Full decade forecast

This is the chart subscribers saw a few weeks ago and Barron's Online readers saw, albeit with some of the markings removed, in today's column.

I do believe that there is an 18 or so year cycle of secular bull and secular bear markets. The current secular bear started at the 2000 peak. This chart shows where most of the cyclical bull and bears fall within.

Yes, this chart shows a lower low in 2016 than we may see in 2012. But it is not as low as the one in 2009 and it sure does follow the road map of the 1970s (the previous secular bear).

The Year That Really Wasn't

Oh there was plenty of action but if you look at where the stock market was at the end of last year even your saving account interest might have beaten it.

Oh, it looks like a rally this month but the current price is pretty much where it was at the end of November.

And November, which came in like toxic waste and left on a Justin Bieber high - guess what? Just about the same price as when October ended.

Remember that monster October rally? Well it left things where they were in when we last serenaded jolly old St Nick.

So, for the August "crash" and the Japanese tsunami dip and the pre-Halloween "the financial system did not collapse" melt-up 2011 looks to be leaving us where it found us.

A Happy and Merry to all! I am not sure if I'll have anything to post here on the blog during the final week of the year so keep tabs on the Facebook page. And if you want to give me a little end of year gift, how about "liking" it?  It's just a little click over there on the right side of this very page.

Dividends

Today's column was about how two telecoms stocks - AT&T and Verizon - could provide a place to hide at the same time getting paid a healthy dividend to to so. I tried to make the point that just because you find a big name stock with a big dividend yield does not mean you can buy just anything.

Being the technician I am, any stock with a low P/E and high dividend yield still has to pass muster (or does it have to cut the muster, or mustard?). The chart cannot be in a big ol' bear trend. It cannot be at a new high with a bearish momentum divergence. And it cannot be breaking down below support.  Getting the picture? The chart has to be at least stable.

Telecoms from around the world now sport some mouth watering dividend yields. Surely, a 10% yield not only cushions the downside but also gives off at least a little - and rare - current yield.   But what happens when the stock falls 10%. Bye, bye yield.

Check this chart of Philippine Long Distance.

It is now near the top of a giant range and looking a bit overbought in this weekly time frame. Although it sports a hefty 4.6% dividend it can still fall 15% and remain in the range.  Dividend no mas, three times over. But at the bottom of the range it would look tasty indeed.

Then there is Frontier Communications, mentioned in the column. The stock lost more than half its value this year and is well below its 2007-2009 bear market low.  yet, it sports a 15.2% dividend!  Wow, what a deal!

 

Not so fast. While fundamentally oriented investors might say there is enough cash flow to keep paying it, the charts suggest something entirely different. After all, bad news often shows up in the technicals before it shows up in the quarterly earnings report. Somebody always knows something and acts. Then the ripples in the pond spread out, causing more people to act until the bad news emerges. Its not the charts that drive the fundamentals. Rather, it is the market sensing what is coming.

So, if you are looking for a nice cash cow to keep your wallet stuffed, make sure the cow is not dead and just bloated with the escaping gasses of decay. Find these stocks using fundamental screens but buy them only when the chart says Bossie is mooing contentedly in the fields.

Protect Profits by Having a Plan

Yet another piece I wrote for Scottrade - this one in November 2009.  Given what just happened in gold, it might be a nice read today.

After the last two bear markets, most investors understand that they have to have a plan to protect their portfolios. Traders live and die by this. They are taught that knowing when they should sell is more important than when to buy. 

In other words, they recognize when it is time to cut their losses. Investors should understand this, too.

How many of us are guilty of thinking that a lower stock price is always a better value? This was the case in November 2007 just after the last bull market peaked as analyst forecasts were still rather rosy. And during the 2008 bear market it was also the case, as we often heard news reports that "the financial crisis is near its end" or that "housing is about to bottom." 

Were all the profits you booked over the 2003-2007 bull market protected? Did you have a plan to take at least some money off the table when it became clear that the market was no longer healthy?

The market usually gives off many signals when the good times are about to end. One example is deterioration in market breadth, when the average stock starts to stumble well before the major indexes peak. Stocks with marginal fundamentals are left behind, unlike in bull markets when investors buy anything and everything.

Another example comes from the rising trend itself. In a healthy bull market, the general direction of the market is clear, even with the normal sequence of rally and pullback. However, when the rallies start to shrink and the pullbacks start to grow, we can get a good idea that the trend is changing. 

For most investors, knowing what to watch and having the time to watch it can be a problem. Therefore, they need a more mechanical plan. 

How do investors create such a plan? A tool called a "stop" or "stop loss" order is one way to help mitigate losses. Basically, you determine how much money you are willing to lose on any investment - how much you are willing to risk - and if the stock reaches or surpasses the price you specified, an order will trigger to sell. Stop orders allow you to ride an upswing and limit your losses on a downswing even if you're not watching the market every minute.

If you just bought the stock, you take your loss and move on.

If you owned it for a while and you have a profit, you set your stop based on today's price, not the price you paid. You may still walk away with that profit, but keep in mind that once the order triggers, it becomes a market order and could execute well below your stop price if the stock takes a sharp drop. Using stop orders can be an excellent strategy to prevent loss, but it can also be very unpredictable if the market or the stock is particularly volatile. 

Remember, big losses can begin with small losses.

While it is always possible that the stock will rebound, causing you to sell a good investment, you can help mitigate losses during a bear market with carefully placed stop orders. You are managing your risk. And you will live to invest another day.

No matter which way you think the market is heading, if you own stocks you must know what has to happen to cause you to sell. Sometimes it is a change in the fundamentals, and other times the market reacts in advance to tell you something is wrong. That will be the time to consider managing risk rather than seeking that last nickel of profit.

Value from CNBC

It is a national pastime of traders to make fun of CNBC and I won't argue on most of it. But I have always thought that there are some smart people there and perhaps it is the mandate to provide a constant stream of advertising selling content that marginalizes them.

Anyway, this morning, they put up an Intrade chart of Obama Reelection futures. It showed a steady decline this year with an Osama bump and even a little strength this month.  Here is that chart - followed by a chart of the S&P 500.

Do you see any similarities?  Forget the news. What we see here is the same shape in Obama's prospects as we see in the stock market - only lagged by perhaps two weeks.

Forget unemployment. If the stock market tanks before the election you can welcome President Newt or President Mitt or President The Donald.  Well, maybe not that last one.

Just Another Manic Market

Did you ever see the market go this way and that?
Go this way and that way,
And that way and this way
- a  children's song (sort of), possibly Scottish

or, if you are a 1970s psuedo-punk like me:

Well we can't take it this week
And her friends don't want another speech
Hoping for a better day to hear what she's got to say
All about that Personality Crisis you got it while it was hot
But now frustration and heartache is what you got
- Personality Crisis, New York Dolls (1973)


Honestly, I really have nothing new to say. Financial markets are being wagged by the dogs of Europe and nothing else matters. Perhaps options expirations this week will give money managers the reason to try to push the market higher but one sneeze from MerKozy and bye bye profits.

What do you do? Unless you are a day trader or a gambler (there is a difference), protect capital unless you see a really compelling setup.

And as for the title of this post - Manic Monday, The Bangles 1986 (written by Prince the symbol)

Buy the rumor, sell the news

Buy cheap, sell dear.  Or, buy on the rumor that good stuff is going to happen and sell when it does, or does not come true. That seems to be what happened Thursday in the stock market.

Here is your headline:
U.S. stocks lost sizeable ground Thursday as public sparring among European Union members jolted the market late in the session.

What? More than a dozen countries with different languages, customs, history and cultures did not fall into line behind Queen Germany?  I am shocked! and by shocked I mean not surprised at all.

The only surprise is that it happened Thursday and not after the Friday summit.

Do you get the feeling that the term summit is overly generous?  Sort of when failing K-Mart joined forces with failing Sears. Maybe Xerox can hook up with Kodak.  Or RIM can marry Palm. Oh wait, Palm did the nasty with flailing Hewlett Packard. Didn't HP buy Compaq, too? It's the Oakland Raider strategy of scooping up the league's cast offs and somehow making a team out of the drek.  But I digress.

Now we are in an analytical pickle. There still is time for some bold action, such as printing trillions of euros and getting it together on selling bonds. Or letting Greece fade off into the deep like Leo did in Titanic.  That would really screw things up because as it stands today, the S&P 500 has failed again- for the fourth time - at the 200-day average.

The third time may be charm but the fourth time is a just bad odor following you around.

Song Lyric for the Week

I was writing about how the market is in a stall right now as it awaits Europe's decision or lack thereof. This lyric popped into my head.   Perhaps this is the market singing to MerKozy and friends.

I'm leavin' it all up to you-ooh-ooh
You decide what you're gonna do
Now do you want my lo-o-ove?
Or are we through?


- Dale and Grace (1963)

The Waiting is the Hardest Part by Tom Petty was too easy.

Relating Charts to Market Analysis

Here is another article I wrote for Scottrade way back when (Jan 2010). Again, I figure the statute of limitations has run out for an article I wrote for free so here it is - for novices.
 

To many investors, technical analysis is either an unknown world or something rather suspicious. However, even for the skeptical there are many benefits to be had. The most important is simply figuring out if your stock or the market as a whole is in a bullish or bearish trend. 

Why is that important? Knowing the trend dictates the strategy. For example, in a bull market, traders buy dips while investors may simply buy and hold. Certainly, the latter was a great plan from 2003 to 2007. It did not work so well in 2008 when the bear market was in full force.

Charts Simplified

Let's talk briefly about what technical analysis, or just simple charting, is all about. First, analysts of all types use charts even if they shun technical analysis. What is always reported in the news? The trend in employment, earnings growth, projected sales and the Fed funds rate. All of these data are displayed in chart form to show how they have changed over time. 

Charting stock prices is no different. With one picture, we can see where a stock has been so we know right away if the current price is relatively cheap or expensive. Clearly, saying a stock has a price of $50 is meaningless if we do not know if it traded at $40 or $60 last month, or if we do not know if earnings have been growing at the same rate. 

Historical Analysis with Charts

When the stock market peaked in October 2007, analyst estimates for earnings were still strong and everything seemed to be status quo. Buy stocks, watch them go up, sell at a profit. Not bad.

Further, market psychology, or attitude, was very good. After all, the market survived the extreme sell-off of August 2007 when news of the sub-prime mortgage crisis broke. The Standard & Poor's 500 shook it off and rallied to new highs in short order. 

So, when prices pulled back again in November of that year, it appeared to be another buying opportunity. Good stocks were on sale again, but this time, price gains did not last. The market sold off again in December, and that time, there was no new high first. Something was different.

When prices slid below the panic lows of the previous August, chart watchers knew the trend had changed. The strategy had changed from buying dips to selling rallies; essentially a plan for getting out of the market.

What really had changed? The fundamentals were still good. Analysts still maintained buy ratings. Bear Stearns and Lehman Brothers were still alive and well.

Simply stated, the market was in a declining trend. Rallies were sold earlier and declines had to extend lower to entice demand, and that is what happens in bear markets. 

Conversely, at the March 2009 low, the fundamentals looked very bleak, but stock prices started to rise. It is hard to justify, even in hindsight, that the price chart said the trend had changed to a bull market (there were other technical reasons, however). But for investors missing the March to June run, they got their signal in July. After a rather sizable pullback, prices moved on to new highs. Stronger rallies and quick, shallow pullbacks became the norm - exactly the opposite of what happened in 2008.

Charts & Trends

Clearly, simple chart reading will not point out major tops and bottoms as they are happening. However, the market will often tell us sooner rather than later when the existing trend is over, and the best way to read any possible signals is to read and analyze basic price charts. 

The charts may signal the end of a rising trend when conditions become similar to those of previous bull markets. Rallies usually become weaker and pullbacks may have to go lower to entice buyers. There is no magic bullet for reading charts and using them to anticipate trends - if there were, we would all be rich. Different analysts interpret charts different ways, and it's up to you to do your own analysis and decide where you think the market is going.

As they say, the trend is your friend. Finding the trend, not predicting the future, is the goal. Once that is done, investors can use the trend to help them decide to hop on for the ride or simply step out of the way.

D-Day for Europe

Supposedly December 9 is decision day for Europe as they meet in a summit (ooh, it must be important - will they serve beer?) that could determine if they can rescue themselves. Woudn't it be cool if they met in Normandy?

Buy the rumor, sell the news. We had the "buy" part this week. Next week, unless they come up with something brilliant and totally expected we may see "selling the news."

I have more questions than answers:
Why did Treasuries rally a lot Friday?  I thought this was "risk on" week.
Why did the dollar reverse to the upside?
Why did gasoline rally so much Friday?
Why are pizza stocks flying? Don't say because people stopped going out fancier. These stocks were hot in October as the market was saying "I'm baaaack."
Did anyone notice the Chinese market is sucking wind and has given back most of the gains it made the day when they changed reserve requirements?
Who saw a one-day dip in LIBOR (it was back up Friday)?

A lot of these are not good signs for the stock market so if QE-Europe fails or stalls or looks like it will not happen, well, D-Day here we come.

I am pooped

No blog today as this week has fried my brain and thrown a lot of technicals out the window for a while.

As they say, " Sometimes the best trade is the one you do not make."

Ghost in the Machine

From Wikipedia:

The "ghost in the machine" is the British philosopher Gilbert Ryle's description of René Descartes' mind-body dualism. The phrase was introduced in Ryle's book The Concept of Mind (1949) to highlight the perceived absurdity of dualist systems like Descartes' where mental activity carries on in parallel to physical action, but where their means of interaction are unknown or, at best, speculative.

That sure looks like the stock market this week to me. One third of Wednesday's volume took place in the "clean up" bar after the close. That is where all the late data gets dumped and from the size of it we can surmise a lot of market on close orders.

I'd like to think of it as the smart money getting out while the getting is good.

Here is a chart of the NYSE composite with volume and that ghostly current day's volume spike. Looking at this as a snapshot of heavy volume on a big up-day belies the absurdity of the intraday action. It looks like it could be a follow-through day (FTD) too but again not when we dig deeper.

And speaking of FTDs, the three places on this chart where they could possibly appear are highlighted. Today's rally took place before the FTD window opened - 4-7 days into a rally attempt. That means is still qualifies as short-covering.

Ratio Ratio

I must be going crazy penned into my office for days writing story after story while it is 60 degrees and gorgeous outside here in the Northeast (yes, I saw the rain this morning).   The song Radio Radio by Elvis Costello comes to mind as I write this about Ratio Ratios.

Here is another one of those ratios derived from the markets and not from some analysts' guesswork. This one is the copper/gold ratio in the form of the JJC copper ETN divided buy the GLD gold ETF.

When the economy is hot, copper is in demand and gold is out of favor. The ratio should trend higher. And when the economy is not, copper is not in demand and gold is everyone's baby.   The big blue Landry arrow is pointing down.

Indicator Whackadoo

Twas the day after Thanksgiving break and all through the house,
Everyone was buying stocks......everyone.

A little stunted poetry by yours truly.  The stock market did one of its patented gap up go nowhere after that moves today as the Dow traded at about up 300 points until the final hour. What I found fascinating was that breadth indicators were completely and massively lopsided during the morning hours. Everything (almost) was up and all (almost) breadth indicators were pinned at extremes. 

A hat tip to RAI Bob Shohet for posting this stuff to the pro chat room we frequent. He pointed out that the Arms index (TRIN, for you indicator neanderthals) was at a level that was likely a multi-year if not all-time low. What that meant was the all the king's issues and all the king's volume were in the hands of the bulls. Green everywhere and a lot of it, at least on a relative basis.

The ratio of up to down volume was something like 150 to one in the early going. That's a stampede in my book.

But as I was writing my column for Barron's Online I noticed a lot of fading going on. Stocks that were up 5% were up 3%. Stocks that were up 2% were flat. I took that as a lot of people fading the rally.

As they say, the market does not like group think (actually, I just made that up but it is not a unique insight). When everybody is in a buying mood, you know it is something up with which the market will not put.(C'mon, where are the Winston Churchill fans?)

Another ratio

If you've been following me at all you know I look at a few ratios just like your favorite CFA. Only my ratios come from the market and not someone's subjectively inputted spreadsheet.  Does anyone really know what earnings will be next year and what the right discount rate is?

Anyway, this is the ratio of the junk bond ETF to the high grade corporate bond ETF.  Basically, when the ratio is going down, junk is underperforming quality and that suggests risk-off. And when the ratio is rising, invetors are getting more aggressive with junk as they chase yield - or throw caution into the wind.

With a hat tip to the Dave Landry big blue line, the trend is still down. This is one of the ratios I used in July to foreshadow the July breakdown in stocks.

And please do not call that an inverted head-and-shoulders. Things that do not actually trade need to be given a lot more rope than a tight pattern can offer.

LIBOR still rising

The 3-month London Interbank Offered Rate, a benchmark for global interest rates, is still rising and almost every single day.

While still a far cry from its 2008 financial crisis highs literally 10 times higher, this is still not a good sign. My take is banks are increasingly more nervous to lend to each other (duh!). What is probably more significant is the increasing pace of the gain.

This rate rose all through October as stocks rebounded. The pace increased into a parabolic shape in November. That is hard to see in the weekly chart but it is there.

Socionomics

A while back I was enamored with Socionomics - the study how the stock market affects social mood. While it is logical to think that it is the other way around - social mood affects stock prices - this group proved that the as goes the stock market so goes the mood.

There is one thing that is striking and somewhat useful for predicting the stock market - even though I just said it is the stock market that comes first. What I mean is that if you can identify the prevailing social mood you can tell what kind of stock market we are in. Since trends persist, it is useful.

Did you notice how sometimes all the movies are happy Disney-esque comedies and love stories while other times action, adventure and monsters dominate? The former appear when stocks have been doing well. The latter appear when they have not been doing so well.  And wars happen near the end of roaring bear markets.

Here is a recent missive:

http://www.socionomics.net/2011/10/asian-markets-presage-the-frequency-and-severity-of-terrorist-attacks/

It suggests that we can have at least a little warning of Al Queda and its buddies terrorist attacks by following the Pakistan Stock Market. Check out their chart before you poo-poo it.

Interesting to say the least.

Fear and Greed

This is a chart of the ratio of two commodities, both priced in dollars. That means the dollar is taken out of the equation leaving just real market meaning behind.

The copper ETN divided by the gold ETF shows a solid decline all year. It's meaning is that the metal linked to economic growth is underperforming the metal linked to fear and hedging. And that is not a good thing for the economy down the road.

True, there is some rally room to the trendline but with ratios you should give them a little leeway when it comes to patterns and lines.  Just one more bit of evidence to put on the bearish side of the ledger.

More Songs about Buildings and Food

Well, I had two topics that I've covered before hence the Talking Heads album title from 1978. Now I lament about doing trade shows and flying to get there.

Not that I follow the fundamentals but here is some Peter Lynch get out there and see for yourself research on airlines. The conclusion is that they are in a horrible business.

I spoke at the AAII (American Association of Individual Investors) last week in Las Vegas. The attendance was huge (looked like 3000 to me) and I had 175-200 attendees in my presentation on using charts. Considering the heavy emphasis on fundamentals in the group and the fact that there were  maybe 10 presentations running at any one time I'd say I had a really good crowd. They asked lots of questions but in the end I can see perhaps three sign-ups to my free chart of the day email.  Three? Yes, three. And did I mention they were free? With a promise not to spam anyone?

Anyway, I took American Airlines from JFK airport in NY. The terminal is nice, as I've blogged before but this time the walk from the terminal through the corridors and jetway was so long that someone asked if we were walking to Vegas. Let's not forget that the terminal was 345 miles from the actual runway and theplane drove for a good 15 minutes to get there. I'd say taxi but we all know taxis drive fast.

They started to load the plane an hour before take-off.   Yes, that is where I want to spend all my free time - in an airplane sitting at the gate.

With hot panini in hand from a good food vendor in the terminal, I made my way to my seat. Up went my carry-on bag and down I went into my seat. Yes, a seat suitable for some Justin Bieber's size.

I measured the distance from my nose to the back of the seat in front of me - exactly twice the height of a paperback book (do you carry a ruler with you?). And that was before the seat was leaned back.  Well, at least mine would lean back, too.

Uh, not, not in front of the exit row. Needless to say, it was an unpleasant experience, not including the lady coughing and hocking up a loogie in the next seat.

They had an ancient mini-screen showing a movie I did not care to watch. Forget about getting the paper to read. Good thing I had that paperback - and my own headphones - and some food.

On the way back to NY I flew Virgin America. They were able to load us in 30 minutes, the plane was cleaner, had rather interesting mood lighting, a TV screen at every seat but unfortunately the same Bieber-width seats. At least this time I was next to a group of petite ladies who did not spill over the arm rest into my seat.

I'd love to do a pairs trade with American and Virgin. But short of that, I still hate flying, would take the train middle distances if available, really think twice about vacations requiring any flying at all and cannot see it getting any more pleasant for passengers. A ton of it has to do with security which usually stops just short of an anal probe. I noticed I had a slight tan after passing through the x-ray machine.

More crowds, more security, more TSA attititude, less services, more nickel and diming of fees and higher prices. A perfect recipe to attract more customers.  Count me out.

Oh,did you notice AMR's dividend yield at zero and earnings below zero?  Yeah, back up the truck

Distractions

Blame it on Cain.
Don't blame it on me.
Oh, oh, it's nobody's fault,
but we need somebody to burn.
- Elvis Costello ( 1977) - hat tip Imus in the Morning

Without diminishing the seriousness of sexual or any type of harassment in the workplace, we have let the current charges against Herman Cain distract us from the bigger picture - again. Certainly, we have to vet our potential leaders but this is not the issue I want deciding who will mold tax law, military strategy and the look of government. All of the candidates now and in the future have this sort of crap in their histories. Don't they laugh at us overseas when we get our panties in a bunch over what seems to be the norm everywhere else?  Honestly, I'd rather have a flawed yet competent man (or woman) in the White House than a goody two shoes.

I remember back when Gary Hart was bounced from the 1988 presidential race for having an affair. Even back then, people were talking about how they'd rather have a guy like that rather than a frustrated priss with his finger on the button.

This is not an endorsement for Herman Cain or any candidate. But when it comes down to who and what is best for me and my money I'd rather know who will have the right plan for the economy.

Greco goes to Roman

Getting nothing but static, getting nothing but static
Static in my attic from Channel Z
- B-52s (1989)

No confidence in Greece over the weekend. No confidence in Italy today.

It's all Europe all the time and nothing else seems to matter.  Curious how gold has been on the move higher right after the naysayers got smug.

Tough Times for Long-Term Investors

Johnson & Johnson is a widely held stock and an institutional favorite. It pays a nice dividend and likely will be around for a long, long time. So investors should be comfortable with it, right?

Take a look at this chart. Over the past few months is has traveled quite far yet it made no progress. Buy it and you get stopped out. Sell it and you get stopped out.

My thesis is that until this sort of behavior ends, small investors will not be back. Of course, that is one of many reasons why Joe Mainstreet is missing.

Using RSI

The following was featured in the "Today's Lesson" section of Quick Takes Pro yesterday. This is where we take a look at a topic in technical analysis relevant to what is happening in the market right now. What is truly oversold and overbought depends on the trend and we used Amazon below to address the condition of the major indices this week.

This chart of Amazon shows how momentum indicators act slightly different depending on the trend. For example, if you believe that the normal range for RSI is between 30 and 70 then in a bull market, oversold really is roughly 40 for RSI and overbought can be up by 80.  In a bear market, oversold can be down by 20 and overbought only as high as 60.

Admittedly, this is far from a standalone analysis as it is not completely cut and dry in the real world. Also, we cannot tell if an RSI peak or trough is actual until after it happens and that means being late to the trade.

But armed with this information, when RSI peaked at 64 in February of last year, we were only a day or two away from the warning. Toss in the potential double top and trend break 9not shown) and we would have been ready when the January low was broken to the downside.

Personality Still Split

Whole Foods disappoints and craters after hours while Qualcomm delivers and soars. This condition has been in place all earnings season so far and like the Hindenburg Omen it smells of a fractured market. Fractured markets, or frackin's markets, if that's the way you roll, are inherently not stable. Unless the ouzo keeps flowing from Greece, something is giving me that sinking feeling.

Poll results

There is still some time left on the poll - mainly because blogger won't let me cut it off early - but the results are obvious. The overwhelming majority of respondents do not think the October rally was the start of something bigger. And almost 2/3 of them are in the bear market rally camp.

While far from a scientific survey, we still can draw a few things from it. First, we start with the bias of the survey towards the bear side. Why do I say that? Because I have doubted this rally and fought the bull market before it. It is safe to assume that the majority of the readers who continue to come back to this blog and to my other writings share my views or at least are sympathetic to them. I am pretty sure Cramer and Kudlow do not read me (for many reasons, I am sure).

That leaves us with what I think is a good read on the sentiment of people who actually know what they are doing and are not just toeing the company line to push stocks. (Note, it is not towing the line, as in pulling it. It is more like keeping in order with ones toes on a straight line drawn on the floor - conforming).

This is not a media survey where 50% bears means the public is panicking. It is closer to a smart money read, in my view. And I back that up with similar results on the Intrade system where they trade futures on all sorts of things as politics - and where the market will be next year.

So, fellow market enthusiasts, as a group we did not drink the kool aid. We did not believe Greece would play ball and they didn't.

Of course, we are only two days removed from the peak of a massive market rally and I am not foolish enough to say that it is down, down, down from here. One news story that Greece is behaving and up we go. One report that QE4 is here and up we go. Or that we got bin Laden. 

Oh wait, we did - on May 2. And what was special about that in the market? Oh yeah, it was the very day the Dow scored it 2011 high.

In other words, don't take anything for granted.

Poll still open --->

The Markets are Never Wrong

Saw this quote on CNBC.com today. The names are withheld to protect the speaker - because the market will punish him/her enough.

Analyst X of Y-based financial advisory firm ZZZ says markets have "got it wrong" in the last few months by incorrectly factoring in a Greek default, a U.S. recession and hard landing in China.

Perhaps. But unless you are trading economy futures on Intrade you don't have a clue about why you are in business. The idea is to buy and sell securities, commodities and other tradables to make money. The market can go up for a year "and be wrong" but if you were short then you got creamed.  Who care what the inputs to tangential analysis do?

The market's job is not to forecast anything. The market's job is to be a place where buyers and sellers do their business. It does not care who you are and what you think. It does care what the masses do. If the masses feel spunky and want to buy more aggressively it will go up to attempt to keep supply and demand in equilibrium.

Guess what? The market does not have a mind. It does not want to do something. It just is. Our jobs as analysts is to read the signs the market gives us and formulate an opinion on just how spunky people are.

OK, I have calmed down now. And yes, I do write "the market wants to go up" or "the market feels toppy." Perhaps I think the market is my kid brother and when someone disses him I get angry.

It is a fine line between personifying the market to make torpid analysis a little more palatable and actually believing it is alive and capable of making mistakes.  

New Poll

October was hot, hot, hot (but don't tell that to us here in the Northeast where it is snowing).  Was it a bear market rally, the start of something bigger or just more noise in a range that began in the summertime?  Take the poll --->

Snail Mail

In a change of pace from the financial markets I was thinking about the postal service. First, I like my mail carrier and just about everyone in the two local post offices is rather helpful and nice (I said almost all). I even use mailing supplies available there when I ship products.

But in this new age, the budget problems in the postal service may be telling us that it is time to change. Think about the mail you now get delivered each day. How many pieces are items you wanted? And now think about how many items are bills, advertisements and statements?   I'd say that at least 90% of the items that the post office delivers to me is in the latter category.

Who writes letters anymore? Email is dominant. It is fast. It can come with delivery confirmation. It can deliver photos, documents, music, videos and everything else that is not a physical thing - such as a puppy or popcorn maker. 

I do just about all my bills online. I get just about all my statements online. Admittedly, I still get some paper statements delivered as a punitive act towards companies I just do not like. Save a tree? That is not why they want me to switch. They want to save costs. But I digress.

And the rest is junk mail. How much energy and resource is dedicated to direct mail marketing? How much of that goes from the mailbox to the garbage can without even stopping on the counter to rest? At least we can set up spam filters to cut down on rogue email.

For-profit delivery services are everywhere and while they cost more than a first class postage stamp to deliver anything they are not that bad thanks to competition (hint - free market).

There are two drawbacks to eliminating the postal service. The first is the work force, of course. There are a lot of solid workers there, along with the occasional machine gun toter, that would be out of jobs. But wouldn't FedEx and UPS need more workers to pick up the slack left by the post office? Well, some. I also can imagine a deal where the for-profit services actually take over some the physical post office buildings to keep it convenient for me to "step out of my office for a moment" to ship something. Aren't the UPS Store and FedEx/Kinko's just that? I would not mind having a few more around town.

The second drawback would be service to rural and other areas that might be overlooked by for-profit services. The post office delivers everywhere and that is good - but at what cost? Perhaps there is some deal to be made with the government picking up a portion of the tab to these places but that is a slippery slope. Perhaps the free market will figure it out - perhaps offering less frequent service to these places but service nonetheless.

I am not a logistics expert. Let the real experts have a go at it.

The pony express gave way to a better system. And I am afraid it is time for the government to get out of the delivery business.

Split Personality

With today's thrashing of 3M on earnings the split personality of the market continues. On one hand, the breakout from the summer trading range could not be any clearer. It even satisfied my requirement that it pause at resistance before breaking out, too.

But on the other hand, the way it treats earnings winners and losers is unstable pre-selloff behavior. I invoked the Hindenburg Omen in my column last week saying that it was not too dissimilar. The HO looks for lots of new highs and new lows at the same time. The earnings thing has stocks beating their numbers jumping up huge and stocks missing them getting killed.

Usually, an up market treats winners nice and shrugs off the losers by not doing much to them. Conversely, a down market punishes losers and shrugs off winners. This market is doing both.

With Europe's woes coming back to the fore tomorrow with a French-German announcement (postponed from Monday) risk is the magic word of the day.

MoKhad is no more

With the former Libyan leader now captured and rumored dead, let's take a look at how capitalism in the region has fared since Egyptians first threw out Hosni and crew.

This is the Gulf States ETF and it is back down to post-Egypt revolution lows. EGPT (Egypt ETF) moved straight down from its 2010 highs without the recovery bounce seen here.

I am steering clear of anything political but the chart shows that local markets are not pleased. Of course, there are technical levels (support at shown lows and trendline from the Jan peak) in play. 

In Quick Takes Pro this morning we had a chart of the BRIC ETF and it, too, was not happy. Where to put your money? Good question. Everything looks nasty.

Energy follow-up to Monday's column

Sometimes the charts work, eh? 

Energy

Lots of energy sector news today - from BP and Anadarko settling their beef to a takeover in pipelines (KMI buys EP). Here is a chart of the oil ETF that did not make it into today's column on this very topic.

As you can see, it has a tentative upside breakout. Considering what has been going on in the world, this is not too shabby.

Anyway, the point was that oil is firmer and big integrated oil stocks have some interesting fundamentals. I profess no expertise in fundamentals but single digit P/E ratios with dividend yields that are double the 10-year Treasury got my interest. I cannot tell you if the P/E for energy stocks should be that low. I cannot tell you if they are paying out a lot of earnings to assuage Occupy Wall Street protestors.  But to me, these two seem worthy of further investigation, not for the fundamentals but to see if the technicals tell a good story, too.

They do. Or at least it is a better story than most of the rest of the stock market. Apple does not count.

The bottom line is that big energy stocks have a lot going for them, even if the market goes down as I think it will. They may lose some value but with dividends, relative performance, on-balance volume, underlying commodity strength and few other things they should reduce the pain for those who simply must be in stocks.

Bad News

It is a good thing that as a chartist I get to ignore the news. Forget the hope and mirrors coming out of Europe. We all know Greece is going under and they really can't rescue the banks.

I don't know if you follow my Facebook page but I put up two rather depressing charts today. The first was a survey of small business optimism. Or lack thereof. Or dismal-ism.

The second was a survey of Americans who have trouble putting food on the table. The trend there is not good by any spin. We have heard that the level of Americans living in poverty has gone way up. This gets down to what that really means. Forget cell phones and flat screens that seem to be in the homes of the poor. This is food.

Imagine what will happen when (not if) food prices start to climb as inflation finally arrives.

Check out the Facebook page for the charts. And while you are there, do me a favor and hit the "like" button.

LIBOR rising

While the LIBOR rate is still a far cry from its panicky 2008 levels, it has been on the move since the summer.

As you can see in the chart, it is still well below its 2010 peak but I am more interested in its change since the summer. LIBOR started to rally just when stocks started to fall. But unlike stocks, which bottomed in early August, LIBOR kept on going higher. It has increased EVERY DAY in August, September and so far in October except for two.

Just stuff that makes you think that while we, the public, is fooled by all the hope and mirrors coming out of the EU, perhaps the banks themselves know better.

Noise

Bloggers are supposed to write about stuff that either excite them or bugs them. Politics, religion, sex, technology, bureaucracy, health, food, you name it. Here, I am supposed to write about stuff that impacts your money.

Here is a secret - it is getting very difficult to get excited about anything. All markets are going nowhere in a Brownian dance of futility. For all you who took Shakespeare in college, Brownian motion is the random movement of atoms or particles as forces act on them from all directions. Net net is that they go nowhere.

And you thought there was a Bush/FEMA joke hiding in there. That would have been one heckuva joke, but I digress.

Today, the media reported the market were nervous ahead of Slovakia's vote on further EU bailouts or whatever for Greece.  Funny - after the market closed and Slovakia grew a pair with a thumbs down vote, the markets did not budge. Not stocks, not bonds, not gold, not the dollar. The euro did move a little lower but not much.

So much for the morning "reasons" why the market was doing what it was doing.

The bottom line is everything these days is noise.  If you want to cope, you had better dust off your weekly charts and take a bigger picture view.

Will banks survive as is?

I am not going to chime in with my view of the Occupy Wall Street protests although it does amuse me to listen to talking heads show their biases. But if this is a legitimate protest movement and one that can cause some changes to happen I do wonder if banks will exist as is in a few years.

Was it the government that created the mess? Was it government that created the need for Bank of America to charge a monthly debit card fee by restricting other fee generating business? I am not going to speculate here and will not be sucked into such an argument.

But let's just think about it for a minute. I have a Bank of America account set up for my college-aged son. He uses the debit card all the time to buy food, toothpaste, laundry detergent and other normal purchases made by college students out on their own. He won't be using it for long and we have not yet decided whether we are going to keep his account at all.

I mentioned here that I left Chase for the local credit union due to their constant fees. They even charged a 30-dollar fee to fax a statement to my new bank. I hope the poor rep I had on the phone did indeed put my reason for leaving into some customer feedback file that will actually get read by management. Of course, I doubt the latter part of that.

Banks have not wanted to serve the little guy for years yet we all continue to flock to them. But can you blame them? How much money do they really make servicing small accounts? My guess is they lose money so again, who can blame them?

But if all us little guys leave then what? As a group there has to be some clout. And no, I am not suggesting a power to the people movement here. I am just thinking about what might happen as we wake up, one by one, and choose alternate methods to fund our daily lives.

The bottom line is that policy is pushing banks to do things that actually hurt customers, not help them. And customers will revolt as I have.

Now, how can we change our investment activities to adapt to this new trend I see coming?  That is, after all, what this blog is about. 

Banks should have failed. From fire comes new growth.

Staying the course

No, not what your broker told you as stocks imploded in 2008. Perhaps instead of writing "staying the course" I should have written "staying with the big picture." And my big picture says that we are in a cyclical bear market within an ongoing secular bear market.

I was definitely a rough week as stocks came roaring back on yet another round of hope that Greece will be saved. This time, European officials said they had the backs of banks in Europe that were on the hook.  Who thinks that next year we will see a solvent Greece in the EU?  Uh, nobody.

Technically, all the talk that the markets had "entered bear market territory" was the contrary signal needed to spark a short-covering free for all.  Entered bear market territory? The market enters a bear market right after it peaks.  It had a bear market when it loses 20%. Monday saw dangerous financial reporting, indeed.

I am not going to predict the course over the next week or so but if the S&P gets back to 1225 you can bet the exact opposite of Monday's rally will happen.

Look at this chart and you tell me the trend.

Just Sayin'

This is the marine shipping stock index and it is still nasty weak.

The Unintentional Treasury Ponzi Scheme

A ponzi scheme is the use of new investor money to pay old investors. As soon as new money stops coming in, everyone loses - well, except for the guy who made a commish selling the fund manager his beluga,  Dom Perignon and Maserati.

As I watch stocks crater on global economic fears I wonder just who in their right mind thinks loaning Uncle Sam more money is a good idea? True, as long as there are suckers to buy up each auction, money will flow in and old investors, including government workers, the army and social security, get paid. Everybody is happy! Whoo hoo!

Am I alone in getting a bad feeling about this? Yes, I know treasuries give you at least a tiny yield instead of losses in stocks and commodities. But at what cost?  If we consider risk and reward, I think the risk is getting way out of hand.

Default risk? The US is not going to default but never before has there even been a chance. Now there is.

Interest rate risk? Maybe not right now but do you really want to lock up you money for 10 years at 1.7%? And that is before taxes, you evil rich people.

I'd rather take the money and invest it in a small business. The risk may be higher but the reward is exponentially higher.

So for now, treasuries are the only game in town. But Congress has not passed a law requiring citizens to buy them - although you never know.

Industrials Telling a Bad Tale

Here is a paraphrased headline about industrial stock Ingersoll-Rand from the weekend:

And “so far, companies are being punished for pre-announcements.” Ingersoll-Rand Co. shares hit a two-year low Friday after the company cut its third-quarter profit outlook.

MSN Money said it was trading back down at its Friday low in Sunday evening action. That is an 18% thrashing since Thursday's close.

Yeah, it has a trailing P/E of 10 and change. That will change after they report. This is one sick puppy and the while litter is trash, too.

Good riddance!

September is about to move into the history books and barring a monster rally it will be a loser. This is a good thing for those of us who like cycles because the past two Septembers were winners - going against the grain of seasonal analysis.

September is the only month of the year - on average - that loses money over time. If it did not revert back to this tendency in 2011 - in other words violate it for three years in a row - we'd have to give it a serious re-think.

All cycles are merely tendencies but there is value in them. The same can be said of all analysese as there is never a guarantee that a head-and-shoulders breakdown will lead to a new declining trend. The odds say it will but the odds are never 100%.  Our job is to assess how good the odds are for any given trade and make the decision to buy, sell or hold.

We use ambiguity to take a discreet action - what a concept!

And what to the odds say now? Bear market. Just don't be blind to the facts should they change for the better.

Just a reminder

Just a reminder that the market is well below its 200-day exponential average. This is different than violating it by a small amount.

This is the Dow Transports Average. That move below the average (40-week = 200-day) is a game changer.

So, enjoy your ouzo rally.  The hangover will not be as much fun.

Bordering on politics

Warning - non market post. 

I try to avoid politics in this blog but I may be in violation with this post. It's just that something I saw on a financial news show last week was bugging me.

There is no doubt that the host of the show and all his side kicks are small government advocates and most likely will vote Republican down the line. The guest was as far to the left as I've ever seen. It was painfully obvious, uncomfortably obvious, that the host was ready to pop an aneurysm in his brain during the interview. You could see the froth forming in the corners of his mouth.

OK, the stage is set. The topic was how much is someone's fair share of taxes.

The guest said that people in this country got rich thanks to the government and the public. Of course, the host said they got rich by taking risks, getting educated and doing hard work.  I wondered, how much of the guest's arguments were true. After all, without roads, electric power, the Internet, police protection, courts, bridges, tunnels and food safety inspection none of the wealthy's businesses could exist.

She had a point. 

Then it hit me. The rich, the poor and everyone in between all benefit from roads, police, courts and food safety. Rich people do not use more shares of soldiers' efforts than poor people.

In fact, we could argue that poor people require more police and prison expense due to their higher rates of crime.  Before you flame me about that distasteful argument, rich people require more enforcement by the SEC and white collar crime units.  Let's move on.

Here is the real argument, in my view. Since everyone gets the opportunity of having roads and police - note I did not say uses them - then why are there rich people and poor people? The answer is what rich people do with the services offered. Do they drink beer or do they write that novel? Do they complain or do they hit the pavement looking for work? Do they do what they've always done or do they go to trade school?

Again, don't flame me. I am fully aware that the cycle of poverty is tough to break. Discrimination still finds its place everywhere. And it is still who you know that often makes the difference between moving up in the world or moving down.  I get it. Some people are dealt a crappy hand while others are born with a silver spoon.

Yet some privileged people head down while some poor people pull themselves up.The difference, as the host would argue, is the blood, sweat and tears they put into reaching their goals.

Yes, rich people got rich thanks to the bounty and taxpayer fueled services of this country. But for two people with equal backgrounds and limitations, one still manages to be a success while the other may not. The difference is their own efforts.

So how much should they pay in taxes? Oh, I am not going to go there. But for the argument that without the taxpayer they would not have gotten rich, I'll agree. But only if people like that financial show guest will agree that taxpayer bounty is there for all people, whether or not they use it, therefore rendering the argument moot.

Please be civil if you care to comment.

CRB index

Here is the newfangled CRB index.

I dunno. Does not look like blown up bubble to me. Trendline support. Horizontal support. Oversold weekly RSI.

Interviews

All,

Given the turmoil in the markets, your favorite radio/TV/web outlet is likely looking for some professional commentary. I'd appreciate any leads you can toss my way.

- mk

FedEx - bad stock, bad pun

Breakdown, go ahead, give it to me

I rarely read the online comments to my columns on Barrons and especially not on Marketwatch. Anyone with lotion and a sock can rip anyone's work to shreds without really backing it up with proof. If I need to be told I'm an idiot I'll just ask my teenagers.

But I did steal a peak at one where the argument against me was that I used copper and small caps as indicators for the market. "It's a tech economy" he or she wrote.

Did you notice the difference? I was using time tested inductors for the market while Pee Wee wrote about the economy. A tad different, yes?

In July, I wrote that the industrial sector broke down just before the broad market broke. Funny - we still don't make too much stuff here in the country yet this indicator was spot on.

And last week, I started writing about base metals, coal, machinery and other heavy cyclicals breaking down - ahead of yesterday's rout and today's apparent continuation.

The moral of the story about how this time is not different. What has driven markets for centuries is still driving them today - human nature. And human nature leaves giant footprints for us to follow.

And there will be giant footprints telling us when the carnage is over, too.

Lanthanoid Breakdown

Monday, I wrote in my column that the break in copper was not a good thing for stocks. Of course, the edited headline was a more radical Copper Slump Points to Stock Sell-Off. But direct correlation aside, the evidence of a slowing economy is growing by the day.

Remember this hot stock of yesteryear? It is a rare earth minerals miner and it was thought to be critical to the future economy. China was hoarding rare earth minerals at the time, too.

So is it the Chinese slump that is responsible for this breakdown or is it something more sinister as lack of global demand? That is not my area but from the looks of this cyclical, industrial, economically sensitive basic materials stock, I think it is safe to say a few economic burners are not firing.

Brent soars vs. West Texas

This chart has an interesting look:

What happened at the start of the year to change a stable relationship to this? As a chart watcher, I don't really have to know but at the same time I cannot be blind to it. Energy guru Phil Flynn said the money printer in Europe shored up demand for the local brand of energy. He added, "Weak production from the North Sea and conflicting reports on the return of Libyan crude seems to be adding to the Brent woes."

Higher demand and lower supply. Hmmm. Should have paid more attention in econ 101. 

From a technical point of view, will this spread start to revert to the old mean or is it on its way to a new mean? FWIW, Flynn thinks West Texas has seen its low for the year.

Offense/Defense index

Over the years I've used a chart that tries to measure how offensive or defensive the market feels. Colleague Boris Simonder introduced me tot eh concept and I've been using readily available ETFs to calculate my own version. The idea is that when tech and cyclicals are in the lead the market feels good. And when healthcare and staples are in the lead, the market does not feel so good.

Here is the look over the past few years. Looks like a giant head-and-shoulders sitting on its neckline. At best, it is a break of the long-term trend t the downside.

Look back at the 2008-2009 bottom. This indicator set a higher low while the broad market set a lower low. A bullish divergence.

SpongeBob Market

Who lives in a pineapple under the sea?
Sponge Bob Square Pants!
Absorbent and yellow and porous is he.
Sponge Bob Square Pants!
If nautical nonsense be somethin' ya wish.
Sponge Bob Square Pants!
Then drop on the deck and flop like a fish.
Sponge Bob Square Pants!
- SBQP 1999

I hope to have a more thoughtful blog post later today but this morning is does seem that the stock market is flopping around like a fish after it was dropped on the deck of a boat.  In Quick Takes Pro this morning I wrote that it was like a heart in arrhythmia, beating wildly and not getting anything done.



click for a tune

1970s redux

This is a chart that ran last week in Quick Takes Pro.

Here is a chart of the Dow in the 1970s and start of the 1980s bull market. Using existing data and forecasts
based on the work of George Lindsay, the red lines represent cyclical bull and bear markets with very crude
targets for the rest of the decade. Note there is no collapse to Dow 400 as some might predict.

The similarities to the 1970s are remarkable. Interest rates may be different but the pattern of 18 years of bull
market (secular bull) and 18 years of bear market (secular bear) suggest that this is indeed a possibility for the
stock market now.