Caution on Stocks 9/9/13 at 4:45 PM

Our stock market indicators are flashing a warning signal so investors and traders should take note and be careful.  Our last stock market signal was on June 6, 2013, when our indicators were bullish.  At the time, the S&P stood at 1609.  The S&P is currently at 1672.

• Long-term indicators are bullish.
• Intermediate-term indicators are moderately bearish.
• Overall, we remain slightly bullish, but we will be watching the short-term trends and indicators.

Investors should be cautious and should look for sell-offs to add to equity positions.  Traders may look to the short side if the market accelerates to the downside.  It is often difficult to predict turning points, but our intermediate-term model has had a good track record as documented by our blog.  

As always, we will keep readers apprised of changes to our stock market indicators.  

Crude Oil on 6/7/13 - Popped up 1% and then another 1%

Today, crude oil was trading lower by about -1%, then bounced to about even -- and is now up almost +1%.  This is all within about 45 minutes -- and happened by about 10:15am EST.

Just an observation about market action and why traders oftentimes need to think about time-frames and how various triggers react to volatility.

Stock Signals: Back on the Gas Pedal 6/6/13, 6AM

As of the close yesterday, our overbought/oversold indicators have flipped from a bearish to a bullish stance.    Our last signal change was on May 9, 2013, when our overbought indicators turned bearish.  At the time, the S&P was at 1627.  As of the close yesterday, the S&P stood at 1609.

For a while, this system's signal (and trade) was looking bad, with the S&P breaching the 1650 level, but some of the air has been let out of the bubble.  This model is now bullish.  Here is a rundown of the current technical trends in the U.S. stock markets:

• Long-term indicators are bullish
• Intermediate term overbought/oversold are bullish
• Short-Term currently bearish, but this changes in the short-term.  

Our tactical asset allocation models, which apply these approaches to various asset classes, have performed well.  

Past performance is not necessarily indicative of future performance.  

Reiterate Overbought Stock Signal 5/24/13

Two weeks ago, our stock market overbought / oversold indicator flashed a bearish signal.  At the time, the S&P 500 was 1627.  Today, the S&P closed at 1649.60, so this signal has been a loser, to date.  Over the years, the overbought / oversold model has been a good performer, but at some point, good systems will "throw in the towel" and cut their losses (-- and get back on the main trend).

• Currently, the Overbought stock signal is still bearish.    
• The long-term indicator remains bullish.
• The short-term trend is up.  
• Thus, our positions have been dictated by our short-term model.  

Note that the overbought indicator looks like it may flip to neutral to slightly bullish soon, so visit our blog regularly (or connect to our twitter).  

Happy Memorial Day weekend.  

Quick Blog Post: Stock Signals turn neutral to bearish (5/9/13 - 3:45pm ET)

S&P is currently at 1627.

More later.

In particular:

• Overbought indicators are bearish.  
• Long-term signal remains positive
• Short-term indicators will dictate our positions (were bearish near the close).  

Fat Fingers, Phony Tweets and Today's Markets

A few years back, we had the "Flash Crash" due to the "fat finger..."  This past week -- on Tuesday -- if you looked at the price chart for the day, and didn't know what was going on, you might think that there was a data error (see circled area).  However, what you see is the real price action -- moving markets down 1% and then up 1%, within minutes -- due to false rumors of an explosion near the White House.

The DJIA dropped 120 points in just one minute due to the fake tweet!  Tory Capital reports below:

For a few surreal minutes, a mere 12 words on Twitter caused the world's mightiest stock market to tremble.

No sooner did hackers send a false Associated Press tweet reporting explosions at the White House on Tuesday than investors started dumping stocks eventually unloading $134 billion worth. Turns out, some investors are not only gullible, they're impossibly fast stock traders.

Except most of the investors weren't human. They were computers, selling on autopilot beyond the control of humans, like a scene from a sci-fi horror film.

"Before you could blink, it was over," said Joe Saluzzi, co-founder of Themis Trading and an outspoken critic of high-speed computerized trading. "With people, you wouldn't have this type of reaction."

For decades, computers have been sorting through data and news to help investment funds decide whether to buy or sell. But that's old school. Now "algorithmic" trading programs sift through data, news, even tweets, and execute trades by themselves in fractions of a second, without slowpoke humans getting in the way. More than half of stock trading every day is done this way.

Read more here:
http://www.ino.com/blog/2013/04/how-a-phony-tweet-and-computer-trades-sank-stocks/

Gold Continues Sell-Off 4/15/13

Gold continued the extreme sell-off it saw on Friday, when it dropped from about 1565 to 1500 (basis the June 2013 futures contract).  Over the weekend and into the New York opening on Monday, April 15, 2013, gold is seeing a breathtaking drop to the 1400 level.  This drop of about 10% shows why traders often have risk management approaches in place and act first -- and ask questions later.  Gold is now at two-year lows (at the lows of 2011 and 2012).

In futures trading, trend-followers are often seen as "reactive" -- but technical traders who follow trends have also seen their approaches be "predictive."  Other precious metals such as silver and platinum, and related markets such as the Aussie dollar are also selling off in sympathy.

More on the technical selling from the CME:

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract (see below) in what proved to be only an opening shot. The selling took gold to the technically very 
important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand. 

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

Read more here:
http://www.cmegroup.com/education/market-commentary/metals/2013/04/pre-open-gold_3564.html


And why is gold selling off?  Some say it is the result of China's latest round of economic numbers (China GDP), and others report that stories of Cyprus selling gold reserves (related to the Greek crisis) is hitting the gold market.

Head and Shoulders Above the Rest? Institutional Investors and Technical Analysis

Here is the Abstract of a paper on institutional investors and their usage of technical analysis.

Abstract

Based on a study of more than 10,000 actively managed equity and balanced funds, including about one-third of which employ technical analysis, the authors compared the investment performance of funds that use technical analysis versus those that do not using five metrics. They found that funds using technical analysis provided a meaningful advantage to their investors.

Source:
http://www.cfainstitute.org/learning/products/publications/contributed/Pages/head_and_shoulders_above_the_rest__the_performance_of_institutional_portfolio_managers_who_use_technical_analysis.aspx

Registration may be required to read more, but the main ideas are listed.  

Billionaires Dumping Stocks...

Are we climbing a "wall of worry" or are we in store for a big stock market drop?  Only time will tell -- but here is an interesting article about some big names who have been selling into the stock market rally.


*********

Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome. 

Unfortunately Buffett isn’t alone.

Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.



Read more here:
http://www.moneynews.com/MKTNews/billionaires-dump-economist-stock/2012/08/29/id/450265

Stock Systems Go Long 2/25 (8:30 am)

Our stock systems are now long, with some of the air let our of the recent rise in the stock market.  The stock market has seen a strong run since the depths of the financial crisis (2008/09) -- and also since the middle of 2011 and last summer.  The market seems just a touch overbought, but our systems don't want to "fight the tape" any more on this short-to intermediate-term cycle.  Although many are still struggling with this difficult economy, there are finally scattered signs of recovery.

Our last signal was on January 3,. 2013, when our overall stock signals went flat -- based on the intermediate-term overbought models going slightly bearish. At the time, the S&P stood at 1457, and with Friday's close at 1515.60, this signal was a slight loss.  Currently, our models are:

• Long-term: bullish
• Intermediate-term: bullish
• Short-term: changeable, but currently bullish.  

MF Global -- Good News...

At long last, it looks like the MF Global situation will be resolved in a positive way -- with the possibility of making customers "whole."

The NY Times reports:

On Thursday, a bankruptcy court will review a proposal that would return 93 percent of the missing money to customers like Mr. Desai. And the trustee who has submitted the proposal, James W. Giddens, has quietly identified a way that, if sent to the judge and approved, could plug the remaining shortfall for customers in the United States, according to people involved in the case.

The broad push to make MF Global customers nearly whole, a goal now surprisingly within reach, is a remarkable turnaround from the firm’s 2011 bankruptcy filing when such a recovery seemed impossible.

Read more here:

http://dealbook.nytimes.com/2013/01/29/mf-globals-bankruptcy-closes-in-on-a-happy-conclusion/?utm_medium=linkedin&utm_source=twitterfeed

Stock Systems -- Go Flat 1/3/13 at 3:30pm

Our overall stock market signal has gone from bullish to neutral.  The S&P is currently at 1457.

The last signal change was on October 11, 2012, when the (intermediate-term) systems went long, when the S&P stood at 1438.  The systems rode some volatility -- but in the end, completed the bullish stance with a gain of 19 S&P points.

After the recent rise in stocks:

• Our intermediate overbought indicators are now slightly bearish.  
• Long-term model is bullish.  
• Short-term model helped to bring us to the current neutral position.  

Happy New Year!