Analyst Gobbledegook

Gobbledegook, gibberish, doubletalk, balderdash, mumbo jumbo. Or, for you down home types, manure.

I got a report today discussing the current stock market. The details have been cut out so as not to impugn this particular analyst but you'll get the idea.

Stocks continued to edge up but they hit our upside target today and have backed off. The question now is whether stocks take a minor correction or a more significant correction. There could still be one more rally an even more significant correction sets in.

In the words of Penny from "The Big Bang Theory," holy crap on a cracker!

I cut out the actual numbers and percentages but you don't need them. This guy/gal has got every base covered. No wonder analysts get a bad rap.

Alligator Spread

Financial wikis define an alligator spread as a complex options position where the commissions eat you alive. Below is a little whimsy from this morning's Quick Takes Pro newsletter.

But it is a bit more serious if we look at the analysis and not our scaly skinned pal, which, by the way, is oh so tasty in a remoulade.

What I see here is rising prices (it's the spyder ETF) and falling volume. You can decide what it means but rallies need fuel and volume is fuel.

Let's Do the Time Warp Again!

You know, I get fairly punch drunk on days when I write my Barron's Online column, and not the good kind involving C₂H₆O. So, forgive me if The Rocky Horror Picture Show comes to mind when I use the word "Trannies."

Today's column was on the warning sign flashed by the transportation sector of the stock market. You can blame oil. Or refining bottlenecks. Or evil speculators. Or our pal Acchhhmadinejad. Or high gas prices finally squelching consumer demand. But any way you spin it, the Dow went up in February and the Trannies went down.

Someone on the tube this morning said he paid $5.49 for unleaded premium in Southern California.  Knock of 40 cents, and that is a generous knock off, and you get 5 bucks for regular in the land of granola, flakes and nuts - and over-regulation and high taxes.

I don't know, this seems fairly straightforward to me. So many quick devices that may not be magic bullets, as BHS said, but would certainly be the first step towards energy independence. Imagine what would have happened if the gub'mint took those steps after the last energy spike? We'd be three @#$%^ years closer to where we need to be.

Interesting how the only transportation sector looking firmer than before is marine tankers. They carry oil, you know.

Affection Rejected

Affection rejected
And it's effected
My affection for you
And the rest of your kind
Affection rejected
Just as expected
I'm rejected
I'm rejected
- Affection Rejected, The Records, 1979

Kudos to anyone who knows that album, one of my faves from college days. Although the song "Teen-a-rama" gives me the creeps now that I am more than twice as old as I was then.

The affection the stock market heaped on Home Dept yesterday as it made nice on earnings was huge. And so was the relentless selling that took place starting in the premarket. 

When all was said and done, the day will go down as a high volume gain - officially. But when the high price is set at about 7am NYT and the next seven hours were spent falling (there was a two-hour respite into the close) I put all the day's volume in the negative category.  As such, a ton of money flowed out of the stock that day.

Affection rejected.

Home Depot peaked above 48 yesterday. Last August it was down in the 28-handle. Do the math. For a stock large enough to be in the Dow Jones Industrial Average, that is one big-tushy gain. And unsustainable.  Don't forget, we are talking about a 71 billion dollar market cap now.

I'll throw in a "to be sure" qualifier saying the rising trend is not yet broken. But in the words, of Yoda, the market technician from space - "it will be."

Apple-sauced

Here we are a day removed from the biggest key reversal I've ever seen and like Apple yesterday, the analysis is sauced, too.

It started out lower on Thursday so it looked like the reversal was going to be confirmed. And then the upside reversal. This one just might be morphing into a giant triangle - and possibly of the continuation variety, too.

348K new people on the dole is good?

OK, I admit it. I am not an economist, even though one of my college majors was economics. Today's initial unemployment claims report said that 348,000 people filed for help. And this is good?

Look, I am a technical analyst and I understand the concept of trend. Yes, the trend in this data is down and that is good. No argument. But let's think about this.

First, do I understand this correctly? This is a report of people getting a government check for the first time, right? Not the total number of people on the dole but only the new ones? It seems to me that the number of people joining the ranks of the unemployed goes up on any positive initial claims report. If it falls to 1 then the ranks of the unemployed go up, not down.

I got this from Time Magazine - "The consistent decline indicates that companies are laying off fewer workers, and hiring is likely picking up further."

Again, laying off fewer workers means they are still laying off workers. What am I missing?

Is there some sort of "initial employment" report showing how many people finally found jobs? Maybe that is the dark matter in all of this confusion. Fewer people losing jobs combined with more people getting jobs could end up as a net positive.

But it seems to me that corporate layoffs kill more jobs in one fell swoop than all the noodling around by 50 green jobs at a favored solar facility and two new hires at Mel's diner.

Last week, Pepsi said it would lay off 8700 people.

And here is a Feb 2 story - Planned job cuts in January climbed 28% to 53,486.

Somebody needs some lessons in math.

What rally?

I have not blogged since last week because this market has been whipping my backside. Drop at the open, claw back the rest of the day. Drop in the middle of the day, claw back all afternoon. And yesterday, fall steadily all day until the final half hour when, you guessed it, the market clawed its way back.

Suddenly, I get the image from Get Smart of the evil KAOS villian, the Claw. But I digress.

All was hunky dory for the bulls. Follow the trend. Forget that sentiment was frothy. Or that most indices were at major resistance. Or showing waning momentum. Dow 15,000 was the latest magazine cover. Buy all dips! You have to be in this market!

Then the Fed pulls the legs out from under them. Sorry, gang, the economy is too good. No QE3. We won't tell them that Operation Twist was already QE3 and they were talking about QE4.

My bearish views are far from vindicated at this time so you won't get any "I told you so's." One day down is nothing.

Check out some of these Dow component charts:

And there are a few more just like them. What rally?

Finally, there is still an hour to go Wednesday as I post this but is that a key reversal on super volume forming in Apple?  Apple has been just like the Fed. It goes up and provides wealth to most major indices, funds and plenty of individuals.

Mama don't take my Kodachrome away!

Oh wait, Eastman Kodak went belly up.

Things go better with Rum and Coke

If this chart is as prescient as it looks then make mine a double rum with my coke (er, diet coke).

What we have here is a weekly chart going back to the last bear market. Major patterns are labeled and right now it sure looks like the carbonated essence of the coca leaf is going to get busted.

Measuring the pattern height and projecting it down from the presumed break point, the target could be near 60 and that corresponds to the 2009 peak. It would also be roughly a Fibonacci 38.2% retracement of the bull market.

Seven or so points does not look like much but it would be a 10-11% haircut. And the dividend yield would be sweet at that price, too!

Nazzie Perspective

This is a chart from yesterday's Quick Takes Pro newsletter.

With all the fuss over the Nasdaq reaching an 11-year high I took a look at the monthly chart.Yes, indeed, it is above last year's high and above the 2007 high so I agree with the assessment. But what I don't think is that this is a breakout, at least not a confirmed one.

On a scale this big, such a small move above resistance is still insignificant. It might get significant but right now it is not.

Look closely at the label, too. When the market breached this level for the first time in 1999 it was the start of the bubble.

What is Technical Analysis and Why Should I Care?

Charts are tools you can use to help you invest.

Charts are everywhere. We use them to keep tabs on how our children are growing, how we group ourselves demographically and what the weather is going to be for the next five days. Whenever we show how something changes over time or how it breaks down into its component parts, we are using charts. In the investment world, we usually chart price movements over time. Technical analysis starts with this basic chart and works up from there.

A picture is worth a thousand words

Technical analysis is based on the premise that in order to know where prices are going, we must know where prices have been. In the early days of stock trading, the only way to know where prices have been was to read the ticker tape. Only a very few had access to the tape.

Since most of us are not working on the floor of the exchange, we are blessed with the computers to read the tape for us and send the prices to our home screens and newspapers. However, even getting an idea of the market from these quotes is nearly impossible. The more stocks (or mutual funds, bonds, and futures) we try to follow, the more impossible it is to do our investment research. We can keep track of only so much information in our heads.



Enter the chart. By plotting the closing prices of stocks or other instruments on paper (or a computer screen) each day we can see at a glance not only what the price of the stock is but how it got there. Sure, MicroGiant is trading at 65 up 1/2 but was it 60 last week or 70? Charts put all the data in one place so that a visual animal such as a human being can quickly assimilate them.

Squi-don't

Late last month, I signed up for Squidoo, another social network type of site for posting content. I don't get the Squid theme and even its basic purpose but I chalk that up to being 20 or even 30 years older than the average user. Then last week, I got a notice that my post, called a lense - again who knows why? - was locked away, unviewable by the public and will be taken down completely in 30 days.

Naturally, I read their letter as to why. Apparently, they think I plagiarized it and/or wrote about something they do not support. Well, they support posts, er lenses, covering top 10 penny stocks so a post about why you should look at charts should be OK.

Plagiarism? Interesting because I wrote every word and created the chart myself without looking at any other documents or stealing from any other's work. After all, I am a trained professional chartist with a certification and close to 30 years of experience.

Squidoo? I Squidon't. There are too many outlets out there to waste your day without having to battle in the marginal zone. Stick with the big three - Facebook, Twitter and LinkedIn.

But I'll keep trying, just in case - Quora, Reddit, Shareaholic, Hoot Suite, Stumbleupon, Digg, and on and on....

I'll likely post that article here in the next few days.

Nuts

While many of my readers are saying "nuts" to me, I am saying the market is nuts again. Back in the good old tech bubble days, when I was putting out support and resistance levels on the major indices for BridgeNews (which kicked a$$, but the way) there basically was no resistance. Stocks were vertical. There was no reasonable place to say - oh, that is where supply will start to swell (resistance). No joke, I said out loud every day "this is nuts!" The market was nuts.

Well, it is nuts again. No, this is not sour grapes. I fully admit to being wrong for the past month and that was my fault. But now things are going nuts again. How many times have you seen a perfect, textbook, what we've been waiting for technical signal that not only failed at first but then went on to be absolutely correct after whipsawing you out? It is happening a lot right now.

Last week, I said in the newsletter that I had to buy something. I was so bearish for so long that I did not want to be blind to anything positive that might happen.

We bought BMC (software) on Wednesday. Why? It had a range breakout, was above the 50-day average, had good volume and recently broke a trendline to the upside. Not to mention the market was going up, too.

Look at this chart. On the day we bought it BMC promptly scored a bearish one-day reversal. OK, it happens. If they all worked I would be blogging from Virgin Gorda. Actually, I would be snorkeling, tanning and drinking, not necessarily all at the same time.

It did not hit our stop and the market was still strong to we gave it some rope. Thursday, it went up - a lot. Are real lot. WTFudge?

Talk about riding a bucking bronco! I was right, but not before I was wrong (did Mitt say that? Or was it John Kerry?). I can handle being wrong but I would not mind being in a little more control than that.

Nuts, I tell ya. Nuts!

Ground Hog Day

Not unlike the 1993 movie of the same name, I find that over the past few years and especially during the rally from the October lows things are repeating as in the movie Groundhog Day. Volume is low, prices are rising, indicators are mediocre but sentiment is extreme and cherished studies, tenets and assumptions no longer hold water.

Then we get a break in the market as we did last July and again in November. The market seemed to be respecting its own signals - finally. That is, until we wake up the next day and find it is the previous day. Once again, things stop making sense.

Such is the legacy of the financial crisis and more likely the good intentions going into fixing it. After trillions of dollars, yes the economy is a bit better and yes Government Motors is making cars (I own a Chevy which I really like). But has anything really changed? Are not capitalists being capitalists when the borrow from the government at zero percent and lend it right back at 2% (fed funds and 10-year Treasuries)?

Don't blame the capitalists. That like shooting the lion for eating your goat. Its a lion doing what it is supposed to do. Don't leave your goat outside or better yet, why are you living in the savannah (and I don't mean Georgia)?

If you don't leave zero percent rates out there then capitalists will find other ways to make money - like do business. I won't get into taxes and regulation as we could spend all day arguing on politics - which has no place in this blog.

So, until late 2014 when Big Ben says he will think about raising rates - unless a new Prez kicks him out or abolishes the Fed but again I'll leave that to the political blogs - tomorrow will be like today. We will wake up and it will still be Groundhog Day.

And as is the custom, it is the time of year when I trot out a joke I heard in the 1980s. On February 2, (noted bear) Henry Kaufman sticks his head out from a manhole cover on Broadway and if he sees his shadow there will be six more weeks of a bear market.

Thank you. I am here all the week.