Buzz on the Street: Fed Says No Taper, More Candy
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Trick or Treat?
"So far this year the headlines have been the 'trick,' while the stock market has been the 'treat!'" . . . A guest on CNBC yesterday,
What a clever twist on words I thought as I heard Maria's guest speak them yesterday afternoon; I wish I would have thought of them! Yet, she was exactly right because the headlines this year would have caused investors to shun stocks, but that would have been the wrong strategy. As portfolio manager Don Hagen, of Day Hagen Asset Management, said at the recent Ned Davis conference, "Overweight statistical probability; underweight emotion." Indeed, emotion in the stock market is the investor's worst enemy. The statistical probability of the year occurred on December 31, 2012 and January 2, 2013 when the equity markets recorded back-to-back 90% Upside Days. A 90% Upside Day is when 90% of total points traded, and 90% of total volume traded, occur on the upside. Such skeins are pretty rare. But when it happened at the beginning of this year, I wrote about it and noted that, "Since 1950, following such back to back 90% Upside Days, the S&P 500 is better by 6.1% one month later 83% of the time, 12.8% higher three months later 100% of the time, and 18.9% higher six months later 100% of the time." While we didn't quite make those returns this year, we certainly came close. To be sure, "Overweight statistical probability; underweight emotion!"
Yesterday was another "trick or treat" session as early morning weakness gave way to a rally attempt (the treat) that fizzled around the 2:30 p.m. daily pivot-point, leaving the senior index down 73 points by the closing bell (the trick). A similar trading pattern can be seen in the daily chart of the S&P 500 (SPX/1756.54), leaving the SPX resting marginally above its 10-day moving average at 1755.60. Yesterday's action was a reflection of the fact that the stock market's internal energy, at least as measured by my indicators, was TOTALLY used up coming into this week. Further, as repeatedly stated in these missives, my timing models suggest the equity markets are again becoming vulnerable to a downside attempt from mid-November into the early December. That does NOT mean I am bearish. Quite the contrary, I think the equity markets are going substantially higher in 2014; it's just that on a trading basis I am cautious, believing the SPX could pull back to 1730 - 1740 and not present any damage to the secular bull market case. To wit, the recent debt ceiling deal clears most roadblocks into year end, this earnings season is again coming in better than expected, the economy is not collapsing, central banks are accommodative, sentiment is not excessive, PE multiples have room to expand, and the world is profoundly underinvested in U.S. equities. Also, yesterday was the end of the month and the end of the fiscal year for many mutual funds and hedge funds.
GLD/GDX Inflection Point
Yesterday, we sent a note on SPDR Gold Trust (NYSEARCA:GLD), that it was poised to turn its weeklies down.
GLD is pulling back right on schedule in keeping with a 60-day, low-to-high-to-high cycle outlined in this space.
GLD made a major low on June 28 and rallied to a pivot high in late August, followed by another rally into October 28, 60 days later.
Now, GLD and GDX are set to turn their respective Weekly Swing Charts down today on trade below last week's lows.
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More than price, it is time that determines the trend. The primary and secondary trends are told by the behavior on the turn ups of the weeklies. This sometimes coincides with obvious price support and resistance.
Last week's low in GLD was 126.79. This morning's pre-market low in GLD is right there. The turn down is occurring as GLD backtests its 20-day moving average and a 50% retrace of the recent rally.
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If GOLD and GDX are bullish, another higher low should be defined soon in terms of both time and price.
If they are bullish, as I suspect, my expectation is that a low could play out as early as this morning.
Beware of Financials
While the S&P 500 posted only a modest decline (-0.28%) in yesterday's session, we continued to see signs of weakness underneath. Financials (NYSEARCA:XLF) in particular remain a primary concern. Their relative strength against the S&P 500 (lower panel of chart below) peaked back in July, failing to confirm the S&P 500 (SPDR S&P 500 ETF Trust (NYSEARCA:SPY)) new highs in September and October. Over the past two weeks, we have seen this relative strength turn sharply lower, and it is now back to early May levels. At the same time, the sector is potentially forming a triple top formation (see top panel of chart below). As weakness in Financials has led all of the major corrections over the past few years, at the very least caution is warranted here until we see some improvement in the sector.
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