Success is a lousy teacher. It seduces smart people into thinking they can't lose.
Where have you been you green little bird
Did you fly away to see the world
You're living in a dream
You're chasing the ghosts
Did you find the key that you lost?
--Emilie Simon, "Dreamland"
The most money is made when fast moves and extreme fluctuations occur at the end of major cycles.
--W. D. Gann
When the bull brings a shotgun to a momentum drive-by and the bear brings a knife, it's a good time to be leveraged to the hilt.
While the S&P 500 (INDEXSP:.INX) has rallied back to its December 31, 2013 high since the rude awakening to start its year, that doesn't tell the whole story.
Many of those titles that exhibited relative strength throughout the January sell-off have exploded as much as 50% since the February 4 low. And it's not even the end of the month.
Some names include the following:
- Palo Alto Networks (NYSE:PANW) from 57 to 80
- Criteo SA (NASDAQ:CRTO) from 34 to 46
- NewLink Genetics (NASDAQ:NLNK) from 35 to 50
- Questcor Pharmaceuticals (NASDAQ:QCOR) from 61 to 80
- Insys Therapeutics (NASDAQ:INSY) from 50 to 69
- Ligand Pharmaceuticals (NASDAQ:LGND) from 55 to 80
Daily Jazz Pharmaceutical Chart for 2014:
Daily Illumina Chart for 2014:
Not to be outdone, Texas Pacific Land (NYSE:TPL) is up 40 % in a mere 14 trading days.
Texas Pacific Land Chart:
Need I go on? You get the point.
It's been like trading with a shotgun. Almost anything you aim at makes money, that is, until it blows up in your face.
It feels like we've been to this party before. It's a cousin to the zinger into March 2000. It's a poker-game with guns, tequila, and beaucoup chips on the table -- not a picture for a happy ending.
The flush-painted face of the bull and the compulsive frenzy with which the partiers have come back to the scene of the S&P 500 crime, the December 31 high, is reminiscent of the stagger back to a nominal new high in August 2000 after a blow-off into March that year. Ditto the nominal new high in October 2007 following an initial high in July.
As flagged in this space at the recent February low of 1740ish, the S&P "vibrated" off the date of the initial high, December 31. In other words, time (December 31) pointed to price (1740). The bounce off 1740 was much more than the vast majority of players -- bulls and bears alike -- expected. It seems most of the bulls expected some kind of retest if not an outright extension of the decline, satisfying a 10% correction -- something that hasn't occurred for over two years. Long-term bulls who have been around for more than a few cycles were hoping to get a 10-percenter out of the way. The vast majority of the bears, looking to short a retrace, snatched defeat from the jaws of victory when the S&P reclaimed its 50 DMA and 50% of the sell-off. The Follow Through Day scored on February 7 (four days from the closing low) forewarned of a trip to the top of the range. The next trading session, February 10 was an N/R 7 Day (the narrowest range in 7 days) that indicated an expansion of volatility in the next several days. The volatility arrived immediately on February 11 as the S&P recaptured its 50 DMA with authority.
Daily S&P 500 Chart from December 30, 2013 to the Present with its 50 DMA:
Yesterday, the S&P moved up more than 1% into record high territory intraday before tailing off without setting a new closing high. The S&P 500 has already had nine days of more than 1% movements in 2014. This is twice the amount by this time last year. Often times, volatility precedes price, i.e., a change in trend. The caricature of price action can obscure change, like the frog in the pot of slowing boiling water who thinks he's just getting accustomed to it. Traders are getting accustomed to chasing vertical moves.
Two imaginary neon signs, "Don't Fight The Fed" and "Buy The Dip," color the skyline behind this new paradigm parade [subscription required] like a New Orleans, jazz-led funeral march for the death of risk.
It's a dream land. Mr. Market's a serial boom and buster who never really got over the grotesque episode of 2008, and he may be re-enacting, subconsciously recreating his past.
Since 1929, there have been 13 bull markets. Only one lasted longer than 5 years. I can't help but wonder whether this melt-up into March is a mirror-image fold-back of the melt-down into November 2008. If a further melt-up plays out into March, it is interesting that 1931-1932 on the S&P is 90 degrees March 6. Is it possible that a spike high on the 80-year cycle will see price "point" to the year of the low (1932)? Will one crescendo point to another crescendo? Interestingly, from the November 21, 2008 crash low to March 6, 2014 is 1921 days. The run-up to the 1929 high began in 1921. Is time pointing to price, and is price pointing to time?
There is a definite relationship between time and price. Vibration is fundamental; nothing is exempt from this law; it is universal; therefore, it is applicable to every class of phenomena on the globe.
--W. D Gann
Did Monday's opening spike to a new high on the S&P and the Nasdaq-100 (INDEXNASDAQ:NDX) satisfy the notion of a throw-over that stops the shorts right at the high tick-out, or did it signal a greater run to come? It will be interesting to see if the week tails off from the opening spike high going into the beginning of March.
March has seen an important turning point since 2000. We are used to thinking of October as a big turn, but prior to the last 50 years, March has seen many major turns as well.
Will a further run-up into March perfect a time-and-price square-out as it did at the 2007 peak and at the 2009 low (as well as at many intervening pivot highs and lows)? Interestingly, March 6 is 90 degrees square 1931-1932 as noted above.
M&A is sometimes a sign of an improving economy. However, market participants' concern about missing a move rather than risk can become viral with corporations catching the bug as well.
Art Cashin made a point yesterday morning that you have to ask. With interest rates as low as they are, why are companies using their own stock rather than easy-to-come-by cash? Is it an indication that acquirers believe their stock is rich?
Facebook (NASDAQ:FB) doles out $19 billion for What's App. Am I seeing things? Is this astounding amount possible? The Facebook purchase is symbolic of a different world.
Conclusion: It's Dreamland sprinkled with $50 billion condos in New York City. The Federal Reserve's infusion of trillions of dollars into the system benefits the banks and the wealthy at the expense of everyone else. Remember that the constituency of the Fed is its member banks, not the public. When politicians turned over money creation to the Central Bank, it turned over the economy to the bankers. If the banks have been brought back to solvency on the backs of the middle class, are the wealthy reading the writing on the wall and chasing stocks as a hedge against possible hyperinflation?
Is that what the action in stocks is telling us, that they are discounting future inflation and that the only way for the government to extricate itself from the greatest debt in history is to inflate or die?
Does the recent run in commodities in tandem with stocks signal this perception is gripping financial markets?
Click to enlarge
Strategy: Following the December and January monthly Train Tracks, the S&P has carved out an outside up month with yesterday's new high. The S&P traded below January's low in early February and has now traded above January's high. If a further runaway move is at hand, upside acceleration should resume within hours to a few days. If the cycles are due to exert downside influence, the turn up in the monthlies into the 60-month anniversary of the low should define a meaningful high soon, in terms of both price and time.
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