iBankCoin
Read Scott here on iBankCoin and also at http://www.createcapital.com/
Joined Jan 19, 2010
717 Blog Posts

Test the Breakout…

The market is down today. Whoop de do…

Just like in 2011, 2010 and 2009, the equity, commodity and bond markets have rallied in an ever increasing percentage.

From October through April in 2009 the SPX rallied “only” 176 points or 17%. In 2010 the rally was 232 points or 20%. This season the rally has been even bigger and faster, rising 260 points or 24% just through January.

Each time the market has rallied it has been on the back of “green shoots” that the economy is finally doing better, after a less than abysmal holiday season, where two-thirds of the yearly business is done in one-third the time. It all coincides with a heavy dose of fiscal stimulus and the promise of much more to come. And this year there is a quadruple dose through Operation Twist, the huge ECB swap, the Japanese endless pump and now China directly buying stocks.

Sure, there are several sectors and companies doing “well” versus expectations, but that is just a Wall Street game. Plus, never mind that the cash hoard at Apple alone is larger than the entire market capitalization of 90% of the rest of the S&P 500. I’m still scratching my head about how the equivalent of 10% of the entire population of the United States bought an iPhone in just the fourth quarter of 2012.

We can argue if the economy is doing anything close to what the market says it will be doing until we are blue in the face. It really doesn’t matter because markets are strictly trained to rally on the back of stimulus and the Jawboning of more stimulus. It’s taken trillions of dollars to get here, but this is our market–until it isn’t.

As far as the technicals are concerned there is little real selling, just a lack of concerted buying. The charts say that the SPX should pull back and test the 1260-1270 area that will test the latest primary breakout. But there remains significant technical resistance just overhead for the primary market indices. The NDX or Nasdaq 100 have made a marginal range (and decade-long) high but remember that Apple is 16% of the entire index. The overall Nasdaq Composite is making what looks like a perfect double top to the July 2011 highs and there are no glaring negative divergences to give us the high sign that a correction is at hand, but double tops are something to pay attention to. They usually end in a textbook fashion or the index in question makes a marginal new high that gets the technical types excited and leaning the wrong way at exactly the wrong time.

We are certainly as overbought as we were at earlier market peaks over the past three years, but this is a market that lives and dies on the facial ticks of Ben Bernanke. Oh, and BTW, yields on the 10 year Treasury will be 1% by year end…

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PAVLOV IS RINGING THE BELL

The FED has turned on the green light and set it to high for us, Pavlov’s Dogs. We know that there will be no end to the closed loop of liquidity provided by our very own Uncle Ben. It means that printing will not end.

No scenario, no eventual outcome will change the unending need to bring about another bubble. Only another big, fat bubble will give Central Banks their exit. The other option is that time will heal all wounds. But time brings a multitude of variables that cannot be controlled by the printing of money.

You will hear the gold bugs giggle with glee and the long-only stock market speculators breath a sigh of relief as the indices move ever higher. Also, every long-term Government Bond will soon be at 1%, so there are more gains coming in the bond market.

Mark my word, yields will be at zero percent until at least 2020. Maybe through our lifetimes. And a pullback won’t come until we break above last years highs at SPX 1370 or so, Joe Granville be damned.

It has taken three years and trillions of dollars for the FED to buy this mindset. Mission Accomplished.

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Second Verse Same as the First

The end of January is upon us. This is usually the time that “investors” come out of their New Years haze of pushing whatever capital they have into the marketplace. You see, every year, just around the holiday season, money managers become entranced in the hypnotic dance of “Portfolio Adjustment” and “Window Dressing”. It is the theory of selling your losers and adding to your winners and that makes most look just a little bit better around bonus time.

But when January rolls around, just the opposite occurs; the crap that was beaten down, jettisoned and otherwise regurgitated become the object of love and affection. That is the heart of the January Effect. It used to apply just to small cap stocks. Then it became famous for the Dogs of the Dow. This year it is meaningful to the worst performers from last year from any sector. And the results are very pronounced.

But aside from the “Amok Time” for money managers, I’m amazed to see my lone prediction of 2011 come to full fruition. You see, my prediction was that 2011 would look very much like 2010 in terms of the Calendar. And exactly like in 2010, 2011 had a 20%+ gain starting in the beginning of October and the quarter and extending into the first quarter of the New Year.

Like clockwork, over the past several years since the 2008 crash, this time of the year brings about a raucous markup of highly liquid financial-related assets.  And like clockwork, during this same time-frame, the estimated prices of homes drops between 6-12%. Last year, in 2011, we were square in the middle of a fabulous QE stimulus where seven billion dollars a day was funnelled into the closed loop of the financial system in order to aid prices. This year, in 2012, we have Operation Twist which was not nearly as strong as last years stimulus. But the rally was birthed around the world simultaneously and on the day of the technical breakdown, October 4, and it has not stopped as of this date. Yet, most everyone looks at the markets with a glazed eye of doubt.

This goes back to our “training” as “investors”. The playbook is the same. Bad news means more stimulus and free money. Good news may mean that all the free money is working. But deep in their hearts, everyone knows whats really going on. But we all play along just the same and will continue to do so until either a “new beginning” or “the end”.

Technically we are overbought by every measure. But that is not enough to turn the advance into a reversal. We are simply in the “Pause the Refreshes” and not pulling back much. SPX 1300 for 2012 is as SPX 1200 was for 2011. And everyone is waiting for more stimulus in this, an election year.

The first pullback will test the breakout near SPX 1260. Then we shall see whether this pretty uptrend is just another trap in an extended trading range, or something else.

 

 

 

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It Doesn’t Matter Until it Does, and Other Witty Excuses…

As you undoubtedly know, the equity market has rallied in an uninterrupted fashion since December 20, 2011, for about 20 trading days. The uptrend is textbook and picture perfect without the wild swings experienced in months past.

Certainly the news is not great and headline risks remain almost every day. Volume is running 30% lower than this time last year. Commodity prices are rocketing higher without commensurate demand. Mostly everything that had been wrong with the fundamentals in the recent past remain wrong today, albeit with signs of “stabilization”.

So, why does the market rise almost every day?

Since we agreed to the latest trillion dollar ponzi scheme that fixes Europe, yields have plunged for everything. The answer is that there is simply no yield. Never mind currencies and other inter-market relationships. The only thing that matters is that there is no yield. Plus one other thing: China.

Between the plunge in Euro-yields and China back to stimulating a slowing economy, equities and commodities have nowhere to go but up. There are no sellers. This is why shorts are busy covering and short interest is at multi-year lows.  

Never mind that we are into major techinical resistance. Never mind that many bankers, from the buy side to the sell side, are warning about the current economic situation. There is simply nowhere to put all that money sitting in the closed ZIRP loop.

This unbearably enjoyable phase ends with a big volume, blow-off spike higher or the weight of dissapointments and downgrades. There may be near record low quantified bearishness but many are on the sidelines and out of the game so the majority can actually be “right”.

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Downgrade? Phhht…

The downgrade ax will fall later today on France and Austria. But if the U.S. downgrade history is your guide, it should bring a “buy the news” reaction. Maybe not this time as my guess is that virtually all this years chasers of equities will be underwater in a short time. 

Spain has borrowed $150 billion in each of the past two months. The $600 billion Euro Bailout Fund is going fast. But the stock market will worry about it when the money runs out. The reality is that expectations are for QE3 before it does and just in time for the elections. QE3 should do wonders for the economy…

Indices are at the top of the range and many technical indicators have gotten technical types long over the past few days. Remember, we have rallied in an uninteruppted fashion through the holiday and since the ECB Bailout fund became a reality on December 20, 2011.

Volume remains insanely low. Spikes continue to be pre-market. And the short squeezes have been everywhere. Interestingly, short squeezes happen at the beginning of a rally phase or the end of a rally phase. Which one do you think we’re in?

Have a great long weekend!

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Put Your Brain Back In, Holiday’s Over…

It is exactly three weeks since the rather tardy Santa rally commenced. After tagging SPX 1205, the Mystical Holiday Forces jumped the morning futures up 35 points and the end of the year rally was quickly born. Today feels fitting as it is just about run its course after gaining a full 75 SPX points, 600 Dow points and 150 Nasdaq points.

Most of the attention has been focused on yesterday’s heroes; mega-cap cash flow consumer and technology companies. Plus Apple, which has added 12% or approximately $40 billion in market value during this time and is now testing its yearly highs.

There is more shitty news out of Europe, but nobody cares any more because they have plenty of cash to avoid any crisis, thanks to the stealth QE through Swap Lines. If you don’t think we bailed them out, please simply notice that there is no more market scares regardless of news or headlines. Case closed, for now 

The one fascinating feature of the equity market this year has been the “holiday volume”. One of my predictions is that average daily volume on the NYSE will be 600-700m shares per day, half of what it was last year. There remains very little true liquidity and so both individual stock and index velocity will remain high.

With the individual investor out of the markets other than for “safe” bonds and their yearly 401k contributions, markets will swing on a dime. With Europe “safe” for now and the election this year, most “investors” fully expect some type of monster stimulus to be coming shortly. And most of the current environment’s sellers have already sold and are focused on January Effect bounces in momentum stocks and of course Apple. Little matters past that as most continue to be lulled by the resilience of the indices. Time to start paying attention!

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