Midweek Update 3/1/11

The bounce from last weeks low was even weaker than I had
anticipated. For this reason I recommend exiting your SPY
position on the close today. We will maintain our Quarterly
ETF portfolio until the end of the quarter.

Weekly Market Update 3/6/11

The big economic number this week was the Employment Situation. The headline number dropped from 9.0% unemployment to 8.9%. I contend however that unemployment continues to flat-line and not improve. As I have stated previously as soon as someone uses up their unemployment benefits they are no longer considered unemployed even though they are still not working. To get a better picture of the employment situation I look at the underemployment rate which is currently at 19.9% and has been rising as the unemployment rate has been declining.

I exited our SPY position this week. Volatility has returned and I suspect we will soon see a correction in the markets. Increasing gas and commodities prices will have to put a squeeze on corporate profit margins and earnings season is only a few weeks away. I see the upside as very limited at this point and the risk of being exposed to a sell off to high. Having the bulk of our investments waiting for a buying opportunity I think is the prudent thing to do.

Weekly Market Update 3/13/11

There was not a lot of economic news this past week. What there was did not appear overly bullish to me. Retail sales came out right on the consensus number. On the other hand Business Inventories saw a slight up tick and, Consumer Sentiment dropped rather dramatically.

The technical picture for the U.S. market has deteriorated this week, with the sell off that occurred Thursday. If the SPY closes above 133 it would go a long way toward reversing the technical damage. I wouldn’t be at all surprised to see a test of the 132-133 level before seeing the sell-off continue. The unknown this week is how the markets will react to the natural disaster in Japan. The status of the nuclear reactors is still minute-by-minute so the outcome and any market reaction are uncertain.

Weekly Market Update 3/20/11

Inflation is starting to show in some of the economic releases. The Producer Price Index year on year rate is up 5.8%. Meanwhile the year on year rate change for the Consumer Price Index is 2.2%. This is more evidence of my thesis that profit margins are being squeezed. Businesses are finding it hard to pass along their increased cost to the consumer.

As I mentioned in the mid-week update, I am changing the intermediate term market call to bearish. If we are entering a new down leg in the markets it is better to look to sell rallies. If your primary investment vehicle is a 401k, shorting may not be an option. If that is the case cash or money market might be your best option. If SPY can rally to the range of 130.50-132.00, I may look to short the SPY. SDS is the Proshares Ultrashort S&P 500 etf. It has a market exposure of –200%. I am not suggesting using leverage. What I usually will do is trade half the amount I am looking to short to get a market exposure of –100%.

In the mid-week update I also mentioned my stock/bond model might trigger a sell signal. Well the market bounced enough that the model just missed triggering a sell signal. It is definitely in a cautionary zone and could easily trigger a sell signal this week.

Weekly Market Update 3/27/11

What a difference a week makes. The market has bounced faster and higher than I would have expected. The sell-off that occurred went a long way towards reducing some of the downside risk that I have been concerned about the last few months. The market needed a breather and got it. Sentiment and Technical indicators are now considerably less risky than they were 3 weeks ago.

So where does the market go from here? My intermediate term call is still bearish and the SPY will probably need a couple closes near 134 to make that a bad call. On a short term basis the market is overbought and approaching resistance. We are at what I think is a critical point that could determine the direction over the next 3 to 6 months. If the market can shrug off the fact that we are overbought and continue higher than the intermediate and long-term trend still looks bullish. On the other hand I think a more likely scenario will have the market begin to sell-off this week to possibly retest the recent lows.

Not much to report in terms of economic numbers this past week. The main theme was the housing market keeps getting worse. This coming Friday is the employment situation and this number always has the potential to set the trend for the coming weeks.

Weekly Market Update 8/1/10

The market finished the week basically where it started. The bulls and bears are in a tug of war, and the outcome has yet to be determined. I would say that positive earnings are what is driving the bulls. While weak economic numbers and, a unclear future, are what is guiding the bears. I am leaning slightly toward the bear camp. If the SPY can manage a couple closes over 112, I would have to reconsider my stance. Right now I am happy watching the tug of war from the sidelines.

Weekly Market Update 8/8/10

The SPY managed a couple closes over 112 this week. These higher closes were able to get the 14 period RSI to close over 60 on the daily charts. This triggered my RSI buy setup that will move our intermediate term market call to bullish if the SPY can close at 113 or higher.

Except for Friday’s price action most of the week was spent trading between 112 and 113 on the SPY. Friday’s action showed some early weakness on the monthly employment figures, but manage to recover most of the day’s losses near the close. The inaction early in the week was a result of traders waiting on Friday’s employment data. The hesitation in the market is due to uncertainty as to weather we will see a “V” or a “W” shaped recovery. A “W” shaped recovery is a double dip and seems like the most likely outcome. This is not a forgone conclusion though and has a great deal to due with the current market uncertainty. Traders will be looking to various economic reports to give signals as to which type of recovery is most likely. Increased volatility in the coming months is almost a certainty.

Weekly Market Update 8/15/10

Talk about pennies from heaven. The SPY closed Monday at 112.99, literally a penny from where I thought I would have to turn my intermediate term call to bullish. I don’t know if that was dumb luck or not but I am glad we did not go long before the sell-off began. The indices took a hit this week, losing 3-5%. The market is now oversold going into the weekend. The question is, are we oversold enough to find support or, will this level just be a speed bump on the way to lower prices? If we do not start seeing some positive economic numbers, I will be leaning toward the speed bump scenario.

Weekly Market Update 8/22/10

The markets were mixed this week. On a short-term basis we have found a range between 107 and 111 on SPY. The 107 level has become a kind of line in the sand. If the market cannot hold this level the July lows near 102 will be tested. On the other hand we are somewhat oversold here so anything is possible. We may have to see how the economic reports come out this week. Lately they have pointed toward a weaker economy.

Weekly Market Update 8/29/10

The 107 level on the SPY was breached on Tuesday. It looks like the 104 level is going to act as support. I thought that since that level was broke in early July it might not act as support this time around. Judging by Friday’s price action I guess I was wrong.

The stock market is oversold on many levels but, one thing is bothering me. We haven’t had a high volume capitulation like sell-off. When everyone seems to have given up then we can start to look for at least a bounce. Friday’s unemployment numbers has the potential to set the trend for the next few weeks. Just keep in mind the initial move is sometimes corrected by the end of the day.

Weekly Market Update 5/2/10

Some volatility has found its way back into the market. We have not seen two large down days this close since the decline that lead to the February low. Momentum is waning; the market has basically been flat over the past three weeks. Where it goes from here is anybodies guess but with market sentiment at bullish extremes this is probably not a bad time to tighten stops.

It appears Greece is close to a bailout from the EU and IMF. The question is how will the markets react. Will they see it as bandage when a tourniquet is needed? There is a troubling trend I am starting to see emerge as it is occurring in Greece and here in the U.S. As governments struggle to balance their budgets during this prolonged recession, they are starting to get resistance from labor groups and those reluctant to seeing a cut in wages or benefits. Those with the biggest budget problems could face financing issues just has Greece has.

Midweek Update for 5/6/10

In case you have not heard the market took a serious drop today. At one point the DJIA was down 1000 points, before closing down 347 points, or –3.20%. The jury is still out on what caused the sell off, but two primary factors are the Greece bailout and error in a Proctor and Gamble trade. I am sorry but something is seriously wrong when a trade error can cause a 1000-point decline.

I am glad that I have been 75% cash for the time being but questioning whether I should have had stops on my Quarterly ETF portfolio. I think in the long run the quarterly rotation will keep us out of any prolonged declines, and that is why I am hesitant to place any stops on this portfolio. The portfolio is down 6 percent for the quarter, with most of the damage in SCZ, which is of 10%.

The charts look pretty scary. Today’s price action basically even if it was a result of trade error is a bit bothersome. On more than one occasion I have seen the markets trade back down to the trade error lows. I am not sure why, maybe the markets feel a need to test that level again. Anyway if that happen the DJIA will have to trade down another 600 points before it can stabilize.

Weekly Market Update 5/9/10

Friday came and went and there still does not seem to be a consensus as to what the hell happened on Thursday. In November 2007 the NYSE ended trading curbs, which limited program trading. Prior to that date program sales could not be placed on a down tick if the curbs were in affect. Now only circuit breakers remain and they do not kick in until the DJIA has dropped 10% or 1050 points. Today a lot more trading occurs off the floor of the major exchanges and on the electronic exchanges. There are no consensus rules, between the various exchanges, that handle an event such as the one that occurred on Thursday. In my personal opinion some sort of circuit breaker at -5% and program trading limits at -3% would be more appropriate. Sometimes things happen in the market that no one can explain and, a temporary halt to trading to figure out what is going on, is not a bad idea. Another possibility is that sense market sentiment was so high; there were probably a lot of stops in place that started getting triggered, as the market began its fall. Something like yelling, “fire!” in a crowded theatre. I would like to think that the SEC would come out, before the end of the week, with some safeguards to prevent this from happening again. This is a real blow to the confidence that people have in the markets something will have to be done ASAP.

Until there is some stability to the markets I do not think I will be recommending any trades. The charts are just plain ugly. There is a void between the Friday lows and Thursday lows and it will be hard for me to put faith in any attempts the market makes at forming a bottom until the Thursday lows are tested.

Weekly Market Update 5/16/10

The week came and went and still there is no consensus, on what caused the May 6th sell off. I find that somewhat disturbing. What I find even more disturbing however is, that the SEC has not come up with any plans for trading halts to prevent future declines of a similar magnitude.

From a technical standpoint the averages managed to rally through Wednesday but rolled over on Thursday and Friday. The high this week provide a price level that when breached to the upside will begin to give some comfort to some stabilization in the market. I am not saying that is what I expect. However, until The May 6th lows are tested or the market can make a series of higher highs, we are kind of in a no mans land, with no clear intermediate term direction.

Weekly Market Update 5/23/10

The SEC is still investigating the May 6th “flash crash.” Several factors appear to have contributed to the sell off. The factors appear to be, inconsistent rules among the various exchanges, speculation in the futures market and, the lack of participation by market makers. It appears that the market makers were not able to step in and be the buyer of last resort. Maybe that is because so many went out of business as the electronic exchanges took volume from the physical exchanges.

The markets took another big hit this week. But as I have been saying the last few weekends I felt there was a good chance the May 6th low would need to be revisited. The markets tested that low during Friday’s open then proceed to make a very strong rally to close up 1.5% for the day. If the markets have worked out there issue with the Euro, I think there is a very good chance this is a tradable low. Most of the trading strategies I watch will require a decent bounce from this level before triggering a buy signal. But the more aggressive subscribers could look to go long the SPY if in the final hour of trading the SPY is trading over 110. The market should be able to manage at least a two-week rally from these levels. I will have to wait for more signals to come in before I can get more confident about a longer-term scenario.

Weekly Market Update 5/30/10

A rare but reliable technical signal has set up this week. This signal is 9 for 9 dating back to 2000. Simply put when the 14 period ADX goes over 40 buy at a price of 2 times the 21 day average true range added to the 5 day low, then hold for 15 trade days. The buy price would be 110.90 on the SPY. Keep in mind this is a short-term signal and I would not recommend it for your 401k or retirement account.

We did not get the close over 110 on Monday I was hoping for. As bullish as sentiment was last month it has done almost a complete reversal. This could mean we are getting close to some buy setups. The market has sold off but now it will have to show some strength over a period longer than a couple days. If we have seen the worst of the selling, the ADX signal could start a cascade of buy signals. Only time will tell.