Time for defense

This is a chart of the offense/defense index I have used in Barron's Online several times over the years. Credit for Boris Simonder for creating the idea that I have copied using these ETFs.


Anyway, this week in Quick Takes Pro I suggested that the upside breakout might be a fake. Fortunately, my gut feeling turned out to be right. The chart suggests shifting to defensive strategies, especially selling rallies vs. buying dips.

The Total Spin Zone

No, not Bill O'Reilly.

Like Keith Olberman talking up Obama or Sean Hannity talking up Bush, mutual fund managers are applying maximum spin to get the public to part with their cash. I love it when one quotes the technicals, specifically how breadth is still strong. Yes, the advance-decline line is still OK and new 52-week highs beat lows but when we look at individual sectors we see the real story. Group after group has broken down. That is all we need to see.

I was accused of being a perma-bear during the latter half of the rally (basically missing July, which admittedly was huge) but in August I did get with the program. Why? Sector after sector was breaking out from technical patterns. Even though the total gains were muted I knew enough to stop fighting the tape.

Now, we see the opposite. Sectors are dropping like flies.

Check out this headline from MarketWatch mid-day Friday:

Early-cycle bird gets worm -As investors hunt for higher returns amid a “new normal” of reduced expectations, analysts point to early-cycle stocks as among those that stand to gain as Asian demand for goods picks up.

Nice fundamentals. Too bad the tape is saying just the opposite.

Thursday's rally has been obliterated. It may yet turn around today and close well but the impetus for Thursday's performance is gone. Something new will have to take its place to fire up the herd. What will it be? I'll take suggestions.

Quote from the past

Ronald Reagan once said, "The nine most terrifying words in the English language are: ‘I'm from the government and I'm here to help.'

Bounce!

I will admit that I did not expect quite this much of a bounce in today's session (Dow is up 152 as I write) but I did expect the market would indeed react to oversold conditions. Here is one of the charts from Wednesday's column updated for early afternoon today (and switched from the regular to the unweighted S&P 500 because it looks a lot prettier).

Finally time?

This is it
Make no mistake where you are
This is it
Your back's to the corner
This is it
Don't be a fool anymore
This is it
The waiting is over
No room to run
No way to hide
No time for wondering why
It's here

- Kenny Loggins

I did not know Mr. Loggins was looking for a correction in the stock market. I hinted at this lyrics set in this morning's newsletter and while I cannot run through the individual signs here I can say that there are plenty.

Check your breadth readings. For you Sherman and Marion fans, check the McClellan Oscillator, too.

Homie, Mo and Seven More Failures

Today's column covered pending breakdowns in the homebuilders and declining trends in the mortgage finance sector. I wanted to give Fannie and Freddie a quick mention as being part of the mo fi sector's decline but my editor said not to bother with stocks that are worthless.

Anyway, the column fit in nicely with last week's efforts when I panned the banking sector. Quick Takes Pro subscribers may have gotten bored with me telling them I did not like bank stocks but I suppose that any of them that found some to short are probably OK with it.

Dick Bove? Nah. He is a bank analyst that you should indeed heed but he was not the cause of today's bank-led reversal. The charts looks iffy last month and negative this month. The news over the past few days of seven more bank failures that took the year's total over the 100 market is just gravy for the bears.

I don't want to get caught in another bear trap as the market dips to its trendline but the stars (technicals) are lined up for something negative to happen here. We may have indeed seen the top.

MTA EF auctions off its members

The Market Technicians Association Educational Foundation (MTAEF) auctioned off lunch with a host of famous and not-so famous technical analysts on eBay. Here is a screen capture from Bloomberg:

You'll have to click it to read it but basically the top fetcher was Robert Prechter. Someone paid $7000 (seven grand) for the privilege of taking him to lunch and they still have to pay for the lunch!

Who says technical analysis is not part of the market's mainstream?

The reason for the auction was to raise money for the foundation to help in its effort to establish "for credit" technical analysis courses at the university level. You would be surprised to learn just how many universities already offer them.

Here is the link to the fundraiser, which will take place at Baruch College in NYC (where the MTA library now resides). http://www.mtaeducationalfoundation.org/libraryopeningnov1755.html

Speakers will include:

• Robert Barbera, Ph.D.; Executive Vice President & Chief Economist at ITG, Investment Technology Group
  
• John Mendelson; Senior Vice President, Market Analysis at Potomac Research Group
  
• Jason Trennert; Managing Partner & Chief Investment Strategist at Strategas Research Partners
• Louise Yamada, CMT; Managing Director of LYA
• Edward Yardeni, Ph.D.; President of Yardeni Research, Inc

Fun, Fun, Fun till Daddy makes the charts work!

This chart has more than just Wednesday's bearish reversal to show. It has four reversals of prior technical signals within the span of two weeks. Is it any wonder nobody is getting it right?

This is not how it worked just a few years ago. When breakouts happened, they happened. And when they failed on rare occasion they did not turn around the next day and rocket higher.

Here is Morgan Stanley. While it did not rocket higher immediately after failing it does show a pretty good looking breakout followed immediately by a key reversal day.

To bring it up to date, look at yesterday's bar when it released its earnings. Yep, that is an inverted hammer on candle charts and rather bearish with volume like that.

Yes, chart watchers have to adapt but the rules of TA are quite different than the were.

We constantly read that technical analysis is a self-fulfilling prophecy. By that logic, so is evolution, pal. Here is the tautology (look that one up in your Bill O'Reilly dictionary). The fittest survive. Why do they survive? Because they are fit.

Stated like that I have to laugh. TA attempts to gauge the behavior of the masses. When everyone is looking at the same charts they behave the same way and TA forecasts it!

Seriously, too many people are now looking at TA and it does indeed effect it. No, it does not make it come true. Quite the opposite, it F's it up big time. The Santa Claus rally happens before Thanksgiving. How about that head-and-shoulders pattern EVERYONE saw in June?

Let's lapse into physics, something we all do when we talk about trends (inertia) and momentum. The Heisenberg Uncertainty Principle states that the position and momentum of an object cannot be known together with certainty. The simple act of observing an object alters it (measuring devices or even photons hitting it) although it really is a moot point when we get above the atomic level.

Today, there are zillions of observers on the market. They talk. They act. They effect the market. (bet you did not know I co-majored in physics in college)

Self fulfilling? Try self-defeating. We as analysts must develop new tools or risk becoming as useless as (insert favorite market goat).

Chase is screwing me again!

Will it never end? How many times will Chase - due to their mistakes - charge me more fees? Why have I dragged my feet leaving? Perhaps because it is a hassle to transfer all automatic deposts and automatic debits to another bank. I know I still have one more manager to visit as a last ditch attempt to reverse the first set of fees.

Here is the latest. Last week, I deposited a decent sized check at my local branch. Surprisingly, the fund were available, according to my online account, the next day. Hmmmm, positive surprise.

So, I wrote some checks to pay some bills and transferred a large chunk to pay off a credit card balance - a Chase credit card, I might add.

Two days later, I get a notice that the check was being returned. Why? Incorrect endorsement. What?

I signed that check the exact way I sign every check I deposit but if it was not correct then why did the teller not say so? Clearly, she thought it was OK.

And now, you guessed it, they charged me an insufficient funds fee (on top of the returned check fee). They failed to notice that all the money remained with Chase. I paid a Chase credit card with it (I never mailed the checks since the problem started).

Once again, they charged me fees for services they performed (unnecessarily) that were all internal to the bank. They laid out no money to anyone else.

Now, where is my KY? I want to minimize the pain the next time the do this - and I am confident they will.

By the way, on the home equity loan front, Chase offered to lock me in at 7 point something percent. Ditech offered 5 point something.

What bear market?

This chart ran in Quick Takes Pro this morning before the open. The point was that Apple was at all-time highs - not just highs for the rally from March.

Bear market of 2008? What bear market? But with this stock now at resistance and weekly RSI reaching overbought levels, well, you know.

That's just one stock. What gets me is that any stock could do this. Remember, just seven months ago the financial world was on the brink of collapse (that's what they told us). To see not only business as usual but record results so soon means that either Steve Jobs and company are the Goldman Sachs of the tech sector or that the entire financial fiasco was a load of crap.

Sorry for the strong word but it could have been stronger. I still cringe when I think back to former Treasury secretary Hank (my chain) Paulson crying that we have to bail out the banks or we'll cease as a nation. Good companies like Apple are too strong to go down when the bad companies implode. That's what the free market is supposed to show.

The trend is up but.....

Here is a chart of the Latin America 40 ETF. Clearly, the trend is up but MACD is finally showing something interesting for the bears.

The last time MACD got up this high was in June just before the market corrected. Since the trend is still up it would be a good idea to wait for MACD to actually put in a downside crossover between its two component lines before growling.

In other words, the trend is still up! But now with some actual evidence to say it is too high for this point in time.

Don't forget, we put up a chart of the day on the home page http://www.quicktakespro.com

Sumitomo predicts US Dollar index to 50

Quote from trader Isam Laroui - In my humble opinion, as a prediction this ranks up there with Dow 30,000. Coming after a prolonged USDJPY decline it could also be a decent contrarian signal.

Quote from analyst Ian MacAvity - That forecast is, to be polite, slightly off the top of any lunacy scale I'm familiar with... but it does give me a fun slide to work with in a talk next week!

Here is Ian's chart.
Quote from Ricky Riccardo - It's redic-u-lus!

TA: Plain and Simple 3rd Edition coming soon

Warning - Shameless commercial plug.

The third edition of Technical Analysis: Plain and Simple is scheduled for release in January. It is available for free preview online at http://my.safaribooksonline.com/9780137057061.

From this page, click on the link to the table of contents. My favorite chapter is "Case Study - Bizarro World" that covers what went wrong with analysis in 2008-2009.

If you are looking for a basic book on technical analysis, this is it. And it is almost as sarcastic as this blog.

Oil Gushes Higher

OK, I wrote the kind of corny headline financial editors love.

One look at this chart, however, gives you the story. Oil is looking very hot right now.

Now look at the weekly chart. Either the economy is going full bore or the speculators are back. Take your pick.

Or maybe it is a knock on the greenback? Doesn't' matter to me as both the newsletter and the fund went long days ago.

Dow 10K

Today's column was about the magic round numbers of Dow 10K and S&P 1100. I called them bunk but let the reader with a rather bullish impression. I am still looking for a major sell off as the series of cyclical bulls and bears continues. Could be tomorrow now that 10K is here. Could be 10,300 as I suggested was possible in the article. Somehow, I think it will be in between just to make everyone look bad.

See blog post under this one.

Why the market will tank

"Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture," the Wall Street Journal reported. "Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal."

Is it any wonder that Main Street hates Wall Street? Nothing seems to have changed and the next crisis is coming. When is anyone's guess but the lunatics are still running the asylum.

Irresponsible CNBC

This morning, I caught the tail end of a segment on CNBC that perked up my ears. They were trying to debunk the feeling that the US dollar was going to heck in a hand basket. For proof, they and put up a chart that began at the end of the third quarter of last year and ended Sep 30 of this year. Exactly one year, quarter to quarter. The idea was to show that the dollar is not at new lows and by definition that means it has to have a positive rate of change from the actual lows to now.

Supposedly, the trend is not as bad as we think. Really? Can anyone there debate me that since March, the trend in the US dollar is down. Since January 2002, the trend in the US dollar is down. And while I will concede that there is no actual declining trend as defined by TA books, the US dollar is HALF of what it was in the 1980s.

Here is the current chart with Dave Landry's big blue line (that a 6-year old could draw on the chart with crayon). The trend is down - period.

Oh, the the dollar index is actually lower 9/30/09 than it was 9/30/08.

I am not saying it will crash or even stay at low levels. But do not try to spin this in your bubblevision way. The greenback is reeling. Calling a Q3 to Q3 comparison positive was not only incorrect but it was irresponsible.

Trader Tax - here we go again

Once again they are talking about taxing stock transactions. They really don't have a clue, do they?
http://online.wsj.com/article/SB125512957855977163.html

From Tom Tankka:
The "real" cost will be less trading, thinner markets, more volatility, and volume moving overseas to trade will be much higher.

Money is fluid. It won't stay here for prestige, that is for sure. Liquidity was the problem last year in the form of a credit crunch. This will kick off an equity crunch.

Forgive the political post but this directly affects my industry - customers, dealers, information providers, analysts and yes, small investors. A tax is a tax is a tax.

Gold survey results

The survey I offered on gold last week got half the responses than the stocks survey. However, it was split again on where everyone thinks it is going. The majority are looking for 1150 sometime before the end of the year but second place is split evenly between up a lot higher and down a lot. So much for consensus and skinny tails.

Bottom line - I am not swayed from my view that the gold bull market has entered its next leg up.

Voodoo technicals

I have railed against the classification of technical analysis as voodoo and prediction since I believe, when properly applied, all it does is give you probabilities so you can make one decision - buy, sell or hold. Yes, if you buy you are "predicting" the market will go up but you do not really know how high and for how long.

I have seen a lot of "experts" these days talking about how the market did this BECAUSE it hit some moving average or some indicator reached some level. This is crap and only adds to the perception that TA is a bunch of hooey.

The market does not reverse because it hits an average. The market reverses if sellers become more active than buyers and that TENDS to happen around the average or resistance level. It TENDS to happen when the market slows down in its speed of advance and sellers finally poke their heads out of their caves.

Please run from any web videos you see where they say "the dollar did this" and "that led to that" and "then it finally calmed down so stocks stopped moving." Its CRAP!!!! And it is useless in telling you what to do about it.

NOBODY knows where the markets are going and NOBODY knows why things are happening AS THEY ARE HAPPENING. Everyone is a genius after the fact. My job is to weigh the evidence and make a decision. And then to know as soon as possible if it was the wrong decision.

OK, rant over. No, I will not divulge the name of the web-based advisory that sparked my rage.

Feeling Heavy

A number of sectors have moved under their 50-day averages and then bounced to test them. Despite the peppy performance Thursday and all sorts of good stuff (Sept sales data, Alcoa earnings, Dell and eBay upgrades) the market feels heavy to me. The high was 1070 Thursday and 1080 two weeks ago. Close enough to 1100 with a dip in the middle to ef up the bears first?

Can't say anymore here in deference to paid subscribers.

Gold et al

Today's column was on the short- and long-term breakouts in gold. Let's do a quickie poll on where everyone thinks it is going. If we listen to the inflationistas, gold is going to 2 grand thanks to all the money Uncle Sam is printing. If we listen to the deflation crowd, gold commericals are way short and gold small specs are way long to set up a tumble. And that does not include the damage to the economy that will take a long time to fix.

The time frame says year end but it is not a forecast for 12/31, just a "by year end this will happen at some point."

Chart of the Day

Just an FYI.

The Quick Takes Pro home page has been changed to offer a chart of the day. Check it out.

Don't worry, we won't try to sell you anything (unless you ask).

Greek stocks crumble (what??)

A headline from the financial media:

Greek stocks crumble
Socialist win in weekend parliamentary elections leaves investors seeking market clues.

Crumble? Really. Look at this chart:

I don't know if you can see it without clicking on the chart to blow it up but that line in red says the index lost, hold on to your hats, 0.48%. Yes, zero point four eight percent.

Can a brotha get a break?

Great Quote

From a discussion on a professional technical analysis board:

It only takes one trade, probably the next one, to destroy you in this business - Larry Williams.

If you think you have the markets figured out, post this to mirror so you will see it every morning when you get ready for work.

Heffalumps and Woozles

Heffalumps and Woozles
are very confuzle
- Winnie the Pooh

Why Winnie the Pooh? The song starts with:

They're black they're brown they're up their down
They're in they're out they're all about
They're far they're near they're gone they're here
They're quick and slick and insincere
Beware Beware Be a very wary bear

You can substitute "wary bull" if you like. The point is that from a technical point of view, the evidence looks like these lyrics. Its a breakout then its a breakdown. Volume does not matter then it does. Trendlines do not matter. And no news affects the markets like we think it should.

For you youngsters without kids and no recollection of Winnie and friends, how about a tune from portfolio manager Katie Perry?

'Cause you're hot and you're cold
You're yes and you're no
You're in and you're out
You're up and you're down

You're wrong when it's right
You're black and it's white
We fight, we break up
We hug, we make up

(sung) I bought a stock and I liked it. Hope my co-manager don't mind it.

You can't have it both ways

Over the past few months, many technical holy grails, such as breakouts on high volume should be bought, have not worked. Then two weeks ago, all of the sudden an reversal bar on high volume means the end of the bull market.

Either it works or it doesn't. And yes, we all pray in the Church of What's Working Now but the gospel there does not change on a daily basis. Volume matters, then it doesn't and now it does.

Riddle me this, why did "they" make such a stink over the Sep 30 decline when traded high volume but closed in the middle of its range? All of the sudden traditional distribution days work again? If the stock market has broken down then how come volume was not really heavy today when the Dow sheds 200 points?

Yes, it was heavy volume on a big decline but if distribution days work again then volume should have been higher. After all, the rising trend from July was broken rather decisively.

I've already said that retail stock trading has jumped the shark. There was a piece on Minyanville about how lawmakers can usual inside information legally. With Goldman Sachs pulling Washington's strings, too, I have a feeling that investments as a whole are strapping on the water skis.

* For those confused by the reference, the TV show Happy Days was said to have peaked when they had Fonzie jump over a roped off shark while water skiing.

Mortgage rates fall again

Check out this headline on a financial website today:
U.S. benchmark 30-year mortgage rate falls below 5%

Funny, just yesterday (I swear it was just the other day - Reo Speedwagon) Ditech had an ad on TV saying "As you might have noticed, interest rates are going up."

Do you mean to tell me that I cannot trust Madison Avenue either? I guess any entity known for its address is just full of baloney.

Madison Ave
Wall Street
Pennsylvania Ave

Will Main Street be next? How about all those restaurants named for their street addresses? Pass the Tums.

In all seriousness, this makes it very easy for me to transfer my mortgage from Chase, where you will recall I got screwed and nobody there has a vested interest in caring that I am pulling all my business, to somewhere else at a better rate.