April 16th, 2012
in Gary's blogging
The amateur traders I have been talking to lately are raving that this market weakness has just been a small correction and to get ready for a big rally in the near future. I sometimes wonder what time frame of years these uninformed folks are talking about, because it certainly isn't the near term of months in 2012. I haven't talked to any cab drivers lately, but I bet they have some good buying tips and confidential information to share with me too. An excellent sign to run the other way.
If there is going to be a sell-off, it possibly may not this week. But who cares as I am not waiting to squeeze another dime out of this market before it does sell-off. Besides I want to avoid the rush and here is some reasoning for my exit.
Follow up:The more informed are concerned that this weak spot we experienced last week is the start of a repeat of 2008 while others are looking at just a bit more correction and that moving on is not in the cards until November at the earliest. In consideration of the scholarly opinions formulated by my brethren, I think too, we are going to see further lows before this year is out.
The euphoria coming from the 'sheepies' concerns me trying to be a bull when the uninformed are climbing aboard the stock market train in record numbers while the institutional managers are going through a distribution phase. That is one reason.
“As you know, Institutional Investors control over half of the market, so they are a formidable force that the market needs for a rally.
So, when they are in Accumulation it's good, and when they are in Distribution its bad. But, what if they are showing less and less Accumulation as a rally matures?
We mention that because that is what the Institutional activity is showing. Take a look at the peaks in October, February, and March. What do you see?
The answer is that each peak was lower while each peak on the New York Stock Exchange was higher. In order for them to show this kind of decline, they would have to be selling more into the rally as the rally gets older.
So, one could say that Institutions have been in Distribution since early April and the chart show's a lower/low which (with lower/highs) means that they are in a down trend relative to their net Buying and Selling activity.”
The problem I have with the weeks and months ahead are the numerous Black Swan possibilities lurking in the wings of the World Stage along with the numerous financial instabilities standing along side. Either could easily take the markets to the scary depths that only the Perma-bears forecast Even some sane pundits talk about the possibilities of a war with Iran and how it would depress Eurozone and Asian markets considerably. As a given the United States would be finally drawn into any conflict if nothing else but to support and protect its security and best interests. At that point you could be sure the US markets would become depressed even further.
The latest 'disinformation' from Israel’s Ambassador, Michael Oren, said last week, “. . that the time frame for a 'possible' attack time frame is not in days or weeks, but not years either.” So from a traders stand point I noticed he didn't mention 'months' however, I feel this month is safe, but I still wound not be long over this coming weekend either. As traders we need to consider all possibilities and be prepared for whatever happens. If you are long, I would most certainly consider lightening your portfolio prudent.
Without trying to overstate the obvious, any attack against Iran would have oil jumping to 200 bucks a barrel overnight creating some really fantastic short positions (SCO) for swing and traders alike. These high prices will last for a week or so before it becomes clear the Strait of Hormuz is not really in harms way from the now crushed Iranian Navy navigating the bottom of the ocean. This is not to say oil will remain elevated while mines are being cleared from the Strait, but not at the astronomical levels we saw a few years ago at 140 a barrel. Oil WILL continue to flow out of the Straits.
For the moment lets consider that there is no Black Swan moment with an attack on Iran because they see the light and beg for forgiveness and destroy all their nuclear capabilities. (Hey, just go along with this fairy tale for a minute while I point out the 'normal' events that occur from April through the summer months.) The Sell in May and go away saying is based on average data that clearly shows that May markets start the summer fall continuing into September with a brief rally in July. More reasons to exit now.
John F. Carlucci points out in his article that we should expect the markets to decline over the next several months because that is what “normally” happens and I agree wholeheartedly. Sell now and avoid the rush. His prognosticator chart (OEXA200R) is an interesting one that I have just started to follow.
“Since 2007, every time the OEXA200R has stumbled below the 65% line it has not regained its balance, but fallen flat on its face, followed by a sharp S&P downturn. For that reason, trading the 50% to 65% zone in our current situation is going to be difficult – doable, but with considerable risk.
I estimate that by August / September the OEXA200R will have fallen to the 65% line, and will keep falling. How far? QE might save the day once again, temporarily. But in light of the factors mentioned [in the my article], it should come as no surprise if we end up experiencing a correction worse than that of 2008 – 2009. “
For this week some feel we had 'the' correction last week, the largest since the start of the bull run 6 months ago. Having watched Monday's (4-16) weakness I am not at all so sure this “correction” is finished. However, I am torn between a further decline Vs. a continued rise. One small reason to be bullish is because several indexes have unfilled gaps begging the markets to rise. I am a believer that gaps are filled at some point, but that could be a year away if they are not filled in the immediate future.
However, another reason to remain bullish is the trend is still up as we are STILL within a channel started 6 months ago. The current support for that channel is 1330 and breaking out below that would spell doom for any thoughts of a market continuing up. But that hasn't happened yet, but I feel it is about to happen. Again, another reason to exit now.
More reasoning to get out is that we haven't seen the bears departing the 'stage' lately. This is because the market volume has picked up during the last 5 sessions giving credence to their bearish position. The bears have shown their teeth last week and today and the bulls have retreated licking their wounds. The near-term is definitely has a negative slant to it.
At this point in time investors and traders alike have to seriously consider that any 'Black Swan” event could exacerbate this weak markets situation in quick fashion as none of the supports above the 500s 1278 would hold for long.
More bearish consideration is that Spain is quickly becoming a real problem and that could form into being another boulder in the road of financial progress, if not a Black Swan itself.
“Fears of Spanish bailout rise as bond yields top 6%. Spanish 10-year bond yields surged past 6% for the first time since December, and the first time since the ECB's two three-year liquidity operations, raising fears the country might need a bailout. EU officials are due to travel to Washington this week looking for a larger IMF war chest, although while Japan might offer $60B, the U.S. has until now insisted that the EU can use its own resources. SA author Robert Broens explains how Spain continues to affect global markets. (Sources: Kyodo, Bloomberg) “
The bottom line here is that there are more negative 'issues' here than positive ones, so why take further chances clutching at greed. Take your profits, sit on your hands and wait for signs that we are going one way or the other. If you are not already in the market, now is NOT the time to speculate on the markets continuing up. History says May is the start of the decline for the year, but I think the decline has already started.
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Written by Gary