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Let me quell any criticism now by saying this - I am an amateur investor so take this for what it is worth. The more I look at where we are now, I think today might mark the end of this summer rally and the beginning of the impending correction. I could very well be wrong, but here’s what stands out to me.
Most notably, both the S&P 500 and the Nasdaq appear to have run into resistance at their major trendline tracing back to the highs of 2007. I personally don’t see what catalysts we have in the near future that would propel us over this trendline. Earnings season is wrapping up, economic data appears to be mixed but roughly in-line, and we are approaching what is historically a rough month. Take a look at the two charts below; I’ve drawn the major trendline over the past three years.
If you look more closely at how the market has performed over the last two weeks, you can see we have been making a series of lower highs/lows. I think today specifically will determine the direction of this market because each move lower has begun with a Friday selloff for the past two weeks. I think today’s direction will be largely influenced by Asian markets and the existing home sales number. The 20 day chart below shows the SPDR right at the top of this downward trend.
They showed a graph on Fast Money the other night, showing how the US markets have actually lagged behind the Shanghai Composite. After both of our markets made a bottom in Oct/Nov last year, the Shanghai Composite has continued to move higher while the US markets made a lower bottom in March before moving higher. In the past two weeks, the Shanghai Composite has pulled back around 20%, where it has been flirting with bear market territory.
Clearly there are vast differences between these two markets, but it’s worth noting that Chinese demand for commodities has played a massive role in the recent global recovery. The Chinese also happen to also be the largest buyer of US treasuries, making them the financier of our economic stimulus package. For better or worse, our economies are intrinsically linked. While US markets have shaken off most of the recent bad news out of China, should things continue to worsen I don’t see how it couldn’t affect US markets. The chart below shows how the SPDR performed against the Shanghai Composite over the past year.
Lots of traders have also been calling out the fact that the Volatility Index VIX has been trading close to its lowest levels and in a very narrow Bollinger Band channel. While this simply signifies a larger impending move in the VIX is possible, given the recent market highs one would think this is a bearish indicator.
The final thing scares me a decent amount and is purely skeptical. The past two days we have drifted higher on very light volume. We continued that streak yesterday, but five stocks made up 25% of all US volume. Those stocks are Citigroup (C), Bank of America (BAC), AIG, Freddie Mac (FRE), and Sirius XM (SIRI). This is purely my opinion, but to me that signals that most stocks have had phenomenal runs over the past six months and people are now fishing for the riskiest of returns. Bob Pisani on CNBC put it best after AIG’s 20% run yesterday, “remember…these guys still owe the US government $182 billion”.
I realize this is going out on a limb to call the correction as starting today. There are a lot of factors at play right now signaling to me that while there might be a lot of money on the sidelines, maybe it’s best kept there. I see a lot more potential for downside, than I do catalysts for upside.
Disclosure: Short SPY, Short C
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Logan, your opening statement wasn't necessary. In the end it is your quality of analysis and, like Dave said, drawing lines in the sand and standing on the right side of it, that earn you respect. Many 'amateurs' proved themselves smarter than the 'smart money' last year.
That being said, I would get out of day trading, IMHO. There's a lot of commentary about 'sheeple' out there, and it's mainly due to momentum investing (again, IMHO). Trend lines are like statistics...they can be used to prove any point, depending on where you start and where you end. I could whip out a SPY chart from 1996 to 2000 and make a convincing argument that the trend favored selling all assets in 1998.
I for one think breaking resistance and using trend lines to spot patterns are contrarian indicators, mainly because of the incredible lag in what they indicate. The obvious right call would have been to invest BEFORE the trend materialized...that is the strongest argument to sell now rather than wait for the plunge first to 'break resistance' and then sell. However, now we are leaving the limited confines of technical investing and delving into the fundamentals.
On Aug 21 01:40 PM Dave Wrixon wrote:
> Well you might not be right but you will be close, and having the
> balls to put down a marker should earn you respect, provided you
> are not miles out.
Good luck.
Best wishes to your efforts.
Would you like to consider the fundamentals?...like today's home sales data...like at least 80% of all data points in the last 5 or 6 weeks.
The recession ended weeks ago -- get over it!
>Ricard wrote
>Logan, your opening statement wasn't necessary. In the end it is >your quality of analysis and, like Dave said, drawing lines in the
>sand and standing on the right side of it, that earn you respect.
> Many 'amateurs' proved themselves smarter than the 'smart >money' last year.
She's now long CVX. Me I'm on SPY OCT 90 Puts. Never before have we seen a market so coiled to spring...err swat!
And now, according to many so-called experts, the U.S. economy has also turned upward to a positive GDP in THIS third quarter (it also seems much of the world has turned upwards from the recession before the US).
On Aug 22 08:35 AM richjoy403 wrote:
> Logan -- The market did not turn "today"...it turned in MARCH! (don't
> your charts tell you this?), as the markets always look forward and
> beyond the near-term data-points.
>
> And now, according to many so-called experts, the U.S. economy has
> also turned upward to a positive GDP in THIS third quarter (it also
> seems much of the world has turned upwards from the recession before
> the US).
I can't really tell or begin to analyze (or -as is much more prevalent- simply assert) what your analysis may be "worth" or not; perhaps because I am an amateur myself or maybe because -just like you- I also "believe" in big and healthy doses of "analytical humility".
Your arguments are certainly plausible though other arguments could be made that might sound just as plausible. Such as those made recently elsewhere on Seeking Alpha that although markets have now "gotten ahead of themselves" (either a little bit, or "way ahead") they can just pause and take a breather where they stand right now.... for "a year or so".....so that whatever it is that they have gotten ahead of....has time to catch up with them;
....and with "that chasing thing" presumably being assorted kinds of "company fundamentals" and "economic indicators"... while of course leaving completely aside the key issue of "which fundamentals ....and of what specifically" and "what indicators and of which" and also leaving in abeyance for a minute...or maybe for that whole entire "one year or so" .....of when "the catching up" is likely to be complete....(this of course being a BIG disappointment to all of those "waiting for the correction" so that they can catch that train they probably already have long since missed;
(in some things life often offers "no second chances", though luckily in many others, sometimes it does) and not even to go near the fact that "within a year" a new SARS epidemic might have wiped out half the planet, or a nuclear war might have broken out...or a meteorite might have fallen onto Wall Street....or a number of other such sundry "minor details" might have taken place. (predicting the future is certainly a TOUGH business)
Or maybe it's me who is missing something pretty important here instead.... but it certainly appears to me.... that whether it be other amateurs (such as yourself and me) or "expert professionals"....(whe... real or imagined or simply self-declared) NOBODY has really managed to consistently predict (or even inconsistently predict) what was going to happen next in markets over the past few months.
Again, also conveniently forgetting for a minute the fact that "markets" are now also much more than just the U.S. market.
And I suspect that a careful statistical analysis over much longer time frames of those folks whose batting average was above average in guessing (o.k. "predicting" and based on nearly infallible analytical frameworks) what was going to happen next ....is mainly due to the fact that in any game some folks' batting average will be higher than the norm and some others' will be lower.
And this regardless of their actual skill at swinging at fast balls, slow balls or curves. (and recently there also have been plenty of curves thrown that drop about two feet in the last five feet traveled)
So watch out for those abundant and omnipresent folks (snake oil types?) who tell you that last season they hit a bunch of balls out of the park and will gladly sell you their secret.
And should that also mean (more broadly) that the whole "science or art" of market prediction at any given point in time (or of even knowing with some minor degree of certainty which particular variables to focus on) is at a pretty low level of development?
But then again in saying that .....I am nearly sure I have said absolutely nothing new....whether as an amateur or as an expert and whether in complete modesty or in some quasi-pathetic self delusional state of arrogance.
good presentation..esp. showing the trend line. And how clearly we can see the dreaded double top. Folks, the next time you see a double top in the Dow (or whatever it may be called in the future now that it's for sale lol), I would run for your investor life..I will be. But...looking at my Dow candle chart and using closing prices not intraday, my trend-line is essentially the same as yours. In which we see the down-trend tops staying very true to this line...except in the case of wk of April 14, 2008 - wk of May 5, 2008, where it broke up past the trend briefly...then immediately turned back down. Wk of 14th it closed @ 12,849 and wk of the 5th, it closed @ 13,058 or a gain of 209 pts past the trend. So here we are as of now. As said, by my candle chart, it is saying we officially broke through the trend line wk of August 3 with a close @ 9,370. Yesterday the close was 9,506..a gain for the period of 136 pts...again pts breaking the trend line. So. Is this the same small peak past then a dip back below in a significant way? Hard to say. The upcoming time period would suggest it's certainly plausible. Notoriously, post Labor Day, a certain down mentality seems to want to pervade the marketplace through October..but this year we have a wildcard...which is that coming off such a historic meltdown, slowly improving economic metrics..which would keep any major down initiative at bay (provided those metrics do continue showing improvement. Case in point is housing per yesterday's numbers. Overall the headline was positive and slowly improving..yet a closer look at the numbers show that only lower priced and foreclosure properties showed increases. But the headline is what generally drives the sentiment as we know...which it did yesterday also. So as I believe we will continue to get enough "headlines" over the next 60 days, I would expect more of a stable period. Not up wildly, but not seriously crashing back below the trend line either.
Something else to consider regarding the trend line… As we see, it is a down trend, and has been so now since the double top in Oct of 2007. One has to ask the question: how long do major downtrends generally last? Over the past 20 years, the only other major down trend we've seen is Jan 2000 - March 2003...another bubble. So a period of 3.3 years until a recovery had begun. Currently we are @ 1.9 years peak to trough..however with the caveat that we also dropped much faster during this trend and have already bounced off of the ostensible low. The only other major down turn the Dow has seen in the last 20 years was a quick drop the summer of 1998 where it fell from a high of 9,368 to a low of 7,400 July to September...which also leads to something that may spark a debate of its own. That '98 low of 7,400, the 2003 low of 7,197 and this March's low of 6,470 essentially could be perceived as a triple bottom..a sign of support (speaking in general vicinity terms since we're talking such a large time window). Now, however, on the other side of that debate...this can also be interpreted as making lower lows (which many of us know is not known to be a good sign for overall upward momentum).
OK. So. what's my take? Given much of the above, I believe the only real litmus we have for "modern times" as it were, is the 2000-2003 downturn. Anything else prior is just too different in scope and historical times. Meaning...Dow 4,000's (which we left behind in Nov 1995) is just no longer realistic unless we have an even worse meltdown from here..and I do not see that happening anytime soon short of some geo-political catastrophe. If I look at the lows of 2003 (double bottom), I see what I believe sets this March '09 low slightly apart. In '03, the second leg of the double bottom happened after a high of 9,043 and that was in Dec of 2002. The first leg of that bottom was a selloff to the actual low of the period (7,147) from April - October. Then a climb back to 9,043, then the second leg bottom of 7,417 (all intraday lows). Now in '09, we set the March 6,470 low in March. In July, after hitting a high of 8,878, another low was registered that same month of 8,093..which I would call a pretty healthy sell-off of what I believe was intended to be the test for the double bottom. However, what cut that short of completion was improving economic data (which we continue to see to-date). So my thesis is, I consider 2003 and 2009 to be very similar in nature (both uniquely prolonged down-turns based on massive bubble bursts), so I would expect very similar bottoming action. I believe the July 8,093 was actually the second leg of the double bottom (or as much as could be gotten out of it due to ever-improving economic metrics). So given my belief that the bottom is in, the double bottom was successfully attempted, and that this down trend must end at a bottom as in 2003, we should be poised not for a fall takedown of any significance and should begin to see us begin to maintain traction above the current down-trend line. As in 2003, we should see a range in the next year of 9,400 - 10,800. From there it will all depend on how the Fed manages all the monetization that has been done and inflationary issues. I say keep Bernanke on and let him keep flying the plane. He should be allowed to finish his own vision (which will take the next few years to complete). that's my take. gl to all.
I've studied Elliott Wave Theory in depth and use it to a certain extent. I understand every indicator out there, how they are created, and what they are telling us. I've even invented a few of my own. And if I've learned one thing (very painfully), it's that "overbought" is only truly overbought when the bankers say "that's enough for this week". Just like "talking points" on the MSM, the bankers all get their script from the very top... the dark lords who own the FED. That's exactly the only reason they always work in concert and why sudden surprise announcements are so orchestrated. For example, with 42,000 tankers full of oil parked off the coast, there was suddenly a massive draw down in oil inventories this week. Did anybody see that lie coming?
Every point you made makes great sense to me. But this market isn't going to stop rising until the bankers decide it's gonna stop rising. They have every reason to run the $SPX to 29,000 but I have a very strong suspicion they're setting us up for a bomb in the very near future. Don't be surprised if it all comes crashing down with an unexpected earth shaking announcement, or some false flag operation.
I know some will accuse me of wearing a tin foil hat, but that's just me. At least there's a perfectly good brain underneath it.
Good job young man. Keep it up and always be alert to the bigger picture.
You are right on the money. The small guy is just a sheep to be shorn by the bankers. We have to keep ahead of the sheers or we will all be naked. No one ever went broke taking profits.
On Aug 22 05:25 PM MudEngineer wrote:
> Trend lines can be very powerful reversal points. The more points
> on the line the more significant the trend line is. These have four
> points and this line will be very, very hard to break. Especially
> knowing that this whole rally up has been done on way below average
> volume with many last 20 minutes of the day pump jobs by who else,
> the bankers; particularly Goldman SACKS and company. Where do you
> think those oversize profits all came from in the second quarter.
> Free money from the taxpayers and knowing that you will move the
> market when you through that money into the ring. LEGALIZED THEFT
> FROM THE MIDDLE CLASS!
Something related to his argument that also may be useful to keep in mind is that nowadays there is not just one market, but several markets (with an "s") and although they are not totally decoupled from one another they are partially decoupled.
For instance I don't think that Rothschild bankers manipulate the Chinese stock market all that much. (whether directly or indirectly) Though there is no doubt whatsoever that bureaucrats in Beijing DO manipulate it...and a whole lot. (so different countries have different rip-off artists and different schemes through which they operate)
I would suggest that people (particularly Americans) start to apply the concept and basic principles of "political risk and country risk" ALSO to their investments (if any) in the U.S. and in U.S. markets.
That is, in Russia one has to worry about the oligarchs, Mr. Putin and assorted Russian Mafiosi. In China one has to worry about Mr. Hu Jin Tao and the communist party. And in the U.S. one has to worry about mafiosi bankers, Goldman Sachs, lying and duplicitous Congressmen, and a bunch of other Wall Street rip-off artists.
I also would add that generally speaking (and in international affairs in particular) the United States seems to be a lot more capable at coming up with fairly subtle and sophisticated propaganda and related practices (including in the financial and markets arena) that are "plausibly deniable" than -let us say- the Russians or the Chinese who tend to use much older and much more "crude" methods. (for example, arresting some innocent Rio Tinto employees and locking them in jail without charge)
In the U.S. those who do the equivalent of "stealing state secrets" are rewarded with mega-jumbo bonuses or huge trading commissions instead...and the terms of the argument are ably shifted to become about the size of the bonus, not the length of the jail term.
Two or three markets around our sorry world that seem to me to be marginally more honest are the Norwegian stock market (Norway has the World Bank's highest ranking on its good governance index) and the Canadian and Australian markets. Those countries are also resource or commodity countries and their markets include lots of small and medium-sized businesses.
The preceding characteristics make it harder (though of course not impossible) for assorted rip-off artists to concoct schemes to steal from the small retail investor investing in those markets.
So watch out for that "country and political risk" (as understood more widely and more properly) and good luck with your foreign investments, including those you make in the United States.
Caveat Emptor.
some excellent points. Our job as market parasites, lol (the retail investor in general) is to follow the money and get out of the way of oncoming trains. Stocks go up and down when the decision makers say they do (i.e. GS). Look at C for example. Cramer flip flopped on them in a heartbeat because the word came down from his former bosses that C was to be shored up taken higher. No more "fortress five" lol, but suddenly they were a banking institution to be trusted and Vikram Pandit was a genius again. Overnight. Again, being successful in the market means closely slaving to the money flow.
I see in Pre this morning, catch-up hedge money/ probably foreign money continues to pour in. What we don't know is, the ratio of that money, to that which went long in March and helped create this entire move from the March low. Though I do believe there will not be a breach of the July 8,093 attempt at creating the double bottom, it will be interesting to see what happens when this current secondary money flow dries up. Congress is soon back, political issues come more to the fore again, and you have to believe there will be some attempt/opportunity to take this thing down at some point through about the end of October. 'If' that gets some traction, I would look for somewhere in the 8,700 range before then a turn back to here and a bit higher going into the end of the year. That wouldn't be that horrible and might then lastly quell all this talk of too far too fast and bring in even more money early next year. gl.
On Aug 23 03:12 AM max12345 wrote:
> I think Mr. "Albertarocks" above is more likely right than not. I
> am not sure if it's Bankers, but somebody out there certainly is
> manipulating markets.
>
> Something related to his argument that also may be useful to keep
> in mind is that nowadays there is not just one market, but several
> markets (with an "s") and although they are not totally decoupled
> from one another they are partially decoupled.
>
> For instance I don't think that Rothschild bankers manipulate the
> Chinese stock market all that much. (whether directly or indirectly)
> Though there is no doubt whatsoever that bureaucrats in Beijing DO
> manipulate it...and a whole lot. (so different countries have different
> rip-off artists and different schemes through which they operate)
>
>
> I would suggest that people (particularly Americans) start to apply
> the concept and basic principles of "political risk and country risk"
> ALSO to their investments (if any) in the U.S. and in U.S. markets.
>
>
> That is, in Russia one has to worry about the oligarchs, Mr. Putin
> and assorted Russian Mafiosi. In China one has to worry about Mr.
> Hu Jin Tao and the communist party. And in the U.S. one has to worry
> about mafiosi bankers, Goldman Sachs, lying and duplicitous Congressmen,
> and a bunch of other Wall Street rip-off artists.
>
> I also would add that generally speaking (and in international affairs
> in particular) the United States seems to be a lot more capable at
> coming up with fairly subtle and sophisticated propaganda and related
> practices (including in the financial and markets arena) that are
> "plausibly deniable" than -let us say- the Russians or the Chinese
> who tend to use much older and much more "crude" methods. (for example,
> arresting some innocent Rio Tinto employees and locking them in jail
> without charge)
>
> In the U.S. those who do the equivalent of "stealing state secrets"
> are rewarded with mega-jumbo bonuses or huge trading commissions
> instead...and the terms of the argument are ably shifted to become
> about the size of the bonus, not the length of the jail term.
>
> Two or three markets around our sorry world that seem to me to be
> marginally more honest are the Norwegian stock market (Norway has
> the World Bank's highest ranking on its good governance index) and
> the Canadian and Australian markets. Those countries are also resource
> or commodity countries and their markets include lots of small and
> medium-sized businesses.
>
> The preceding characteristics make it harder (though of course not
> impossible) for assorted rip-off artists to concoct schemes to steal
> from the small retail investor investing in those markets.
>
> So watch out for that "country and political risk" (as understood
> more widely and more properly) and good luck with your foreign investments,
> including those you make in the United States.
>
> Caveat Emptor.
First, as you mentioned oil inventories, and as oil inventory is a USA data-point, I assume you are claiming those tankers are parked off our coasts (and thus there would be a similar number either actually delivering oil or parked off the coasts of other countries!).
How can we comprehend 42,000 tankers? If each tanker requires (only) 1,000 feet for it's length and distance to the next parked tanker; and if each were parked in one long line, that line would be (42,000 x 1,000) 42,000,000 feet or 7,955 miles of tankers!
For reference, it is 3,450 miles from New York to London, or only half your claimed length of 42,000 tankers.
So, as it seems you are living in a sci-fi world, I remind you there not yet a way to "cloak" those tankers. Also, as there are thousands of TV reporters who would salivate at the opportunity to rent an airplane to show us those 42,000 parked tankers, where is the TV footage to show us this awful conspiracy?
Would you also like to claim the US never walked on the moon?...Were you one of those "black helicopter" folks claiming the UN was about to take over the US?...Perhaps you have a "grassy-knoll" theory to share?
BTW, what is the entire world supply of oil tankers?...Which companies own 10,000 tankers? Can you tell us how many gallons of oil is represented by 42,000 tankers? (I suggest you consider the average tanker capacity.)
Oh yes, I'm 67, and have been investing since the mid-70s.