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Kevin Tuttle
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Kevin A. Tuttle is the CEO and Chief Strategist of the Money Management & Capital Services firm Tesseract Asset Management, LLC (TAM). TAM serves as the General Partner of Long/Short Equity & Alternative Investment Hedge Funds and operates a Capital Services division oriented toward... More
My company:
Tesseract Asset Management LLC
My book:
Master Traders
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  • TAM's Morning Cup Of Jo: May 7, 2012

    "Adversity is a severe instructor set over us. It wrestles with our strengths and nerves to sharpen our skills. This antagonist is our helper. The conflict with difficulty makes us acquainted with our object of being and compels us to consider it and in all its relation to our choices. Adversity is our bludgeoning mentor who is never wanted but always needed." - Edmund Burke

    "Now What?" Orange Whip Anyone?

    Last week's (4/30) commentary asked the questions 'Is it over, was that it? and… Is everything back to normal?' Then we likened it to a hurricane as if standing in the eye, or just at the edge or even possibly needing to become prepared based on warnings. But most importantly; do not to fall prey to the "Boy who cried wolf" story. Otherwise stated… take your umbrella when uncertain about clarity of the sky. But geesh… who woulda thunk? Worst week of the year; especially for the lil' sis' (RUS) losing 4%.

    During Friday's selloff (or watershed - never stopping throughout the day) there were no shortages of pundits disputing what caused this. Seems to me - of course only from my own slightly-jaded opinion - who cares who is right? The real questions asked should have been, "Who helped investors before it happened?", not after it occurred. So let's just say it was weak U.S. Employment, or the French Election coming over the weekend, or Earnings from various companies… okay, never mind. There are too many choices to pick just one - not dissimilar to when my family goes to the local chocolate shop; and again - who cares? There is one thing we can say for certain; it wasn't caused by Oil.

    In the February 27th 'Jo' we penned a piece about WTI (West Texas Intermediate - light sweet) and its technical base forming. As such, we pontificated that a break above $110 would most likely send shivers down the backs of all investors as pundits would have been clamoring about the implications of $110+ Oil on GDP. And yet, since we authored that snippet, WTI and the SPX have been trading in parity, not contrary - evident in Friday's WTI 4% and SPX 2.5% harmonious selloff.

    SPX Oil Daily Chart

    Regardless of causes, harmonious relations, or even the orange whip investors are being delivered; the question at hand is… "Now What?"

    Over the last year - since we've been discussing the 2011 Channel of Indecision (CID) (which you're probably sick of hearing about) - we've switched our market stance quite a few times. Since June 2nd it's been five, to be exact. That's a lot considering we are a Cyclical Trend (1-4 year) investment shop. Hence there's been quite a bit of confusion on where we stand. Thus, we thought we'd provide some clarity - which is very humbling to say the least.

    Transparency - the good, the bad and the ugly - is the only true way to deliver comprehension of action.

    SPX Weekly

    This chart shows the SPX on a weekly basis going back to September 2002 (nearly 10 years). As such, we outlined the Cyclical trends (within the Larger Secular Consolidation Trend from our 100-Year Market Theory). {Which has just been completed with the latest data from 2011} Starting from left to right it is easy to comprehend the bottom of the technology bubble from 9/02 to 3/03 in the form of a Cyclical Channel. Once complete (break above channel and previous cyclical bear - not shown) the new Cyclical Bull began and ran until the end of 2007 when it finally broke trend after creating another Cyclical Channel. {Albeit at the top of the Secular Channel}

    After which came the 2008 Debt Debacle and Massive Downtrodden. At the bottom (2009) we struggled with the Cyclical Channel's design and generated what we thought was the most technically logical base and corresponding Cyclical Bull (GREEN). This seemed to fit exactly as the market fell in mid-2010 and held, based and regained right on target. By feeling confident in this line we began to notice the 2011 Channel of Indecision (we know, we know…. Enough!) and changed our stance from bullish to market neutral accordingly.

    When this channel was broken (8/2/2012) it unquestionably corresponded to the once believed Cyclical bull. The following week we penned an article stating this is most likely the 3rd Cyclical Bear market within the markets 12 year plus secular consolidation; again shifting our stance to bearish from market neutral.

    All was good - until 1/10/12. Egg on our face is an understatement. This is when the market surpassed the downward "though-to-be" new cyclical bear trend (RED). As this occurred, much to our dismay, we admitted our faults and shifted back to a market neutral stance from bearish. The reason for the neutral, not bullish, was due to simply re-entering the CID. Following along, after 3 attempts, the market broke topside of the May 2nd highs and entered into fertile ground - at least since the 2008 selloff 4 years prior. This caused our last change of stance from neutral to bullish (with caution). The caution comes from yet having a confirmed and successful retest of the break above resistance; which leaves us where we are today.

    We don't mind being wrong as long as it meets two very simple metrics. First, error on the side of caution not recklessness. Second, be wrong for the right reason. If we were wrong because we didn't do our homework, or because we were careless, or just simply because we didn't give a crap about risk and were only chasing returns; that would be different. But if investors can learn to stand on preservation vs. growth as they watch some of the parade march by, the long run will much more pleasurable.

    It is undisputed we were wrong on our new "Cyclical Bear Market" call. But if the weight of evidence gave us probabilities, based on 100-Years of data, that indicated risk was high - we'll make that call all day.

    One final note… If the market, as shown in Friday's piece, does break this slightly upward sloping Head & Shoulders neckline, we will again shift stance to market neutral. As one of our clients once told us, there is no place for Hubris or Pride in investing.

    We hope this helps and finds you well.

    TAM-KAT

    May 07 8:19 AM | Link | Comment!
  • TAM's Morning Cup Of Jo: April 30, 2012

    "The human animal differs from the lesser primates in his passion for lists." - H. Allen Smith

    "Was that it? Is it over? Everything back to normal?" While living in Florida these are common questions typically asked once having to prepare for devastation. The trouble being, it becomes liken to the 'Boy who cried wolf' story. It seems at least once or twice a year we are asked to prepare for some massive storm heading our way and yet, it is only a few that actually… well let's just say, wipe the slate clean - per say. The trouble with this scenario lies between the frequency on which the warnings occur and the actual event; hence creating the all-too-common miss-preparedness which accompanies some of these warnings.

    Thankfully when technically evaluating the market we have a little more data, and possibly more foresight, to determine when these storms may arise and to what caliper they may come. As risk managers for over 20 years we have learned - the hard way, may I add - to never leave without an umbrella. In such, comprehending where the potential may lie, on either side of the tape, should be the mantra of every investor. As Benjamin Graham says... (paraphrased)

    "It is only through the relentless management of Risk based on Arithmetic metrics in which investors can continually triumph over EMOTION and create success Longevity… NOT by the Management of Returns on Optimism!"

    Assessment of probabilities and stacking of empirical evidence; these are the tools at our disposal to calculate, evaluate, estimate (all the …ate's). So today we offer something a little different - a list; a list to reflect, comprehend and ascertain.

    Let's begin with the fact that one year ago (end of April - beginning of May) the markets topped and began the August to November downtrodden. Calculating this gives investors a technical point of inflection to use as their proverbial yardstick. Onto the list.

    Major Markets:

    · The eldest 3 Sisters (DJIA, SPX & NDX) have all broken to new highs

    o (Above May 2nd 2011 = Confirmed)

    · The youngest (RUS) has yet to do so (Unconfirmed)

    Sectors:

    · Basic Materials - Unconfirmed

    · Capital Equipment - Unconfirmed

    · Consumer Cyclical - Unconfirmed

    · Consumer Staples - Confirmed

    · Energy - Unconfirmed

    · Financial - Unconfirmed

    · Health Care - Unconfirmed

    · Retail Unconfirmed

    · Technology - Confirmed

    · Transports - Unconfirmed

    · Utilities - Unconfirmed

    In essence we have 2 of the 11 major sectors which are confirming the move thus far and driving the 3 majors to new heights. - Consumer Staples and Technology. {Tobacco, Food/Beverages, Prescription Drugs, Household Products and the I-PAD - okay, maybe more technology} - Interesting

    SPX Weekly

    Since the May 2nd 2011 high investors have sat through the anticipation of arrival, been tossed around in 150 mi/hr winds and since 2012, have felt quite a reprieve. Now the question arises weather or not this is the eye of the storm or the end. As our readers know, once the market (SPX) broke above 1,370 (5/2/11 high) we technically called for 1,440, a smaller consolidation and low volume retest, followed by 1,550-1,560 if the market could get some follow-through (sector confirmation). Since this call the market has seen 1,422, trailed by ~1,358 (twice) and closed back above 1,400. All while the average volume continued to decline - even with earnings season upon us - and its 50 DMA never once changed slope (turned negative). Albeit nerve-racking, it's technically positive.

    So we ask again, was that it? A lot of pundits are clambering about Spain and the PIIGS. Some are discussing a GREAT earnings season thus far and some are going so far as to discuss the French elections at the end of this week and what this will mean for the U.S. Markets. Let's not forget the negative economic data last week. This is quite a bit of information to digest when evaluating the next potential move in the equity market and yet… none of which are actually quantitative. Hence the list.

    Lists are always good. They keep things in perspective and help provide clarity to a murky situation. So, here's our latest thought…

    If the markets can hold April's bottom (kinda a weird statement considering my wife's name is April) and there is follow-through with other sectors besides tobacco, beer and I-pods (mainly transports and banks) we believe our original target still holds true. If (when?) the SPX does reach those levels (~1,550) there will be a much bigger conversation to have - considering this would put the market at the top of the Secular Channel we've been clambering about since we first published the 100-Year Market Theory in 2003. But… we'll save that for a different day.

    We hope this helps…

    TAM-KAT

    Apr 30 8:12 AM | Link | Comment!
  • TAM's Morning Cup Of Jo: April 23, 2012

    "Maturity, one discovers, has everything to do with the acceptance of not knowing"

    - Mark Z. Danielewski

    Good to be home! As most of our readers know, we spent the last week in NYC traveling around visiting clients, potential clients and speaking at the MTA (Market Technician Association) Symposium on our 100-Year Market Theory. What a great experience having so many technicians in one place. It was truly an honor. But again, after traveling around what seemed to be, all of Midtown and Downtown via subway and taxis, it's good to be home.

    Needless to say, the common talk was a deliberation about the next leg in the markets. Another common question kept arising as well; "Will Apple Inc. (AAPL:NASDAQ) be the downfall of the NDX and start something much larger?" Many even debated whether or not to buy it; which seemed surprising considering its technical position (50% above its last technical breakout). For us, when evaluating the bigger picture, it doesn't really matter other than short-term trading. Hence, irrespective of the AAPL hype, we turn our sights today to the SPX.

    Since the break back below 1,400 on the S&P 500, two weeks ago, the market has regained some volatility akin to last October and November. But, considering the SPX is only 3% off the April 1st high, we'd hardly call it something to worry about - for now. The tape is however reminiscent of the song by Steelers Wheel, "Stuck in the Middle with You?"…. "Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you." The only question remaining is… "Who are the clowns and who are the jokers?" Since investors want to be neither of these, it is crucial to analyze the levels and chart a course of action to prepare for all the possible "what-if's" which may occur.

    Over the past few weeks, since breaking the topside of the '2011 channel of Indecision' on March 13 at SPX 1370, four key technical levels have come to the forefront (1340, 1370, 1420, and 1560). As for now we must take into consideration how far the first true correction of 2012 will be. We believe, based on the current technical condition, it is not likely to be very deep and based on probabilities of momentum, volume and technical pattern; the next likely support is a small floors and ceilings at 1,340. This would provide a decent 6% correction from the April 1st high. If this occurs without the slope of the 50 DMA turning negative, it will be a healthy move and our target of 1,550 to 1,560 will remain in force.

    SPX Daily Chart

    However, if 1340 is broken and the SPX heads into a deeper consolidation - say the 200 DMA at 1,275 - it would require a larger technical pattern to still determine if 1,550 remains target. Since we don't predict; our conclusions and search for clarity can only be based on evidence. Another such piece of evidence is the high price action and money flow into defensive sectors like Consumer Staples, Packaged Foods, and Big Pharma and out of high-beta names previously mentioned.

    For now it's earnings, politics and again revisited - the PIIGS Debt, which will continue drive the tape. With the increase back into volatility, due to earnings, the risk appetite may shift on a moment's notice. As such we won't pretend this is the new norm, but rather recognize that it only holds true for now and investors must react accordingly for the time being.

    As always, we hope this helps…

    Happy Earnings Season!

    TAM's -Rocket & KAT

    Apr 23 8:01 AM | Link | Comment!
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