This Rally May Have Legs - Bespoke 30 comments
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Barron's interviews Seeking Alpha contributors prolific Paul Hickey and Justin Walters - founders of Bespoke Investment Group. Based on a variety of measures and home-cooked indicators, the deep-data researchers say they're cautiously optimistic that the bottom is in - and see signs the current rally may have legs.
Some key datapoints:
- It's looking more and more like the yield-curve peaked last fall, especially after March 18 when the Fed announced its plan to monetize Treasurys. Historically, this is a good sign for stocks.
- When consumer confidence hits record lows, as it did recently, stocks are almost always higher 6-12 months out.
- Prior bear market rallies were led by defensive sectors like energy and telecom. This time around, financials and tech are leading the way.
- Emerging markets are making a break; China's up 30% YTD and Brazil is up 13%.
- Markets have posted 12-year negative trend returns only two other times, and both were buying opportunities.
Stocks they like:
- MasterCard (MA) - unlike American Express (AXP), it has no credit risk. They favor MA over Visa (V) because of its cheaper 16x valuation.
- Archer Daniels Midland (ADM) - a play on a weak dollar, which should boost agricultural commodities.
- Altria (MO) - is recession-resistant and yields 7%. With state governments generating about $2.50/pack in taxes, no one's going to kill this golden goose.
- Intel (INTC) - with 15% of its market cap in cash, its 3.55% yield is one of the safer ones.
::::::::::::::::::::::::::
- Barron's penned a bullish piece on Visa (V) today, noting Visa's 75% share of the U.S. debit card market dwarfs MA's 25%.
- Hao Jin thinks quantitative easing will be a boon for agriculture stocks.
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It wouldn't surprise me to see a drop soon, down to the early March low. That would create the classic "double bottom" we see at the turning point of almost every bear market. If the market indeed turns close to the early March low, I'd wager we would have seen the bottom and it will be Pamplona time.
Once enough hopeful sheeple pile into the market, the bottom will fall out again.
Last but not the least – Dow futures are indicated -146 @ 3 am EST. So this rally may not have legs.
A positive sign is that at least they are trying to reform the derivatives market a year late and trillion dollars short.
> This is yet another bear market rally – up volume was thin, not supported
> by fundamentals, short interest has increased. Technically market
> is overbought, and lower lows lower highs.
Huh? 1. We've had 4 different 90% upside volume days!
2. New bull markets are never supported by current fundamentals.
3. Short interest doesn't mean as much anymore with the inverse ETF's being so popular.
4. This rally does not have lower lows and lower highs.
Think of a Tsunami...first there is an earthquake you dont see (TG & AIG fraud) that causes the waters to pull back (this "rally") and expose pretty shells (high returns on stocks). Then the wave crashes in and drowns those foolish enough to venture out to pick up those shells.
BKX was able to make a rally from 17.75 to 31.01 trough to initial peak or almost 75% price appreciation. A massive advance in just 9 days from the early March low.
It is now consolidating for 8 trading days since March 19 with a shallow correction and a tight trading range. A very encouraging performance so far.
This bodes well for more upsides as long as the trading range don't expand dramatically before the next BKX rally can start.
Dow Jones and SnP daily and intraday chart patterns are still in a flux with no definitive corrective processes I can hang my hat on.
I expect BKX to lead the way for DJ and SnP to follow.
Here's one long-shot speculative scenario:
BKX has a 1-2-3-4-5 acceptable downside pattern on the weekly chart - meaning - potential bottom in Elliott Waves parlance. If and when a 12345 downside pattern has been completed on a higher timeframe, and a reaction rally has started in the lower timeframe - the next pullback on the lower timeframe, which is the daily chart, is a BUY.
BKX is now consolidating within a very tight range for 8 days after making a 9 days rally. Consolidation usually last more than 100% to 300% of the rally time and 161.8% the usual time it takes for the consolidation to last before the next rally starts.
BKX has a potential to rally back to 83.43 in the next seven months from the 17.75 low IF the stars got properly aligned - so to speak.
A massive 370% price appreciation from the early March low. Something not to be sneered upon given the not so low but relatively high probability rate. I would give it more than 35% chance at this stage and will increase the probability if and when BKX makes further progress using Elliott Waves analysis. IF BKX is able to form an inverted Head and Shoulders pattern on the daily chart and be able to achieve or exceed the potential target of 45.48; then I would give it a 65% or more probability of reaching 83.43.
370% is basically the linear equivalent to 37 years price appreciation expectation by most conservative investors speculating in SnP being able to achieve a high 10% rally every year for 37 years (much less than 10% per year by compounding - forgot the formula A = B+B(1+i)^n?). 7 months or more of high risk speculation is more than worth the 37 years of conservative speculation for the SnP500. Just don't bet the farm.
Use XLF as a trading vehicle for the conservative traders/investors. Use UYG if you have enough trading experience to handle a doubleX ETF. Use FAS if you have more than enough trading experience with proportionate stop loss provision against minimum potential gains since FAS is a 3X ETF of BKX.
For non-traders. I consider a 100% "do or die" capital loss is a good enough bet against a potential 370% gain if done perfectly from the low of 17.75. At current BKX price level of 26.16; the potential gain is now reduced down to 219%.
The discount from the high 121.16 price of year 2006 is still a healthy 78.4% from the last high 85.33% discount. UYG and FAS went down with higher percentage discounts due to price compounding effects of xETFs but are a lot riskier to buy and hold due to counter-party risks.
On Mar 29 01:24 PM wdhalgren wrote:
> Imagine that, a money manager (Bespoke) who thinks the market is
> going up. To what address should I mail my check?
>
> Seriously, when the American people finally re-learn that advice
> from the investment community is ALWAYS self serving, then we will
> have made progress in returning to a more efficient form of capitalism.
> Namely, one in which people are diligent in deploying their capital,
> instead of blindly "investing" their hard earned savings in trading
> vehicles that they don't understand, under the tutelage of money
> managers whose incentives aren't necessarily aligned with the investor.
>
>
> Wall Street marketing language has been force fed to the public for
> so long that it has become accepted as fact. The true fact at this
> point is that the investment establishment has learned how to leverage
> the savings of average Americans into a payoff system that enriches
> money managers through boom and bust. Even worse, our financial
> system augments these cycles because the upside of leverage pays
> to the financiers and corporate insiders, while the downside accrues
> to bottom rung investors. Meanwhile, they front run their clients
> at every opportunity and generally shear the sheep who floke to them
> in droves.
>
> I am a fiscal conservative, but that doesn't mean I blindly accept
> the system of stock options, bonuses, insider trading that predominate
> the investing landscape. This is not a new realization, as the bubble
> of the late 90's erased any doubts I had about how the game was being
> played. Unfortunately, more government control is not the solution,
> in fact it played a large part in creating the problem. Letting
> investors pay the price for their lack of due diligence is the best
> course, but that seems unlikely until the whole thing is irreparably
> broken.
On Mar 29 03:02 PM EMT reality wrote:
> Your blanket statements of wall street is a bit overstated. To point
> out a few facts about "money managers" 1) your point of front running
> is off base as it is illegal for a licensed rep to "front run". 2)
> I would agree that SOME of the advice from wall street could be self
> serving however if your using a fee only advisor and perhaps independent
> then his income is directly correlated to your growth. why would
> he want to advise anything other then that which is in his clients
> best interest?
> I will grant you that there are issues! This is one of the challenges
> of a capitalistic society. What would really protect one from Ponzi
> schemes?……… I would suggest as investors…… trusted advisors are
> critical to our ability to due diligence in understanding our own
> investing as it relates to life, goals and the markets. Would you
> do your own surgery? I don’t know about you but I would seek out
> a professionals help. You know what they say about a lawyer that
> represents himself as a client! One of the biggest challenges with
> investing is emotions. What do you do to keep them checked at the
> door? If you truly know the facts about investing then you might
> understand the value of advice in efficient markets.
Zach
Greedreviews.com- "Letting investors rank, review and evaluate investment information sources"
On Mar 29 11:37 AM sohony wrote:
> > I disagree.
This is a credit contraction...debt deflation.
Market analysis should be based on major broad-based credit contractions, such as Japan in the 1990s and America in the 1930s. Please tell me of another credit contraction that rivals today's and I'll add it to the list.
Japan: still trading near a 26yr low.
USA (1929-1932): an 87% decline in the S&P 500 accompanied by 6 sucker's rallies.
www.planbeconomics.com.../
www.ritholtz.com/blog/.../