Saturday, May 29, 2010

Investor Sentiment: The Fat Pitch

I am not a baseball person, but we all know what a "fat pitch" is. It is an easy one to hit. It doesn't mean you will always hit it or even get a homerun, but if you see a "fat pitch" coming, you better take a swing. Investor sentiment has turned bearish here, and this is our "fat pitch". This is a bullish signal because if the market turns higher, we are likely to see accelerated gains over the time that investors are bearish.

Thursday, May 27, 2010

Is That A Head And Shoulders Top I See?

Is that a head and shoulders top I see on the S&P500?

Morning News Notes: 5/27/2010

The "Morning News Notes" as prepared by TL...initial jobless claims, NYC out of cash, passenger air traffic is down, and Gallup poll on President Obama.

Monday, May 24, 2010

Reader Comments And Questions

I thought I would address some reader comments and questions.

Morning News Notes: 5/24/2010

The "Morning News Notes" as prepared by TL...talks between China and USA, Europe, Korea, mortgage rates, National Association for Business Economics, "feel good" comments from Geithner and Fed's Dudley, American Banker's Association, more Europe, more China, and Goldman Sachs.

Saturday, May 22, 2010

Investor Sentiment: It Would Be Better If...

It would be better if prices on all of the major indices: 1) decisively broke their 200 day moving averages; 2) closed below weekly support levels; and 3) closed below the February, 2010 lows. It would be better if the prior week's pullback, which morphed into this week's "correction", actually caused investors to utter the "b" word -- as in bear market. It would be better if investors had their spirit's broken as investor sentiment actually turned bearish (i.e., bull signal). But none of this happened, and what seemed scary last week really wasn't enough in my opinion to produce a lasting and meaningful bottom. So if prices go higher from here, we will have the same old story of a market: 1) that went down for a week or two; 2) that got everyone worried ~ “oh my god, a 10% correction” from ridiculously overbought levels I might add; 3) that will be bid back up rather strongly; 4) that will make investors forget about the prior week; 5) that will be sold rather abruptly again. This kind of price action, I am convinced, is consistent with distribution and a market top. The best market bottoms occur when investors turn bearish, and this has yet to happen.

Friday, May 21, 2010

Morning News Notes: 5/21/2010

The "Morning News Notes" as prepared by TL...the German vote, corporate commentary on the Euro, Bill Gross, financial regulation reform, Fed governor Tarullo, healthcare, more Europe and US equity strategy.

Thursday, May 20, 2010

The Japanese Yen

Several weeks ago reader Fu Manchu politely suggested that "he just didn't see it" with regards to my short Yen position. Several months back, it was looking that I was correct in my "call" that the Yen was going lower, but here we are with risk rising and investors avoiding risk, and well the Yen is rising as it appears the carry trade that funded the risk taking is coming off. Anyway, back to Fu and his suggestion of "Guy, take another look". I have, so thank you for the suggestion, and it just might be time to pull the plug on this trade. Here are my technical thoughts.

Morning News Notes: 5/20/2010

The "Morning News Notes" as prepared by TL...initial jobless claims, financial reform, Europe, credit card companies, Gallup poll on America's level of satisfaction, and what some hedge funds are up to.

Wednesday, May 19, 2010

Morning News Notes: 5/19/2010

The "Morning News Notes" as prepared by TL...German short sales, financial reform, primary results, comments by Richard Russell, Korean politics, and regulatory reform and the stock market sell off.

Tuesday, May 18, 2010

Some Not So Deep Thoughts On Gold

From the "Department Of It's A Sure Thing", we have, once again, investors being told that an asset is a sure thing just as it is making new highs. Yes, they tell us it is different this time, but how many times do you have to hear that to realize that it is never different? The reasons to own gold at $1200 are the same reasons to own it at $1000 an ounce or $800. But like every asset, nothing goes straight up. I would rather be a buyer at lower prices (and I was) than higher.

Monday, May 17, 2010

Morning News Notes: 5.17.2010

The "Morning News Notes" as prepared by TL... US debt to GDP, Europe, Euro and hedge funds.

Saturday, May 15, 2010

Investor Sentiment: Neutral

After 10 weeks of being "all in", the bulls have retreated leaving investor sentiment with a neutral reading this week. This seems kind of odd as you would think that lower prices would be welcomed by those of bullish persuasion. Oh well! The "sure thing" has turned out not to be a "sure thing", and those who waited for the all clear are either back on the sidelines or have positions underwater. As expected (most of the time), extremes in bullish sentiment did not pan out for the bulls as the S&P500 is lower than 10 weeks ago. The current neutral reading implies no real edge from a sentiment perspective, but going forward it still is and always has been my contention that investor sentiment must turn bearish (i.e., bull signal) and key support levels must be broken before a new trading rally can start. If this doesn't happen, then it will be the same old story of quick rallies and sudden sell offs ala March to October, 2007. In hindsight, that was a market top, but it wasn't confirmed until the first bull signal (i.e., when investor sentiment turned bearish) failed to lead to a meaningful bounce.

Friday, May 14, 2010

EURUSD: Next Stop 2006 Lows

Well that was quick.

Shanghai Composite: There Is Hope!

Hey folks, the Shanghai Composite, which has been leading the US market for about a year now, has hit its first level of support. I would expect a bounce in China, which of course will offer hope to the US equity bulls.

Morning News Notes: 5/14/2010

The "Morning News Notes" as prepared by TL... Europe, Treasury bill auction in China, new exchange rules go in effect on Monday, banks ignoring delinquent borrowers, Gallup poll on economic confidence, and Greece.

Thursday, May 13, 2010

USDJPY: Follow Up

I have been tracking the USDJPY cross rate for sometime, and it is my belief that US Dollar will move higher relative to the Japanese Yen, and that this will represent a secular trend change.

Morning News Notes: 5/13/2010

The "Morning News Notes" as prepared by TL... jobless claims, Spain and Portugal, Wall Street investigations, and Republicans gain in early poll.

Wednesday, May 12, 2010

Developing A Trading Strategy (Part 3)

This is the final installment of our series on developing a trading strategy.

Morning News Notes: 5/12/2010

The "Morning News Notes" as prepared by TL... a new Gallup poll on the economy, Morgan Stanley and the SEC, FNM and FRE, 4 big banks score 61 day perfect trading run, Europe, and rates in China.

Tuesday, May 11, 2010

Financial Advice - It Needs Context

One of the things I learned early on about writing on the markets and trading is that you are never right. There is always someone out there who has a different opinion. That's cool, it is the markets. Knowing that, one of the things I also learned early on was to provide some context to my market analysis. If I am going to say gold is going higher, then my analysis should not only include the reasons why I believe gold is going higher but when my analysis will be wrong. In other words, a "call" that gold is going higher is not useful if it loses 25% first and takes another 6 months to eventually claw its way back to being higher. Yes, the analysis was correct, but it wasn't very good or timely analysis.

Morning News Notes: 5/11/2010

The "Morning News Notes" as prepared by TL... bailout in Europe, the re-emergence of the Volcker rules, China home prices, and the Shanghai Composite.

Monday, May 10, 2010

Morning News Notes: 5/10/2010

The "Morning News Notes" as prepared by TL... European bailout, Gulf oil spill, OPEC, Obama's Supreme Court nomination, market technicals, Goldman, and last week's bank failures.

Saturday, May 8, 2010

Investor Sentiment: The Great Unwind

When you look at investor sentiment for the past week, you must understand that the majority of data was collected and disseminated prior to Thursday's downdraft. While the data may seem stale and not reflective of the end of week events, it should be appreciated how many investors were wrong on this market. We weren't just seeing excessive bullish sentiment prior to this week, we were seeing extreme and excessive bullish sentiment. For example, in the Investors Intelligence data, there were 3 times as many bulls as bears, a reading last seen in December, 2009 and October, 2007. The Rydex market timers had twice as many assets in bullish funds versus bearish funds, which was the highest value since the December, 2004 top. The point is this: these kinds of extremes are going to take time to unwind. Sentiment remains bullish despite this week's drubbing for stocks. I doubt investors are hopeful or acting like deer caught in the headlights. If they are, a bounce should bring further selling. More likely, there are just a lot bulls hoping to get to the exits or wishing they had sold last Monday. The next great buying opportunity will be when the "dumb money" turns bearish, and the only way to make this happen is for prices to continue lower. This appears to be several weeks away (at least) as the excessive and extreme sentiment seen over the past 8 weeks is unwound.

Friday, May 7, 2010

This Is For All You Bull Market Geniuses

This article is for all those bull market geniuses, who buy the hype and who have been fooled into believing, yet again, that "this time is different".

Thursday, May 6, 2010

TheTechnicalTake: EURUSD

Figure 1 is a weekly chart of the EURUSD cross rate.

The Technical Take: GLD

Figure 1 is a monthly chart of the SPDR Gold Trust (symbol: GLD).

Wednesday, May 5, 2010

Morning News Notes: 5/5/2010

The "Morning News Notes" as prepared by TL... Gulf oil spill, mortgage applications, Eurozone, Greece, Los Angeles going bankrupt?, and state budgets.

Tuesday, May 4, 2010

TheTechnicalTake: Brazilian Bovespa and EWZ

On February 4th, I wrote that the Brazilian Bovespa was "dead money", and nothing since that time has changed my mind as Brazil, as measured by the i-Shares MSCI Brazil Index Fund (symbol: EWZ), has lagged the S&P500.

TheTechnicalTake: Shanghai Composite

Since the start of the year, the Shanghai Composite Index is down about 12%. But this composite peaked back in August, 2009, and it is down about 17% from those highs. We can debate the reasons why the Chinese market is down, but there is no doubt that US equity bulls should be concerned that the Chinese market has been diverging from the US indices. After all, the Shanghai Composite led the US markets off the bottom back in late 2008 and early 2009. US Equity bulls appear to be ignoring the fact (or just living in a vacuum) that the stock market of one of the world's leading economies has not made a high in over 8 months.

Morning News Notes: 5/4/2010

The "Morning News Notes" as prepared by TL... NYC car bombing, under-employment, auto sales, and of course, Greece.

Monday, May 3, 2010

Morning News Notes: 5/3/2010

The "Morning News Notes" as prepared by TL... Greece, NYC car bombing, Volcker rules re-surface, and Goldman losing clients.

Saturday, May 1, 2010

Investor Sentiment: Time To Pay Attention!

After 8 months of indifference to the constant and persistent rise in stock prices, the "smart money" has finally turned bearish. It is time to pay attention.