What's logic got to do with it?

So January ended with a pattern called a one-month reversal to the downside. The market made a higher high for its rally and then closed below the previous month's close to theoretically signal that the whatever was driving the market changed intramonth.

Not only that, the month closed below December's low so the reversal aspect is even stronger. And for the Nasdaq, it was a key reversal or key outside-day reversal where the index opened with a small gap up to a new high and closed below December's low. Strict TA tells us that the party should be over.

Then we get some chatter on a professional board that this sort of monthly reversal usually leads to gains down the road. Huh?

From Jason Goepfert: Textbook technical analysis-wise, it's hard to argue. But historically, a key reversal (new 12-month high, then close below the prior month's low) led to positive returns over the next 11 months 76% of the time, 10% avg return, and nearly 3-to-1 reward-to-risk ratio.

Hmm. Damn statistics. But then this:

From David Aronson - For comparison, it would be interesting to look at what the average 11 month returns is for months when there was no key reversal.

Basically, we need to know how much of the gains are due to the natural upside bias in the stock market.

Here's the kicker - we can see a 30% drop in the market back down to the old lows in a short amount of time and then another rip roarin' rally back to new highs - all within 11 months - to keep the statistics alive. Why not? The market did it in 2008 and 2009.

I think I'll step aside for at least the first part of that.

Big Ben

I think it's rather funny how much some people - read congressmen and senators who are no better - want to show the esteemed chairman the door. Is it any different than NBC, for example, when the top dog oversees a debacle and still has his job? Should he go down with the ship or can he learn from the mistakes and get it right next time?

NBC is a whole lot less important than the Fed and basically I don't give a (insert favorite expletive) about it - NBC, that is.

Personally, I think the whole lot of them in Washington should go but half of the knuckleheads are already gone thanks to the change in administrations. The other half is still with us but short of a no-confidence vote for the entire government what is the alternative?

Is it too late to vote for Pat Paulson?

BRIC a Broke

There's a corny title. It was even too corny to spring on my editor and let me tell you Barron's is not far from its new owner style on headlines (I am talking about Rupert).

Anyway, today's column was about the BRIC countries and how they have faded like some bric-a-brac on a long forgotten mantle. We are focused on the PIIGS but BRIC is in technicall7y bad shape, too. Fundamentally, can't argue but the charts have broken on three out of four.

You've seen the charts of Brazil, China and India in the columen. Check out this one of Spain (the S in PIIGS).


This is the Spain ETF and it is under its 200-day average. It is also under the neckline of an arguable double headed head-and-shoulders. Looks like it can bounce but it is narly - and not in a good surfer way.

Market kudos

You have to give the market its due. After getting smooshed last week, everyone who was not scared KNEW it would bounce. Yet so far it has been all head fakes and give backs. I won't make a prediction here but the market is clearly the boss.

We make comparisons to various years and the market does something different.
We look at the last bear and the the market does something different.

Now we hear that 2004 is the next year from the past in vogue as an analog. You know, a choppy drift lower before the next upside breakout in a major bull market. Really? This is the middle of a bull market? I can understand it extending beyond where the evidence says it SHOULD but extended major bull market?

When they pull the plug on stimulus and insanely low interest rates, laissez les bon temps roulez - for the bears.

Expo Averages

Just a quick observation that the following have had bearish crosses of the 20-day expo average below the 50-day expo.

Telecoms
Brewers
Full Line Insurance
Personal Products (makeup and grooming)
Apparel Retailers
Toys
Integrated Oils
Gold
Mortgage Finance (a rousing Duh!)
Brokers
Brazil
China
Hong Kong
Spain
Austria
Belgium
Italy
German
Sweden
Greece

And in the "what the?" category, an upside cross for Food Retailers

Conversation with a Real Estate Professional

I feel like Micheal Eisner now with all these conversations.

Last night, I attended a "gala" dinner honoring a local guy for being involved. One of my table mates, who happened to be a friend of mine already, told me that in his business of owning and managing industrial/office buildings the outlook is lousy. He actually thought of selling it all and waiting for the next plunge to get back in.

Here is some irony. I am a professional market timer and I warned him not to try to time the real estate market. My solution was to hedge rather than sell since this is his business and not a speculative endeavor.

The point here, however, is that an insider sees that second shoe dropping on commercial real estate. I wrote a piece for Barron's Online about 9 months ago saying that the stock market was not looking for it. But here we are 9 months later - the typical look ahead period for the market - and things are changing.

Look for an update to the REITs column soon.

As for his outlook - he said it could either bounce like the economic knuckleheads are espousing (my words) or it will just parabolically ease into flatness at a new very low level for many years a la Japan. He chose the latter.

Conversation with an Energy Hedge Fund Manager

Not that I am creating a series but I had a sitdown with an energy fund today. Let's just say that the headline of $3 gasoline - which we hit here in the NY burbs weeks ago, thank you very much - is an understatement.

I wrote in MarketWatch this month that oil would be in a 65-80 range. While its spike up to 82 looked bad, you had to have the feeling it would not last. But now with crude back rather low I feel it was the right call.

But $100 barrels is still way in the cards. The trend, even with the range, is still up.

And as I have been saying this month, natural gas is the sleeper market this year. Mr Hedge said it cannot be a moon shot like oil but we both agreed that the trend is up here, too.

Conversation with an Indian hedgefund manager

I sat next to a gents from India who lived in the US for a few years and then moved back to India. He bought distressed Indian companies and turned them around.

Of course, I was interested in cracking the Indian analysis marketplace and one question I asked was if the growth we hear in the financial press is for real. His answer was a fantastic analogy.

If you give an undernourished child food, he will grow very quickly. India has been, for the lack of a better and less disparaging term - backward for years. The new injections of capital, brainpower and opportunity are sparking zooming growth because when you start low the percentages are huge.

One more from the road

Today's column talks about changing attitudes towards risk. From junk bonds dropping as T-bonds rising to a rally in the dollar to frothy sentiment this month in surveys and even yield spreads between short and long-term T-bonds and notes - the tide is changing.

Since I have to run for a plane, I cannot post too much here. However, I can say that with all the news that's come out over the past week, just about all rections have been negative. The only one that I can recall that was not bad was Wells Fargo. I think JP Morgan and Goldman Sachs more than make up for that.

Of course, the most important news of all is Conan's 40 million. Well, maybe it's not that important.

Rails

Warren Buffett and crew may be meeting to discuss the intricacies of their Burlington Northern acquisition but have you had a look at CSX? This is one of the other big rail stocks and it was testing last week's upside resistance breakout. Today, it gapped down big time making the entire transport sector look like it has some problems.

http://stockcharts.com/h-sc/ui?s=CSX&p=D&b=5&g=0&id=p62730791459

Insiders Selling?

I will be traveling to Florida this afternoon to attend a marketing event for our mutual fund (see link to website on the right) so I won't be able to post between now and tomorrow. Here is something I found at "The Pragmatic Capitalist" blog:

As the recession on Main Street continues the negative trends in insider buying get even worse. Insider buying fell to a new low of $7.8MM on the week. Selling dropped from $318MM to $293.22MM, but remains at very high levels. I continue to believe this is a reflection of the ongoing secular bear market as corporate insiders see little to no real recovery in revenues and sustainable organic growth. Due to this, they have little to no faith in the long-term sustainability of future increases in their own corporation’s stock prices.

Once again, more evidence that things are changing even as earnings come in nice and the trend remains up.

The rally will end Feb 15

OK, now that I have your attention, just look at this chart with some time relationships. If, and that is a big word, each segment of this rally is the same length in days then Feb 15 is trading day 70 since the October closing low.

Each segment sure feels different, though. The first was the urgent buying when the world did not end. The second was a more orderly ebb and flow higher as we'd expect in "normal
"rallies. The third, where we are now, has been low volume, low interest, end of the year then start of the year grudging tiny motion. As a colleague put it, it is an eerie calm.

If you want to slap some Elliott on this, then the middle wave is the longest and the current one can end right about now. I don't see much in the way of Fibonacci relationships here, however.

Or, this is a three, not five wave affair and the latter two segments should be taken together. That puts them together as twice as long as the first. But I don't see the Fibos here, either.

Just some food for thought as most people leave time out of their analysis completely.

Car Metals Jump the Shark

Love that phrase. Why car metals? The two below are used to make car parts.

Both platinum and palladium ETFs are not trading (PPLT and PALL, respectively) and after some hefty run-up, both underlying metals look ready to fall. This happens every time a new ETF comes out.

Take your pick - money coming out of these goes into gold and silver to stay in metals or these two drag all metals down with them. I favor the former.

The Re-Fi fallacy

From CNBC this morning - Robert Brusca, of Fast and Opinion Economics

Housing is affordable - but the banks are not lending because they do not want to lock in mortgages at these low rates. The hurdles are huge - such as a very high credit score.

Market Quake

The media were all over the massive earthquake in Haiti this morning, discussing not only the human tragedy but also how such events occur. While certainly not the same as a devastating earthquake, I think there will be a market quake sometime this year.

They said that two of the Earth's plates were moving past each other, right under Haiti, and the pressures got too great for friction to hold them back any longer. The plates ran past each other at fast speeds, relieving the pressure and restoring equilibrium until the next time.

Sound like the battle between the forces of bulls and bears? The bulls say the economy is recovering the bears say the recovery is a fake. The technicals say the trend is still up and that is the friction holding the two opposing market "plates" (bulls and bears) in check. But when the technicals finally turn around I see a major jolt coming.

New lows under last year or not, however far down it goes will be brutal. Inflation is coming (ask the long end of the bond market). When the stock market realizes it, hiding in your bathtub under a mattress won't help.

May the people of Haiti recover quickly.

Shipping a winner?

Transports pooped on the bears again last week following breakdowns in many components, most notably FedEx. Then the rails and UPS exploded higher and Monday the transports ETF (IYT) broke above resistance, albeit on low volume.

Then there's Maude, er, the marine shipping index (SHX).Check this chart - a resistance break (actually a big base breakout) and only a day away from a golden cross of the 50-day expo average above the 200-day expo. Keep an eye out here if the market survives earnings season.

Bulls rejoice!

Well, apparently we are due for either a rip roarin' rally in stocks, bonds and commodities or the dollar is about to collapse - or both. Here is the current Economist cover.


And just when consensus was reached for a stock market rally in the first half and major correction in the second half. What the inflation worry creeping in the bond market means (see today's column, due out at 4pm NYT) is another story.

The Peter Lynch Method says thumbs down

I was in the local appliance retailer today and even for a weekday afternoon it seemed rather empty to me. (My dishwasher was shot, in case you wanted to know).

When I got to the store, there were a few salesmen hanging around, unlike what I remember on a pre-Christmas weekend, when you had to bribe the cashier to find you one. He was very nice, of course, and put up with all my questions. I made my purchase in a reasonable amount of time because I believe in Sy Syms (you may have to be from the NY metro area to get that one - an educated consumer is our best customer) and knew what I wanted.

Then I asked him - are people buying stuff?

His demeanor wilted a bit and he sighed, "nope."

He then followed that with remarks about how he does not see how the pundits are saying things are improving. Although I forgot the exact phrase he used, it was something like - it's still terrible (meaning the economy).


Earlier this week, I had some short sale ideas in retail and was waiting for confirmation to recommend actually shorting. This chart of TJX looked pretty bad a few days ago.

A high volume breakdown Monday when the rest of the market was soaring higher. The trend was down and the 50-day average was rolling over. Looked like a good short to me after a better timed entry. Then this:

Yes, I know a failed sell signal becomes a good buy signal but not necessarily when it has already gapped up like that. But it totally does not jibe with what almost any local merchant will say.

Risk?

Today's Barron's Online column was about the growing risk in the stock market even as the trend continues to march, or should I say, scratch higher. Volume is still pathetic and certainly we cannot say demand is forcing prices up. More likely there are simply no bears around to provide supply.

But how can I say risk is growing? Do I even look at the VIX? Of course I do and it is probing the lower levels of the trading range it was in BEFORE the financial crisis.

What me worry? Sorry, Al, you'd better.

Up 70% in nine months is quite overbought. And yes sentiment is quite frothy with Investors Intelligence at records for bullishness.

How about the latest roundup of Wall Street strategist views? The concensus is for 2010 to put in nearly a 10% gain from current levels! The lowest projection was essentially a break even so here, too, there are no bears.

The risk is that stocks are in a bubble and we know how bubbles end.

Again, have I stopped taking my meds? A bubble? What else would you call it when stocks rise 70% in nine months?

How's the weather?

There has got to be some way to make some money on this.

This morning, it was warmer in Caribou, Maine than it was in San Antonio and New Orleans. And they forecast the high in Caribou to be the same as the high in Atlanta.

Orange Juice futures? They are wearing gloves in Florida.
Heating Oil futures? Do they even use heating oil in the South?

I know that when I lived in South Florida we had an electric heater embedded in the A/C system and used it maybe once because it was a tad chilly one morning. But it is cold down there right now.

No don't go anti-global warming on me. It's winter in the NoHem.

Welcome Bulls!

The stock market got off to a roaring start today - or did it? Up 1.5% to new highs on sub-average volume? And that average has last week's anemia included.

Here is a chart I stole, er, borrowed from Tim Knight's Slope of Hope blog.

Just in case you cannot see the attributions, this is an Elliott Wave international chart created with CQG and Investors Intelligence data. The point is that there are no bears anywhere!! Sentiment is at its most bearish since before the crash of 1987!

I have long said that things are too rosy in sentiment land and while sentiment is never a trigger for buying or selling it does create conditions for things to happen. Right now, this market is running on government sponsorship. When the whiff of its removal tickles trader nostrils, I am afraid 300-point Dow down days are in our future again.

As for today's Barron's Online column, I looked at the transports again and there are plenty of crack all over the place. So are there problems in retail and multi-industry conglomerates and the banks still suck. Feel like an economic recovery to you?