6 CHARTS DEMONSTRATING INVESTOR PERSUASION AND DISSUASION FOR THE WEEKS AHEAD
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THE CURRENT STATE OF THE MARKETS: WHAT HAPPENS ON WALL STREET STAYS ON WALL STREET
In the May 11th edition of "Current State," the conclusion after various points of analysis was that the markets were poised to break higher after digesting the breakdown in key growth names in a graceful and elegant manner. With last week's close at record highs for the S&P 500, the market is slowly revealing its hand to a mostly unconvinced constituency that is more concerned with harboring psychological scars of the past than profiting aptly from the present embodiment of a bull market. This fact is revealed in both the volume and tedious nature of the price action. There is by no means a rush for entry back into the markets by those who feel that equities contain a disproportionate degree of reward from this point forward. In fact, it has been a hallmark of the current bull market to tiptoe to the upside in a manner that has caused concern since the very beginnings of this bull market in 2009. The tiptoeing nature of this bull market continues to cause confusion for investors who have been brought up in the school of violent moves to the upside coming about on above average volume. A trait of the markets that was left behind in the 90s alongside Pets.com, CMGI and Iomega. The modern day secular bull market is built on such a wide array of available options for equity exposure that it would be foolish to think that volume would be able to be interpreted as it was in the past. Additionally, there is a chronic absence of conviction among market participants that shows up in both volume and price action. Let's start by looking at a weekly chart of the Dow, which is setting up as powerful a pattern below a critical area of resistance as can be found: What is important to note about the weekly Dow chart above are two things in particular: 1. The extremely tight nature of the consolidation above the previous short-term highs from the middle of last year. 2. The extremely tight nature of the consolidation below the extremely important generational trajectory that has its origins at the 99-00 bull market high. The fact that the Dow has chosen to put together one of its tightest shows of consolidation in recent memory below a generational trajectory is extremely bullish. It tells of a market that may actually run from here further than any of us expect. Moving onto technology next. According to the Nasdaq Composite, the downtrend that has plagued the market since March is now officially over. The obvious target for the Nasdaq is the old highs right around 4370. The...
THE CURRENT STATE OF THE MARKETS: WHAT IS OBVIOUS IS OBVIOUSLY WRONG
In looking over the situation facing investors, at present, it seems we are all faced with a series of relatively simple judgments to make in order to assess the portfolio allocation that would create the greatest expected value going forward. The decisions are as follows: 1. Does the fact that the S&P 500 is pinned to its all-time highs with steadily decreasing volatility present a bullish or bearish phenomenon? 2. Does the fact that the Dow Jones Industrials and Transports are pinned to all-time highs with steadily decreasing volatility present a bullish or bearish phenomenon? 3. Are both of the above mentioned questions negated entirely by the fact that the Nasdaq and Russell have been demonstrating the exact opposite behavior? In other words, both the Russell and Nasdaq have been declining with volatility attached to the move. The third question is the most important as it seems to garnering the most attention. More importantly, it is creating the most fear and emotion among market participants. Before we get to the indices that have broken down, here is a look at the S&P 500 on a weekly basis. The most important aspect of the current price action is the fact that volatility is so well contained along a key trajectory (in blue) and directly below another key trajectory. The behavior strongly suggests that the S&P is eyeing the trajectory (in red) sitting around 1950. A move of some 3% higher from current levels. In a very simple sense, the S&P 500 is telling us what to think. In this case, it is telling us that the issues of the Nasdaq and Russell are of no concern. It is the choice of market participants to believe that there are shadows lurking behind every corner. Volatility demons with jagged teeth looking to rip into the flesh of investors. That is an issue of investor imagination, rather than reality. The answer according to the S&P 500 is very clear if you choose to accept it: The markets are preparing to move higher. Let's look to see if the Dow agrees with the S&P 500. This is a look at the Dow on a monthly basis. What you see is an incredibly bullish picture the Dow is painting when you zoom out with a monthly view. Especially given the fact that it is occurring below a key trajectory that has acted as resistance for the 2000 top and the 2007 top. At present, the Dow is simply consolidating along this trajectory with a series of tighter monthly ranges. This is a continuation pattern in the direction of the primary trend. And it...
THE CURRENT STATE OF THE MARKETS: MACRO IS DEAD, GROWTH IS ALIVE AND IMAGINATIONS ARE WARPED
Macro is dead. Paul Tudor Jones, perhaps one of the most famous macro investors of our time, confirmed this fact at today's Ira Sohn conference with a presentation titled: “Manic depressive trading in a volatility-compressed world.” He did say during his presentation that, “Macro trading is about as difficult as I’ve ever seen it in my career." The reality of coordinated, global central bank intervention has taken its toll on all the key components that make up the bread and butter of the large macro investors. We are increasingly living in a micro world, where focused themes in technology and financial innovation will drive extraordinary capital gains for investors. At this moment, the markets are in a digestive phase that has seen key momentum or growth based names suffer extraordinary punishment in the past couple months. All the meanwhile, the general market (SPX, DJIA) has held up remarkably well, being poised for new all time highs in the days and weeks ahead. The strength being shown by the general market averages while technology, biotech and to a certain degree, financials have all experienced extraordinary losses should be seen a positive sign by investors. It is by no means a precursor to any type of financial cataclysm in the form of evaporating stock prices in the months ahead, as you have been led to believe by the gallivanting pundits that occupy media of all type. It is of key importance to have perspective during periods of time where confusion reigns supreme. Perspective in the case of momentum driven names comes in the form of zooming out a bit and looking at their performance thus far in 2014: FB +12% GOOG -6% NFLX -6% TSLA +44% YELP -13% ZNGA +1% To those claiming that growth has imploded, I ask if they would like a wax with their brain wash? This is not an implosion but normal market behavior during a secular bull. Those who regrettably and perhaps, naively chased these names up during Q1 are being taught a very basic lesson of bull markets: Chasing momentum is a punishing sport. Further, those who are complaining of the punishing circumstances surrounding growth names in 2014 have simply arrived at the masquerade ball late and without the proper costume. You can see in the chart of TSLA below that it has just today pierced a short-term trajectory to the upside. It should also be noted that the recent multi-month sell-off has been occurring on consistently diminishing volume. A very standard pullback by any stretch. I would also put a tremendous amount of weight in the simple fact that TSLA is one of the best performers in...
4 CHARTS DEMONSTRATING A MARKET THAT IS HOME FROM THE HILL IN THE WEEK AHEAD
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