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Fear & Greed Trader
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Independent Financial Advisor / Professional Investor- with over 25 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Market Update - Dow Theory Signal Confirmed 7 comments
    Nov 2, 2013 8:54 PM

    Last week I commented that while the averages had made new highs there was a "divergance" noted in the fact that the DJIA had not vaulted to a new high.. That concern was quickly erased this week as the major averages continued upward as the DJIA joined the party with a new closing high on Tuesday 10/29.

    Now with the DJ Transports and the DJIA establishing new closing highs , another Dow Theory Buy signal was recorded.. I also mentioned in my comments last week that the overall market was in "overbought" territory, as all ten S & P sectors were trading in overbought territory. As a testament to that I noted the folowing remarks from the Bespoke Group about current market conditions..

    "It is not too common for even one sector to trade two standard deviations above its 50-DMA (45% of all trading days), but to have the S&P 500 and all ten sectors trading at these levels simultaneously is practically unheard of. This event is so rare in fact, that going back to 1990, there have only been two other days where we have seen similar readings! . . . [The] first occurrence came in the aftermath of the first Gulf War on 2/11/91. The second occurrence came on 12/29/03 in the early stages of the prior bull market. Back then, there was no major catalyst driving the rally besides some stronger than expected economic data and the typical seasonal strength that is common towards the end of the year. Leading up to the 2/11/91 occurrence, the S&P 500 rallied 17% in just four weeks. However, even after that rally, equities did not see any meaningful pullback over the following year. While the momentum slowed, over the next year the S&P 500 never traded more than 2% below the closing level from 2/11/91. "

    Might we see a repeat of that '91 market ? Fast forward to this year and we have rallied some 23% up to this "rare' occurrence" (similar to the 17% rise in 1991). IF that is the way it is going to play this time, it implies this "bull move" could extend a lot longer than most think.

    Does that mean we bet the farm here and go all in , I suggest over & over if you are going to bet the farm at anytime you better have 2 farms.. What it does mean is the backdrop for continued market gains is in place .. The continuing Dow Theory signals , the improving economic data and now this example of a possible rerun of the 1991 scenario,, added to all of the other facts presented, further suggests that we are indeed in a secular bull market.

    Updated daily chart of the S & P.. A pullback to the upward sloping trendline may be in order.. As has been the case after we reached all time highs in the past...

    (click to enlarge)

    Markets will confound most of the experts most of the time & while the market is currently stretched , markets can stay overbought or oversold for a while. Going forward I don't see any sudden collapse at hand. A short term pullback, or perhaps consolidation & sideways pattern to work off the short term overbought conditions.. Indeed, my Buying Power Index is above its September highs, while the Selling Pressure Index recorded a new low last week, and all of the Advance/Decline Lines I look at rose to new highs.

    Fundamentals ? Lo & behold, 63.5% of companies reporting earnings have beaten the estimates and 54.4% have beaten revenue estimates. So much for the "bad" earnings season most complained about this quarter. While this strong earnings rolls on ,the fed obsessed folks continue to parse every word of the fed statements. Ignore that noise , if we do get that pullback its because of the overbought conditions & NOT because of the fed.

    The "overvaluation argument" that is bandied about may apply to some of the "high flyers" as is true in every market, but it's not a proxy for the market in general..

    There are plenty of opportunities to get on board here. As I commented here on SA, those that have ignored the 'facts" and been paralyzed by the "bear" rhetoric have been left for dead. Anyone attempting to short the market is now simply "road kill" left in the rear view mirror as this car keeps moving forward. However markets are forgiving , there will be opportunities presented for those that may finally see what is happening around them ...

    Time to concentrate on quality names that can be bought here for the long run ,, JPM has been obliterated in the media , yet the stock stays strong. When the Gov't witch hunt is over this stock will be much higher in '14 and you get paid to wait with a 3+% dividend. Look at CMI - quality name taken down this week. LEG a div. aristocrat is still ok to buy. CVX & XOM both Dividend aristocrats on any weakness will be great additions to a LT div. growth portfolio. GS should do very well in '14. TGT another beaten down aristocrat I recently purchased is still inexpensive.. V is getting hammered on earnings --that were positive . a true LT growth story.. Buy on dips..

    Want growth ?, the biotechs CELG, AMGN have had great runs but are showing signs of weakness after superb runs , & that may present a buying opportunity. The Longer term Biotech story is just beginning..

    And don't forget AAPL ---'14 will be an interesting year as AAPL is showing that it may trade back to my 650 target price..

    Those are but a few names that can add value to a portfolio..

    Good Luck with your investments .. Also welcome your favorite names & ideas here ..

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Comments (7)
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  • BlueSkyForever
    , contributor
    Comments (2941) | Send Message
    As the markets keep going higher, it is a bit dizzying. CNBC reports that investors are still 48% cash. Would like to know what they define as "investors." Now that article isn't there...strange. Maybe they got a backlash - too positive, or what did they mean by "investors?"


    Apparently, this is another reason the market keeps going higher, as that cash on the sidelines is put to work.


    When the doubters are back in the market, instead of on the sidelines, then it will be time to worry.
    3 Nov 2013, 11:24 AM Reply Like
  • rodh7858
    , contributor
    Comments (133) | Send Message
    Hi F&G


    $UAN and $DLR have come down considerably recently. Are they a good value here to start as a new position or a value trap? Do you still hold them?
    4 Nov 2013, 07:53 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10076) | Send Message
    Author’s reply » rod,


    I sold most of my DLR ,last week, u can check my portfolio page here on the blog it was updated when i made that sale.. I still hold UAN , i bought when they first went public, and added later,, My cost is about $14. The recent lower distribution was not a surprise and after reading their latest reports they set a record with the distribution amount this year.. I plan on holding here.. I will probably sell my remaining DLR on any bounce ,, I became frustrated after they disappointed for the third time on the last earnings report..
    4 Nov 2013, 08:57 AM Reply Like
  • rodh7858
    , contributor
    Comments (133) | Send Message
    Hi F&G - I can't seem to find the link to your portfolio; it used to show up before but I can't find it anymore. Can you please provide it?
    4 Nov 2013, 09:11 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10076) | Send Message
    Author’s reply » Sure


    here it is


    4 Nov 2013, 09:13 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (8767) | Send Message
    Good read!


    Where can stats be found on earning %'s beating, etc.? I remember seeing similar numbers, so MW's articles about how earnings are poor seemed out of sorts. Is MW another endless bear site, the way Zerohedge is? ...their current theme is "not much upside left, lots of downside risk."


    I thought of you went I posted that long term I think a bull is possible, and got reamed to death. It's more than just debates back and forth on various points. ...there's something about this market where (some) of the bears are anxious to make sure you know you're about to lose your shirt if, like it's a personal affront to them if you hold a different view. My being newish, is this typical of bear/bull debates always, or is specific to this market bringing this out?


    On earnings, one point raised there that I wondered on -- revenues beat by about 54%. Is that a typical amount, that implies steady economic growth or a little low?


    Great chart on possible correction coming. ...could miss a gain by waiting, but I'm going to wait a couple weeks before my next buy into an index, to see if it happens. (Exception for individual stocks.)


    Any thoughts on small caps being down, vs everything else, when SMs were leading the market all summer? I bought 50/50 SP500 & IWM and I'm down, so it's noticeable. I'm thinking, it's consistent with individual investors coming in, while professionals are waiting for that correction... Individuals buy more large & less "lessor known" names & small caps. So it's just part of the shift. (As BSF says, individual investors coming in is a plus at this point, another leg of bull coming... and isn't a worry until it's a much bigger amount & excitement. Good question on "who" 48% in cash refers to.)
    4 Nov 2013, 10:30 AM Reply Like
  • John Wilson
    , contributor
    Comments (2016) | Send Message
    It's good to be reminded of the market fundamentals and the grandaddy of all indicators -the Dow Theory signal. I sometimes fail to pay attention to it. I think I'll pay attention to it in this time frame due to the current market momentum.


    Thanks too for bringing to our attention that, 63.5% of companies reporting earnings have beaten the estimates.


    Thanks for sharing. I'll check back for more updates.
    7 Nov 2013, 11:33 PM Reply Like
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