STOCK MARKET – ACTION ALERT – BULL (WOBBLING LESS)

‘Turnaround Tuesday’ disappointed the bulls as an expected intra-day rally petered out and indexes were unable to post higher highs as compared to Monday. The stock market traded sideways most of the day after some mixed economic data but fell late in the session yesterday as German officials reportedly spoke out against moves by the ECB to expand its mandate in an effort to save the Euro. The Dow Industrials dropped 64.33 or 0.49% to 13,008.68, the S&P 500 dropped 5.98 or 0.43% to 1379.32, the NASDAQ lost 6.32 or 0.21% to 2939.52, and the Russell 2000 sank 4.64 or 0.59% to 786.94.

Consumer Discretionary led the decline (XLY -1.29%) after an unexpected decline in consumer spending. Energy was also weak (XLE -1.09%) as the price of oil fell. Materials were down too (XLB -0.68%) after Ecolab (ECL -3.96%) reported in line earnings but disappointing revenue. Technology was the sole gainer among the market sectors (XLK +0.41%) after strong results from Cirrus Logic (CRUS +23.22%) and a forecasted 70% increase in revenue. Apple held steady, thereby outperforming the broader market, because most of Cirrus’s sales go to Apple. Industrials also outperformed (XLI -0.28%) after Goodyear (GT +10.41%) easily topped forecasts. Healthcare traded in line with the market (XLV -0.62%) after Pfizer (PFE +1.39%) reported better than expected revenue and earnings as did Aetna (AET -2.91%) but traders worried about the earnings quality as its pretax, prior-period reserve development fell from $188 million to $38 million.

Yesterday morning I wrote: “We are creeping into overbought territory. So, from a trading perspective I would be looking to take profits over the next day or so, regardless of the FOMC meeting.” Well, I acted on my words and Platinum subscribers were instructed to ‘ring the register’ in our long SPY and VTI (Total Stock Market Index) positions yesterday morning. Breadth was negative and volume increased forming several Negative Leibovit Volume Reversals. Whether, these signals are distortions due to anxiety over today’s FOMC announcement and/or nervousness whether Mario Draghi is going put the European printing press into high gear, I cannot say. Certainly, investors (and traders) would love to see a QE3 announcement as trigger to get stock prices higher (again!), but does it mean a damn thing anyway? Some caution is warranted here from a trading perspective, but that makes sense anyway around FOMC periods. If we’ve topped out as we did back on June 19, and July 3, look for another 50 point correction in the S&P 500 which would translate into 1340 (close of 1379.32 yesterday).

From the VRtrader.com website here is a link to World Market Indices:

http://www.vrtrader.com/vr_free/worldmarkets/index.asp

How many of you out there would be interested in ‘Money-Management’? I am continuing to take a poll among current subscriber clients. This is an account where many of the trades and recommendations made herein are implemented in your account? I would not be interested in accepting small accounts (accounts under $100,000). Let me know. It is in the early stages, but I am working on a couple of potential opportunities where such a strategy could be employed. There would, of course, be a management fee. I will keep this notice posted for a few weeks.

Mark Leibovit’s Gold Letter, # 1 Gold Timer for 10 year period & #2 Gold Timer for 2011

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Right now we have a friendly, some say overly friendly, Federal Reserve and a lot of pessimism on the part of investors. Remember people get bearish at bottoms and bullish at tops. 

In the nightly commentary of July 3rd, we relate that Merrill Lynch’s proprietary sell side indicator is at its most bearish in 15 years. Previous visits to this level has resulted in substantial rallies. You should re read that update (Ed Note: read the update “Merrill Lynch’s proprietary sell side indicator” at the bottom of this article) 

Continuing on the sentiment theme, look at the chart below. The 5 week moving average of the percentage of bulls as measured by the American Association of Individual Investors is below 30%. In the past, that level has tended strongly to be a precursor of substantial multi week rallies, especially during bull markets. 

If you look at the extreme left side of the chart, you can see that the indicator did move below 30% and yet, the market went down anyway. Don’t forget that this was toward the end of one of the most corrosive and persistent bear markets of the past 100 years. In those extreme times, the bears tend to be right, but this is an unusual condition. No indicator is flawless. 

Another bullish indication is the weekly advance decline line. You can see this in chart form on page 5, but suffice to say that it is at an all time high even though the averages are not. When the internals are outperforming the averages, it is normally good sign. 

Merrill Lynch’s proprietary sell side indicator from July 3rd:

For investors, this summer has been a doozy so far. It’s been full of uncertainty. What will happen to Europe? Will taxes go up here in the United States? Who will be the next president?

The concerns, however, don’t end there.

Is the economy OK, or is it starting to tank again? What will the investment environment look like four months from now … six months from now … next year?

And for traders, things haven’t been much better.

The above uncertainty and more has led to nothing but wildly swinging trading ranges in most markets. One day, gold looks like it’s tanking. The next, it’s soaring.

One day, the Dow Industrials are collapsing. The next, the Dow is exploding higher.

All of this has made for some very volatile markets for the summer, chopping up even the best investors and traders.

Given Europe, the fiscal cliff facing the United States at the end of the year, and the upcoming presidential elections leading up to it — the uncertainty is definitely understandable. The choppy trading markets are, too.

But all of this begs several questions …

When will the uncertainty subside? When will the choppy markets give way to trending moves? How best can an investor get positioned now? How best can a short-term trader get ready to make some decent, trending profits?

In this column, I’ll answer all the above based on what my cyclical and technical models are telling me.

And in my opinion, it’s all good news.

FIRST, and perhaps foremost: I don’t think we will have to wait much longer to see a resolution of the current choppy and uncertain markets.

Based on everything I am studying, virtually all markets are on the cusp of important moves. Moves that will clarify a lot of the uncertainty out there, and lead to solid, trending moves in many markets.Moves with very high profit potential.

That’s what my cycle work is telling me. Virtually all of it — short- and intermediate-term models — point to the first two weeks of August as major turning points for the markets.

A time period where we will see the wildly swinging moves in the Dow Industrials give way to a consistent trend. Where the extreme volatility in gold, silver and other commodities also gives way to trending markets.

And where we will also probably see the beginning of the end for the euro and the European Union.

Let me explain …

SECOND, dis-inflation still has the upper hand. Fundamentally speaking, there’s simply too much debt in the world for the central banks to corral right now.

And they know it. That’s why you’ve seen the Federal Reserve and the European Central Bank largely sit on the sidelines, refusing to take any big steps.

It’s why Moody’s has downgraded Germany. It’s why Greece will soon have no choice but to pull out of the euro. It’s why Spain is now on the verge of not another bailout for its banks ― but instead a full-blown sovereign bailout. And it’s why Italy is also starting to go over the cliff.

None of that will change until the world’s major central banks come out swinging. And they won’t come out swinging until the masses want them to — when systemically important financial institutions are about to go under, like they were in the midst of the real estate crisis here in 2008 and 2009.

In the meantime, dis-inflation continues to keep its upper hand. Despite the recent (and very weak) rallies in many markets, you can take your cues from U.S. Treasury rates.

They are at RECORD lows, which means the majority of capital in the world is still scared stiff and flocking to cash. That’s not inflationary. That’s dis-inflationary.

And my models are clear: It’s going to continue in August, and probably well into autumn ― as investors largely withdraw from the markets.

Moreover …

THIRD, all of my technical models are resolutely short- and intermediate-term bearish for almost all asset classes (except the U.S. dollar and bonds).

For instance …

Gold would have to close above $1,727.70 to turn the short- and intermediate-term trends back to bullish. And my models say that’s not in the cards yet.

Silver would now have to close above $30.71 to reverse the immediate bias to the downside. Again, my models say that’s not likely.

Oil would have to close above $98.48. Given the recent increase in the supply picture and falling demand around the globe, that’s not likely to happen either.

The Dow Industrials would now have to close above 13,995.30 on a weekly basis. That’s not going to happen in my opinion. Quite the contrary, I think we will soon find the Dow turning back to the downside and in an ugly way.

I repeat what I’ve said many times before: Ultimately, all of this will flip and nearly all markets will re-establish their bull markets. The only exceptions at that time will be the U.S. dollar and U.S. Treasury markets, which will turn back into bear markets.

But for now, the short-term dis-inflationary trends I’ve been warning you about are still intact, and about to accelerate to the downside, in the first two weeks of August.

Conclusions:

If you’re an investor with an eye to the long term, you should continue to preserve your ammo and hedge positions you can’t get out of, for whatever reason. The time will come to add to your long positions — but it’s not here yet.

If you’re a short-term trader, don’t be frustrated by the recent choppy markets, or any short-term losses you may have experienced.

And don’t let all the background noise in the markets, of which there is plenty, distract you. Instead, keep your eye on the true underlying short-term trends … and stay disciplined with your money management.

That’s because you’re about to see some terrific trending moves unfold, with awesome profit potential. So, keep your eyes open and stay tuned!

Best wishes,

Larry

Want to see what the Crowd thinks are the BEST companies for discovery potential? 

Want to see those the Crowd thinks are the poorest potential for discovery?

This AM I am showing the top 15% of companies ranked by at least 5 independent scorers followed by the bottom 15%. These are as of yesterday’s close. Currently there are 1036 DiS registrants. Approximately 30% are active scorers of their portfolios. Portfolio average size amongst scorers is about 6 companies. As you can see rankings change. They tend to correlate quite well with forward share price performance. More analysis of performance correlation will follow in another Morning Note. 

We will also be correlating changes in rank and changes in individual factor scores (there are ten Discovery factors) in addition to the rank statistic itself, with forward performance and trailing performance. 

We are pleased with the recency of the data. You can see that the most of the companies, both top 15% and bottom 15%, have been scored quite recently. It does seem that Discovery investors are focused on the best discovery opportunities as well as those they feel have the least potential. 

The final scoring statistic (the Crowd Score, also the company’s final rank) takes into account the low crowd score, high crowd score and the shape of the footprint of uncertainty (or more precisely the footprint of imprecision in our lexicon) much in the way that CAPM deals with distributional aspects of the Gaussian or normal probability model. 

We are now gaining traction in terms of scoring companies. Our goal is to increase the breadth (coverage, now at 769 companies from U.S., Canadian, Aussie and HKG exchanges) and depth (number of scorings). We will only report on companies that have a minimum Crowd / scoring size of 5. We will be increasing the minimum as more users populate the system. 

Some have suggested that even 5 analysts is not a sufficient Crowd size. However you must realize that these are, for the most part, micro-cap companies that have no coverage. The DiS provides a mechanism for independent Crowd coverage of these heretofore unappreciated and sometimes over-promoted companies. Finally we will provide unexpected factor change analysis as well as individual Crowd factor scores. Company executives can then ascertain how the Crowd views their companies across each factor – both positively and negatively. 

Join us and score your portfolio on the DiscoveryScoreboard. It’s free, there are tutorials and we provide you with weekly statistics. You may create as many portfolios as you require. I have portfolios for total stocks, Incubator, mature, legacy and Gold. 

You will be able to track the Crowd score for your portfolio of stocks. 

www.DiscoveryBoard.com 

Note: These ranking are not offered as a buy or sell recommendation. These are scorings by a group of independent Discovery analysts from all walks of life. You must perform your own due diligence before deciding on the accuracy of these rankings. To do this you may use the Discovery Scoreboard to rank these stocks. If so, you will be provided your score as compared to the Crowd score adjusted by your score. 

If you are interested in individual factor scores login, score your stock(s) and contact Chris Berry or myself. We will provide individual company factor scores. We may own stocks referenced in these tables. 

The material herein is for informational purposes only and is not intended to and does not constitute the rendering of investment advice or the solicitation of an offer to buy securities. The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (The Act). In particular when used in the preceding discussion the words “plan,” confident that, believe, scheduled, expect, or intend to, and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the ACT. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward looking statements. Such risks and uncertainties include, but are not limited to future events and financial performance of the company which are inherently uncertain and actual events and / or results may differ materially. We own shares in Goldcorp and Ucore. These companies are not necessarily recommended as investments. In addition we may review investments that are not registered in the U.S. We cannot attest to nor certify the correctness of any information in this note. Please consult your financial advisor and perform your own due diligence before considering any companies mentioned in this informational bulletin