Sunday, August 28, 2016
Joined Dec 4, 2012
215 Blog Posts

The Week That Was, The Most Hated Rally Continues

buzz lightyear

The week that was saw choppy action. The S&P 500 rose 0.05%. Monday was lower then Tuesday was higher. Wednesday was the worst day of the week dropping -0.29%. Thursday was the best day gaining 0.47%. Friday was lower.

The last time the S&P 500 move greater than +/-1% was on July 8th. As such, we are setting up for another such move. There have been 37 such days in 2016 but only one in July and none so far this month. Oh where oh where did volatility go?

Winners for the week were Conglomerates rising 3.3% and Services up 1.3%. Healthcare fell -08% for the week.

For the week stock indexes were mixed across the board. The S&P 500 rose 0.05%. The Russell 2000 fell -0.12%.

Each week I track the spread between stocks with a strong technical rank and those with a poor technical rank. Stocks with strong relative strength rose on average rose 1.34% and those with a weak relative strength rose at a slower rate 0.96%. The conclusion is that investors are not selling recent winners but letting them run. Moreover, buying weakness worked this past week and trying to short them did not.

Intraday action was all over the place this past week. Our confidence score on the intraday action was 51% after a strong week last week of 56%. The range is typically between 10% and 90%. On a intraday basis the Dow, S&P 500 and Russell 2000 have been higher for eight consecutive weeks. Pretty impressive.

For the month sectors in the red are Utilities, Energy and Materials. For the past three and six months, no sectors are lower.

The big worry for this week is whether profit taking take place as traditionally August is a tough month for stocks. So far, so good.

The week ahead sees economic data released for CPI, housing starts, industrial production, FOMC Minutes, leading indicator and Philadelphia Federal Reserve Manufacturing along with several weekly data releases like crude and natural gas inventories, jobless claims and mortgage applications.

Treasuries led by TLT rose 1.51%. Corporates led by LQD rose 1.06% while high yield led by HYG rose 0.90%.

Emerging markets (EEM) rose by 2.35% last week. Meanwhile, Europe (EFA) motored higher by 1.82%. China (FXI) also moved higher by 3.28%.

Conclusion: Investors continue to bid stocks higher especially outside the U.S. Failure to move above 2200 could bring 2100 into play.  The bottom line is the stock market is in the midst of the most hated rally in the history of the stock market where investors and professionals are both under invested as the fear of a repeat of 2007-2009 along with the upcoming election  has created a great deal of anxiety.

The stock market is in the midst of a “Buzz Lightyear Rally”, to infinity and beyond. Meanwhile, we remain with a bullish bias and are enjoying this move without much anxiety.

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Jackson Hole Is Now Moot

tetons

If  the July Retail Sales was another strong one, then yes the Federal Reserve Confab at Jackson Hole  could have been the Fed’s Waterloo. But it was not.

The fact is the July Retail Sales was anemic at best. The Federal Reserve cannot move with a data point like today’s retail number and who knows it may get revised in a month because IMO the data makes zero sense as the last several personal spending numbers do not validate this drop.

In fact, the chart below shows that personal spending just moved above personal income. A pretty interesting chart.

personal income and spending

Around 11:00 witness the Federal Reserve of New York cutting Q3 GDP to 2.4% from 2.6% and then closer to 12:00 the Atlanta cutting to 3.5% from 3.7%. Seems like they are in panic mode as well. But guess what, they can take some air out of the market so they will do it.

The best analysis of economic data I read day in and day out is Brian Wesbury of First Trust. I met Brian make in 1986 and have been a fan since I first met him. His commentary also is free and can be found on the First Trust website.

I am on the edge of my chair to what he says about today’s action. Once I know then I will post those thoughts here. Until then, have a great weekend.

 

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The Myth of Ramp Capital Part II

ramp

Yesterday I wrote about the 3:30-4:00 ramp.

 

Yesterday it was noted, “Since January, the best hours to own stocks are 11:00-12:00 and 12:00-1:00 when you track the Dow, S&P 500 and Russell 2000.  The chance of success here is 60% for both time periods. The next best period is 3:00-4:00. That batting average is down to 58%. It has been higher“.

In early trading today, the Dow/S&P 500/Russell 2000 sold off on the gap open. My definition of selling off is the opening print 9:30 to the close at 9:59. All three indexes were lower. Then we traded sideways from 10 to 11 with the ramp coming between 11 and 12.

If you knew that 11-12 is one of the two best hours year to date, then as you saw the move starting you would have the confidence to trade it. IWM moved 0.38% a nice move if you were able to play it. I did. Probably so did the HFT players.

There were several comments on why track hour by hour. The answer is simple. The HFT community starts new programs every hour on the hour. Personally, I think this is idiotic. It makes more sense to start a program when the intraday technicals indicate it is time to buy or sell.

Now we are at the beginning of the 1-2 time period which is the worst hour of the year statistically. As such, one should not expect much. Therefore, if we do move higher, then I would expect the rest of the day to have a positive bias. If we struggle, that is par for the course of 1-2.

Note one comment I made yesterday was that during the week of July 11-15 all three indexes struggled from 3-4 because they had made money earlier in the day and it was a big money week. If we get into the 3:00 hour  being up 15 or more points on the S&P 500 from 11 now, then Ramp Capital may not jam it to the upside from 3:30 t0 4:00. Especially with key several economic data points due out tomorrow.

The reason I model hours, days, weeks and months is that it gives me a perspective on what typically happens. Simply put this is a much better approach than guessing. Will not perfect, it does lead to a higher success rate.

The good thing about this piece is that come 4:00 you will know whether my analysis was useful or not.

 

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The Myth Of Ramp Capital

ibcyellen

This is going to be controversial but I have the stats to back it up so have an open mind. Everyone talks about the bid from 3:30 to 4:00. I do not track 3:30 to 4:00 rather I track 3:00 to 4:00.

The reason is I track each hour of the market in hourly increments except 9:30 to 10:00 which I track as a half hour event. So here are the simple facts.

Since January, the best hours to own stocks are 11:00-12:00 and 12:00-1:00 when you track the Dow, S&P 500 and Russell 2000.  The chance of success here is 60% for both time periods. The next best period is 3:00-4:00. That batting average is down to 58%. It has been higher.

Ramp Capital does not put its money to work every day. Not even close.

The past two weeks 3:00-4:00 worked great 73% and 67% batting averages. This week so far is 83%. However, the weeks of 7/18-7/22 the batting average fell to 53% and 7/11-7/15 20%.

What is so odd about the week of 7/11-7/15 was a wipe out for shorts as stocks that were heavily shorted and weak technically rose 3.56% when the S&P 500 rose only 1.52%.

The point of all this is that is is important to understand the current phase of the market as it relates to Ramp Capital. i.e. the 3:30 bid. The money behind it has shown a tendency to disappear when the effect will not last into the next morning or that the money has already been made for the day like was seen the week of 7/11-7/15.

Therefore, today’s action is key to whether Ramp Capital is going to take a hiatus until after Labor Day.

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Biotech($IBB) Dragging Down $IWM

ibchairpulling

This morning the correlation is pretty obvious. Weak biotech thanks to several misses ($PRGO, $MYGN and $LLY). If you want to play $IWM today, then wait for $IBB to turn up.

iwmibb

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Why Buying A Short Squeeze Is Not A Good Idea Unless…

blindfolded

The worst trade idea I hear time and again on CNBC is to buy a stock because it is in a short squeeze. Every time I hear that trade I want to throw stuff at my television. Whoever, and there are many, makes this comment is just bringing the lambs to the slaughter at least 50% of the time.

My job is as a sheep dog to protect the lambs from the wolves (CNBC pundits) so take this to heart my flock.

Here is the skinny. It is a really bad idea to buy a short squeeze if historically the shorts make money when they short the name. It can be a really good idea if the shorts historically lose money.

For a long time our data could only identify if a stock was in a short squeeze or the shorts were correct. We did not calculate how the shorts did when they bet against a stock. Never again will I buy a short squeeze without first determining how the shorts did because we now calculate those numbers.

Today shorts in Advaxis ($ADXS) are getting taken to the woods as the bears run for cover. There is not a ton of history on this name but the last time that shorts came into this name they lost 611.40% before they gave up.

adxs

Now they are short again and coming into today had made 38.85% on the short side, really nice money for the short side. With the stock up 23.88% today their gains are rapidly fading away.

adxs1

What I know about this stock from the time that they lost 611% was that they stayed short for 234 days before giving up. That shows they are REALLY stubborn. I expect they will be just as stubborn this time around and soon short sellers will have a losing position.

The bottom line is that if you are buying a stock for a short squeeze or shorting a stock that is heavily shorted and you do not know how the shorts have done, then you are flying blind. As such, expect to have trades that may end up with substantial losses.

A perfect example of this today is $DRD or $GPRE.

 

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Quick Warning: The Bounce May Come Sooner Than You Think

ibcwtf

Given that the S&P 500 has gone sideways since July 14th, it is VERY easy for the market to reach oversold status. With today’s drop, my proprietary oversold indicator is at 38 on $SPY already. Normally, such a move would take it to the 50s.

A test of 2150 seems in order on the S&P 500 and that may take the oversold indicator under 30. From there we wait for a move back above 30 to initiate aggressive long ideas.

We will keep you up to speed at this progresses.

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Into FOMC Announcement: Intraday Action

ibcyellen

Today is laughable into the FOMC announcment. $SPY is down at intraday support on the Erlanger Value Lines at $215.95. Meanwhile, $IWM is near pivot which is $120.56. $DIA is trading around pivot which is $184.44. So a pivot as opposed to a support day, so far.

The NYSE A/D line is at -633. The NASDAQ A/D line is at -47. That does not support a drop on the S&P 500 of -0.33%.  So when you add all this up, it sets up for a buy on either IWM or QQQ. Why not SPY?

SPY has been struggling with oil weak here. Oil needs to firm up for $SPY to take off.

The takeaway is I am more in the camp of a rally than a puke at 2:00 p.m. EDT. In an hour we will know if this thought process was correct.

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The Most Hated Rally In The History Of The Stock Market

buzz lightyear

The rally that began on Tuesday, June 28th is quite simply the most hated rally I have seen in my 30 years  on Wall Street. Why?

Quite simply all the “smart money” moved to the sidelines in front of the Brexit vote. Merrill Lynch reported that cash in accounts was 5.7% at the beginning of July, the highest level since November 2001.

Hedge funds cut exposure into the Brexit. Then when the vote failed, they sat froze. They did not short on Friday and Monday (June 24th and 27th). We know this with the latest short interest data just released tonight. NYSE fell -0.38% and NASDAQ rose 0.73%.

They did not get long for the rest of that week, June 28th to July 1 and now are playing catchup. They have to chase if they do not want redemptions for missing a 15% or 20% year.

Let’s move on from the hedgies to the illuminati. Alan Greenspan should have been playing shuffleboard at the old folk’s home instead of proclaiming this would be a worse outcome than the 1987 stock market crash. Seriously why is he not fishing the Keys? Ditto other Federal Reserve and Central Bank experts who proclaimed the world was going to end. At this point, they need to “shut the fuck up and be put to sleep.”

alan g

Who thought that the British would have a new Prime Minister less than two weeks after the Brexit vote? The answer is no one!!!!  The British Pound might be the buy of the century now as they cut the umbilical cord from the European Union which at this point is nothing more than the European Disunion. The United States could learn much from their political process. Short and sweet is what people want.

Back to the hedgies. They are trying to get their talking heads to talk down the market so they can get invested. Carter Worth(less) comes on CNBC day after day to say this is madness. No madness is him getting it wrong all year long.  There are others.

carter worthless

Just tonight I read Scott Redler of T3 said a 75 point move on the S&P 500 is too much. Really? The funny thing is I respect this guy but cannot for the life of me understand what is going on here now with his thought process.

Since the fourth quarter of 2012  average up move is 139 points or 7.67% and we are up 151.60 or 7.58%. That is the average move. Since the fourth quarter we have seen four moves above 10% lest we forget (11.37%, 11.59%, 12.12% and 14.94%)  Instead we are in blast off or as I like to call it Buzz Lightyear territory, “to infinity and beyond” (thanks Fred Meissner for the term).

buzz lightyear

The S&P 500 and the Dow Jones Industrial Average have broken to all time new highs and the tertiary indexes have to join the party. Oh, maybe they don’t if the bears are right. Then again the bears are not having a good year and have lost control.

Symbology is everywhere. The other day a Spanish matador was gored to death by a bull!!! What could be more appropriate as we make new highs.

The long short boys are getting hurt here because they buy relative value and as such are buying crappy charts. Meanwhile, they are shorting valuation extremes that have good charts. We see how this will end. Can you say Ackman months!!

There is carnage everywhere and we still have Mark Carney speaking before the week is out. Beware Thursday and a rate cut from the BOE just to say the hedgies, “do not fuck with the us!” If Carney gets it wrong, then he gets a do-over in Canada on Friday when he speak a day later. Me thinks he learned this from Super Mario and Grandmonster Yellen who love to call this audible.

The answer to all this is pretty simple get long and enjoy the ride. Many cannot do this mentally but if you are long then stay long and enjoy the ride. If you are not long, then it is time to dip a toe in the pool.

That is enough for now. More later.

P.S. On Monday, June 27th in this blog, “The best advice I can give here is be careful on shorts and start to make lists of names you want to buy on the long side”. No one is perfect and we get calls wrong, thankfully much less than most (just read what we have written since Day 1 here) but this is not a time to be paying attention to those that continue to get it wrong. The Fly has done a good job this year and his bond call is epic. I remind you to listen to those that get it right like The Fly. Eschew those that blow call after call. Life is too short unless you are an Eagles or Cowboys fan and love the pain.

 

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Calendar To Your Week Of Fedspeak

ibcyellen

Geopolitical and Fiscal Events Of Note

Monday saw Kansas City Federal Reserve President Esther George speak about the economy at 9:00 a.m. EDT. The Fly pointed out she is back to her normal self of raising interest rates again. She is back on her rate Monday also sees Federal Reserve Cleveland President Loretta Mester speaks at 9:30 p.m. EDT.

Tuesday sees Federal Reserve Minneapolis President Neel Kashkari discuss the role of the Fed in the economy at 5:30 p.m. EDT. Tuesday also sees Federal Reserve St. Louis President James Bullard speak to the National Association for Business Economics chapter at 8:35 a.m. EDT. Last on Tuesday Federal Reserve Cleveland President Loretta Mester speaks about monetary policy at 10:30 p.m. EDT.

Wednesday sees Federal Reserve Dallas President Rob Kaplan speak about the economy at 9:00 a.m. EDT. Also Federal Reserve Philadelphia President Patrick Harker speaks at 6:00 p.m. EDT.

Thursday sees the BOE out with its latest interest rate decision. Thursday sees Federal Reserve St. Louis President James Bullard speak at 10:00 a.m. EDT. Thursday also sees Federal Reserve Atlanta President Dennis Lockhart speak at an economic summit 11:15 a.m. EDT. Finally on Thursday Federal Reserve Kansas City President Esther George speaks at 1:15 a.m. EDT.

Friday sees Bank of England Governor Mark Carney speak in Toronto. Finally, Federal Reserve Minneapolis President Neel Kashkari speaks at 5:30 p.m. EDT.

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