Wednesday, April 02, 2014

Grandma Janet Flip Flops And The Market Rallies - Is This For Real?

So much for Tapering. Janet Yellen made a speech yesterday that completely contrasted with the policy that she spelled out both in her speech last week and in her testimony before Congress. Ad a little bit of Putin hesitating at the Ukraine border, a steepening yield curve and voila, the market rallies. Call me the new contrary indicator. It seems like the more worried I get, the more worried Janet gets as she tries to save the day. The result is that the $SPX is barely at a new closing high.

S&P 500

Also the Dow Jones Industrials are close and the NASDAQ 100 - which was leading, is lagging but bouncing.


But, this time the rally looks like it may have some legs. At least enough to possibly do some long swing trading. For some clues, lets quickly look at the three legs that determine where the market is going:

1 - Monetary Policy Or The Law Of Diminishing Returns

Janet Yellen's flip flop is a concession that the weakening economy needs more Fed fuel. The problem is that the Fed's QE fuel does not have too much power anymore.  Thus, we are back to feeding the stock market junkie, but the drug dose is very small. The question is will it be enough to get he economy to fly on its own or is Janet about to be checkmated as the economic recovery peters out? 

2 - Tape momentum Gaining

At least some stocks are starting to make new highs and the former market leaders, including the momentum stocks are starting to bounce. Here is a representative spectrum of charts:

AA broke out a several days ago. They have reinvented the wheel with a new stronger lighter "revolutionary" aluminum wheel hub for trucks

BAX is consolidating the recent breakout based upon splitting up the company into two parts allegedly worth in the mid $80s

CXO Fracking oil and gas plays are all the rage - at least for now as the price of oil rises. 

EOG A great fracking company but getting long in the tooth

DIS: The quality Dow Jones growth leader getting close to the all time highs.

HPQ Cost cutting and accounting have made this rally. In my view HPQ is a dog. But maybe it runs some more.

LVLT Beautiful breakout

MSFT Mr. Softee has had quite a run. Maybe they can squeeze a little more out of it, but MSFT has a lot of work to do in order to prove that a turnaround is in place. The hopes about a new CEO and MSFT Office For IPAD can go just so far before they have to show some big results. 

GOOG Not cheap and not over valued. But a great company. If one has to bet on a comeback for the old leaders, GOOG is the one.

PCLN the same as GOOG above

VIPS never fell too much and now its approaching old highs

BIB Biotechs bouncing, but how far will the bounce go?

3 - Sentiment is Getting Absurd Again. Just Look At The $VIX testing Multi Year Lows


Now lets remind ourselves that all the problems of the world that I have discussed in prior posts have not gone away. All we have is a possible respite in the Ukraine. I would not bet on it. Then again, as bad as Putin is, The Ukraine is not a market killer in and of itself as long as Putin and Obama cool down the rhetoric and escalating. Today's brilliant NY Times article "Follow The Money" by Tom Friedman puts some perspective on Geopolitics - with the exception of insane players like Iran and North Korea:

This is still a trading market. Not all indexes are in gear yet. A strange institutional rotation is trying to prop things up. The Fed is in a corner fighting for it's life. Also the end of the month mark ups and start of the seasonally strong April during which new funds were deployed today.

Most importantly, some of the new highs are holding up for the first time this year and the former momentum leaders may possibly be waking up. Based upon that, I feel a tiny bit better about the market. Therefore at this juncture, I may try some swing trades of up to several days. But I want to see much more before I become bullish.  Investors should still be very careful until I see more new highs holdup and market leaders come back.

BIG Capital Advisors and Seaview Partners are not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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