Thursday, December 20, 2012

Closing trend lines

The multi-year rising support line for the S&P 500 index now stands at around 1350.  Meanwhile the S&P has closed to within 20 points of a resistance line around 1460.

Since these trend lines are converging, eventually the market will either have to rise above the upper limit, or fall below the lower one, signaling either a continuation or the end of the current rally.

Thursday, November 15, 2012

Big support line at S&P 1310

The S&P 500 index is declining towards a long-term rising trend line that goes back to the 2009 low.

The support line presently lies around 1310.  If the S&P falls below this level, it will be a strong indicator that the multi-year rally is over.

Wednesday, November 14, 2012

Market correction: 9% and counting

So far the price movements of the S&P 500 index are consistent with a simple short-term correction.  There was no crash-predicting signal at the September-October top, and there's no indication (yet) that this is a bear market.

Longer term indicators, however, are pretty bearish.  Even if this current correction proves to be short-lived and the market resumes rallying, the only thing that might encourage me to get back into the market would be the threat of hyperinflation.

Wednesday, November 07, 2012

Update

First Marxist president is re-elected for another four years.

Stock market tanks the next day.

Tuesday, October 16, 2012

Flat top

My last post was more than a month ago, when the S&P 500 index had just crossed above 1450.  Today the S&P 500 index has just crossed above ... 1450 again.

On the bright side, neither bears, bulls, nor cash sitters (like me) have lost anything over the past 5 weeks.  On the down side, this low volatility combined with other bearish indicators sure smells like a market top to me.

The prevailing wisdom seems to be that the market is poised to rally strongly if Mitt Romney wins the election 3 weeks from now.  I agree that certain economic conditions would improve when business owners finally felt safe to hire people and spend capital again, but I'm not convinced that it would translate to an across-the-board economic turnaround or an immediate stock market rally.  Even in the best case (from my perspective) government spending will have to be cut sharply just to balance the budget and eliminate the $1.5 Trillion yearly deficit, let alone pay down the $16 Trillion debt.  That reduction in federal spending, while highly beneficial in the long run, would lead to short-term pain in certain sectors that were inflated by the irresponsible deficit spending.

Thursday, September 13, 2012

Yeah! We love counterfeiting!

In the past couple of weeks both the European Central Bank and our own Federal Reserve Bank have announced plans to create money out of thin air for buying bonds and mortgages in order to stave off further economic contraction. The stock market jumped after the ECB announcement, but then quickly leveled off and resumed a new flat level.

We got another jump today after the Fed announcement - let's see how long this lasts.

Friday, September 07, 2012

Oops! Is the Dow the Dominant Descriminator This Time?

Yes, the S&P 500 index closed at a multi-year high yesterday, but for once I think I should have been watching the Dow Jones Industrial Average instead.

The Dow has bumped into an overhead resistance line that's been tested several times as far back as March. If the Dow breaks through, then there will be no more trend-line arguments against a new rally.

Wednesday, August 29, 2012

Flatness

The S&P 500 index crawled above 1400 on August 7. More than three weeks later it's sitting at 1410, and has yet to close above 1420 or below 1400. The April 2nd peak of 1419 (not April 19) looks increasingly like a solid resistance level each time the S&P fails to breach it.



Monday, August 13, 2012

This rally has no legs

None of my stock market indicators have anything good to say about the current 2-month rally. Optimism is returning (bearish), seasonality is poor (neutral), and other market indicators say we're in the vicinity of a market top. The April 2nd S&P peak of 1419 is a potential resistance level, while the October 9, 2007 peak of 1565 is a more formidable one, since it's paired with the 2000 market peak of S&P 1527.

In other words, I'm watching for the next bear market signal.

Wednesday, August 01, 2012

I told ya so.

Here's more proof that short-term market manipulation is being performed by high-frequency trading computers. Today was just one of those rare times when the system hiccuped. It's usually performed more subtly and to the financial benefit of the market makers.
Flood of Errant Trades Is a Black Eye for Wall Street
An automated stock-trading program accidentally flooded the market with millions of trades Wednesday morning, spreading turmoil across Wall Street and drawing renewed attention to the fragility and instability of the nation’s stock markets ...

“The machines have taken over, right?” said Patrick Healy, the chief executive of the Issuer Advisory Group, a capital-markets consulting firm. “When events like this happen they just reaffirm that these aren’t investors, these are traders.”

Tuesday, July 24, 2012

No more trend line guidance

The S&P 500 index has violated both of its converging medium-term trend lines, thus precluding any short-term forecast.


If you suspect as I do that the S&P 500 will top out around 1550 for a third time before plunging again, then any rally from this point would gain ~15% at best. Is it just me, or does that seem like a small reward given the downside risk of a collapsing global economy?

Saturday, July 14, 2012

Trend line collision imminent

A declining tops trend line (red) has defined a general decline in the S&P 500 since early April, while a rising channel pattern (blue and green lines) has been in place since late May. The peak on July 3rd (circled) confirmed both trends, but soon the S&P will have to violate at least one of the trends and thereby forecast either continued rallying or another downward leg.

Friday, June 29, 2012

USA: July 4, 1776 - June 28, 2012

Yesterday the Supreme Court of the United States ruled that the federal government has the authority to tax/fine/penalize citizens for not doing something. In addition, Chief Justice Roberts speaking for the majority opinion noted specifically:
"It is not our job to protect the people from the consequences of their political choices."
In other words, mob rule and its inevitable offspring, dictatorship - precisely what the Constitution was meant to prevent - are now the law of the land. The Constitution no longer applies at the most fundamental level. I see almost no theoretical limit to which inactions can be penalized, nor how large the fines can be, so this pretty much opens the door to total government control of our lives. It was an amazing and unprecedented 236-year experiment in liberty, but all good things eventually come to an end.

That, as they say, is that.

Friday, June 22, 2012

All cashed out

I'm back to 100% cash in my account, but I'm not yet convinced that the next rally is underway. I'm still waiting for market indicators to align one way or another.

Tuesday, June 19, 2012

Selling HDGE

Yesterday and today I sold off 50% of my HDGE shares. Today's sale was a net loss. Presently the S&P 500 index is trading above the key support/resistance levels of 1343 and 1359. If the S&P manages to close above 1380 then the next rally will be officially underway.

Friday, June 15, 2012

Of course

The S&P 500 index has closed at its highest level in a month (1343), which compels me to start cashing out of HDGE on Monday. Unfortunately the timing of this potential rally onset couldn't be worse, because Greece is holding elections on Sunday which may or may not trigger a meltdown in Europe, which in turn may or may not cause U.S. stocks to start sliding again. Even without the threat of global meltdown triggers, market corrections are never simple, and it's nearly impossible to time price bottoms perfectly.

Thursday, June 14, 2012

Key price barrier

The S&P 500 index has risen to the 1325 level several times in the past four weeks but has been unable to decisively rise above it. (It only closed above 1325 once on May 29.) If the S&P manages to finish above that level two days in a row, it might signal the end of the correction and the start of the next rally.

Monday, June 11, 2012

Another day, another quote in the Wall Street Journal

... OK, actually this is the first time I've been quoted in the WSJ, or any financial periodical for that matter! Thanks to Jonathan Cheng for this honor.
Bearish ETF Drinks Up Bad News. ... Jody Wilson, a 45-year-old planetary astronomer and amateur stock trader, said he had been waiting "for years" for such an ETF ...

Friday, June 08, 2012

Checking the parachute

If the S&P 500 index rises another 10 points or so from today's close of 1325, then that will be one indication that the correction may be over. Some of the indicators I watch are reaching extreme levels that often occur at the bottoms of corrections, but not all indicators are there yet. If the S&P climbs further and/or more indicators give "bottom" signals, then I will start to bail out of my HDGE positions.

If I do end up selling HDGE at these prices then it will result in a disappointingly small return for me. This correction had a lot of promise at the beginning, and I expected it to fall further than this, but I've never claimed to be a perfect forecaster.

Thursday, June 07, 2012

Again.

For the second day in 4 days, the S&P 500 index zoomed around and then returned to within exactly 0.14 points - or 0.01% - of its previous closing value. On Monday the S&P returned to 1278, while today the magic price was 1315. Supposedly today's action was driven by the early hopes, later dashed, that the Federal Reserve Bank would start another round of counterfeiting, or rather diluting your bank accounts, I mean "Quantitative Easing." Yeah, that's it.


There's nothing to see here, folks. Move along.

Monday, June 04, 2012

Market manipulation? Bank on it.

Do you remember the strange five-day stretch two weeks ago when the S&P 500 index closed at 1316, 1317, 1319, 1321, and 1318? Well, that wasn't the end of its strange behavior. Today the S&P gyrated between 1282 and 1267, but ended the day only 0.14 points - or 0.01% - away from where it started the day near 1278. This is all the more improbable given the bad economic news coming out of both the U.S. and E.U. today.

Sunday, June 03, 2012

So far so good

The stock market correction continues. Right now the S&P 500 index is near its lowest point in five months at 1278, and not surprisingly HDGE is at a five-month high.

Although I expect the S&P to bottom-out near 1200, meaning HDGE will gain some more, I'm not going to hang on to my HDGE shares blindly. If I see turn-around signals in the market earlier than expected, then I'll sell my HDGE shares sooner. Hopefully I cash out with a decent gain either way.

Friday, May 25, 2012

Market manipulation?

The S&P 500 index closed the week at 1318, completing a remarkably flat series of closings prices between 1316 and 1321. In the middle of the trading days this week the S&P has been as low as 1296 and as high as 1328, which is a 2.4% variation. The 4:00pm closing prices, on the other hand, have all been separated by less than 0.4%. Not surprisingly, my favorite bear market ETF, HDGE, has also been flat this week, closing at $24.23 on Monday and $24.18 today.

Thursday, May 24, 2012

Holding pattern

So far this week the S&P 500 index has closed at 1316, 1317, 1319 and 1321 - in that order. Nothing has happened to change my mind regarding the market's direction, so I'm still hanging on to my shares of HDGE.

Tuesday, May 22, 2012

No surprises yet

Yesterday's market rally of 1.6% still left the S&P 500 index within the general declining trend of the past three weeks.

In addition the rally slightly improved investor optimism for the day, so for the time being I'm treating this as an expected fluctuation in a continuing market correction.

Monday, May 21, 2012

Slow and steady decline can't last

The S&P 500 index (and the stock market as a whole) has been falling at a relatively peaceful and non-newsworthy pace, and as a consequence has not been generating too much fear despite closing at a 4-month low on Friday.


Eventually the market will break out of this trend, probably with either with a bang or a clunk. If the fall accelerates into a crash, then pessimism will spike and the end of this correction will be at hand relatively soon. On the other hand, a newsworthy steep rally can improve the mood of investors and open the door to more losses over a longer period. Either way I'm still hanging on to all of my HDGE shares for now.

Wednesday, May 16, 2012

Holy HeDGE Batman!

The AdvisorShares Active Bear ETF (HDGE) has been kicking butt recently, gaining 13% in the last couple of weeks while the S&P 500 index fell only 5% or so.

My goal when buying HDGE is simply to gain money when the market falls, and if this ETF manages to gain the same amount that the S&P 500 loses in a correction then I'll be satisfied. The fact that HDGE has out-gained the inverse of the S&P by nearly 3-to-1 so far in the month of May is icing on the cake. There will probably be some brief rallies lasting a day or two during this correction, so HDGE may have some down days before it's over, but that's OK as long as I cash out with a net gain.

The contrarian sentiment of an article about contrarian sentiment

Articles like this one crack me up: Even Pros Don't Like Stocks: Could That Be Bullish Sign?

Every stock market sentiment indicator that I use is still on the bullish/optimistic side of neutral, which is bearish for the market because sentiment is indeed a contrarian indicator. But this article from Yahoo! Finance apparently found one specific indicator, "the consensus view of U.S. equity strategists from major banks", that is actually somewhat pessimistic about stocks and therefore pointing to a bullish forecast.

Even if this one indicator is pessimistic (and therefore bullish) as advertised, there are a couple of flaws with this article. First, the title ("Even Pros...") implies that there are other groups that don't like stocks, but the article itself supplies zero specific examples of pessimism elsewhere, just a quote from one strategist who says "we already know that investors of all types currently hate stocks." Actually we don't know this, because other measures of sentiment are still "pro-stock." The second related flaw with the article is that "U.S. equity strategists from major banks" comprise only a small fraction of all investors, and therefore can never be representative the overall bullish/bearish sentiment in the market.

Most of all, an article like this one that gives a bullish forecast - regardless of the reason - is in fact optimistic about stock prices and therefore just another bearish indicator. Yes, "ironic" pretty much sums up the stock market.

A little more HDGE

After the S&P 500 fell to almost 1330 yesterday, the market has upticked a bit this morning and I've taken advantage by buying a little more HDGE. That's my third purchase in seven trading days.

Monday, May 14, 2012

What bears want to see

The S&P 500 index has broken through the last support line at 1343, closing at 1338 today.

Everything is in place for the S&P to decline to about 1200 from here before starting another rally. Volatility is still low and hasn't yet reached high levels. Sentiment has changed from optimistic to neutral, meaning there's still room to fall before sentiment reaches the pessimistic levels that can re-start a rally. Finally, money flow (which I neglected to check until today!) has been falling from a recent high peak, exactly as expected near a long-term market top.

The best part of being in a bearish stance right now is that I can profit from the short-sighted folly of all those in the USA and Europe who though it was a good idea to borrow limitless amounts of money. If the European Union were to implode tomorrow and trigger a global market crash, I would earn a tidy profit. I don't wish economic pain on anyone, but I know what's coming, and I'll sleep soundly knowing that the worst-case economic scenario can actually benefit me at this moment.

S&P below 1340 in the opening minutes

That's more like it. The S&P 500 index has fallen below 1340 in the first 15 minutes of trading. I expect the S&P to rise and fall over the course of the day, and it may even close above 1350 again for all I know, so I'll put just a little more into the AdvisorShares Active Bear ETF (HDGE) some time today.

Thursday, May 10, 2012

Toying with S&P 1360

The last three closing values of the S&P 500 index have all been within 5 1/2 points of the critical 1360 level.

There's any number of conclusions one could draw at this time, meaning there's no conclusion. We'll have to wait some more before a reasonable forecast can be made.

Tuesday, May 08, 2012

S&P 500 barely climbs out of a hole

I knew it was a possibility - sure enough the S&P 500 index climbed back above 1360 level before the close of trading today, which puts any strong impending correction signal on ice for now. This is why I only bought a small position in HDGE in the middle of the day. Conditions are still favorable for the market to drop appreciably from here, but it may take a while.

S&P Below 1360!

This is the most bearish stock market predictive moment that I've seen in many months, if not years. Short-term investors are relatively optimistic right now, and an example of this optimism is the lack of a blaring headline on Drudge Report, despite a two-month low in the stock market. Sentiment is a contrary indicator, so this optimism is bearish. In addition, volatility has leveled off at a relatively low level for the past few months, and that often occurs at market tops. I've already helped myself to some shares of the AdvisorShares Active Bear ETF (HDGE), but I'll be more confident about this bearish forecast if the S&P 500 finishes the day at 1350 or below. (It's trading at 1350 at 11:30 AM, and it could still rally back above 1360 before the market closes.)

Thursday, April 19, 2012

Key moment for the S&P: 1420 or 1360?

If the S&P 500 index can cross back above 1420 then the 6-month rally will probably continue, but if the S&P passes below 1360 first then a larger correction will probably follow.

Wednesday, April 04, 2012

The rally will continue (for a little while)

The most basic stock market rallies are characterized by a relatively large number of small up days combined with smaller number of big down days - like today. The straight-line nature of the current 3-month rally is suspect and won't last forever, but in general shallow rallying and steep declines like this tend to presage more rallying.

Despite the steady gains, investors have actually gotten less optimistic in the last couple of months - a sure sign that the rally still has room to continue.


When the Drudge Report has a blaring headline in response to the first significant down day in a while, you know that the consensus (and therefore probably wrong) short-term forecast is for a market decline. However, the above is only the technical analysis of current conditions based on price changes and investor sentiment. The longer-term fundamental conditions of ever-growing debt, Europe on the brink and low dividend yields are still quite bearish.

Tuesday, March 06, 2012

Short-term Forecast: More Inflation

Three measures of the U.S. money supply (M1, M2 and M3) are resuming their upward trend that began in early-mid 2010. All other things being equal (no war in the Middle East, kicking the Greece problem further down the road, etc.) this forecasts continued deflation and devaluing of the dollar.

The updated money supply graphs from shadowstats.com are always available in the right-hand column of this blog.

Gold is obviously one popular way to hedge against inflation, but for those who fear gold might be in price a bubble and wish to diversify their bets, there's an ETF that moves in the opposite direction of the dollar: the PowerShares US Dollar Bearish Fund (ticker: UDN). I do not recommend this fund as a long-term buy-and-forget investment - instead I think it's better suited as a temporary hedge against inflationary periods. Unfortunately UDN uses derivatives to accomplish its task, but any meltdown of the derivatives market is far more likely to happen during a DEflationary period than an inflationary one.

Saturday, February 25, 2012

The end of a ten-month correction

The correction that began in late April of last year has officially ended, now that the S&P 500 index has closed at 1365 and surpassed the April 29 peak of 1363. This marks the S&P's highest level since mid-2008, but is still 200 points below the October 2007 peak of 1565.

Since this last correction never passed the 20% decline threshold for an official bear market, it means that my technical method of predicting bear markets was successful - in April it did not foresee a bear market.

All things being equal, I'm inclined to predict that in the long run the stock market will approach the overhead resistance level of the 2007 peak and then descend into another bear market, but if that forecast becomes conventional wisdom then I have a problem, because my philosophy holds that conventional wisdom is usually wrong.

In the short term I'm a little leery of this current rally because of the low volatility and moderate optimism that's prevalent now. Given the looming global economic precipice and insanely low dividend yields, I would need to see several short-term stars align before I placed any bets on a continuing rally.

Thursday, January 19, 2012

That's more like it.

It's safe to say the S&P 500 index has officially broken through the declining tops trend line.

In addition, the long-term market trend is completely bullish for the first time in 6 months.

The problem is that other indicators are quickly reverting to more optimistic values that are more typical of market tops than market bottoms, so this rally could be over not long after it's begun. Notice in particular how little volatility there's been in the past couple of weeks. No, I'm not going to jump into any bull market funds any time soon.

Saturday, January 07, 2012

Breakout?

The S&P 500 index has crossed above the multi-month declining tops trend line - albeit hesitantly:
I'll be more confident about this breakout if the S&P passes 1285, the highest mark in over five months.

As for the long-term forecast, nothing has changed. The stock market is highly over-priced by historical measures. The dividend yield of the S&P 500 is a paltry 2.1%, and it simply cannot and will not remain that low forever.