Stocks & Equities

Stock Trading Alert: Short

Posted by Przemyslaw Radomski - Sunshine Profits

on Friday, 14 November 2014 14:32

Uncertainty Following Recent Move Up – Will Uptrend Extend Even Further?

Sent Nov 13,  2014, 6:02 AM:

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,085 and profit target at 1,950, S&P 500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish:

Intraday (next 24 hours) outlook: bearish
Short-term (next 1-2 weeks) outlook: bearish
Medium-term (next 1-3 months) outlook: neutral
Long-term outlook (next year): bullish

The U.S. stock market indexes were virtually flat on Wednesday, as investors continued to hesitate following recent move up. The S&P 500 index remains close to Thursday’s all-time high of 2,041.28. The nearest important resistance level is at around 2,040-2,050. On the other hand, the level of support is at 2,020-2,025, marked by previous local extremes. There have been no confirmed negative signals so far, however, we can see short-term overbought conditions:

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Larger View (click twice)

Expectations before the opening of today’s trading session are positive, with index futures currently up 0.3%.

The main European stock market indexes have gained 0.4-0.9% so far. Investors will now wait for some economic data announcements: Initial Claims at 8:30 a.m., JOLTS – Job Openings at 10:00 a.m. The S&P 500 futures contract (CFD) is in an intraday uptrend, as it trades close to new all-time high. The resistance level is at around 2,050, and the nearest important level of support is at around 2,035-2,040, marked by previous local extremes, as we can see on the 15-minute chart:

 

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The technology Nasdaq 100 futures contract (CFD) is relatively stronger, as it trades above the level of 4,200. The nearest important support level is at around 4,180, marked by previous level of resistance. There have been no confirmed negative signals so far, as the 15-minute chart shows:

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Larger View (click twice)

Concluding, the broad stock market remains close to all-time highs, as it extends recent fluctuations. We expect a downward correction or an uptrend reversal. Therefore, we continue to maintain our speculative short position. Stop-loss is at 2,085 and potential profit target is at 1,950 (S&P 500 index). It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

Thank you.

Paul Rejczak
Stock Trading Strategist

Stock Trading Alerts

SunshineProfits.com

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

5 Red Flags Raised by Stock Market’s Record Run

Posted by Anora Mahmudova

on Thursday, 13 November 2014 11:46

Screen Shot 2014-11-13 at 7.36.44 AM
Volatility, as measured by the CBOE VIX index VIX, +0.15%  after spiking higher in October, dropped back to year’s lows and at around 13 is well below historical averages. 

The exact “V” shaped recovery in both the VIX and S&P 500 seems unnatural. Previous pullbacks took much longer to recover from.

Jeffrey Saut, chief investment strategist at Raymond James, says the reasons to expect higher volatility are simple: historically, after long periods of low volatility, markets experience higher volatility. Others think it is the Fed’s exit from QE that will contribute to higher volatility. But whatever the reason, most people on Wall Street agree that volatility is going to be higher in the months to come, which means we are likely to see more pullbacks. Click HERE or Image for next Chart

 

What Happens When the Surf Is Down – Contemplating Stocks without QE

Posted by Peter Schiff - Euro Pacific Capital

on Wednesday, 12 November 2014 19:45

Some influences on the stock market are casual, subtle or open to interpretation, but the catalyst behind the current stock market rally really shouldn’t be controversial. As far as stocks go, we have lived by QE. The only question now is, whether we will die without it.

 

Since the financial crisis of 2008 stock prices have only risen when the Fed is either expanding its balance sheet, hinting that it will soon do so, or actively recycling assets to hold down long term interest rates. Absent any of these aggressive moves, stocks have shown a clear tendency to fall. Curiously, while most investors now believe that QE is in the past, and that the Fed will not even be hinting at a restart, few would argue that the current bull market is in danger. But a quick look at how much influence the Fed’s operations have had on market performance should send a chill down Wall Street. The Chart below should speak for itself:
 
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Created by EPC using data from the Federal Reserve and Bloomberg
 
In August 2007, the Federal Open Market Committee’s (FOMC) target for the federal funds rate was 5.25%. Sixteen months later, with the financial crisis in full swing, the FOMC had lowered the target for the federal funds rate to nearly zero, thereby entering the unfamiliar territory of having to conduct monetary policy without the ability to cut rates further. Six years later, rates are still at zero. This has left the Fed’s capacity to buy assets on the open market (now known as Quantitative Easing – QE) as their principle policy tool.

 

In order to stop the markets from crashing further in the Fall of 2008, the Fed announced a plan to purchase $600 billion in mortgage-backed securities (MBS) and agency debt. When first announced, the plan faced some political resistance even though most thought it would be a one shot deal. But when the opening salvo wasn’t enough to push stocks back up, on March 18, 2009, the Fed announced a major expansion of the program with additional purchases of $750 billion of agency MBS and $300 billion in Treasuries. That got the market’s attention.

 

Between March 6, 2009, when the S&P put in its low watermark, and March 2010, when this program (which would become known as QE1) came to an end, the Fed had expanded its balance sheet by $1.43trillion, or 247%. Over that time, the S&P 500 put in a rally of 71%, rising from a low of 683 to 1169 at the end of March 2010.

 

But when the dust settled, bad things started happening. From April to November 2010, QE was on hiatus, and the Fed’s balance sheet expanded by just 1.5%. In this environment, stocks fared quite poorly. From the end of QE1 to August 2010, stocks declined by about 11%, the first correction since the market began rallying in 2009. As the markets panicked, the Fed came to the rescue. On August 27 2010, at an eagerly anticipated speech at the Fed’s annual Jackson Hole Wyoming retreat, Fed Chairman Ben Bernanke strongly hinted that he was ready to launch another round of QE.

 

As it turns out, just a little tease was enough. The markets immediately started rallying, notching an approximate 18% gain in the final five months of 2010. The formal launch of QE2 occurred on November 3, 2010 when the Fed laid out a plan to purchase another $600 billion of mostly long-dated Treasury bonds. Like the first QE program, it was born with an expiration date (June 2011). By the time the program ran its course, the Fed’ balance sheet had swelled by 29.4% to $2.64 trillion, and the S&P 500 had rallied about 25% from its August 2010 lows. Fairly neat correlation.

 

But then the entire movie started again. When QE2 became a thing of the past in July 2011, markets turned south. With no QE wind at the back of Wall Street’s sails, and no hints that it would return soon, the S&P 500 put in a wicked 16% sell-off between July and August 19. A decent September rally soon petered out and by the end of September stocks were once again approaching their August lows.

 

Cut to Ben Bernanke charging on his cavalry horse, bugle firmly in hand. However, the Fed had become wary of falling into a predictable pattern of launching a fresh round of QE every time the market stumbled. So, on September 21, 2011, he announced the implementation of “Operation Twist,” which authorized the Fed to purchase $400 billion of Treasury bonds with maturities from 6 to 30 years and to sell bonds with maturities less than 3 years, thereby extending the average maturity of the Fed’s portfolio. By buying “on the long end of the curve” the plan hoped to push down long-term interest rates, thereby more directly stimulating mortgage origination and consumer and business lending. It was hoped that Twist would offer the benefits of QE without actually expanding the Fed’s balance sheet. A rose by another name could perhaps smell as sweet. And like the earlier QE plans, Twist was announced as a finite program with an expiration date.

 

Once again the markets responded, rallying about 25% from the end of September 2011 to the end of April 2012. But when Operation Twist stopped twisting, another sell-off predictably ensued. From April 27, 2012 to June 1, 2012, the S&P dropped 9%. So on June 20, 2012 the Fed extended Twist to the end of 2012, which would include an additional $267 billion of short term/long term debt swaps. From the time of the Twist extension announcement to September 14, 2012, the S&P 500 gained back more than the 10% it had lost. But towards the end of September the rally slowed and another fall threatened.

 

At this point I believe the Fed finally understood: No stimulus, no rally. And given that the surging stock market was a key element in creating the wealth effects that the Fed believed was essential to economic growth, they instituted a policy that would ensure market gains on an ongoing basis.

 

On September 13, 2012, the Fed announced a third round of QE which provided for an open-ended commitment to purchase $40 billion agency mortgage-backed securities per month. This unlimited QE eliminated the need for embarrassing re-launches every time the markets or the economy stalled. But the $40 billion monthly rate was apparently not enough to move stocks. From the time of the announcement to the end of 2012, the S&P declined about 2.3%. So then on December 12, 2012 the Fed voted to more than double the size of QE3 by authorizing monthly purchase of up to $45 billion of longer-term Treasury debt, on top of the mortgage debt they were already buying. The rest is history.

 

The past 18 months has seen lackluster economic performance, a deteriorating geo-political landscape, and, somewhat incongruously, a nearly relentless stock market rally. From the time QE3 was announced, until the program was officially wound down this month, the S&P 500 surged 36%. But the rally was expensive. During that time the Fed’s balance sheet of securities held outright, expanded by an astounding 63% to $4.2 trillion.

 

On December 18, 2013 the Fed announced the “Taper,” a regular reduction of QE3 at a rate of $10 billion every six weeks. On October 29, 2014, the Fed made good on its initial timeline and officially wound down the program.

 

Although the rally in stocks continued during the taper of 2014 the rate of increase slowed along with the rate of balance sheet expansion. Full throttled $85 billion per month QE persisted from September 2012 to December 2013. During that time, stocks rallied about 26%, and the Fed’s balance sheet grew by 45% to $3.7 trillion. Since the taper began, however, the Fed’s balance sheet has grown just 12% (through October 22, 2014), with the S&P 500 virtually matching that with a 12% increase. As the chart above clearly demonstrates, stocks have hidden the rising wave of Fed assets like a world class surfer on Hawaii’s North Shore. The big question now should be what happens now that the age of QE is apparently over, and the surf is no longer up?
 
SurferNoWaves2The day after the Fed announced the end of QE 3, Paul Richards, the head of FX for UBS said on CNBC that he is “so bullish on stocks that it hurts.” One wonders if he had ever seen a chart like the one produced for this article. But Mr. Richards is not far off from the vast majority of U.S. stock analysts who see clear sailing ahead.

 

To reach that conclusion, one must completely ignore not only the role QE played in driving up stock prices, but discount any negative effects that a reduction of the Fed’s balance sheet could create. Most economists recognize that to normalize policy the Fed must reduce the amount of securities it holds. This will be an environment that we have never encountered. Logical analysis should lead you to believe that stocks would not fare well. But logic is not welcome on Wall Street.

 

The bottom line is that stocks should be expected to fall without QE. But this does not mean I predict a crash in stocks. I simply expect, as no one else seems to, that the Fed will go back to the well as soon as the markets scream loud enough for support. At that point, it should become clear to everyone that there is no exit from the era of QE and that there is nothing normal or organic about the current rally. At that point, the asset classes that have been ignored and ridiculed should have their day in the sun.

 

Connecting the Dots: Not Yet Time to Celebrate a Market Turnaround

Posted by Tony Sagami - Mauldin Economics

on Wednesday, 12 November 2014 15:44

The Wall Street crowd liked what they heard last week and pushed the Dow Jones to a new high. In particular, the trio of the Republican landslide victory, an overall positive Q3 earning season, and a good jobs report that showed unemployment dropping to 5.8% was behind the rally.

And what a rally it was. Since the start of earnings season on October 8, the S&P 500 has increased by 3% and has bounced by an eye-popping 9.1% from the October 15 low.

Many of my peers have already popped the champagne and drunkenly declared a coast-is-clear resumption of the great bull market.

Not so fast. There was a trio of negative news pieces last week that tells me there is more to be worried about than there is to celebrate.

“V” Is for Vulnerable… Not Victory

You shouldn’t trust “V”-shaped bottoms.

Instead of being encouraged by the 9% moonshot since the October 15 low, I am even more skeptical. The S&P 500 shot up by 220 points in just three weeks, which tells me that the rubber band of stock market psychology is overstretched.

Image 1 20141111 CTD

The stock market’s massive mood swing from fear to greed can change just as quickly to the other direction. Sharp trend reversals followed by sharp rebounds is not a kind of bottom building behavior.

The rally has been accomplished with low trading volume—a classic definition of an unsustainable bounce because it shows that the rally was more from a lack of sellers rather than an abundance of buyers.

And don’t forget about the drastic underperformance of small stocks. The Russell 2000 is up less than 1% for the year compared to 11% for the Nasdaq and 10% for the S&P 500.

Earnings: Look Ahead, Not Behind

Overall, corporate America had an impressive third quarter. 88% of the companies in the S&P 500 have reported their third-quarter earnings; of those, 66% exceeded Wall Street expectations.

Impressive, right? Not so fast!

When it comes to earnings, you need to be looking through the front-view windshield and not the rear-view mirror.

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Even the perpetually bullish analytical community is getting worried. The average estimates for Q4 earnings as well as Q1 2015 are being downwardly adjusted. Since October 1:

  • Q4 earnings growth have been lowered from 11.1% to 7.6%;and 
  • Q1 2015 earnings growth has been chopped from 11.5% to 8.8%. 

Don’t give Wall Street too much credit for being rational. Those downward revisions are largely based on the cautious outlook given the corporate America itself. The ratio of negative outlooks to positive outlooks is 3.9 to 1!

Both Wall Street and corporate America are concerned, and so should you be.

Don’t Ignore Central Bankers’ Warnings

Many of the world’s central bankers gathered in Paris last week to figure out how to keep the world’s leaky financial boat from sinking, as well as spending more of their taxpayers’ money on fine wine, cuisine, and luxury hotels.

All those central bankers are eager to keep their economies afloat, but judging from the comments, they’re worried that they are running out of monetary bullets.

“Normalization could lead to some heightened financial volatility,” warned Janet Yellen.

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“This shift in policy will undoubtedly be accompanied by some degree of market turbulence,” said William Dudley, president of the Federal Reserve Bank of New York.

“The transition could be bumpy … potential for financial market disruption,” cautioned Bank of England Governor Mark Carney.

“Paramount risk of very low interest rates is to entertain the illusion that governments can continue to borrow rather than make difficult and yet necessary choices and indefinitely put off the implementation of structural reforms,” admitted Bank of France Governor Christian Noyer.

“The bottom line is there is a very good question about whether more stimulus is the answer,” said Reserve Bank of India Governor Raghuram Rajan.

Perhaps the most honest and telling statement from Malaysian central banker Zeti Akhtar Aziz: “In this highly connected world, you would be kindest to your neighbors when your keep your own house in order.”

That’s a whole lot of central banker warnings—and it’s always a mistake to ignore the people who control the world’s printing presses. 

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

Canadian Venture Index Gold & Penny Stocks

Posted by TheGoldAndOilGuy

on Tuesday, 11 November 2014 15:17

“I think 2015 will be the start of a new micro-cap stock bull market. Sure it could take more than a year to base and start to rally, but the time will come when ridiculous amounts of money will be made in this corner of the market”

Canadian Venture Index Gold & Penny Stocks

Last week I met with a local professional trader who specialized in trading only Canadian stocks. While he mainly trades the 75 large cap stocks on the TSX which have the liquidity requirements he needs, he also trades penny stocks on occasion.

When he pulled up the TSX Venture index and reviewed our outlooks, we both came to a similar conclusion on what to expect moving forward.

We all know what happens to boats when the tide goes down… This index shows very clearly why most penny stocks have been losing value the last three years. Money has and continues to flow out of these equities and if fighting this major trend it will likely cause you frustration and financial pain.

See my gold forecast and charts from a year ago: Click Here

Overall gold and silver mining stocks are now entering a key long term investment level, but don’t jump the gun and buy yet…

Knowing that most of the largest moves based on percent happen during the last 10% of the trend, we must expect micro-cap stock prices will be extremely volatile for many months. Another 30-60% hair cut could still be ahead.’

tsxjunior

Canadian Equities Market:

 

The TSX Composite is heavily resource-weighted and this market has lagged its counterparts around the world in the last year. This year the Canadian index played catch-up as seen in the chart below and was the strongest index in 2014 until this recent correction.

 

These equities may hold up well when the US market starts to top/correct. This is because the TSX’s is heavily weighted in late-cycle stocks (resources), it’s not unusual for the Canadian market to lag in the early stages of a bull market in the USA, catch up in the late stages, and then outperform toward the end.

tsx1

Trading & Investing Conclusion: 

In short, I think 2015 will be the start of a new micro-cap stock bull market. Sure it could take more than a year to base and start to rally, but the time will come when ridiculous amounts of money will be made in this corner of the market.

We all hear stories about how a couple thousand dollars in a particular stock would now be worth $250,000, $1,000,000 etc… well times like that will happen again. But we must wait and watch for this perfect storm to unfold.

Be sure to join my gold newsletter at: www.TheGoldAndOilGuy.com

Chris Vermeulen