull market. That doesn't mean that we won't see a test or even a marginal break to new highs but I think we are clearly in the final phase of this liquidity driven rally that began in March of 2009.
We are now at the mercy of oil and the commodity markets. Bernanke's plan to print our way to prosperity is destined to failure. Ultimately he is just going to spike inflation and collapse the global economy, resulting in a worse downturn than what we saw in 2008/09.
Whether that breaking point is at $120 oil or $160 oil is anyone's guess.
The last four year cycle that started in 2002 and bottomed in 2009 was the longest four year cycle in history. It was stretched to these extreme lengths by Bernanke's desperate strategy of debasing the currency to avoid the bear market that should have begun in 2006. Instead the stock market cycle stretched all the way into the spring of 2009.
I have mentioned before that often a long cycle will be followed by a short cycle. This being the case the current four year cycle should have bottomed in the fall of 2012. That process had begun last summer.
However, central banks around the world, in the futile attempt to avoid a global depression again cranked up the printing presses. The bear market that had begun in May was temporarily aborted. Amazingly I think we are going to see another stretched four year cycle. And this one is going to end just like the last one when the price of oil spikes far enough to collapse the global economy and another market crash. The next economic downturn won't be a Great Recession, it will be a Great Depression.
At the moment the stock market is in a runaway move very similar to what unfolded out of the summer 2006 yearly cycle low. These runaway moves are characterized by uniform mild corrections all of similar magnitude and duration. For this particular rally the corrective size has been roughly 25-35 points. This could continue for weeks or months, but all runaway moves end in the same fashion, with a crash or semi crash that wipes out months of gains in a matter of days or even minutes.
Generally speaking, once a corrective move has run 20% beyond the normal correction size that is the signal that the move is over. Unfortunately, at that point you are usually already into the 'crash day'. This is why at some point one has to say enough is enough, and stand aside, or you risk getting caught in the crash.
When this runaway move comes to an end I'm pretty sure it will signal the beginning of the end for this cyclical bull market. That doesn't mean that we won't see a test or even a marginal break to new highs but I think we are clearly in the final phase of this liquidity driven rally that began in March of 2009.
We are now at the mercy of oil and the commodity markets. Bernanke's plan to print our way to prosperity is destined to failure. Ultimately he is just going to spike inflation and collapse the global economy, resulting in a worse downturn than what we saw in 2008/09.
Whether that breaking point is at $120 oil or $160 oil is anyone's guess.
Gone Fishin'
I will be out for the remainder of the week. Please check back Monday for our regularly scheduled program. Happy Trading--
2 Nisan 2012 Pazartesi
Monday Morning Musings
The market opened slightly lower this morning on the first day of the new quarter, but has since rallied back into positive territory.
Asian markets were mixed, while Europe is mostly higher this morning. We got a host of PMI manufacturing data from overseas, with some conflicting data out of China. The official government PMI reading rose to 53.1 from 51.0 last month. But the private PMI figure for China from HSBC fell to 48.3 from 49.6 previously. If I had to choose, I tend to side with the PMI figures since my gut says there is less smoothing going on there than the govt. figures.
In Europe, France posted its weakest PMI in 32 months (46.7) while the UK posted its strongest reading since May (52.1). But overall for the eurozone the PMI was only 47.7, which still indicates contraction for the region.
In the U.S., the ISM Manufacturing index rose to 53.4 in February from 52.4 the prior month, indicating still healthy growth for that sector.
In corporate news, Groupon (GRPN) shares are lower after reporting a revision to its Q4 results. Avon (AVP) shares are higher after reports that French beauty company Coty is submitting a bid to acquire Avon for a 21% premium to Friday's close.
The euro is lower this morning, but that is not hurting most commodities. Oil prices are higher near $103.50. Gold prices are also higher around $1682, and copper and silver prices are higher as well. The silver etf (SLV) is up nearly 3% so far today.
The 10-year yield is lower to around 2.17%; and the VIX is flattish near 15.40.
Trading comment: We often see this action in the beginning of a new quarter/month were funds get put to work, but I think the key action will be later this week when we see if there is any follow-through. If the indexes break to new highs that will obviously be a good sign, but if they are unable to and we see further distribution that could be a clue that we are due for a bigger pullback. I want to tread lightly at this juncture, especially as we approach Q1 earnings season.
Asian markets were mixed, while Europe is mostly higher this morning. We got a host of PMI manufacturing data from overseas, with some conflicting data out of China. The official government PMI reading rose to 53.1 from 51.0 last month. But the private PMI figure for China from HSBC fell to 48.3 from 49.6 previously. If I had to choose, I tend to side with the PMI figures since my gut says there is less smoothing going on there than the govt. figures.
In Europe, France posted its weakest PMI in 32 months (46.7) while the UK posted its strongest reading since May (52.1). But overall for the eurozone the PMI was only 47.7, which still indicates contraction for the region.
In the U.S., the ISM Manufacturing index rose to 53.4 in February from 52.4 the prior month, indicating still healthy growth for that sector.
In corporate news, Groupon (GRPN) shares are lower after reporting a revision to its Q4 results. Avon (AVP) shares are higher after reports that French beauty company Coty is submitting a bid to acquire Avon for a 21% premium to Friday's close.
The euro is lower this morning, but that is not hurting most commodities. Oil prices are higher near $103.50. Gold prices are also higher around $1682, and copper and silver prices are higher as well. The silver etf (SLV) is up nearly 3% so far today.
The 10-year yield is lower to around 2.17%; and the VIX is flattish near 15.40.
Trading comment: We often see this action in the beginning of a new quarter/month were funds get put to work, but I think the key action will be later this week when we see if there is any follow-through. If the indexes break to new highs that will obviously be a good sign, but if they are unable to and we see further distribution that could be a clue that we are due for a bigger pullback. I want to tread lightly at this juncture, especially as we approach Q1 earnings season.
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