Market Wrap Up: October 18, 2012

The morning call was again on the money on all counts. SPX pulled back till 1452 against the wishful target of 1450 but closed down a tiny bit. The conclusion part of the morning call said “no reason to be bear”. Dow was also down a small amount but the biggest loser was Nasdaq and that’s a story which will be discussed 1000s times in main stream media and other intelligent blogs. So we will give it a pass here. Bottom line, readers of this blog knew and possibly was prepared for the pull-back.

Day before, in Options+, in bullish ideas, LEN was mentioned. Today it is up 1.5% in a down market. Market thinks that housing has turned around and good luck to those who believe in tooth fairy. But if you are reading between lines, may be you have come across this news:

One of the first big hedge funds to try to profit from a rebound in the U.S. housing market by investing in foreclosed homes is looking to cash out, even as other institutional investors are still getting in.

Och-Ziff Capital Management Group LLC, the $31 billion hedge fund led by Daniel Och, recently told its investment partner, 643 Capital Management, that it wants to exit from the foreclosed homes business, said several people familiar with the matter.

The hedge fund is looking to make a profit on a portfolio of about 300 foreclosed homes in northern California that were acquired at distressed prices, said the sources, who did not want to be identified because they were not authorized to discuss the matter.

(Reuters).

Really smart folks will get out of this housing mess while others rush in. I think US housing is far away from finding a bottom and another 20%-30% drop by 2014 is definitely on the cards. Only this time, US would not be alone, Canada will join the party.

Regarding tomorrow, it is OpEx. The picture is cloudy. Stock Trader’s Almanac is indicating that tomorrow is bullish. On the other hand October OpEx, Dow down straight last 6 times and last 7 of the 8.  But today both SPX and VIX closed in red. Bonds were down as well. Normally that would mean a green day next day. And then we had the Google fiasco. I think it could be a roller coaster ride tomorrow but knowing that the cycle is up till middle of next week, even if we see indices weak during the day, it could be buying opportunity. Normally I avoid taking any position on OpEx and Fridays. Unless there is some very compelling  reason, I do not see why there should be an exception tomorrow. As usual, I will tweet through out the day as I see it .

Today one dear reader asked about Apple. If you remember my earlier call on Apple, I said that if Apple closes below $640, there are problems ahead. Apple did close below $640. Now it is due for a bounce and we might see a possible test of its high along with the general market melt up around mid-November. However it may not close above $675. Its trouble is far from over and I expect Apple to test $ 500 by end of the year. While discussing prices, please keep the time period in mind.

Commodities showed reasonable strength today. Gold and silver did not lose much ground and held their earlier lows. But Nat.Gas refuses to give the sell signal. Oil could be due for a short term bounce. 

The Options + was in its 2^nd day today. Already we have quite a few trade idea and over 700 page views in less than 2 days. That shows that there is an interest in short term trading. But I want to emphasize again that investors with a longer term view should avoid it. That is preciously the reason I have set it up separately. As you can see, I am spending lots of time here in the blog and your continued help/support is absolutely essential.

Invite your friends to join the readership and Join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  Now you have two more blogs to visit:  http://artofbetterlife.blogspot.com/ and http://bboptions.blogspot.com/ . And please send your feedback and comments.

Morning Call : October 18, 2012

Futures:  

In line with what I wrote last night, futures are down across the board. Nasdaq future is the weakest, down over 13 points. Dow future is also down about 13 points and /ES down 4.5 points. Most likely these red numbers will increase before the open. Surprisingly, the futures were flat for the overnight session and it now seems that when folks at NY TBTF banks have started their day at 8.30 eastern, the futures started to move down.

As I had reported last night  http://bboptions.blogspot.ca/2012/10/ideas-for-night-october-17-2012.htmlthere were higher put activity on SPX and higher call activity on VIX yesterday. This would indicate that those in the know are hedging for a bit of downside.

I am not sure how far the correction will go but knowing that the up momentum has been very strong and cycles are up till October 24-25, I would be hesitant to short the market.

Commodities:

US Dollar index is up about 0.2%. Gold & silver is down almost 1% while crude is down about 0.64%. However Nat. Gas refuses to go down and is stubbornly holding on to $3.50 range. I think more action will be on the equity side today.

Earnings & Economic data:

Today's economic notables include weekly jobless claims, the Philadelphia Fed's manufacturing index, and the Conference Board's index of leading economic indicators. Google (GOOG), Microsoft (MSFT), The Travelers Companies (TRV), Verizon Communications (VZ), Advanced Micro Devices (AMD), Alliance Data Systems (ADS), BB&T (BBT), The Blackstone Group (BX), Boston Scientific (BSX), Capital One Financial (COF), Chipotle Mexican Grill (CMG), Cypress Semiconductor (CY), E*TRADE Financial (ETFC), Fairchild Semiconductor (FCS), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), KeyCorp (KEY), Morgan Stanley (MS), Philip Morris International (PM), SanDisk (SNDK), Southwest Airlines (LUV), SUPERVALU (SVU), and Union Pacific (UNP) will unveil their respective earnings reports.

(H/T Schaeffersresearch).

Conclusion:  Same as yesterday. The markets will seek lower level but no reason to be a bear.

Mixed Bag Wednesday.

It was not a short covering rally, which some distinguished writers are suggesting. Then why the bounce? Simply because we can.  May be QEI effect has started showing up. If you remember, in one of the posts of last week, I wrote that it takes some time for QE to show up in the market and the initial reaction is a sell off. But I have given up finding reasons as to why the market goes up or down. I cook my own dish without any logical input. My recipe is a complex formula. My base sauce is my cycle timing model. Then I add little bit of sentiment sauce, few dollops of liquidity and generous amount of shenanigans of TPTB (the powers that be). Garnish it with bit of charts and TA. Voila! You have a good dish ready. And most of the time it is yummy.

Jokes apart, my views of the market are known to all of you. The crooks running the show know and understand how retail thinks and I try to understand what the crooks are thinking. The retail investors go through different phases during melt up.

·         Despair

·         Disbelieve.

·         Acceptance

·         Euphoria.

We are far away from Euphoria. I think we are in somewhere in disbelieving stage. Nobody loves the market which has rallied from SPX 1267 in June. I myself have been mostly out of the market from June. I think I did few trades between June and September and no new investment. So we can expect the market to grind up. Cycle wise it is coming close to an important intermediate term top. The correction thereafter will be significant but not “the” correction. Played well, we should be able to make money both ways. But I am trying to stay away from these weekly cycles of highs and lows. I will call out when I see low risk entries in either side.

The morning note started today and you have been very kind to accept it well. The call was clear; do not short the market even if it appears overbought. It remains overbought and the last four hours SPX moved around at the same level with a bit of selling in between. It will be very unnatural for the market to continue higher and higher from here till October 24^th/25^th. I was expecting the market to seek lower level today but that did not happen. It may happen tomorrow. Knowing how these manipulators work, most likely we will find futures down 10 points when we get up in the morning tomorrow. It will be perfectly normal for SPX to spend a day or two at 1445-1450 level before starting the journey up.

Natural Gas refuses to give the sell signal and is bouncing off important support level of $3.40. Gold and Silver made some progress during the day but nothing substantial. If we do not get the desired price level by Mid-November, we will have to wait a little more. Bonds sold off and TBT made good progress.

I want to express my sincere thanks for all your help and support. Please continue your support as this blog depends on you. Invite your friends to join the readership and Join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  Now you have two more blogs to visit:  http://artofbetterlife.blogspot.com/and http://bboptions.blogspot.com/. The last one is just one day old baby and is a work in progress. 

Morning Call: October 17, 2012

Futures: The markets are digesting the huge gains of last two days and it is normal for the markets to give back a little gain before it start with the journey again.

Overnight, Dow futures are down 20+ points, Nasdaq futures are down about 6 points while S&P is up about 3 points. The four hourly chart of /ES (SPX futures) are overbought and will most likely turn down. While that is the logical course of action, market does not always behave logically. Therefore, if I am a day trader (which I am not), I would not jump to short the market just because RSI has reached overbought. Rather I would see how low the correction goes and buy in new long positions.

Reasons being, the up momentum for the last two days is very strong and cycles are up.

Commodities:Natural Gas has started its downward journey which I wrote in the weekly report. Hopefully it will reach around $3.25 or lower to allow a good entry. Crude is modestly up along with Euro but the cycle is down and those who control the speculators will ensure that crude does not go up till election. Gold and silver consolidating at yesterday’s level.

Earnings & Economic data: The earning season is upon us. Today's economic calendar features the MBA mortgage index, new housing starts and building permits, as well as the weekly update on crude inventories. Meanwhile, earnings are due out from American Express (AXP), Abbott Laboratories (ABT), Align Technology (ALGN), Bank of America (BAC), Bank of New York Mellon (BK), BlackRock (BLK), Check Point Software Technologies (CHKP), Comerica (CMA), eBay (EBAY), Halliburton (HAL), Kinder Morgan Energy Partners (KMP), Knight Capital Group (KCG), PepsiCo (PEP), Quest Diagnostics (DGX), St. Jude Medical (STJ), SLM Corp (SLM), Stanley Black & Decker (SWK), Steel Dynamics (STLD), U.S. Bancorp (USB), and Xilinx (XLNX).(H/T Schaeffersresearch).

I expect most of these companies will beat the forecast.

Yesterday’s price action indicates that QE3 or QEI (whatever you call it) has started its action. And that was exactly what they had in mind. Maximum impact just before election.  Once we know which direction they are leaning, we can play accordingly.

Conclusion: Look for the market to seek lower levels today but no reason to be a bear.

In Life, How Many Decades Do You Have?

The smarter ones (who knows Cantonese) will know that the headline is a famous phrase from a very popular TVB series a couple of years back. How many decades does one have in their lifetime? We can sometimes waste 10 years pining for someone, or unwilling to change for 10 years because of a grudge with a family member or close friend.... why waste 10 years, its not like we have so many 10 years to waste things on regret.

That is why I always think of my longevity in terms of how many more World Cups I will get to watch. Guys, when you put it in that frame of reference, its very sobering. How many more World Cups will you get to watch??? Less than 10 or 15? If something is less than 10 or 15, shouldn't you be more "concerned", maybe you should really watch one LIVE at the venue ... and it is sobering because, we may not have that much time on earth to really do all that we want. 

Sidetrack to investments, below shows a comparison of how asset classes have performed over the last 10 years. If its commodities, thing can go up and down a lot, even over a few months. But when you talk about normal business industries, its a reflection of a trend, do not go against it because they reflect a paradigm shift. If steel is bad, it is unlikely that somehow steel will stage a 200% rebound in the next 5-10 years.



Oil and maybe silver  may be because of the rise of consumerism and the rise of middle class populations in emerging countries, and I do not see that abating. Gold is a reflection on the real value of floating currencies and I also do not see printed money increasing in value anytime soon, will central banks be buying back most of the stuff they printed recklessly over the last 10 years???

Japan will be dead for as long as I am alive I think because for the last 20 years they have not addressed the crux of their problems and not likely to do so with their structured way of business relations and politics.

You can see that consumer stocks are up and up and that should continue. Financials may bounce back eventually but you will be better off to bet elsewhere for the next couple of years. Telecommunications is going through what airlines went through 20 years ago, they get bigger but they make it harder for themselves to make money by undercutting and buying subscribers, leave them alone.

Surprisingly healthcare was weak,probably only in the US which had many reforms to bring them back down to earth. As this is a US index, I think healthcare in developing nations are still good. I would still favour energy, material, technology and consumer staples for the next 5 years.

The future of economics?

Ali Wyne at the blog "big think" asked eight notable young (under 40) economists about the future of their profession and key topics for future research. Their responses make for interesting but not really surprising reading. The research frontier, in their eyes, faces its key challenges in 1) understanding the nature of economic development and growth, and how the world's poor can be brought out of poverty, 2) learning how our growing understanding of human behavioral psychology can be used to replace the inadequate framework of rationality in economics, 3) gaining a much better perspective on macroeconomics, including bubble and herding phenomena, 4) building a new theoretical perspective to handle the vast influence of new information technology on human economic decisions and 5) learning to deal with massive data.

All in all, these seem like worthwhile goals and I'm encouraged that at least two of the economists make semi-explicit their view that economics dearly needs to explore new kinds of models going beyond the equilibrium framework.

I'm also struck, however, by something a little more depressing, which is the rather narrow, conservative scope expressed in their comments. Perhaps this is to be expected from young economists hoping to find stable jobs for coming decades, but not one of them even mentions the need for a deeper understanding of the nature and long term consequences of economic growth. Such growth is -- still -- simply assumed to be an absolute good to be pursued always and as rapidly as it can be. Given the alarming picture painted by studies such as this one -- in Nature a few months ago, it reviewed how human economic growth has significantly altered virtually all global biological and geophysical processes -- you might think that young economists would be scrambling to develop ideas about human society in a post-growth world, or at least one in which growth has to be strongly constrained and managed.

That seems to be a step too far. The idea of growth forever, unconstrained by any physical laws or biological realities, still seems to be a core belief even of the next generation of economists.

Terrific Tuesday.

Last Tuesday was “Terrifying Tuesday” and this one is “Terrific Tuesday”. Of course I am talking from the point of view of the bulls. It is no fun investing or trading in a bear market. Bear markets are treacherous and difficult to make money. Not many can short the market, either because they do not know how or they do not have the mental make-up to short. Short selling is not for mom and pop. The only vehicles available in the market are the leveraged short ETF which loses value over time. All in all, bear market sucks! But we will have to play with the hands that we are dealt.

I keep writing that while the longer term prospect of the market is dim, let’s not get caught up in macro economic analysis and bear talk while the market is going up. My favourite conspiracy theory is that the “Rant blog” which screams of immediate demise of the western civilization from morning till night, is actually a mole of GS and other TBTF banks. Planted to create a fear psychosis amongst the retail, so that retail always sell cheap.

When the bear will strike again, it will come un-announced and in the height of euphoria. When the opportunity to short will present itself, we will find that we have run out of ammunition because we have fired them in the sky.

The last two days have changed the storyline of last week. It never amazes me to see how a 50 point sell can make every one think that the end is here. After all, it is just cycle topping or bottoming. Today Pandit of Citi resigned suddenly without any explanation and the financials barely budged. If the cycle was down, there would have been a sell-off of all bank stocks. Did not happen today! Since 2009, when Bernanke started to pump liquidity in the market, it has become impossible to trade based on TA alone, leave alone investing. And now we have unlimited liquidity. What will cause the fall and return of the bear will be something which is beyond the control of Bernanke. The liquidity will find home in the unlikely places and will have un- intended consequences, like increase in the price of gold and silver and run on the bonds.

Yesterday I had given out the market outline as I see it. I also outlined the broader outlook in the weekly report. So far things are as per expectations. I think tomorrow  and day after we will see consolidation and/or a minor correction and the up-trend will resume again thereafter. Already I am hearing renewed call of 1500+. But the market has run way ahead if it-self. In two days it reversed the damages done in earlier four days.  The earlier high is not very far. If SPX is able to close above 1470 before 25^thOctober , then it is very likely that we will see 1500 -1550 by mid-November. You see, unless we have tested the all time we cannot say that end is near.

Only a quarterly chart, it seems that 1550 is a reasonable target.

I am making some changes in the blog. As a good number of our readers do short term trading and active in options, I plan to start a separate and dedicated blog for options.( http://bboption.blogspot.com/)  Please, options are not for everyone and don’t get carried away by the stories of easy and quick money. Most of the time, it is a losing proposition and only the sellers of premium make money. They are our beloved TBTF banks. But if folks want it, folks will have it. I will find good plays every day from different places and experts and put it out in the dedicated option blog. It will not be my own play. I would rather have the best ideas from the real experts.

I also plan to do a quick post in the morning to update you about the market as I see it. The focus of the morning post will be more short term while the focus of the evening post will be longer term. That way the readers will have more value and incentives to come back and check the blog more often.

Only, I am yet to see the results . Since last Friday things are little down and today we have another Presidential debate. Last debate was bad for the blog. I am not sure how this one will be. So my request to you dear readers: please support the blog. Your help and support is absolutely critical to keep the blog running. Do remember to disable Adblock.

Thanks for reading http://bbfinance.blogspot.com/  join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  And if time permits visit and comment on http://artofbetterlife.blogspot.com/