Thursday marked a big reversal for the markets. In the morning the Dow Jones Industrial Average was up over 120 points. The S&P 500 was up almost 13 and the NASDAQ composite was up over 33 points. Both the NASDAQ and the S&P closed lower for the day, on higher trading volume than Wednesday. That alone marks a distribution day. However when markets reverse off highs for the day that are 1 to 1 ½% higher than the day before, the technical term for that kind of action is a reversal day.
Reversal days, like any technical indicator, don’t guarantee anything. They should create an awareness that the current trend could be changing. How big of a change is yet to be determined.
In my previous posts I stated that the market is overbought on many levels. Combine that knowledge with today’s reversal and it creates an environment that will be interesting to observe over the next week or so.
The US dollar has broken out to the upside. While that is a good thing for individual Americans, there has been an inverse relationship between the US dollar and the stock market, plus precious metals and commodities. Meaning – should the US dollar continue its climb those other asset classes may start to decline.
The final note has to be US Treasuries. They have really taken a hit over the last couple of days. There were two auctions over the last couple of days. To raise enough money to cover our collective debt, the treasury had to pay extra yield. If the cost of money does start to rise as dramatically seen yesterday and today, that could be a bad thing for everybody. We’ll keep a close eye on Treasury bond prices as well over the next week as well. Higher yields equal lower prices.
This does not mean the bullish bias is gone. It does raise the caution flag a bit higher to watch out as there are some real negatives out there that could potentially stall the markets recovery.
Thursday, March 25, 2010
Tuesday, March 23, 2010
Volume - MIA
The market continues its bullish bias. On Monday the market greeted the newly passed government run health care program with an up day. Bigger government and higher taxes used to be considered a bad thing for business and the economy. We seem to be in a new era.
The only problem with Monday’s rally was that once again, volume was missing in action. Comparing Mondays NYSE volume of approximately 953 million shares on an up 5.91 point day, to Fridays 1.95 billion shares on a down 5.93 point day, I conclude that all things are not equal. Yes, Friday was quadruple witching day and volume does get exaggerated, but it was more than double Monday’s up volume.
Just like higher taxes and big government has an effect on the economy – so too does volume have an effect on the conviction of stock moves. When there are fewer investors on the upside – should something spook those participants at a later date, the rush to the exits could be faster and possibly more dramatic if that day comes.
But when is that day? That is the million dollar question. Governments globally are running today in a similar fashion that reminds me of the old Popeye cartoon character Wimpy, who used to say: “I will gladly pay you Tuesday for a hamburger today.” Except instead of asking for a hamburger, global governments are asking for more money and of course, "Tuesday" would never come, and Wimpy constantly secured himself a free lunch. Thus the line is used to jokingly to indicate that governments of today seem like they are "borrowing" money without any real intention of ever paying it back.
This live for today, for tomorrow we may die mentality is driving the markets higher. We have created another huge government program. We continue to borrow from future generations and many statistics don’t show improvement. For example: It was announced today that sales of existing homes fell for a third straight month in February, pushing sales down to the lowest level since last July. There is concern that the fragile housing rebound could falter, making it harder for the overall economy to recover.
The National Association of Realtors said the weakness in sales depressed prices further. The median home price dropped almost 2% from a year ago levels to $165,100. The Fed is going to end its purchase of mortgage securities next week and the government’s home buyer credits will end in April. What will happen to housing when it is no longer subsidized? It may work on its own, but caution is the key right now.
We will also get more details about the fate of the Greek debt issue later this week. The rumblings out of Germany and the EU are pretty negative. We shall see if it is all bark with no bite, or will Greece be forced out of the EU and possible default on their debt. Once again, things may work out and the party may continue, but keep a close eye on the exit doors.
The only problem with Monday’s rally was that once again, volume was missing in action. Comparing Mondays NYSE volume of approximately 953 million shares on an up 5.91 point day, to Fridays 1.95 billion shares on a down 5.93 point day, I conclude that all things are not equal. Yes, Friday was quadruple witching day and volume does get exaggerated, but it was more than double Monday’s up volume.
Just like higher taxes and big government has an effect on the economy – so too does volume have an effect on the conviction of stock moves. When there are fewer investors on the upside – should something spook those participants at a later date, the rush to the exits could be faster and possibly more dramatic if that day comes.
But when is that day? That is the million dollar question. Governments globally are running today in a similar fashion that reminds me of the old Popeye cartoon character Wimpy, who used to say: “I will gladly pay you Tuesday for a hamburger today.” Except instead of asking for a hamburger, global governments are asking for more money and of course, "Tuesday" would never come, and Wimpy constantly secured himself a free lunch. Thus the line is used to jokingly to indicate that governments of today seem like they are "borrowing" money without any real intention of ever paying it back.
This live for today, for tomorrow we may die mentality is driving the markets higher. We have created another huge government program. We continue to borrow from future generations and many statistics don’t show improvement. For example: It was announced today that sales of existing homes fell for a third straight month in February, pushing sales down to the lowest level since last July. There is concern that the fragile housing rebound could falter, making it harder for the overall economy to recover.
The National Association of Realtors said the weakness in sales depressed prices further. The median home price dropped almost 2% from a year ago levels to $165,100. The Fed is going to end its purchase of mortgage securities next week and the government’s home buyer credits will end in April. What will happen to housing when it is no longer subsidized? It may work on its own, but caution is the key right now.
We will also get more details about the fate of the Greek debt issue later this week. The rumblings out of Germany and the EU are pretty negative. We shall see if it is all bark with no bite, or will Greece be forced out of the EU and possible default on their debt. Once again, things may work out and the party may continue, but keep a close eye on the exit doors.
Friday, March 19, 2010
Spring is in the Air
I am reminded that perception is everything. Let’s say I articulate the following to my wife, “Honey you look like the first day of spring today.” She will probably be very pleased and feel very good about herself and be content with me. Now instead let’s assume I am a buffoon, and instead comment to my wife, “Honey you look like the last day of long, cold, hard winter.” Knowing my wife – I would probably be sleeping in the doghouse until next spring when I would finally have a chance to redeem myself.
While the first day of spring and the last day of winter are very close on the calendar, the perception one has from these extremely close events means everything in terms of outcome. For example, the Fed said this week that the economy is still too weak to raise interest rates. Therefore they are going to keep cheap money available for an extended period of time. Since institutions focused on the cheap or almost free money, the market rallied. Had they examined why cheap money was to remain an opposite result may have transpired.
Greece is another perception issue. For some time now it has been noted in many publications that Portugal, Ireland, Greece, and Spain (annotated to PIGS) are not meeting required standards to remain part of the European Union. Greece has been the primary country on the radar screen of late. They have too much debt, too much spending, and not enough income to the point that to issue new bonds to continue operating they might have to offer untenable yields. So they are looking for a helping hand from other EU countries or the IMF. Day to day or week to week different comments are made from those would could help, that cause the US Dollar / Euro exchange rate to rise or fall depending on the interpretation or perception of each comment made.
I feel that for the current rally, this US Dollar / Euro relationship is the key to the next move in the market. If the dollar resumes its rally that started in December of 2009, stocks, commodities, and precious metals will most likely start to go down. If the Greece issue is resolved favorably and the other PIG nations don’t immediately line up for their own handout, then the market rally can continue for a little while longer. The Greece issue has now been pushed out to an EU meeting on March 25 and 26th. Perceptions of a positive resolution will mean everything for the markets.
Until then the markets continue their ascent. They are extremely overbought, but that is secondary to price action. For now the price action remains bullish, but keep an eye on the exits just in case. As with the opening comment to my wife – what a difference a day can make.
While the first day of spring and the last day of winter are very close on the calendar, the perception one has from these extremely close events means everything in terms of outcome. For example, the Fed said this week that the economy is still too weak to raise interest rates. Therefore they are going to keep cheap money available for an extended period of time. Since institutions focused on the cheap or almost free money, the market rallied. Had they examined why cheap money was to remain an opposite result may have transpired.
Greece is another perception issue. For some time now it has been noted in many publications that Portugal, Ireland, Greece, and Spain (annotated to PIGS) are not meeting required standards to remain part of the European Union. Greece has been the primary country on the radar screen of late. They have too much debt, too much spending, and not enough income to the point that to issue new bonds to continue operating they might have to offer untenable yields. So they are looking for a helping hand from other EU countries or the IMF. Day to day or week to week different comments are made from those would could help, that cause the US Dollar / Euro exchange rate to rise or fall depending on the interpretation or perception of each comment made.
I feel that for the current rally, this US Dollar / Euro relationship is the key to the next move in the market. If the dollar resumes its rally that started in December of 2009, stocks, commodities, and precious metals will most likely start to go down. If the Greece issue is resolved favorably and the other PIG nations don’t immediately line up for their own handout, then the market rally can continue for a little while longer. The Greece issue has now been pushed out to an EU meeting on March 25 and 26th. Perceptions of a positive resolution will mean everything for the markets.
Until then the markets continue their ascent. They are extremely overbought, but that is secondary to price action. For now the price action remains bullish, but keep an eye on the exits just in case. As with the opening comment to my wife – what a difference a day can make.
Tuesday, March 16, 2010
Hawks and Doves
The U.S. central bank as expected kept interest rates near zero and continued to commit to keeping rates exceptionally low for an "extended period" of time due to concerns that the economy is not yet strong enough to stand on its own without government support. Stock market investors were so pleased with this news that they bid the market right through the S&P 500 resistance level of 1151. No double top!
The near-depression was avoided early last year, through massive monetary and financial stimulus. Today we are keeping cheap money available at these low rates at the cost of doubling the public debt. Now the main worry should be runaway fiscal deficits. But only one voting member of the FOMC, expressed concerns about that today.
Exit policies pose a dilemma for the Fed, as withdrawing stimulus too soon could push the economy back into a recession, while leaving it too long will push the soaring deficits even higher. Today the Fed decided that the risk of the US economy going through a double-dip recession posed too much risk, and the announcement sounded similar to the past several announcements – status quo.
One hawk and many doves make up the Fed currently, but market participants love zero interest rates. Borrow all you can, live for today, and debt tomorrow be damned. At least that is the reading I get as I observe the market’s reaction to the spiked punchbowl effect of low rates and government stimulus.
There was some other news. EU finance ministers have essentially agreed to a blueprint on financial aid for Greece, if it is needed, however the details continue to be a mystery. Remember the old saying – the devil is in the details, but who cares what those details are apparently. The market wants us to believe the problem has been solved and we should all just gleefully move on and Greece just like Dubai before it, is just an isolated incident.
The sector that most befuddles me is that of homebuilders and REIT’s (real estate investment trusts). They are both doing great! I just don’t have the courage to buy them as they continue their ascent. I guess I don’t get it. I just read a local article this morning about a relatively new and large office complex being returned to the lender by one the county’s largest office owners. While the building is mostly full, the owner opted to not make any more debt payments due to the fact that the value has been cut in half over the last couple years and is worth a lot less than what is owed. This problem persists nationwide. I wrongly assume all this bad news is what is driving the real estate sector higher. I am reminded of the old adage that states, “better to be lucky than good.” Go figure!
The near-depression was avoided early last year, through massive monetary and financial stimulus. Today we are keeping cheap money available at these low rates at the cost of doubling the public debt. Now the main worry should be runaway fiscal deficits. But only one voting member of the FOMC, expressed concerns about that today.
Exit policies pose a dilemma for the Fed, as withdrawing stimulus too soon could push the economy back into a recession, while leaving it too long will push the soaring deficits even higher. Today the Fed decided that the risk of the US economy going through a double-dip recession posed too much risk, and the announcement sounded similar to the past several announcements – status quo.
One hawk and many doves make up the Fed currently, but market participants love zero interest rates. Borrow all you can, live for today, and debt tomorrow be damned. At least that is the reading I get as I observe the market’s reaction to the spiked punchbowl effect of low rates and government stimulus.
There was some other news. EU finance ministers have essentially agreed to a blueprint on financial aid for Greece, if it is needed, however the details continue to be a mystery. Remember the old saying – the devil is in the details, but who cares what those details are apparently. The market wants us to believe the problem has been solved and we should all just gleefully move on and Greece just like Dubai before it, is just an isolated incident.
The sector that most befuddles me is that of homebuilders and REIT’s (real estate investment trusts). They are both doing great! I just don’t have the courage to buy them as they continue their ascent. I guess I don’t get it. I just read a local article this morning about a relatively new and large office complex being returned to the lender by one the county’s largest office owners. While the building is mostly full, the owner opted to not make any more debt payments due to the fact that the value has been cut in half over the last couple years and is worth a lot less than what is owed. This problem persists nationwide. I wrongly assume all this bad news is what is driving the real estate sector higher. I am reminded of the old adage that states, “better to be lucky than good.” Go figure!
Thursday, March 11, 2010
The Moment of Truth
Or is it? Apparently, everyone’s a bull. The market corrected 9% from January into February and despite an overwhelming number of bad economic reports, it seems everyone is looking for the markets to continue its trend higher as we closed equal to January’s high on Thursday. Bullish news is hard to find. However, bullish sentiment abounds.
The NYSE short term McClellan Oscillator shows a market that is very overbought. However markets can remain overbought for extended periods of time, so don’t bet the farm on that one. Volume for this run is also suspect. If you remove the huge volume from some of the low priced names like AIG and Citigroup the last few days, volume would be extremely light for any condition – let alone a market trying to push into new 18 month highs.
In the end price rules the day and Friday will present the moment of truth for the S&P 500. Will the market rise for the 10th day out of the past 11? Or will the oversold condition and double top formation cause a pause in the markets strong price advance on paltry participation (volume) and we have at least a temporary pullback.
If the markets do break out to the upside watch the reaction in the tape. There is likely to be a quick spike as shorts rush to cover and those that are under invested rush to take on new positions for a potential new leg up in the markets. If there is not a spike up in both price and volume be careful not to jump in too deep as we are in nosebleed territory with our short term overbought condition.
The NYSE short term McClellan Oscillator shows a market that is very overbought. However markets can remain overbought for extended periods of time, so don’t bet the farm on that one. Volume for this run is also suspect. If you remove the huge volume from some of the low priced names like AIG and Citigroup the last few days, volume would be extremely light for any condition – let alone a market trying to push into new 18 month highs.
In the end price rules the day and Friday will present the moment of truth for the S&P 500. Will the market rise for the 10th day out of the past 11? Or will the oversold condition and double top formation cause a pause in the markets strong price advance on paltry participation (volume) and we have at least a temporary pullback.
If the markets do break out to the upside watch the reaction in the tape. There is likely to be a quick spike as shorts rush to cover and those that are under invested rush to take on new positions for a potential new leg up in the markets. If there is not a spike up in both price and volume be careful not to jump in too deep as we are in nosebleed territory with our short term overbought condition.
Tuesday, March 9, 2010
A Crossroad
The market continues its bullish bias. Low interest rates remain the source for institutional investors to access cheap capital to trade the markets. The US Dollar continues to trade against resistance from above and the Euro is supported by resistance from below their current prices. This currency conundrum is what we will watch for resolution. That may be the single determining factor for the next directional move for the markets.
I still believe a rising US Dollar will be bad for asset classes such as stocks, precious metals and commodities – inverse to what we saw last year as the dollar fell and most markets rose. Should the Euro resolve their problems with Greece and not face immediate issues from Spain, Portugal, or Ireland then the Euro should rise and the dollar will fall. If that becomes the case, expect the bull market in stocks and commodities to continue.
From a technical standpoint the markets are rising on light participation – meaning extraordinarily light volume. Volume usually means conviction. Therefore there is not a huge amount of conviction from participants that the current rally will continue unless more volume starts to come in. The stock market is short term very overbought, however things can remain overbought for extended periods of time.
The January 2010 market highs on the Dow and S&P 500 remain to be breached and could act as resistance against further advancement. Should these indices fail at or below 1051 for the S&P and 10,730 on the Dow, a double top formation could cause the markets to drop once again with first support coming in at 1044 and 9835 for the S&P and Dow respectively. We remain at a crossroad.
I still believe a rising US Dollar will be bad for asset classes such as stocks, precious metals and commodities – inverse to what we saw last year as the dollar fell and most markets rose. Should the Euro resolve their problems with Greece and not face immediate issues from Spain, Portugal, or Ireland then the Euro should rise and the dollar will fall. If that becomes the case, expect the bull market in stocks and commodities to continue.
From a technical standpoint the markets are rising on light participation – meaning extraordinarily light volume. Volume usually means conviction. Therefore there is not a huge amount of conviction from participants that the current rally will continue unless more volume starts to come in. The stock market is short term very overbought, however things can remain overbought for extended periods of time.
The January 2010 market highs on the Dow and S&P 500 remain to be breached and could act as resistance against further advancement. Should these indices fail at or below 1051 for the S&P and 10,730 on the Dow, a double top formation could cause the markets to drop once again with first support coming in at 1044 and 9835 for the S&P and Dow respectively. We remain at a crossroad.
Wednesday, March 3, 2010
Welcome to our Blog
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We try to simplify your investment future by focusing on the things we can control such as your overall portfolio costs and more importantly, the maximum amount of risk we take on each position. We monitor each position in your portfolio daily - meaning we watch your account closely. Call us today for a free, no obligation portfolio review at (800) 449-9501.
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