Archives for July 2013

Announcement from Bernanke & Co. Just Around the Corner

Here are my thoughts on the Fed meeting today and into the fall as well as Bernanke’s impending successor. I think this was one of the clearest, most concise Fed discussions I have had.

What do you think? 

http://finance.yahoo.com/blogs/breakout/fed-meeting-tap-investors-await-bumpy-ride-112711784.html

For today, anything other than what Bernanke said in front of Congress last week will be a big surprise. And no, I absolutely do not think Bernanke knows what Friday’s jobs report will be. As a tiny business who participates in the survey, I don’t input my information until the day before (Thursday).

Hedge Fund Giant SAC Indicted

 As I started my first segment with the folks at Yahoo Finance, SAC was indicted. Here is the on the spot discussion we had.

http://finance.yahoo.com/blogs/breakout/sac-capital-indicted-criminal-securities-fraud-155459600.html

Gold’s Bearish Pattern Trying to Change

When we last left off with the gold market (and the chart below), I offered that “Unless the metal quickly regains the $1350 level, we are most likely looking at further selling and even more record setting negative sentiment before a sustainable rally can begin.” 

 

Gold continued its collapse from the time I hit the send button at $1292 all the way down to $1179 a week later. From $1179, it rallied all the way back to $1303 this morning before Ben Bernanke testified before Congress as you can see below. 

 

In this market I usually mention possible upside and down targets. If the current rally peters out, $1150 and then $1087 are logical downside lines in the sand based on technical measures. On the flip side, there are a host of upside zones which should be watched over time, $1350, $1480 and $1540. Since my view hasn’t changed that gold remains in a secular bull market, but cyclical bear market, I do believe that all upside targets will be achieved and that the ultimate peak will be above $2000. 

Taking a view beyond the short-term, we continue to see record setting levels of negativity, surpassing those seen when gold was $250. What that means is that smart money is and has been accumulating gold on the way down as the dumb money has been selling. So the dumb money has been right and the smart money has been wrong, something that is unlikely to continue. At some point sooner than later gold is going to hammer out a major bottom and rally strongly and not stop, trapping the bears and inflicting pain.

Fox Business Markets Now on July 25th at 1pm

I am going to be on Fox Business’ Markets Now tomorrow (Thursday July 25) at 1:00pm EDT discussing earnings, the upcoming Fed meeting and where stocks are headed this quarter. 

I am also going to spend some time with the folks at Yahoo Finance creating three segments. The first will be on the comparison between 1987 and the current market while the second will focus on the upcoming Fed meeting and when Bernanke & Co. will begin to pull the punch bowl. The final segment will focus on Canaries in the Coal Mine, the topic I regularly write about in Street$marts and will again in the next issue.

Comparisons to 1987 Mount

For the past six months when asked about my outlook for 2013 I replied that I thought it would be a front loaded year with all or close to all of the gains during the first half of the year.  I have and continue to compare it to 1987 without a one day stock market crash. Others have predicted that 2013 will look more like 1995, the single greatest investing year of the modern era. Now that would make me (and you) really happy! This will be interesting and fun to follow over the coming months.   

Let’s take a walk down memory lane and examine the years before 1987 and 1995 and the present. We will start with 1986, 1994 and 2012. As you can see below, 1986 blasted off right out of the gate, went into a trading range during the middle and then closed near the peak for the year. 

  

1994 is next and this was a very different year with Alan Greenspan and the Fed surprising the markets by raising interest rates in February. That led to a 10% correction, the first one since 1990. The stock market saw three more declines in June, November and December, culminating in Orange County’s municipal bond default after Thanksgiving. Although the major indices only lost a few percent that year, it was an horrific year in the bond market with investor sentiment as negative as you typically see after a bear market. 

   

2012 is below with strength right out of the box followed by a correction in May that led to a melt up in stocks before pre-election jitters took the wind out of the sails into Election Day. The usual year-end rallied ensued. Overall, 2012 was a good year for stocks returning 13%, but ending the year with anxiety over the Fiscal Cliff.  

  

While 2012 was not nearly as strong as 1986, it had similar investor sentiment points and nowhere near the negativity associated with 1994. On the surface, it looks like 2012 fell right between 1994 and 1986. 

Below you can see the first nine months of 1987 and 1995. In both cases stocks took off as the year began, paused, and then took off again.  

  

  

 Here is 2013 year-to-date, which looks like the average of both years so far. 

   

Now is where 1987 and 1995 begin to diverge. Again, I absolutely do not believe we are going to see a stock market crash like we did in ’87, but the pieces are beginning to line up for the largest correction since 2011. The next two charts put it all together best. You can see three distinct almost vertical rallies in 1986-1987 culminating with an August peak and disaster thereafter. In 1994-1995 we see the year long challenging period and the relentless bull run. 

   

     

 Today (below), we are somewhere in the middle so far price wise. Alan Greenspan and the Fed were one of the main driving forces behind the collapse in 1987 along with computerized trading and Washington put its foot in it mouth. Is today that much different if Bernanke & Co. start the unwinding process at one of their next two meetings? In my view the only question for the stock market is if it is peaking right now or will there be a 4-8% pullback first followed by a final run to all time highs. 

 

If you are concerned about portfolio or the scenarios I laid out and want to have a more detailed discussion, please contact me directly at 203.389.3553.

Economy Still Plodding Along

Economically, as you know, my views haven’t changed since 2009. We are living the “typical” post financial crisis recovery with sub par growth and stubbornly high unemployment that sometimes teases on the upside and terrifies on the downside. Until we get to the other side of the next recession, I believe it will continue this way. 

I often share two of my favorite and off the beaten path indicators to look for clues as to the direction of the economy. They are both very volatile but target different groups. The Restaurant Performance Index (below) is very much how middle America behaves. From the depths in 2009, it took an awful lot of time and energy just to get back to the neutral reading of 100. As you can see now, it has been very strong this year and I would not become concerned until it hit 99 again.

ABI

The other indicator I enjoy watching is the Architecture Billings Index which gives us an idea of the commercial market. Currently in rally mode, I expect that to continue at least until the clowns in Washington start posturing about the debt ceiling again. I would not be too concerned until we see a reading under 46.

ABI

Short-Term Crossroad

Interesting crossroad for the stock market. Price action says more rally coming shortly while sentiment and internals argue for a 4-8% pullback into August. I guess both could occur in theory.

With the Dow, S&P 500 and Russell 2000 hitting fresh all time highs, it will be telling to see if any more cracks appear in the market’s foundation. We’ll take a look at our regular column of Canaries in the Coal Mine shortly.

Yesterday, Ben Bernanke’s much anticipated and likely final testimony to the House was a dud so all that is left is earnings…

Oil Acting Up

Crude oil has very quietly rallied from $93 to $106 over the past  few weeks. I am surprised we haven’t heard more from the media about it. Usually when it cracks $100, we hear how it is going to hurt the consumer and lead to recession. And all this while the dollar was strong as well. Thursday’s downside reversal was interesting, especially given how weak the dollar was and I will be closely watching to see if the bears can muster any attack. If so, and stocks continue rallying, the transports should catch fire pretty quickly again. For full disclosure, we already own a position in the group and would consider adding to it. On the flip side, if oil blasts off again above $110, I think that will spell short-term trouble for the stock market.

Big Ben to the Rescue

It wasn’t long ago that we discussed Bernanke throwing cold water on the rally, something I thought was overblown. But on Wednesday after the markets closed, he did a complete 180 and essentially gave the crack addict more crack. While I was not at all surprised with what he said, I thought the market overreacted somewhat. Precious metals stocks and emerging markets were the biggest beneficiaries of the Bernanke Bang which should be expected given how decimated they were. Friday morning should be quiet and it will be interesting to see how much firepower the bulls have left heading into the weekend.

The bull market may be old and wrinkley but it remains alive and should be even after the next correction later this year.

Happy 4th

Happy Birthday America!!!