THE TWO CHARTS OF THE S&P 500 THAT BULLS WANT TO RUN AWAY FROM
Unfortunately, it is impossible to run away from indisputable truth. That truth, in the markets, comes in the form of price. Price is the ultimate truth teller in this circus of lies. There is no clearer form of communication with investors. The great dilemma is that investors don't feel the need to learn the language of price. Instead choosing to bury themselves in data that is seemingly more intellectual and forthcoming than price, but fails to produce results. One can pontificate with overly-intellectualized jargon. It surely carries well at cocktail parties, as well as industry events. If you do it well enough it may lead to a book deal or a spot in the rotation at CNBC. This is, however, an industry that is bottom line based. None of us are here, as far as I know, to engage in pro-bono debate simply for the sake of debate. It is my hope that the overly-intellectualized jargon that is so commonplace on Wall Street actually serves as a means to an end. That end should be profit. It is the only reason any of us do this. That seems to get lost in the vast clouds of noise that overwhelms so many investors that can never get past...the noise. Below you will find two charts. The first chart is going to demonstrate what I call a recognition. The second chart is going to demonstrate what that recognition means for the market both in terms of upside and downside going forward. All truth. No jargon. With the sole purpose of enhancing portfolio performance. click chart to...
PORTFOLIO UPDATE: DEEP COVER
During the trading day, I tweeted the following: After this addition, the portfolios now have a full sized hedge in place with TZA. The reversal that occurred today shifted my short-term trend indicator to sell territory, causing the addition in TZA to take place. This will likely be an intermediate-term position in the portfolios into April-May time period should the markets travel down the path I am suspecting. That path is one that sees a 5-7 percent correction in the S&P 500 from recent highs. Just enough to get investors on their heels again before a strong second half of the year kicks in. In any case, as I discussed over the weekend, the most that the bulls may have to look forward to is a choppy, sideways market over the next few months. That is the BEST case scenario. With this addition of TZA, the hedging in the portfolios is finished. I may trim back one or two under-performing long positions over the next few weeks. March will be a time to reevaluate any new long exposure I am willing to take. It is a market that deserves a neutral stance, at best, for the foreseeable future. That is how I see it and that is how I am playing it. As of the close 50% long in WMIH, SPNS, PRXI, MITL, UPIP. 25% long TZA. 25%...
CRUDE OIL: A TIGHT SPOT WITH POTENTIALLY VOLATILE CONSEQUENCES
A bit of history first: On November 25th, with crude sitting around $88, I posted a bit of analysis titled "Crude Oil Warming Jets For A Run Into Triple Digits." The basis of the analysis was that crude would again be attracted to its overhead trajectory after finding support at its lower trajectory point. On February 3rd, after crude oil touched the upside trajectory point almost precisely, I posted an updated chart with a price target for crude at $90 over the next couple of months. While crude oil has been relatively easy to predict based on its transparency in intention, expressed through adherence to its trajectory points, that trend may now be in the process of changing. The trajectory points that have dictated the path of crude for some years now are beginning to pinch. With that pinching action comes the demand that crude oil remains tame if it wants to continue adherence to these tested indicators of price. Unfortunately, crude oil and tame do not typically do well together under most circumstances. Here is an updated analysis. Below you will find the weekly chart of crude showing the long-term influence of both trajectory points I have been referencing. Next is the daily chart with a shorter-term look. click chart to...
A KING-KONG CONVERGENCE OF RESISTANCE
King Kong is not a reference I make often or lightly. Therefore, it may be worth it to pay attention to this posting closely, as it could end up being what makes the difference between an investment portfolio that is glorious or heinous in the months ahead. As you all know, I participate in a form of technical analysis that only takes into account three factors: 1. Price - expansion and contraction of price ranges 2. Volume - expansion and contraction of volume ranges 3. Trajectory Points (more popularly known as trend lines, which I don't think is an appropriate label) - how price and volume reacts to trajectory points To put it in a more illustrative, vivid frame of a mind, think of price and volume as a suspected criminal. The trajectory point is the lie detector. How price and volume react to this lie detector tells the investigator (investor) all that he or she needs to know about the intentions of the stock, index, commodity or currency. There is a convergence taking place among the various leading indices with respect to generational (long-term) trajectory points that is fairly rare in nature. Of more concern is the fact that convergences between price and respective trajectory point is occurring as sentiment, according to various measures, is extremely comfortable with the current bullish landscape. When sentiment picks up a bullish head of steam, as it has over the past couple of months, paired with historically important levels of resistance that are being met across multiple important averages, the outcome is fairly predictable in nature. You can expect one of two outcomes to take place over the intermediate term: 1. A frustrating, sideways range that creates resentment and loathing among investors OR 2. A bearish trend that seeks to re-calibrate the bullish mindset through devastation of wealth In either case, the goal is the same: To create a dislocation in market psychology that yields the ammunition necessary to take on the convergence of technical resistance points we are currently facing. Very simply put, that ammunition doesn't exist currently. It never does when you have a majority of the shorts that are going to be squeezed out of the market and a majority of the investors that are willing to put money into stocks already well allocated. That is exactly where we are now. Investors are essentially facing a steel reinforced, 12 feet thick wall, armed only with toothbrushes and toilet paper. Here are the four key indices that are right up on King-Kong levels of resistance: click chart to...
THE MIND-NUMBING QUESTION OF THE MOMENT: WHAT NOW?
Yeah. What now? Two words that fit together so simply and elegantly. You can use these two words in an almost endless array of situations, from being stuck in a cave to during more intimate moments in the bedroom. In this case, the question of "What Now?" will simply refer to where we are in the markets with respect to time and price. There is nothing surprising about this move down, other than the persistence with which it refused to occur until Tuesday. There were numerous indications for a majority of the month that there would be sudden bearish consequences for the optimistic lethargy of the bulls. After all, the ease with which investors were dipping toes into the water sans sock, without fear of the predators that lurk just beneath the surface was disconcerting, at an absolute minimum. The market was in need of a re-calibration of sorts. Bringing us to the here now. The simple fact of the matter with respect to the here and now is that we are in a period of uncertain market movements. I have been attempting to convey this message for the entirety of February, most recently increasing portfolio cash position in addition to the TZA hedge I have maintained since February 5th. If you have ever frequented a poorly heated swimming pool during cold weather you will understand the following: The financial markets are very much like a poorly heated swimming pool in the winter. There are small spots of warm water close to the heated water jets and even smaller spots of heated water where your inconsiderate friends choose to urinate. In either case, the majority of the swimming pool is cold, unpleasant and makes you wish you had never taken a dip. Those who are intent on staying in the pool are forced to constantly find that small warm spot, not knowing whether they will be swimming in water or something much less pleasant. Those who have been around the block will be intent to wait for better weather to indulge their passion for swimming. It is cold right now and the market waters are poorly heated. There will always be a large contingency of investors who insist on swimming year round, regardless of the fact that their actions are primitive, futile and likely detrimental in nature. There will be a minority of investors who simply wait until warm weather arrives in order to avoid sparring with futility. The point here is obvious: There is no need to be 100% involved in the markets year round. Profits find those who are patient and diligent in their actions. Profits love those who...
3 CHARTS THAT HAVE ULTIMATUM WRITTEN ALL OVER THEM FOR THE WEEK AHEAD
click chart to enlarge
PORTFOLIO UPDATE: A HARI KRISHNA IN A GLASS FACTORY
During the trading day Friday, I tweeted the following: Uncharacteristically cautious of me to be taking exposure off while the market is sitting at multi-year highs. I've been questioning myself over the past couple weeks as to why I am behaving like a Hari Krishna in a glass factory. The market, after all, seems to be as inviting as any a point over the past couple of years. Volatility doesn't exist, unless it is dip buyers driving the markets higher. Back patting, whether self-administered or shared, is surging. Teenage actors are becoming day traders. The money tree seems ripe for the picking. There is also the issue of raw price, without any regards to resistance areas or sentiment indicators. From a pure price perspective, there continues to be a contraction in volatility, which traditionally indicates a continuation of the current trend. Volume is also contracting, which has been the norm during bull runs for years now. So why have I deemed it necessary to take my cash position up to 40%, with a 10% leveraged inverse ETF hedge mixed in to reduce net exposure even further? The primary reason, going beyond the worries I have illustrated over the past couple of weeks, has to do with the performance of the portfolios relative to the market thus far in February. I have a number of risk controls in place, some performance based and others quantitative in nature. I've hit a performance based risk control here in February. Actually, it was right on the borderline. However, I decided to err on the side of caution because of the position of the portfolios (performance wise) relative to the general market. It would be one thing if I was flat this month. It would be one thing if I was down 1 or 2 percent this month. Being down nearly 4 percent this month, however, while the averages are sitting in what I have deemed an unfavorable risk/reward position just doesn't sit well with me. The default decision in all situations where discomfort reigns should be cautious in nature. I reviewed that philosophy in detail this past week. I did not liquidate any positions entirely last week. Bits and pieces from each were cut back where I had the opportunity. Large positions were made mid-sized positions. Small positions were made minute positions. There will likely be very little activity for the remainder of February on my behalf. In March, I will weigh things and decide whether to put cash back to work or perhaps reduce net exposure further via raising cash or adding to TZA. As it stands on the close Friday, current positions include WMIH, SPNS,...
THE ONLY WAY FOR INVESTORS TO COPE WITH A POTENTIALLY CONFUSING PERIOD AHEAD
There are decisions that will made within an investment portfolio during any given year that will determine whether you end up creating wealth for yourself or destroying it. The less decisions that are made, the greater the chances are that you won't get in the way of your own success. There are very few individual or professional investors who are able to create the mark they desire through rambunctious, often times unnecessary decision making. It is simply a waste of energy and resources when all is said and done. The decisions that are made within a responsible strategy will essentially come down to two actions: Adding risk or paring back risk. Of course, there are a myriad of ways to accomplish the act of adding risk to your portfolio or cutting back on risk. The intention of the action, rather than the details of what, how and why are equally, if not more important. It is, after all, in the intention that portfolio performance is born. If you have a reasonable strategy paired with the ability to execute consistently, your intention should deliver the results you desire. The details are just the after effects of the intention. It should be recognized then, as a responsible steward of your own wealth or your clients wealth, that the default intention should always lead to defense. There is no offensive path out of a situation that is confusing. Offense is not the answer to a loss. There is no offensive solution out of a black hole in a portfolio. In nearly every case of doubt, confusion, loss, indecisiveness, emotional decision making or crying in front of your monitor with your head in your hands (been there, done that) the answer will involve defense. Let me tell you why defense will always be the answer to any doubt or hardship you face in the market. Again, let's assume you approach the markets with a responsible strategy that you are able to execute on a consistent basis. Your expectations as a result of your intentions will be positive over the long run. You have a positive expected outcome, in other words. How positive depends on your skill and experience. For some it will be 200 basis points above the S&P 500, for others it will be 2000 basis points in excess of benchmark. The only thing that can get in the way of a positive expected outcome are inordinate losses. Inordinate losses are born out of situations where doubt, confusion, loss, indecisiveness, emotional decision making or crying in front of your monitor with your head in your hands takes place. In all of these cases, the default...
FLASHES OF PERCEIVED BRILLIANCE AND WHY I CAN’T STAND FEBRUARY
Some flashes of perceived brilliance that ran across my mind as I was doing my nightly research: - AAPL continues to have a sparkle of hesitancy in its eye that will likely create the great underperformer of 2013. There is simply nothing there that constitutes buying into the company other than fundamental speak that was equally as loud 100 points higher. - The BKX (Bank Index) is a bull's best friend right now. It is the index that looks the healthiest of all, with small-caps being a close second. Companies like BAC are moving up with little effort. Even more impressively, small and mid cap regional banks have joined the parade in a big way. It is something that looks like a long-term shift in the fate of the financials. Should be a leader for sometime to come. - One of the interesting correlations of this move up that started in November has been a strengthening Euro (FXE). The FXE suffered its sharpest pullback year to date recently. This is occurring right as major indices are hovering around important resistance points. Currencies/commodities do tend to lead equities. Keep an eye peeled at minimum. - I'm not sure why investors continue to be hung up on the gold and silver trade. It was cool a few years ago. It was super cool 13 years ago when Jim Cramer kicked Don Luskin off TheStreet.com for even suggesting gold as an investment. Gold was around $300 at that time. It may be cool again a few years from now. I don't think it will be cool in 2013. There are surely easier fish to fry. - There is a new small-cap investment candidate that I absolutely love and am willing to allocate substantially into. My only problem is the positioning of the market currently. I am willing to hold off on any allocation until the middle of the year in order to get a better price. Not to mention that the portfolios are essentially fully allocated currently. It is a retail name. I'll be putting out a research report over the next several months. No rush. - February thus far has been true to form. That form (for me, at least) is one of anguish and misery as the portfolios underperform in an act of defiance for being subjected to such a tasteless month of the year. February is miserable from every vantage point available. It is cold, first of all. Whatever short-term buzz is achieved from being in a new year wears off by the time February rolls around. Valentines Day was somehow inserted into this month to keep retailers from...