Thursday Jan 12, 2012
Is it just me or am I seeing a lot more experts on CNBC wtih their 'picks to click?'
Where were they Aug 8 and Oct 4? What we witnessed was a classic fall sell off, and the classic negative mood that accompanies it. About all you heard in the press then was speculation about how much further the market was liable to fall, SPX 950 being a popular pick then. Of course that is not what happened.
Now the mood is turning very opposite what it was then. The Euro Disaster forAmerican stocks has yet to happen but the stock market via commodity plays in particular, is taking off. Take particular note of where investments you monitor are in relation to their 50 and 200 day Moving Averages. Most quant programs are written with these metrics in mind. When a market moves above them the funds and individual investors buy the breakout to the upside. Readers are aware that we try to buy the breakdowns near market bottoms.
Summation Index
All the internal indicators are now moving over their respective 50 adn 200 day MAs. This includes the number of stocks over 50, 150, 200 day MAs as well as the bullish percentage gauges and the NASD and above the NYSE summation indices. AS I have said many times there are other sites which specialize in counting eliott waves, this is not one of them. But the NYSI appears to be in a fifth wave up. That fits the social mood which is now quite expansive. Fifth waves are characterized by everyone jumping aboard certain that we have a new permanent move up. Recall hte NASD at 5,000 amid the dot.com mania in years 1999-2000. And recall how quickly it all fell apart! We won't want to stay too long at this party, once it falls apart it will be a bit late to exit. As one of my advisers remarked about buying and selling radio stations, he would rather sell six months too soon than six days too late. That is true with iliquid radio stations but a good thing to keep in mind.
JUNK
Here is a good case study of just how important the 50 and 200 MAs are in affecting markets. And this is also a great example of just how fast social mood regarding investments can change! You might print this one out and put it on the 'frigerator door to prepare yourself for the coming reversals the next two years.
Junk bonds ar really just equities that pay high dividends. Wave One down tested the 200 day MA.Wave 2 up falsely led all to think eveyrthing was okay. WAve 3 took out both MAs and did so in three or four days. This is why we do not want to overstay our welcome in 2012! Wave 4 up failed just below both MAs! Wave Five, desperation and acceptance phase of the bear, saw a panic sell taking the market far below both MAs.
Then with all the sellers cleared out, the profesisionals encountered no resistance. Note JNK moved back to its previous high in one month, talk about a change in mood! Corrective Wave B took out both MAs and now up move C has things right back where we started. I expect we will now see a sideways up down many times until this thing peaks.
I am quite surprised that the Dollar and TLT refuse to give ground especially since VIX has done so. This surely sets the stage for a dramatic reversal in UUP and TLT.
VIX UUP TLT
I hope readers can see that VIX has performed as expected but that TLT, bonds, and UUP, the Dollar, stubbornly refuse to back off. This suggests not that the anlysis is wrong but that once this happens a flood of money will be unleashed into stocks. Readers have asked for a specific target for the SPX. I can only say this suggests it may well be higher for stocks than I had thought given the reluctance to leave the 'safe harbor' of TLT by investors. Look back at the first graph of the summation index. Fund managers are judged on their prformance. With so many out of the game,now that indicators are crossing the 50 and 200 day MAs, it is only a matter of time before they are forced back into stocks, no matter how many pictures of the Italian Welfare Mimister crying her eyes out are run in the WSJ.
Oh, and this may earn me a spate of now you tell us e mails. I have invested the $42,000 I had in my college retirement fund in various Fidleity funds the last 90 days. This has worked well and it occurs to me that many or you may have similar requirements in such funds. Usually one is limited to a fund family in a company or govt retirment account. If readers are intereted I will post the entries, dates, and amounts along with fund balances. I have menioned these sectors but admit I was not specific on fund names.
Anyone interested?
After the one day of pullback yesterday markets are up around the world today. The fifth wave is taking over and social mood is rapidly improving. News reports on the economy are much better,and so the chances for pullbacks that will let the latecomers get in easily are less and less.
dennislelam@gmail.com
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