"Trifurcated" Market

It is simply amazing to me how the NASDAQ 100 has snapped back to new highs in a "V" shaped bounce this past week. The other indexes have lagged, with the S&P 500 closing in on its old highs and the Dow Jones Industrial Average lagging the pack. Although the jury is still out, the way things are going, it looks like the NASDAQ 100 has a good chance to pull the other indexes up to new highs.

Yesterday I covered my SPY short for a nice gain at the open, but then struggled to grasp the enormity of the snap back rally. I see some decent charts, but am still not comfortable with this tape. Here are some strong charts:

LIVE

JAZZ

 

VIPS

TSLA

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.

I Hate This Market!

I am the first to admit that I am at my best in a trending market and at my worst in a choppy range bound market. Furthermore, statistics show that most markets are not trending markets. So as long as the market is in this funk, I am forced to trade in my least favorite environment.

I can make both bullish and bearish arguments about this market. The bull case boils down to the fact that there is still lots of money out there at low interest rates and a favorable yield curve. The bearish argument is lengthy and has been stated here many times. As always, the bearish case makes the most sense, but the number of dead bears who have fought the tape are legion. So that leaves me playing small if at all until things become more clear. With that in mind, and being more comfortable with the bear case right now, I have made a probe type of trade by shorting the SPY. A body blow, if you will.


Here is an interesting article about the average length of bull markets. As one can see, we are just entering the zone where bull markets have ended - but there is much room for the bull market to last longer. The article is based upon data supplied by Schiller. There is much debate about this topic, because the indexes used to supply the data differed over the years.

http://asymmetryobservations.com/2013/09/16/the-real-length-of-the-average-bull-market/
 

Right now, the market is overbought and in rally / bounce back mode. Granted that the rally is narrow, on low volume and was laboring today. But it has not yet reversed back down. As I have shown in previous posts, each index has bounced in a different way. Thus, the NASDAQ 100 is just about at its old highs again, while the Dow Jones Industrial Average has made a pathetic dead cat bounce and the S&P 500 is somewhere in the middle between its recent highs and lows.

As expected, Janet Yellin is staying the course. She also did not stumble in her testimony before Congress. Also, nothing new has happened in the world's economies and the currency crises of Argentina and others has not become contagious. The essential question is given the poor economic recovery and the historic pumping of money by the Fed, what can Janet do to keep things going without pulling the rug out from under the recovery? How can she taper when the recovery is so pathetic despite the amazing stimulus? That's us at the bottom of the graph. Chart supplied by alias "hyperdyper" a great poster on IV.

God forbid we have any wars, but a black swan event occurring from Iran's actions of sending its war ships off the USA coast or Iran making belligerent war threatening speeches aimed at Israel and the USA may stir the pot. Maybe a China verses Japan war over disputed territories would shake things up. But maybe a black swan economic event outside the USA will do the trick. If not what is going to get us out of the horse latitudes?

Anyway, back from outer space and given the waning strength of this bounce, my SPY short may have a good chance to work out. I own no stocks and at present the Asian markets are down with the S&P futures down 8 points. Hopefully they will still be down in the morning. My plan is to be nimble and cover my short some time between 7 AM and around 10:30 AM. Having been chastened by the up and down volatility this past month, I think that grabbing nice profits when opportunity arises is the way to go. Then I will reassess things.

Then there are the big divergences in stock behavior. Look at these two great companies that have led the charge through 2013:

AMZN granted that AMZN is not making money but the revenue growth is there and whether one likes it or not, the market has supported AMZN all these years. Then again, one slip up like the recent bad quarterly report and the stock gets zapped.

PCLN on the other hand made a new high today. PCLN has a low PE and is growing like a weed. It responded well to great reports from EXPE and TRIP.

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.

Is This What It Come's Down To?

It seems like just about every other day there is a big bad event that may break the market. The market hangs on every little myopic data point or bit of Fed speak. Tomorrow it is Janet Yellen's testimony before the House. The next day it will be her testimony before the Senate.

In my opinion she will not do anything that is dramatic or changes the course of Fed policy. But damn, every analyst, economist, TV commentator alive will scrutinize every syllable and intonation that comes out of her mouth. We will all see her prepared notes before hand and probably (hopefully) be soothed. But then the market will live and die by her testimony.  Imagine that. A little old lady having us all living on the edge of our seats. Hopefully she will make us some chicken soup.

And that is the problem with this market. We are living in a time of transition from QE to tapering At the same time we are not yet sure whether the economy is strong enough to walk on it's own without QE. To make matters worse, we never experienced anything like QE before. In theory it sounds like QE was the only logical way to avoid a deflationary economic morass. Also in theory it seems like the Fed has overdone the QE thing and it had better get us out of it slowly. So everyone is nervous about how the Fed will not lose its balance while walking through this high wire act.

Toss in another world currency mess,  new year profit taking and repositioning of institutional portfolios in extended markets and we have had a nasty start to 2014. Despite the bad start, there have been pockets of strength in the market. And the sell off has not been too bad yet. Furthermore, all of that QE money is still hanging out in the banks and corporate coffers, with nowhere to go but stocks. As I have said before, tapering is not the same thing as several tightening moves by the Fed. Money is still easy.

Here is a chart that overlays three of the major indexes that people watch. As one can, see the S&P 500 is in the middle of the road, the NASDAQ 100 is the strongest - closest to it's old highs - and the Dow Jones Industrial Average is the weakest. This is definitely not a market that is in gear:

Here is a follow up of the charts I recently posted. They all have worked out, but they are the exception to most stocks. The futures are up so far tonight and these look like the kind of stocks I would like to hold for swing trades or more. Yet I don't know if we are in the middle of a trading range about to go higher, or are meandering until the next shoe is about to drop, So from my Point of view, it is still time for traders to still play small and take baby steps. Investors should stay in cash.

AHCN  followed through nicely. This one looks like one can't chase it anymore, but longer term it is one to buy on pullbacks, breakouts from consolidations, and so on.

FEYE - Break out from small secondary base.

GALT  - popped a consolidation pattern and now has to deal with the old high

GTAT- Nice breakout. Head & Shoulders continuation, cup handle or whatever. This one looks like it has further to run

MU - Tiny breakout from base on good management investor conference

TSLA - New all time high. ambushed just shy of $200 because everyone was waiting for the big birthday cake in the sky at $200 and the shorts knew it. I think that TSLA will go right through the round number magnet unless Janet ruins the party.

 


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.

 

Some Charts

ATHN - Still running

FEYE Break out @ $77.00

GALT - broke out of base. Now has to pop all time high

GTAT - Clean breakout. Very liquid trader

TSLA - Popped the cup handle, but got repelled at all time high. Has to take out highs.

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.

 

Never Mind

Last  Thursday my post was a classic of bad timing. I got carried away overemphasizing the bad and failing to point out the market's oversold condition which set up the possibility of a bounce or more. I also failed to point out the possibility of making some long trades. Lastly, I did not put the broken index support into proper short term, intermediate term or long term context.  Mea Culpa. Gilda Radner as Emily Littela on SNL said it best:

 http://www.youtube.com/watch?v=V3FnpaWQJO0

Then again, my next post on Friday essentially showed that being a flexible trader can save the day.  I may have sounded the ultimate "Market Busted" alarm prematurely, but I went with the flow and still made money. Nothing was lost even if one had listened to me and stayed in cash. That is because on a best case basis this market is still nowhere. And on a worst case basis the we still may not have seen the ultimate bottom. A cardinal rule is when in doubt stay out. And this market still has me in doubt.

Furthermore, even after this two day bounce, this market still is nowhere on the charts. No one can say that the market has bottomed and is off to the races again.  None of the major indexes have broken to new highs. Yes there is a possibility of another "V" shaped move to the old highs or more. There was money to be made by fast traders on the long side. In that respect, I did stick to my rules by taking profits fast, making some money and exiting some nice long trades before they could "get me" as I stated in my last post.

I do not have the capability to make long updates on my blog during the heat of battle while trading. But I do make several updates about many of the things that I am doing in my Twitter posts and on the private IV discussion board that I set up.  See the links that I just inserted on the upper right side of my blog. As one can see, I did make the updates about my trading in those posts. The posts are just about in real time - hey you try putting on a trade, concentrating on the action and posting at the same time. 

The most important thing in my view, is to have an investing or trading thesis and to be flexible enough to call an audible if conditions change.  In this case my failure to put the short term oversold market in perspective was the "condition" that changed. Stick to one's thesis until the tape and events proves one wrong.  And don't be stubborn by fighting the tape. The past two days, victory was snatched from the jaws of defeat by the bulls who pulled off the second day of an oversold rally. As a trader, I was flexible enough to check my ego at the door. If this market is choppy and calls for counter punching, so be it.

So let me set the record straight by putting things in context. The market put in a short term top in the first weeks of the year and then broke another support level last week. The market is not in an intermediate or long term down trend. The recent sell off may become something more, or it may just be part of a short term consolidation. The jury is still out as to that. 

I am still net long and ready to trade fast into Janet Yellin's comments on Tuesday. Hopefully I will catch some gap up openings or follow through on Monday and then get into cash. Then I will reassess things. Here are some charts:

Major Indexes Show Varying Degrees of Strength And Weakness:

$SPX I am still short a small position in the SPY for a losing trade / hedge so far. I'm just going to play this one by ear. If it looks like the most widely watched barometer of the market is hitting the wall at resistance created from the top it just broke down from - circled - I may trade around the position. If the SPY looks like it will break through and run to the old highs, I will cut my losses.  

 

 

$NDX The NASDAQ 100 is where the action is lately. As one can see it is the best performing chart of the major indexes. That is because the best momentum growth stocks are located here. These stocks, such as GOOG, NFLX & TSLA are the ones that have been getting most of the action. Is this a sign of a bifurcated tape of the "haves" and "have nots"?  Or will these few leaders gain more followers and lead us to the promised land? One caveat is that even this index is a mess, with stocks like SBUX and AMZN having been hit hard. If one is going to trade these stocks, one had better trade the ones that have great news or earnings, great guidance, and great charts.

$RUT The small cap Russell 2000 has lagged so far. This shows how the big money has stayed away from small caps more speculative stocks to date this year.

$INDU The big old lumbering non representative 30 stock Dow Jones Industrial Average has lagged the other indexes. This $INDU is a joke comprised of 30 stocks that typically get invited into the index just when their time of great growth is over.

$VIX  The $VIX turned around at the same resistance point that it did the last few times. It has now fallen back to a not scared level - circled on chart. So much for some real fear. Long live run of the mill agata.

Other indicators like the Standard and Poors Oscillator went into oversold territory at minus 6. Usually anything below minus 5 is means oversold, but I have seen this indicator get to really bad levels of minus 10 or more. That is when the oscillator works best. The oscillator is one of the great indicators. It used to be given out as a freebie back in the day.


ATHN - Blasted to a new all time high on it's fabulous earnings report. This stock has great growth and a low PE multiple. I grabbed it for a great trade on Friday and then got back in later in the day looking for some follow through on Monday.

DIS - I sold DIS on Thursday and will now keep it on my watch list for a break out. It was only natural for a big cap Dow stock to hit the wall at major resistance.

EOG - This asset rich shale play broke out of a nice base below its all time highs. Great company. Tight stops.

MU - Barely broke out last Thursday. I have been trading around this long.

TWTR - I am waiting for my shot at shorting TWTR. The key matrix was the shocking declining subscriber growth that was reported last week. The stock is retracing from it's break down.

YELP - broke out on another great earnings report. Great growth, but ridiculous high price. Bought back on Friday's dip and holding for some follow through.

As the last several days have shown, this market is trading in a psychotic manner. If one is nimble enough to scalp some day trades or short term trades, there is money to be made. If one is not fast enough, one can get killed. That being the case, cash is still king until this matter is settled. The questions are still: Is the market busted or breaking down? Will the market make another "V" shaped bottom to add to the many that were made last year? Is some longer term consolidation evolving? Will the market continue to remain choppy? And so on.

One thing is for sure. There is no answer yet and this roller coaster ride is no way to live as an investor. Right now, at best one can say that the market is range bound with a few anointed stocks like NFLX or special earnings or news driven situations like ATHN making highs. At worst this is a bounce back that is about to fall right back down. Its hard to make money in a market that is not trending higher. Right now, there are no indexes making highs and very few market leaders. So in my opinion opportunistic trading? - yes. Investing? - No.






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.