Squawk Box at 6:30am

I am going to be on CNBC’s Squawk Box at 6:30am on Wednesday discussing the market’s recent surge to new highs along with some areas of concern and which sectors may be poised for more gains. And no, I do not believe the bear market in Apple is over. It recently hit my second downside target at $400 and is bouncing as it should. More weakness should await the one time darling on it way to $300.

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Will the Country Even Function on January 1?

The latest Street$marts has been posted!

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20121221.pdf

 

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Santa Claus Rally

If Santa Claus should fail to call, bears may come to Broad and Wall.

That’s an old stock market adage indicating that if we do not see the traditional Santa Claus rally over the final five trading days of the year, the potential for a bear market or major decline increases in the New Year. The final five days clocks at the close on the 21st, coinciding with the end of the world according to the Mayans.

There is also a trend that shows a very seasonally strong period for semiconductors from now through year-end. This group is one my canaries in the coal mine and absolutely vital for the long-term success of any bull market.

Besides the most overhyped event since Y2K, the “dreaded” Fiscal Cliff, news flow should really taper off until January 2 or 3, which is one of the reasons why this is typically a seasonally positive time of year.

It’s also getting close to when I release my Fearless Forecast 2013 as well as my Shockers 2013 lists. If only I knew what the heck I was going to write about!

Hopefully, I will send a Street$marts shortly, but in case I don’t, I wish you and your family a very happy, healthy and safe holiday week!

Paul

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Bulls Turn Tide

After Friday’s reversal from early losses on the “news” regarding the Fiscal Cliff, the bulls put on an ole fashioned stampede today with more than 90% of the volume on the upside and almost 90% of all stocks closing higher. The market opened up and ran that way straight to the close, turning the short-term trend in favor of the bulls.

For the time being, the bulls have the ball and given the Thanksgiving holiday, they are supposed to keep control until next week. When markets first snap back off of a potential low, the sectors and stocks which were hit the hardest usually bounce back the hardest initially. On the index front, that’s the tech laden Nasdaq 100 and small cap Russell 2000. Sector wise, it’s software, telecom, banks, energy, industrials and biotech.

What would worry me is if this rally failed right away and fell to new lows. That would be a bad sign. Longer-term, I do not believe the lows we saw on Friday will end up being THE bottom, but this rally should be decent enough to enjoy.

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Obama Victory, Market Sell Off

Congratulations to President Barack Obama and all of the politicians who were elected by the American people last night. In the end, although my candidate did not win, Democracy was and is always the big winner. As you know, I hardly ever use the word “hope” when discussing investing, but in this case, I do hope we somehow see congress and the president at least genuinely attempt to work together on a bipartisan basis. I don’t know a single person who wants four more years like the last two in DC.

I am going to be on FOX Business’ Markets Now at 1:30pm est today discussing the election results and its impact on the stock market and economy.

In yesterday’s Street$marts, (http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20121106.pdf) I made the case that an Obama victory would see market upside and a Romney victory would see weakness. And that whatever the move was, it should continue into next week. So what’s going on today and why the sea of red in the stock market and the Dow now under 13,000?

Stocks traded higher on Monday and Tuesday. Some say it was Romney, while others say it was Obama. To me, it’s irrelevant. You can see that last night from 5pm to 10pm, the S&P 500 futures (an indicator of the overall stock market) traded lower as the results were announced. After Obama achieved 270 electoral votes for reelection, the S&P 500 futures turned around and headed higher until almost 6am. So when I woke up and saw the green, I thought the market would open to the upside.

That was until the European Central Bank’s Mario Draghi made negative comments about Germany’s economy weakening. From there, the futures fell sharply straight to the U.S. open at 9:30am and have continued lower ever since. Was Obama’s reelection the cause of today’s carnage or was it the ECB? In the grand scheme, it doesn’t really matter, but given the weakness in the financials and materials and relative strength in consumer discretionary stocks, it certainly looks like Europe is the bigger driver than the election.

stock market reaction to election

I would look for the weakness in stocks, on balance, to continue into next week before another attempt at a meaningful bottom begins for a year-end rally.

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Like Watching Paint Dry

Unlike the summers of 2011, 2010, 2009, 2008, 2007 and 2006, the summer of 2012 has been very, very quiet.  Volatility is at an historically low level.  Volatility contraction leads to expansion and vice-versa.  At some point, we are going to see a spike in volatility and that will shock the system. 

Later this week, Ben Bernanke will make his annual speech from the Fed’s retreat in Jackson Hole WY on Friday at 10:00am.  While everyone will be on the edge of their seats for clues about the Fed’s next money printing program, it certainly does not seem like Ben will unveil the plan this week.  But I continue to believe it is coming!

Bernanke’s ECB counterpart, Mario Draghi, was scheduled to speak on Saturday morning but just canceled, a smart move in my opinion since Europe still has so many problems.  Circle September 12 on your calendar for the date that the German courts are supposed to rule on how and when bailout is allowed to be used.

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The Bulls Powering to New 2012 Highs

New Street$marts is out chock full of tidbits with Paul Ryan, the Fed, ECB and stocks on their way to new 2012 highs! 

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120816.pdf

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Bulls Giving it the College Try

Following up from the Street$marts issue I published today (link to follow here on Friday), the bulls are stepping up here on the Dow, S&P 500 and NASDAQ 100, closing the day within striking distance of new highs for 2012.  I expect that to occur over the coming days.  Once that is achieved, I do not anticipate a blow off to the upside.  Rather, I think the stock market will be within a few percent of peaking. 

Flies in the ointment include the S&P 400 mid caps, Russell 2000 small caps, semiconductors and transports.  All are well below their 2012 highs, which is not a healthy sign.  Of course, theses indices could get into gear, race higher and confirm, but that’s not the usual scenario. 

Have a great weekend and enjoy what’s left of summer!

Paul

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Quietly Strong Selling Wave

Stocks have quietly seen a fairly strong selling wave over the past eight days.  Coincidentally (or not), that has been ever since the European Union announced their latest rescue attempt from European Stability Mechanism.  After that one huge rally day, stocks have not behaved well and after today (Thursday), they have given back the entire rally.

From my seat, the stock market is at an interesting juncture here.  I wouldn’t say “critical”, but the bulls need to step up here and make some noise.  Closing below the low we saw this morning, say 12450 on the Dow, would likely set off a quick and sharp multi hundred point drop before the next opportunity came for the bulls.  Right now, the bulls have fought off the bears for two straight days.  It’s for them to make some headway over the coming few sessions.

The latest Streetsmarts is out and if you subscribe to that letter (http://www.investfortomorrow.com/newsletter.asp), it should be in your inbox.  Otherwise, I will post it here over the weekend.

Have a great weekend!

Paul

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3 Indicators That Can Tell You the Market’s Next Move

On Monday, I was in the city spending some time with my friends at Yahoo Finance.  As always, I thank them for their hospitality and Jeff Macke for the engaging conversation.

http://finance.yahoo.com/blogs/breakout/3-indicators-tell-market-next-move-115923205.html 

With the volume and velocity of information out there, trying to get a read on the stock market is like attempting to get a sip of water from a firehose. Thankfully Paul Schatz of Heritage Capital has three ways to check the health of the market and durability of its trends. They don’t work every single time but Schatz says these are great “tells” as to whether or not what’s happening from day to day is reality or a mirage.

1. High Yield Bonds (HYG)

More commonly known as “junk bonds,” high yield corporate debt has been one of the favorite plays for investors who want decent cash flow with slightly more safety than stocks. Historically low rates on U.S. Government debt have made junk bonds an attractive way to play in between bonds and equity.

That’s why junk is the canary in the coal mine according to Schatz. Risk appetites should be relatively consistent across the board. In other words, if stocks are rising, corporate debt should be moving higher as well.

“If the market rallies and high yield does not participate that’s worry sign number one,” says Schatz.

2. S&P 400 Mid-Caps (^MID)

The S&P400 is a measure of stocks not quite big enough to make the cut for the S&P 500 (^GSPC). Companies this size tend to be hit harder by economic fluctuations than those with larger balance sheets or more lines of business. This makes the mid-caps a way to gauge the real health of the earnings environment for corporate America.

“Traditionally in bull markets mid-caps lead,” Schatz says. When the S&P 400 isn’t leading, or at least playing along with a market rally, it’s time to take profits.

3. Dow Jones Transportation Index (^DJT)

As would be expected, the Transports are a collection of 20 American companies in the business of moving things from point A to point B. Railroads, airlines, and trucking basically. Even in a virtual age most traders regard the Transports, or “Trannies” as a good gauge of underlying economic activity.

By market tradition, real bull markets only come when both the Dow Jones Industrial Average (^DJI) and the Transports are breaking out together. At the moment there’s little risk of either happening, but Schatz suggests traders stay on the lookout.

“If the Dow Jones Transports can take out the April highs I think it’s a straight 5 – 10% shot higher,” he says. Though he concedes it’s a “long way to Tipperary” before they do.

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