Sex Sells!

This post has NOTHING to do with sex- but has everything to do with being provocative. Since my last post the stock market has turned the corner from enthusiasm to gloom!- Now it’s odd as we just broke through the 20,000 with the DOW last week, an obvious milestone. As mentioned in my last post this has little to do with data points and information- but the thought and hope of future improving data. Typically the market shows overwhelming euphoria sans pessimism and the crash comes suddenly, and this time that’s not the case. But the headlines are prominent:

Stock market closes lower, spooked by Trump immigration ban

Dow Jones‘ 20000 milestone gives pause for reflection

Why the Dow May Be Poised for Tepid Growth (DJIA)

What should be causing us to all click our collective heels is actually bringing uncertainty and fear, brought to you by the Main Stream Media.

Trend followers love break outs to new highs- some of the prominent ones have literally made millions of dollars buying new highs as that signals strength. Yet this time the media is portraying gloom and doom. I’d like to point out that i believe that No ONE knows where the market will go, at least not one single person. yet I believe in prognosticative patterns that may more often than not signal direction ie System Trading. Read the bio of Renaissance Technologies CEO Bob Mercer, who developed a pattern in the market which has generated BILLIONS in profit!!

The FED has ultimate control of the money supply and fiscal policy, and the easy money policy made it easy for Corporations to bid up the price of their own stocks with cheap money over the last 10 years. As the FED will attempt to tighten the money supply under Trump- under the guise of normalizing rates, the emphasis of the trading community will shift toward growth of the economy. The direction those criteria will take us No One knows- but it’s not the data that will move the market, it’s the interpretation of the data and the emotions that the data brings forth that ultimately will move the market!

Sadly the media can portray good times badly and can sell an economic depression as prosperity. Again let the data be the judge- as of right now the DOW is in consolidation mode- after an up trend- technical analysis dictates that the direction into the consolidation phase is usually the direction OUT of the consolidation- so until we get more data to change the view that’s where it stands.  Minor intra- week low is 19667- minor closing low is 19732. Who was under the impression that once we breached 20K to the upside we’d stay their permanently or indefinitely? Trade the market use the data available and Good Luck!

 

 

 

Geez, It’s Been A Long Time! The Trump Rally? Really?

As an investor/ trader I’ve spent most of the summer wondering what would be the catalyst to propel this market from the box congestion that it’s spent a long period of time in. After reading a book with a chapter dedicated to the dot com boom- I was wondering aloud – what could get this economy and hence the market moving again? Let’s decouple these facts- the market is supposed to be an indicator of corporate health- and corporate health should be an indicator of overall economic health and growth.I’ve stated before there seems to be a popular consensus decoupling of the economy from the stock market. People have used the market as a proxy of economic health- and the last 7 years has showed us that the Fed can and did levitate the market through easy money policy. As stated before the FED even invented new methods of monetary policy as the basic standard of money supply and interest rate manipulation had diminishing returns. With sustained 1% GDP growth a stock market rally (or lack of a crash) had to based on something other than growth or health. The downside risks to our economy were great and omnipresent and may still be. Little did we know that the catalyst for the breakout would be ……………………….. drum roll please………………………………………A Trump Presidential win!

Now let’s not be foolish enough to think that ANYTHING Trump can or might do- has yet to happen- because it HAS NOT! The man doesn’t get sworn in until January- but this bares out an even greater truth. The Stock Market never has, nor will it ever, move solely based on pure rational data points. The movements of the stock market are more based on the confidence of it participants than pure data. Market confidence means a lot, and oddly confidence in the economy changed significantly after the election. I would think this was based on a pro- business, business man getting elected-but I find that hard to believe after the zillions of hours the mainstream media spent telling us Trump isn’t really that successful anyway?? Could this just be a product of the election just being over? Could the jubilation have also happened had Hillary been elected? I would doubt it- as most of her economic policies were similar to the last 8 years, so the continuation of those policies, whether you’re a fan or not, just would seem to lack inspiration to anyone!

Oddly for all the MSM’s (Marxist Socialist Media) effort to warn us of the doom and gloom that would follow a pro- business- pro America, and pro- protectionist (in terms of unfettered immigration) policy- the market participants appear to feel otherwise. Breakouts require a tremendous amount of energy and that energy must be revitalized and maintained for the breakout to continue. Only time will tell if the policies that a new administration, one who for lack of a better term seems to be somewhat pragmatic, will bring. From a traders perspective- I once read that the reason that breakouts occur is the orders that are waiting on the breakout side get filled propelling the breakout, the sustaining of the breakout is a whole different story and requires fundamental confirmation for continuance.  Trump in the very least is pragmatic in such a way as to not be pigeon holed into ANY ideology. When Trump talks of infrastructure spending- he talks more like a new deal Democrat. Obama’s “shovel ready” jobs was self admittedly not so ready! Let’s face reality- government spending on social programs- in spite of Nancy Pelosi’s wacky multiplier example, rarely lead to growth, yet Government spending on infrastructure which trickles (opps) down to Main Street will have a positive growth effect, which in turn should fuel Government receipts to facilitate the paying down of the money spent (borrowed). Sometimes liberals buy their own media induced bull and claim that Repub’s don’t spend money, they do. While the Monetary policy of the FED and the current administration has led to elevation of the stock market- and a widening of the wealth GAP- Sound Fiscal policy may just have a similar effect on the stock market, albeit with different sectors finding renewed growth,  but a greater effect on the average person as growth of the REAL economy will create jobs and REAL prosperity- not just the illusion of such. I harken back to the 80’s, I experienced it it first hand, as lower class people bought houses from the lower middle class, as the lower middle class bought houses from the upper middle class and we witness a ratcheting upward of all the classes (as revisionist history attempts to tell you it CAN’T and DIDN’T happen, it did, I was there!)……………….. and so on and so on…… A rising tide still raises all boats.

Fingers crossed!

The Death of “News”- Or the “Birth”of Propaganda!

I will make my position known immediately- I’m a Trump fan. I will explain which Trump I’m a fan of,  because the latest incarnation may be moving too far to the left, for my tastes anyway. It may sound weird- but I feel the Billionaire has more in common with me, then the 100 million dollar woman. My oldest son said, “Trump is just a rich guy!”, my response was (and mind you this was 4 months ago, before Trump was the seeming GOP candidate) if Trump stopped his campaign tomorrow, do you know what he’d do the day after?- “He’d get up, get dressed and go to work, like the rest of us.” Hard to believe it but Trump is the working class hero- especially that the other candidates have made their living for the better part of their lives nursing on the taxpayer teet. I don’t have disdain for Government, but I do for the fraud, waste and nepotism that follows it, under the guise of “public service”. That phrase alone makes me want to puke. Almost all levels f government from local to national- is bleeding off taxpayer funds for individual benefit. Sure, you can make the case that the collective benefits from some of the services that the government provides- but at what cost? Government in a large part- takes a portion of what I pay in taxes and uses it to pay the services of someone as a salary, doing a job as THEY see fit and cause. I really don’t have a say in what services I NEED, it’s all up to them, but in the end it’s collectivism and pooling of taxpayer funds, not generating service or product, with very little regard to efficiency or fairness.  I love when someone responds- “YOU are the Government and the Government is YOU!” please…………. that connotation has been thrown out in the primaries, as we see the Elites steer and pay (not a typo for pave, by the way) the way for one of “theirs” to slide into position of power. We now know how McCain and Romney ended p on a Presidential ticket, without much local support or enthusiasm (it’s been reported that if 3 million more normally voting republicans showed up to vote he would have won) , the Elites rigged the system to their favor, as “We the People” are left scratching our collective heads and pulling the lever for the lessor of two evils.

 

But, my thoughts started differently, I started on the media. This past weekend- nary a news report on terrorism.  Odd, 7 months after the Paris attacks, a few months after Russia helped us out with ISIS, and now terrorism is off the table? When you think that ONE of the candidates has made a point of being tough on terrorism, and the other seems more concerned with defending Muslim extremism and public relations for the extremists… I find that odd. In my heart I have a greater fear of Islamic extremism then I do from Russia.  One candidate talks of being tough, the other hints toward world war 3, we have to take a moment and sort this out. I believe the media has gone from reporting the news, to having the ability to steer the news in any direction they want. No,longer is it left leaning slant and bias, it’s out right media manipulation. Like the Bob Seeger song lyrics  to Against The Wind- “what to leave in, what to leave out.”

What’s a few Trillion, between Chicks Anyway??

What’s the FED to do?
OK here we go, let’s get controversial!
The FED chairperson is a middle aged, white, Jewish Female. I’m going to go out a limb here and assume, Yellen’s choice for President would not be Cruz, Trump or Sanders, but would be the white, middle aged, AIPAC endorsed, pro Israel FEMALE candidate- Hillarious Clinton.
It’s like the “Vagina Vote” on steroids. You know the women who would vote for Kill-lary (interject screeching shrill here) JUST because we have an opportunity to vote the first woman POTUS! Yellen would get to express her Vagina Vote and gets all the collateral issues as a bonus.
Fundamentals- Schmundamentals, Earnings- Schmearnings- Our Central Bank is not going to let this house of cards fall- not now, not during an election year. A solid economy shades toward the incumbent party – and the window dressing of the Stock Market has become a (poor) quasi- indicator of the overall economy. I’ve mentioned before I know people that can’t rub 2 nickels together, and have zero investments, talk about the stock market like it means something to them!
This market has been propped up by easy money- buybacks and minuscule returns of interest over the last 7 years, while the domestic and world economy sputters and lurches forward. Yesterday was an opportunity, after inheriting a 7 point decline in the overnight, for the bottom to fall out, and it didn’t. There is No One left to go short, but, there is money on the sidelines. The short squeeze may provide the initial ignition, as it already has, but the market will catch fire after Yellen’s statement tomorrow.
I’d bet Mike’s vagina on it!
And what’s a trillion more dollars anyway, between chicks, to fuel this fire? The FED has been painting lipstick on this pig for so long- it doesn’t know any other way.

“Not So Bad” is the new “Better!”

Wow, where do I begin. What a wacky ride the last 6 weeks have been. Recently reading a book written by a trader- he had some profound things to say- “the market will do what the market will do”. Sounds simple enough, but, what the freak? I submit posts on a blog where someone called the move upward- but oddly the same guy has been saying the same thing since last July. He quickly points out that he was wrong in January- but he hasn’t been right or wrong- he’s just been the SAME! The saying “a broken clock is right twice a day” fits here. Just like all the gloom and doomers that sell us books on Financial Armageddon- storable food, guns, silver/ gold etc. Sooner or later they are right- but they are against the rising tide for a long time. The hardest thing is to watch what is happening and ignoring what you “think” should be happening. I can not justify in my mind how we have had another quarter of earnings recessions and that translated to higher equity valuations. Remember the quarterly earnings season also factors into account stock buybacks that have hit record levels, so an earnings recession in spite of earnings per share manipulation by reducing the number of shares outstanding (which is the result of easy money policies).  Someone pointed out that we have to look for future earnings- I remember a time when all traders were looking for the obvious time when a company with a dot com after their name- would result in profits and earnings- and they factored that into the price of the stock, today! It was a bubble based on a buying frenzy brought on by looking too far into the future and not using rational metrics of current valuation- everyone did it, and everyone justified doing it until the house of cards all came crashing down, bubbles have a nasty habit of ending that way! Objectively there are some serious problems with our current financial and economic situation, and in reality that doesn’t always translate into falling stock prices- it should- but it doesn’t always.

“Cognitive Dissonance” People tend to seek consistency in their beliefs and perceptions. So what happens when one of our beliefs conflicts with another previously held belief? The term cognitive dissonance is used to describe the feelings of discomfort that result from holding two conflicting beliefs.

If you “feel” the market is going to crash- you will naturally clink on links that would support your positions- sure, every now and then you look for the opposing situation- but easily find a way to dismiss THAT notion. And when you are wrong you justify those same actions to avoid the uncomfortable feeling that cognitive dissonance gives us. We support what we believe and we believe what we support- it’s innate self preservation- not ego. The second part of all this is you may not be wrong in your decision- the criteria for action may or not make you uncomfortable and that’s OK. We all have rules to live and trade by- and if the position doesn’t fit our belief system or our rules we SHOULD NOT ACT. Holding NO positions is a POSITION! The inflated egos- will point out that they called this move- in spite of ALL the facts that made this move uncomfortable to everyone of us with opposing rules. I missed the 6 week move- and if it happened again 30 times- 30 times I would be on the sideline- not ignorance- the events and metrics that led to this move Do Not Qualify for me staking a claim, pure and simple. Taking a position that doesn’t fit my criteria- is just as dangerous and irresponsible as not taking a position that does fit my criteria.

 

We’ve been here before- with even more positive metrics then we currently have- will the market go higher? Maybe, they say you can’t fight the FED, the problem is No One Knows Where the FED Will Go! If Yellen is Dovish the market will make new highs- if the FED returns to a position of normalizing, we can expect at least a short term pullback.

 

 

The Dow Transport’s “Bull” Run?

“Wow Mr. Peabody, That’s a heck of a run in the Dow transports? Maybe a new bull market?”

“True Sherman it has been a nice run, but hold on, it’s not as rosy as one might think. To find out the truth we have to use math.”

“Ah come on, Mr. Peabody that whole “math thing”, jeez, that’s hard.”

Well, Sherman- let’s break it down, and see what we can learn in the process.

Let’s use the ETF – IYT as a proxy for the Dow Transports and let’s do some mathematical calculations:

The high close for the transports occurred on 11/28/2014 and was recorded at 165.33.
The most recent turn at the bottom occurred on 01/20/2016 and was printed at 118.91.
Using simple subtraction and taking 165.33 and subtracting 118.91 you get- 46.42.
Using division, now, stay with me Sherman, we divide 46.42 by 165.33, we get a decline of 28.01 percent. We will, as most would, classify this as a “Bear” market.

“OK Mr. Peabody.”

“Stay with me Sherman: the near term rally’s most recent high close of 03/21/2016 was printed at 145.10
Again, using subtraction 145.10 – 118.91 = 26.19.
Using that tricky division again, 26.19 divided by 118.91 (the low) reveals an upward move of 22.02 percent. A larger than 22 percent near term rally.

Wow, cool Mr. Peabody- “so if we use subtraction again: a 28.01 percent decline is offset by a 22.02 percent rally means we are just shy of 6% off the high, that a heck of a run, great.”

“Not so fast Sherman- we changed the denominator (the lower number when dividing) so the percentages are different because we used different variables.”

“This is what we must do: we take the high of 165.33 and we now subtract the most recent near term high of 145.10 and the formula looks like this (165.33 – 145.10 = 20.23). Now follow me Sherman, to get back to the 165.33 number the “market” would still have to rally 20.23 “points” or using division again, 20.23 divided by 145.10, we get 13.9 percent, which means the market still has to gain almost 14% to get back to that level, not the 6 percent you originally thought.”

“Geez, Mr. Peabody, so even though we rallied back 22% of the original 28% decline we still need and additional 13% rally from this point to get back to where we were.”

“That’s right Sherman, that’s the math.”

Geez, Mr. Peabody, “that’s complicated, so even though we rallied over 22 percent and only had a 28% decline we are still 13% off?”

“That’s right Sherman, add to that, we now have to predict how people interpret this information, and don’t even get me started on Central Bank intervention. It’s enough to make a grown intelligent man scratch his head- could you imagine what it does to an insecure, uneducated, nit who leans to the left?

That’s why the markets are no place for the ignorant, irrational, emotional, pompous and in Mike’s case, under medicated.”

Nice Move?

If we take the 2,130 on 5-21 and use that as a high (I like to use closing print data) and subtract from that 1,867 which is the closing low on 8-25- we come up with 263 points- now using some simple math and dividing by the 2130 price we get the percentage decline in the market of 12.35%. Using Friday’s closing price of 1951- and dividing by the high (2130) leaves us with a market THAT IS STILL DOWN by 8.5%- Does Friday’s action qualify as a reversal- NO, Does that change the short term trend – NO. The S an P is still off by 8.4%! and is back to a level where it was almost 47 weeks ago. There isn’t a fund manager in the world, that wouldn’t give his left nut for a consistent 8.4% return year over year, and that is how far we fell in just over a month. I would hardly call my friends the Bulls elated about this up move in a down world (counter trend). I get no joy from an up market or a down market. I think of risk on and risk off. It is NOT uncommon to see increased volatility and strong up moves in a down trend- conversely it is also NOT uncommon to see large down days in up trends. I personally think this market has some pretty strong head winds to the up side and down side support has yet to be tested (and may never be!!)

Technical analysis works best in a market that is truly “free”- as price action is based on human nature, and TA is a study of price action- the X- factor in THIS market is the FED and their willingness to throw caution to the wind and increase their balance sheet- 4.5 Trillion and counting…. where do they stop? If someone knew it would be like shooting fish in a barrel. We’ll only know how far the central banksters are willing to stretch their balance sheet and prolong the overvaluation (and bubble blowing- unless the strength of the economy can catch up to it) in retrospect. Their input (or manipulation) or lack thereof will result in one of two things- the bull will rage and in the rear view mirror this will be deemed a minor correction or a continued downtrend (the perma bulls will call this a buying opportunity, or profit taking, or loss taking for tax purposes, a much needed correction or resetting of valuation- after all, since 1929 the trend is definitely up!) . For now- I’ll side with Sam and look for downside opportunities while I wait and see.