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Alpha Prophets is a financial research firm, portfolio advisory service, and model portfolio newsletter provider founded by Robert Hammer in late-2007. The company specializes in an "outside the box" approach to combining fundamental and technical analysis, quantitative methods, and... More
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  • The S&P 500 Is Looking Parabolic

    The S&P 500's increasingly parabolic shape has many wondering if the rally can continue. Valuations are high when we look at Robert Shiller's Cyclically Adjusted Price-to-Earnings Ratio (NYSEARCA:CAPE), the Q-Ratio (the replacement cost of the S&P 500), and the regression trend of the market going back to the early part of the 20th Century. However, as the old saying goes, "markets can remain irrational longer than you can remain solvent." Just because valuations may be stretched, the underlying fundamentals of the economy may not compare to previous rallies of this magnitude (another article for tomorrow), and technical indicators are signaling overbought conditions does not mean the market will do a 180 tomorrow and plummet like a rock. Actually, these overbought and overbullish symptoms have been in place for most of the post-financial crisis rally. The permabears like Roubini and Schiff have been proven wrong day in and day out.

    What is the point of this post? In any market environment there the common excuses can be heard, "this can't be happening because the fundamental don't support it", "as soon as I jump in the market will reverse", "I'm just waiting for a pullback to purchase at lower prices." Listening to people's opinions is a mistake. The real profits are made with systematic, quantitative systems that eliminate human emotion and make decisions based upon known facts. These models can be based on fundamental factors, technical data, sector rotation strategies, business cycle theory, or any combination of them all. Basing your trading or investment strategy on a well designed system will keep you off the sideline and in the game during rallies like we've seen since the 2011 lows [Figure 1].

    (click to enlarge)Figure 1

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 10 1:26 AM | Link | Comment!
  • Morning Stock Market Update - 12/28/2011

    The S&P 500 is down this morning about 9 points as I write this (about -0.75%).  CNBCs big news is that most people (6 in 10) do not use their gift cards.  Big news right?  Anyway, one thing to remember this year is that GAAP accounting rules do not allow gift cards to be booked as revenue until they are redeemed.  This is even though the company has already received cash for the card, increasing cash flow.  Now, if you are a smart investor and make you decisions based off of free cash flow calculations the gift card "conumdrum" should not change anything for you.  However, if you are one of those people who base your investing decisions off of the net income reported on a make shift Yahoo Finance income statement then this does affect your decisions.  

    In other news, Italy had a surprisingly good 9 billion Euro auction of 179 day bills.  The previous auction of 6-month bills on November 25th pulled 6.504% vs this auction that sold the bills at 3.251%.  The drop in yield of over 300 basis points makes this auction a success.  I'm most certaintly not saying that the Euro crisis is over.  In fact, today the Euro has hit the lowest point since early January 2011, nearly a year ago.  What does this mean for the stock market?  In my opinion the optimistic Italian auction and the severely stretched Euro are good news for the stock market.  Here is my chart of the S&P 500 that I update daily.

    S&P 500 Daily Update

    As you can see in the chart we are currently at resistance.  However, the volume pattern is encouraging, the trend remains up (higher highs and higher lows), and the Euro is set for at least a dead cat bounce (sending dollar down).  Since the market generally rises when the dollar falls this should be enough to push the S&P 500 through 1280 resistance and clear the way to 1300 on the S&P where it will find resistance once again.

    Have a good day and good trading!

    Brant Hammer


    Investing quote of the day:

    "Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected."

    -George Soros

    Dec 28 11:19 AM | Link | Comment!
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  • $IWM moving above important resistance from 2011 topping pattern... but today's candlestick is pretty bearish. Spinning top I think?
    Jan 19, 2012
  • Ok so the #market should be falling by now... but instead it is breaking through resistance and pushing higher. Hmmmm -- intervention? $SPY
    Jan 19, 2012
  • Check out my new article on Private Equity, "Has the Economy Bottomed?" * http://seekingalpha.com/a/6sev * #economy #trading #investing $PSP $BLK
    Dec 30, 2011
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