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Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, April 14, 2014
Anatomy of the Past Five Pullbacks in the S&P 500
Higher Highs and Higher Lows
In the simplest sense, the definition of a bull market is a series of higher highs and higher lows. In addition to buying strength (only buying breakouts), buying weakness is to step up and buy weakness in strong uptrends. This is one tool in my toolbox that helps me successfully navigate capital markets. It is important to keep in mind that eventually all bull markets end, but until they do, buying weakness in uptrends can offer the astute trader tremendous risk-adjusted returns over the long term.
How I Buy Weakness In Uptrends
Instead of randomly picking bottoms, I prefer to listen to the market, let patterns emerge, and begin buying (and average up) as the market bounces off a near-term low. Will I buy the exact bottom? No. But that is not my goal. My goal is to capture the bulk of the move, not pick an exact top or bottom. Why? Because over time, I know that I can consistently capture large moves in the market without having to pick the exact top or bottom. Additionally, I have yet to find someone who can consistently and accurately, pick exact tops or bottoms of every move. From my point of view, the more evidence that emerges that supports the logic that a near-term low has just developed, the better.
Tuesday, April 15, 2014
Below are the past five pullbacks in the S&P 500
(INDEXSP:.INX) and what I'm seeing in real-time. If Friday's (April 11) lows are breached, the market is likely headed lower. If not, well, I'll let the chart do the talking.
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Tax Freedom Day is the day when the nation has earned enough money to pay off its total tax bill for the year. Tax Freedom Day this year is April 21, so after April 21, you will be working for yourself and not the government.
This year's Tax Freedom Day is three days later than last year, which was five days later than in 2012. Of course, that begs the question, "What could you accomplish in the 111 days it takes to reach Tax Freedom Day?!" According to the Tax Foundation, Americans will pay $3.0 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.5 trillion, or 30.2% of their incomes.
Clearly, taxes have gone up, and now reside at their highest level since the Clinton administration. And, it looks like taxes are going to continue to increase because according to Americans for Tax Reform, as paraphrased by me, since taking office in 2009 the current administration has formally proposed a total of 442 tax increases, excluding the 20 tax increases attributable to Obamacare. Now granted, on a long-term look back, taxes were well below their historic mean for a long time, but some of the tax increases are absurd. Maybe the Beatles did have it right when they said, "Don't ask me what I want it for. If you don't want to pay some more, 'cause I'm the taxman, yeah, I'm the taxman.'"
Early last week
[subscription required], I wrote about tax day and noted that there has been a tendency for the equity markets to pull back ahead of April 15, so the recent rout should not have come as a surprise. The question now becomes this: With April 15 nearly behind us, is the market correction over? My response to that ubiquitous question has been "maybe." Maybe because of the severity of a number of short-term "finger-to-wallet ratios" that have become oversold. Maybe because the market could be in a selling stampede that tends to encompass 17 to 25 sessions before it is completed, with only one to three day counter-trend rallies.
As previously stated, "At this time, I just do not know!" I will note the Russell 2000
(INDEXRUSSELL:RUT) tested and held its 200-day moving average at 1,106.03 yesterday (April 14) for the first time since 2012 (see the chart below). If that level fails in the days ahead, it suggests further selling. Also worth watching is the 1835 to 1840 level on the S&P 500, which has now become an overhead resistance zone.
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Wednesday, April 16, 2014
Dead Badger Bounce?
Gotta love those obligatory oversold bounces after unrelenting downward pressure in equities. I see a lot of talk about yesterday's (April 15) intraday reversal in the Nasdaq Composite
(INDEXNASDAQ:.IXIC) and in high beta areas of the stock market, but few are talking about the lack of give in Treasuries and defensive sectors. While continued strength can continue, it is problematic to see no real weakness in those areas, which are otherwise considered safe-haven plays. What market bulls really want to see is a breakdown in those areas sustained over several days in both up and down moves. The jury is still out on that one. Pension Partner's Accelerated Time and Capital
(ATAC) models used for managing our,mutual funds and separate accounts
remain defensively positioned waiting for clearer skies.
Fighting the 'Feelings'
I am fighting with myself about how to handle this reversal. It was less than ideal with the S&P 500 not confirming with a true reversal lower yesterday (April 15). I have the feeling that it isn't over, but my rules for my allocation are pinging me saying that I need to be back toward 70%-plus invested. I generally don't allow myself to have more than 30% cash when over the 50-day moving average in the S&P 500. Here today, the S&P recaptured the 50 DMA and is holding above it. All that being said, I am adding a 25% position in iShares S&P 500 Value Index
(NYSEARCA:IVE), a large cap value ETF. This area of the market has held much higher and should continue to do better as the market either threatens to breakdown again or move higher. Buying this ETF is a way of increasing exposure while managing beta to stay below the market. So as I see it, I can move my Small Caps stop to break even now from yesterday's purchase
[subscription required], and I'll keep the IVE stop at the 50-day moving average. You have to take risk to make money, so that is the goal here. I am looking to add a smattering of new stocks too over the coming weeks as this down move has shown a new set of winners, specifically in the energy space.
Check out the attached chart of the SPDR S&P 500 ETF Trust
(NYSEARCA:SPY). I added exposure because the market has satisfied my four-day rule on moving averages. I have discussed this on the Buzz before, so long time readers may remember. If the market breaks a moving average, the market has four days to reclaim it to give an "offsides" call and allow the trend to continue. Today was day four, so the SPY recaptured the 50 DMA just in time. Additionally, the SPY is breaking over the newly formed downtrend and out of the down channel it had been in. Lastly, the SPY recaptured that floor that it had put in over the last several months.
At this point, I am not overly committed to these positions, but I have to respect the analysis over my feelings. This brings my portfolios back to 75% invested.,,
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Click to enlarge
Thursday, April 17, 2014
The Early Look: Seven Things We're Watching
Editors Note: This post was published at 10:02 a.m. EDT.
Out of the gate, things are looking mixed.
Here's what we at the Buzz & Banter are watching:
1. The Nasdaq is taking a breather due to Google's
(NASDAQ:GOOG) worse-than-expected fourth-quarter earnings report. There wasn't anything disastrous in that report, but there were enough negative moving parts to prevent the stock from lifting. Google making a real lift off the lows would most definitely be a good thing.
2. Biotech couldn't follow yesterday's (April 16) positive finish, but iShares Nasdaq Biotechnology Index ETF
(NASDAQ:IBB) has come off the lows a bit, and it's staying above the 200-day moving average at $220.18.
3. The S&P 500, while down, is for now holding above the 50-day at 1851.01, which is just a point above the key 1850 level.
4. Goldman Sachs
(NYSE:GS) and Morgan Stanley
(NYSE:MS) delivered solid earnings this morning. However, financials are slightly red. There's just not much follow-through in the sector aside from Deutsche Bank
(NYSE:DB), probably because the more diversified financials that have already reported were more mixed in terms of earnings performance.
5. Industrials, energy, and materials are the only positive sectors, and just barely so.
6. The iShares Dow Jones US Home Construction ETF
(NYSEARCA:ITB) is ugly. Don't look!
7. Utilities (Utilities SPDR ETF
(NYSEARCA:XLU)) are down. I suspect that if increased deterioration occurs in the high-beta stuff like the Russell 2000, utilities will take the lead today.