When a trade goes horribly wrong, so many emotions run through your head. First it’s denial. Then it’s disbelief. Then it’s anger.
Folks, let’s be real. EVERYBODY has trades that go horribly wrong. Anyone who only posts their winning trades and doesn’t talk about their losers isn’t a real trader: their a fake poser. They probably have some financial motive to not talk about their losing trades. They want to keep you like a fish on their fishing line and they do this by being fake and lying about their track record or only posting winning trades on their website.
In this episode, Lance flips out over two down positions in HALO and FCEL today. The problem with trading options is that when the market plunges, there will often times be no buyers and thus you will be trapped in your call contracts. The language gets pretty bad so if you’re offended by bad language, don’t watch this episode.
The NASDAQ and the Dow both have uptrend ratings while the S&P 500 and Russell 2000 have strong uptrend ratings. The Dow, S&P 500 and NASDAQ all finished Friday at five-year highs.
The market internals continue to lean heavily towards the Bulls.
My rating is that the Bulls have the advantage over the Bears going into trading next week.
Debt Ceiling Extension
The market rallied on Friday when the news broke that the Republican-controlled House is expected to set a vote to extend the debt ceiling limit until April 15. The plan would require both the House and Senate to pass budget resolutions by then, and members’ pay would be withheld if they don’t pass it by the 15th.
Earnings Season
Companies reporting next week with the greatest probability of impacting market direction are:
January 22nd, 2013, Tuesday = DuPont, Johnson and Johnson, Travelers, Verizon, IBM, Google, Kansas City Southern, TD Ameritrade
January 23rd, 2013, Wednesday = Apple, McDonald’s, Abbott Labs, Baker Hughes, Coach, General Dynamics, Motorola Solutions, Novartis, Praxair, Quest Diagnostics, St. Jude Medical, SAP, Siemens
January 24th, 2013, Thursday = 3M, AT&T, Microsoft, Starbucks, Avnet, Baxter, Bristol-Myers Squibb, Lockheed Martin, Nokia, Stanley Black and Decker, Union Pacific, Xerox
January 25th, 2013, Friday = Procter and Gamble, Halliburton, Honeywell, Kimberly-Clark
The fundamental analysis reports that moved markets last week were Tuesday’s Producer Price Index and Retail Sales, Wednesday’s Industrial Production and Consumer Price Index, and Thursday’s Housing Starts.
The producer price index dropped 0.2 percent in December. The December figure posted lower than the consensus forecast for a 0.1 percent decrease.
Retail sales gained 0.5 percent after a 0.4 percent rebound the month before (originally up 0.3 percent). Market expectations were for a 0.2 percent rise.
Industrial production in December advanced 0.3 percent, following a 1.0 percent rebound in November (originally up 1.1 percent). Analysts projected a 0.2 percent increase for December.
The consumer price index in December was unchanged after declining 0.3 percent in November. The December figure matched market expectations for no change.
Housing is still recovering and at moderate levels of activity but December starts suggest that recovery is moving somewhat faster than earlier believed. Housing starts in December rebounded a sharp 12.1 percent, following a dip of 4.3 percent the month before. The December starts pace of 0.954 million units topped analysts’ forecast for 0.887 million units and was up 36.9 percent on a year-ago basis.
There are no significant fundamental analysis reports being released next week that have a high probability of moving markets.
Markets are closed Monday, January 21st, 2013, for the Martin Luther King holiday.
The Bulls have surged in battle over the last week and have fought the Bears back to a stalemate and a sidelines rating. The Dow, Nasdaq, S&P 500, and Russell 2000, all have sideline ratings going into trading next week.
Market internals this week don’t agree with the trends of the major indices. Most of our market internal indicators point to the Bulls having a strong advantage over the Bears.
The TICK showed heavy institutional buying that we haven’t seen for 6 months in these levels, on Monday, Wednesday, and Friday of last week. The buying took place in offensive sectors like Energy, Materials, and Technology.
But the biggest news of all is the MACD (8,17,9) bullish cross on the S&P 500. This is a major buy signal and it indicates the start of the best 6 months of the year for the stock market. At Friday’s close, the S&P 500 put in its second-best week of the year with a 3.6% gain.
Short term the market is overbought and I’m going to try and play the next swing move down but longer term, the Bulls have an advantage over the Bears even though the trends of the major indices have sidelines ratings going into trading next week.
President Obama and U.S. congressional leaders are expected to discuss ways to reduce the budget deficit and avoid the fiscal cliff of automatic tax increases and spending cuts in 2013 that could tip the economy into recession. If politicians make their cases in front of media cameras, markets could react with wild swings.
Talks in Europe over trying to convince Germany to give financial aid to Greece could add to the volatility.
Next week is heavy on economic data, especially on the housing front.
The fundamental analysis report that moved markets last week was Wednesday’s Housing Starts.
Builders are more than maintaining their busy pace, they’re adding to it based on housing starts for October which rose 3.6% to an annual pace of 894,000. This follows a giant 15.1% revised surge in September and a 3% gain in August.
The fundamental analysis report with the greatest probability of moving markets next week are:
Tue – Nov 27, 2012 = Durable Goods Orders
Thu – Nov 29, 2012 = GDP
Fri – Nov 30, 2012 = Personal Income and Outlays
We track institutional trader activity because it is institutional traders that cause the formation of all money making trends in the stock market.
It doesn’t matter if you are a day trader, swing trader, or long term investor: we all need a trend to form after we buy a stock in order to make money.
I invented a unique method for tracking institutional trader activity as you will see in the animation below.
The TICK measures the ability of market makers to match up a buy order (+1 on the TICK) with a sell order (-1 on the TICK). The theory is that when institutional traders step in and buy across entire sectors, it is more difficult for market makers to match up every buy order with a sell order. As a result, a temporary anomaly forms in the TICK.
I then look at which sectors went up or down the most during the anomaly that forms on the TICK.
I also look at the news stories released during the anomaly and make an educated guess on what news caused the institutional buying or selling.
Last week, institutional trader activity was detected on Thursday, May 24th 2012 during the last hour of trading. The sector that experienced the most buying during this time frame was the Utility sector which is a traditionally defensive sector. The news that had the greatest probability of causing this institutional activity was when the Italian Prime Minister Mario Monti said he expected Greece to remain in the Euro-zone and that he thought Italy could persuade Germany to issue Euro bonds to help struggling countries.
The Dow, Nasdaq, and Russell 2000 all have strong downtrend ratings. The S&P 500 has a downtrend rating. According to the trends of the major indices, my rating and profit thesis for trading next week is that the Bears have a strong advantage over the Bulls going into trading next week.
Another way of looking at the trends after last week’s upward move is that last week’s move up was nothing more than an oversold bounce within a larger downtrend. It really wasn’t much of a bounce at all. It looks almost like a Bearish Flag. Flag’s are continuation patterns and are short lived counter trends within a large trend. In other words, the downtrend should resume next week or in June.
Let’s look at market internals and see if they support the profit thesis for trading next week that the Bears have a strong advantage over the Bulls.
The percent of stocks on the NYSE that are trading above their 50 day moving average is 22%- a strong bearish bias. The percent of stocks trading above their 200 day moving average is 52%- close enough to 50% to be a neutral rating that we discard this week.
The Nasdaq Advance Decline Volume chart puts last week’s bounce in perspective. After the close of the Head and Shoulders Top on May 7th 2012, it fell off a cliff and last week was simply a small oversold bounce. This chart has a strong bearish bias.
Up down volume to total volume on the NYSE is below the 0 line which is a strong bearish bias.
The Elder system applied to the S&P 500 daily chart shows a blue high low bar which is an indecision bar. This is a neutral rating. The Elder system applied to the S&P 500 weekly chart shows a red high low bar which is a bearish signal. The larger trend trumps the shorter trend and so we give the advantage to the Bears this week on the Elder system.
Oil has plunged giving a strong advantage to the Bears. If you chart SPX and DBO on top of each other, the plunge in Oil suggests that the S&P 500 could plunge in order to catch up to Oil and close the gap between the two markets. The reason a plunge in Oil is a Bearish indicator for the market is that Oil is a global barometer for economies around the world. If Oil is dropping it means economic activity has contracted around the world which has resulted in lower demand for the black gold.
Financials (XLF) looks almost exactly like the Russell 2000 and is in a downtrend. We use XLF as a leading indicator because it’s Financials that led us into this man-made Recession and it will be Financials that lead us out. The downtrend in XLF and the break below the 200 day moving average is telling us something important. Like the Russell 2000, XLF is telling us that the 200 day moving averages on the Dow, Nasdaq, and S&P 500 are likely to be broke within the coming days and weeks.
Fundamental analysis reports that moved markets last week were Thursday’s Durable Goods Orders.
Headline durables orders were up and close to expectations but core orders unexpectedly declined. Durables orders made a slight 0.2 percent comeback in April, following a 3.7 percent decrease the month before (prior revised estimate, down 3.9 percent). Analysts forecast a 0.5 percent gain for April.
Fundamental analysis reports with the highest probability of moving markets next week are:
Thu – May 31, 2012 = GDP
Fri – Jun 01, 2012 = ISM Mfg Index, Personal Income and Outlays, Employment Situation
Markets will be closed in the U.S. on Monday, May 29th 2012, in observance of Memorial Day. It is highly recommended that you watch European markets on Monday for clues to how U.S. markets will open on Tuesday.
In the universe of stock trading, there are two worlds. One world is the world of the hedge fund managers, Wall Street traders, and hyper-investors. In this world, they have access to a whole host of strange-sounding charts and tools that, if you didn’t know any better, could have come from a Star Trek movie.
One such chart is the Bollinger Bandwidth Screener. (Basically this tool tracks Bollinger Bands, which are volatility bands placed above and below a moving average.)
Then there’s another world. It’s the world of the average investor. On a good day, such an investor is somewhat a priority for their financial analyst. More often than not, however, the big banks spend their most time on – you guessed it, their big clients. So investors like you and me rarely see sophisticated analysis and charts like the Bollinger Bandwidth Screener.
This leaves you with a choice. You can surrender these tools, charts, graphs – and all the dividends that come with it – to the dwellers of the first world. Or you can educate yourself and seize these instruments for your own trading. The choice is yours.
The Dow and S&P 500 are in weak uptrends. The Nasdaq is in an uptrend. The Russell 2000 is in a weak downtrend. The fact that the Russell 2000 is in a weak downtrend completely negates the advantage I give to the Bull camp for holding weak uptrend ratings on the Dow and S&P 500. The reason a weak Russell 2000 is so disturbing is that smallcaps typically lead the market up or down on substantial swing moves. Think of the Russell 2000 as the canary in the coal mine. If deadly gas begins to leak out of the ground, the sensitive little canary dies first, giving miners the time to get out fast. When the market starts to roll over, the Russell 2000 often leads the market lower and that’s exactly what we have this week with the Russell 2000 being the only major index in a downtrend.
My rating for next week is that neither the Bulls nor the Bears have an advantage over the other. Therefore, you should move to the sidelines and the safety of cash. Think of it like this. How can you place your bets with either the Bull camp or the Bear camp when both have battled to a stalemate? Let other suckers battle it out, and die. Once a dominant group emerges over the other, then we’ll place our bets with that group. For now, it’s best to book your profits from “The Best 6 Months Of The Year” and move to the sidelines and the safety of cash.
Now let’s look at some market internals so that you can see why I’m giving a sidelines rating this week.
The percent of stocks on the NYSE that are trading above their 50 day moving average has fallen to exactly 50%! That’s a total neutral rating, a real flip the coin 50-50 probability. This supports a sidelines rating. The percent of stocks trading above their 200 day moving average has fallen to 73%. That’s a bullish bias but here’s the problem. In a pullback we would expect the percent of stocks trading above their 200 day moving average line to lag. It’s a lagging indicator because it’s based on a longer time-frame.
The TICK hit nearly 800 for the week. As I talked about in last week’s video, the TICK was going to spike up in the first week of April. You might be thinking wait a second Lance. The market was down last week. How could institutional trader buying pick-up into a down week? Remember, the TICK is not a Bullish or Bearish indicator. It is measuring market-makers ability to match up a +1 (buy) tick with a -1 (sell) tick. So the TICK tells us that we had institutional traders buying last week across entire sectors which sent market makers scrambling to match up corresponding sell orders. The real question is what where they buying? To find that out, we look at the performance of the S&P select sector ETFs over the last week. Here is the performance of sector ETFs last week:
Notice that the traditional defensive sectors: consumer staples, health care, and utilities is where most of the buying took place. Most of the selling took place in the traditional offensive sectors: financials, basic materials, energy, and industrials. The TICK spiking up to nearly 800 supports the sidelines rating for trading next week because it suggests institutional traders moved money into traditionally defensive sectors.
The Elder system applied to the S&P 500 daily and weekly charts also support a sidelines thesis for trading next week. The Elder system gave a sell signal on the S&P 500 daily chart, and a indecision rating on the S&P 500 weekly chart. We throw out the weekly rating because of the indecision rating, and we are left with a sell signal on the daily.
Gold has a downtrend rating and silver has a weak downtrend rating. Gold and silver mining stocks have strong downtrend ratings. I hope you sold and took profits in these sectors like I told you to do back in early March.
Fundamental analysis reports that moved markets last week were: Monday’s ISM Mfg Index, and Friday’s Employment Situation reports.
The ISM report showed steady strength for the manufacturing sector in March. The headline composite index rose one full point to 53.4, a bit above 50 to indicate monthly growth and slightly above February to indicate an increasing rate of growth. New orders, the most important detail in the report, softened very slightly to a still respectable 54.5 which is four tenths below February.
The Employment report was disappointing though the unemployment rate dropped to 8.2%. Payroll jobs in March advanced a modest 120,000, following increases of 240,000 in February (originally 227,000) and 275,000 in January (prior estimate up 284,000). The net revisions for January and February were up 4,000. Analysts expected a 201,000 increase for March. Private payrolls were barely stronger than overall, rising 121,000 in March after a 233,000 increase the prior month.
Fundamental analysis reports with the greatest probability of moving markets next week are:
Thu – Apr 12, 2012 = International Trade, Producer Price Index
Fri – Apr 13, 2012 = Consumer Price Index
The Dow is in a strong uptrend. This reveals a defensive component to this current move up. The Russell 2000, which is a great way to measure the aggressiveness of Bulls, has a sidelines rating which supports the view that this is a defensive swing move up. What we’d like to see is the Russell 2000 having a strong uptrend and leading the other major indices higher. We don’t have that yet so you need to be careful with jumping in with both feet on the long side right now. It’s going to continue to be difficult to make money on the long side with the Dow leading this market higher.
All eyes are going to be on Monday, which ends the First Five January Barometer. Unless Monday is some kind of huge sell off, it looks like the markets are going to be closing 2012 up. After next Monday, we will track the entire month of January to see if that closes up as well. If we get a close up on both, we will have an 80% chance of markets closing up for the entire year. Cool stuff folks.
The Nasdaq has a very weak uptrend rating. It is the major index that has improved the most over the last week. This gives the Bulls a slight advantage over Bears but until we break the October highs and go into a strong uptrend, the advantage that the Bulls have over the Bears is not enough that we can place our money on that group yet.
The S&P 500 has a very weak uptrend rating and as I mentioned above, the Russell 2000 has a sidelines rating.
So in summary, the Dow has a strong uptrend, the Nasdaq and S&P 500 both have very weak uptrends, and the Russell 2000 has a sidelines rating. Make no mistake, the Bulls have strengthened their advantage over the Bears, over the last four trading days, but it’s not enough that we can get excited about and jump in with both feet on the long side. This means that it’s going to be tough making money long anything right now. My opinion is that you should still be on the sidelines and in the safety of cash. When should you go long? Wait for the Russell 2000 to go into a strong uptrend and lead the other major indices higher. Wait for all the major indices to go into strong uptrend ratings.
Here’s the biggest secret that nobody is talking about right now so you’ll get it from me first. The VIX with both short term and mid term futures are in downtrends! I contributed some of the downward movement in the VIX to Christmas and New Years but after both, the downtrend has continued! This is incredibly bullish folks. It means that PUT buying and hedging continue to drop! Even better, the VIX looks like it will have a Burial Cross next week! The markets are in a sideways trading range and yet the VIX is in a downtrend. This can’t continue much longer folks. Either the VIX will spike up and the market will roll over, or the market will go into a major strong uptrend and snap in line with the VIX. Something has to give. This is a temporary divergence between the major indices and the VIX.
Gold is upgraded from a downtrend to a sidelines rating. Gold sits right on top of its 200 day moving average. This is critical folks because only two things can happen off this important psychological level of the 200 day moving average. Either gold will break above the 200 day moving average which will be great for gold bulls, or gold will roll over and be rejected off the 200 day moving average twice and we could see a huge panic sell off. For now, we just don’t know which way the market is going to move so we give it a sidelines rating and stay back in the safety of cash. There will be plenty of time to buy gold when/if it goes into a strong uptrend rating.
The U.S. dollar continues to have a strong uptrend rating which is putting downward pressure on gold. I was talking with a gold bug who said that gold has de-coupled from the U.S. dollar so it no longer matters what the U.S. dollar does. It’s funny how gold bugs see what they want to see. Gold and the U.S. dollar have NOT de-coupled from each other yet. Only two days last week did both the U.S. dollar and gold rise at the same time. Two days does not a market make. In the video below, I’ll show you a chart of the U.S. dollar and Gold so that you can see for yourself the two have not de-coupled.
The percentage of stocks on the NYSE which are trading above the 50 day moving average has climbed to 67%. That’s bullish. The percent of stocks trading above the 200 day moving average is at 42%. That’s an improvement from last week, but it’s bearish. But keep in mind, that 42% is above the 200 day moving average for the first time in over 6 months.
The Nasdaq Advance Decline volume shows that volume exploded last week and has easily put the volume in Bulls territory.
The TICK closed in the range of normal retail trading. But what the TICK does reveal is that we don’t have institutional traders buying up stocks across entire sectors like we did at the start of the 4th quarter in October. This seems to suggest that institutional traders are not coming in with large amounts of new money to reposition and invest for 2012. It supports the thesis that they are taking a defensive approach to this market by sitting mostly back in cash and watching the bond markets for clues.
Both large cap and small cap gold mining stocks continue to have downtrend ratings. This is not the time to be in gold mining stocks folks.
The Elder System applied to the S&P 500 shows the daily chart having an indecision signal, while the weekly chart has a buy signal. This split on the Elder System reinforces the thesis for trading next week that while Bulls have a small advantage over Bears, it’s not enough for us to place our bets on the long side yet.
Fundamental analysis reports that moved markets last week were: Tuesday’s ISM Mfg Index, and Friday’s Employment Situation.
The ISM Mfg Index report showed acceleration in the manufacturing sector as the latest good news on the economy. New orders in the ISM’s manufacturing report for December rose nearly one point to 57.6 to signal acceleration from what was already a solid rate of growth in November. Other readings on orders include a slowing draw for backlog orders and acceleration for new export orders, the latter perhaps a surprise given trouble in Europe and dislocations tied to Thailand. Strength in orders points ahead to strength in general business activity including employment which is already gathering steam, at 55.1 for a nearly 3-1/2 point gain.
The Employment report showed significant improvement overall. The unemployment rate dipped to 8.5 percent. Payroll jobs in December jumped a relatively healthy 200,000 after rising a revised 100,000 in November (originally 120,000) and increased a revised 112,000 in October (previously 100,000). The median market forecast called for a 150,000 increase in overall payrolls. Revisions for October and November were down net 8,000.
Fundamental analysis reports that have the greatest probability of moving markets next week are:
Thu – Jan 12, 2012 = Retail Sales
Fri – Jan 13, 2012 = International Trade
The Dow and S&P 500 are in weak uptrends. The Nasdaq is in an uptrend. The Russell 2000 is in a weak downtrend. The fact that the Russell 2000 is in a weak downtrend completely negates the advantage I give to the Bull camp for holding weak uptrend ratings on the Dow and S&P 500. The reason a weak Russell 2000 is so disturbing is that smallcaps typically lead the market up or down on substantial swing moves. Think of the Russell 2000 as the canary in the coal mine. If deadly gas begins to leak out of the ground, the sensitive little canary dies first, giving miners the time to get out fast. When the market starts to roll over, the Russell 2000 often leads the market lower and that’s exactly what we have this week with the Russell 2000 being the only major index in a downtrend.
The Dow is in a strong uptrend. This reveals a defensive component to this current move up. The Russell 2000, which is a great way to measure the aggressiveness of Bulls, has a sidelines rating which supports the view that this is a defensive swing move up. What we’d like to see is the Russell 2000 having a strong uptrend and leading the other major indices higher. We don’t have that yet so you need to be careful with jumping in with both feet on the long side right now. It’s going to continue to be difficult to make money on the long side with the Dow leading this market higher.
