Margin Debt

Posted in Articles on September 12th, 2015 by rennvalo

Check out this great discussion about margin debt and Slim’s market outlook on Askslim.com

 

imagewww.askslim.com

 

With OBOSS > 2 watch currency moves for clues to how long this rally will last.

Posted in Articles on January 6th, 2013 by rennvalo

By Ilya Spivak, Currency Strategist

05 January 2013 05:47 GMT 
Fundamental Forecast for Australian Dollar: Bearish

A short lull in headline-driving event risk will give financial markets an opportunity for some reflection in the week ahead. The most significant lingering uncertainty over the coming months remains the outlook for US economic growth and there is much to consider in the aftermath of last week’s volatility before the next major inflection point – the fight over an increase in the “debt ceiling” – enters the spotlight in earnest.

On one hand, risk appetite reacted favorably to a last-minute agreement averting the so-called “fiscal cliff”, but the reaction seemed overdone. While the smaller-scale tax hike baked into the accord is preferable to a far larger and broader increase that would have been triggered without a deal, it is nonetheless a headwind from an economic growth perspective.

Meanwhile, fears of an early end to the Fed’s stimulus efforts after the release of minutes from December’s FOMC sit-down seem likewise overblown. The decision to adopt the “Evans rule” linking rates to explicit inflation and unemployment targets was already mildly hawkish in that it established a firm exit strategy for the first time since the dawn of the Great Recession. However, even if the Fed cuts off asset purchases at the mid-year mark, the central bank will still expand its balance sheet by close to $0.5 trillion.

On balance, the fiscal side of the equation seems to carry a greater degree of near-term uncertainty than the monetary one. That suggests the path of least resistance likely favors risk aversion as markets digest recent news-flow and weigh up the various catalysts shaping the growth profile of the world’s largest economy. That bodes ill for the Australian Dollar, where prices continue to show a strong link to sentiment trends (the correlation between AUDUSD and the MSCI World Stock Index is now at 0.7 on 20-day percent change studies).

Turning to the economic calendar, a quiet homegrown docket puts the spotlight on the week’s Chinese data set. Consumer Price Index figures are due to show the year-on-year inflation rate accelerated to a seven-month high at 2.3 percent in December. The outcome may weigh against Chinese stimulus hopes and weigh on the Australian Dollar. Indeed, China is Australia’s largest export market so performance there is critical for the latter country’s own growth trends and thereby for its monetary policy as well as the Aussie.

December’s Trade Balance report is also due to cross the wires, with forex traders looking closely at the Exports gauge. Overseas sales growth is forecast to have picked up to a year-on-year rate of 5 percent from 2.9 percent in the prior month. While this may prove supportive for the Australian Dollar, the impact is likely to be modest considering the result would fall well below near- and medium-term trend growth averages.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

05 January 2013 05:47 GMT 

Clarifying OBOSS and using STOPS to protect profits.

Posted in Articles, OBOSS INFORMATION on August 21st, 2012 by Renn Valo

In the last few weeks I received several questions on how to use OBOSS when it enters over bought territory.  OBOSS sounds like a broken record by alerting investors to protect profits, set stops, and reduce risk over and over again.

When OBOSS hits “over bought” or “extreme over bought” it doesn’t mean sell stocks right away or sell stocks short!  Over bought alerts mean that we should be watching for price weakness that might jeopardize our hard-won profits.  We only want to sell stocks if we have to sell stocks to keep our gains.

OBOSS signaled that we should buy stocks in May.  Now OBOSS is telling us the rally is extending and we should protect the profits generated by our holding stocks long since May.  There are many approaches to protecting stock gains, but my preference is setting stops.   My two personal favorites are setting stops based off of previous support levels and setting stops using Average True Range over 20 days.

As an example, I will use IBM starting in late July when OBOSS started to get several extreme over bought readings.

In the first example I used the last previous support level for the first stop after OBOSS indicated an extreme reading.  When looking for a support, look at the the last time prices declined and held a level before moving higher.  Draw a red support line under that level and be ready to sell if prices test that level again and break lower.  As your stock makes higher highs and higher lows you can move the support level up each time prices hold a new level.  In theory when prices fail to hold a previous support level, something is wrong and the stock should be sold (profits protected).  Right now we are watching IBM’s 197-198 price zone for support.  If IBM breaks that level of support, the stock should be sold and profits protected.

Another strategy is using Average True Range.

I like to use a 30-minute chart with 20 trading days of data (one month).  This is an automated way to mark support and most trading platforms allow you to set up automated stops using Average True Range.  It is a little more sensitive to price action then manually setting stops using higher highs and higher lows so it tends to stop positions out a little early in the trend.  The ease of use makes this method popular, but sometimes prevents full participation in a trend.  You can see how ATR is more sensitive to price as the stop is currently sitting at 198.57 and by most trading platforms you would have been stopped out at 197.50 last Friday due to a gap down open on the ATR stop.

In the event OBOSS pushes above (+2.5)  it is always a good idea to reduce risk by taking some profits at these levels.  The market doesn’t usually continue higher after getting that extremely over bought.

I hope this helps to clarify what we need to do when OBOSS is hovering in the over bought zone.

Be Alert!

Protect Profits!

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Great Bespoke article about the media headlines and market bottoms.

Posted in Articles on June 3rd, 2012 by Renn Valo

The Drudge Headline Indicator

THURSDAY, MAY 31, 2012 AT 10:25AM

The Drudge Report, with its 30,000,000 page views per day, is probably the most widely followed news source on the web.  News junkies visit the site on a regular basis to get their daily link fix, while those in the media world — from the major networks and newspapers to independent bloggers — go to it multiple times a day.  While political stories receive the majority of the site’s links, it’s whatever the site’s founder Matt Drudge believes to be the most important topic of the day that gets the main headline at the top of the page.

The Drudge Report is not a financial news site, so whenever a financial news story grabs the Drudge headline, it means that the story has crossed over from just a financial news story to a mainstream news story.  And when a financial news story crosses over into the mainstream media, it means that those that don’t follow the market on a regular basis are suddenly following the market.  This practically always occurs when the market (or economy, etc.) is going down and not up.

We tracked every Drudge headline at 9 AM, noon and 4 PM on daily basis going back to 2003 and tally the number of stories that were finance related using the Drudge Report’s massive archives service.  We essentially wanted to see how often a financial news story was a front-page headline and not just a Money section headline.  From a contrarian perspective, when financial stories dominate the front-page headlines on a regular basis, it’s probably getting close to an inflection point for the market, whether it’s a bottom or a top.  (We counted any story that involved the economy or any asset class as a finance related headline.)

Below is a chart showing the number of days in which there was a finance related headline on Drudge over a rolling 50-day period since mid-2003.  At our starting point, the market was in the early stages of the 2002-2007 bull market.  Unsurprisingly, the number of finance related headlines hit a peak right around the time that the market made its financial crisis lows.  The max reading of 21 days out of 50 with financial related headlines on Drudge came on February 27th, 2009, which was just 10 days before the S&P 500’s bear market low on March 9th.  The number of financial headlines on Drudge then cratered all the way down to zero as the market and the economy recovered from the bear market, but then it started to pick up steadily once again in early 2010 as the crisis moved from our shores over to Europe.

During 2011’s version of the Euro Crisis, the Drudge Headline Indicator maxed out at a new record high of 22 in mid-August, breaking the high seen during the depths of the US financial crisis.  This high also coincided with a major market bottom, and the major US indices went on to rally more than 20% from late 2011 through the end of the first quarter.  Throughout the late ’11/early ’12 rally, financial headlines on Drudge once again waned.  But since the second quarter began, headlines have quickly picked up.  Over the last 50 days, Drudge has posted a financial-related headline on 16 days.  But 12 of the 16 days that saw headlines have come over the last 25 days, so unless the market really picks up in the coming weeks, we’ll likely see a retest or even a new high in the Drudge Headline Indicator.

The fact that we’ve seen such a large amount of financial headlines in recent years on what is mostly a political website represents a key shift in society, in our opinion, stemming from the collapse we saw in 2008.  Everyday citizens now pay more attention to the economy and the markets than they did before, and sentiment on the topic remains decidely negative.

Bespoke 50

 

Is market timing a snare and a delusion?

Posted in Articles on February 29th, 2012 by Renn Valo

Is market timing a snare and a delusion?

From Sunday, 26 February 2012 23:28
moneylogo_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

Good grief, Vanguard Asset Allocation has been merged away. Vanguard is folding its assets into Vanguard Balanced Index. Which, to my mind, is a huge blow to the whole idea of market timing. (Definition: trying to avoid bear markets by selling early, and trying to enjoy bull markets by buying early.)

I myself am an advocate of modest market timing. And so are a lot of professional investors, although they avoid the term because it has a foul reputation. When the market has been soaring – price-earnings ratios are very high – I lighten up. Or move to safer stocks or safer mutual funds. When the market has been sinking, I try to screw up the courage to “nibble” – to buy a little of this, a little of that. It’s easier to sell into a bull market than to buy into a bear market. Hercules having to clean up the Augean stables was a piece of cake compared to trying to force yourself to buy into a bear market.

I never understood Vanguard Asset Allocation. The managers never agreed to let me interview them. And I was always confounded by their decisions: They were heavily into stocks whenever I was dubious.

What did Vanguard Asset Allocation do wrong? Apparently the fund was too much in the stock market over the last ten or so years — bad years for the stock market.

Not that Vanguard AA did disgracefully. Morningstar even defends it. The fund “has posted pretty good 15-year, 20-year, and since-inception gains. The fund has merit for investors who are seeking an asset-allocation vehicle for the long haul…”

On the other hand, the fund now gets one star, Morningstar’s lowest rating. Its performance, assessed by Morningstar, has been below average, its risk high. Over 10 years, the fund has returned a mere 2.9 percent a year. Balanced Index has returned 4.98 percent a year and gets four stars, while its performance has been rated above average, its risk below average.

Now, a lot of people sneer at market timing. They consider it a fool’s game.

There’s hard evidence that, if you’re out of the market just a relatively brief time, you’ll lose much of the benefit of a subsequent rally.

Besides, people who make a spectacularly correct call usually proceed to fall on their faces. (I can’t even remember the name of that woman who got out of the market before the 1987 crash and became famous. Briefly.)

Yes, it’s hard to predict how the market will do. Because investors can behave unpredictably. Right after the crash of 1987, I was interviewing a famous investor, Mario Gabelli. I was in shock. “Mr. Gabelli, it occurs to me,” I confessed, “that I really don’t know why the stock market goes up or down.” Replied Mr. Gabelli: “Neither do I.”

So, if you want to invest in a true market-timing fund these days, what do you do? Morningstar is not enamored of any of the long-short funds it covers, like Hussman Strategic Growth. (Such funds can bet against the market.) As for market-neutral funds, Morningstar rates both Arbitrage R and Merger above average. Both follow a merger-arbitrage strategy.

Another choice would be Vanguard Balanced Index, the heir of Vanguard Asset Allocation. It practices a very modest kind of market timing. The fund intends to be 60 percent in stocks and 40 percent in bonds, and when the markets’ behavior makes the fund veer from these targets, the fund rebalances. So it will put more into stocks when stocks decline, more into bonds when bonds decline. A sensible form of market timing.

To receive Warren Boroson’s column regularly, drop him a note at WGBoroson@gmail.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

RECENT COLUMNS BY WARREN BOROSON

Timing the Stock Market: Why 2012 is a Key Year

Posted in Articles on February 28th, 2012 by Renn Valo

 

By Bob Stokes
Wed, 29 Feb 2012 17:00:00 ET
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Get Elliott wave insights like this article when you sign up for EWI’s free email newsletter, The Independent. It will change the way you view the markets forever. Privacy

 

Fibonacci numbers follow a sequence that begins with 0 and 1, and each subsequent number is the sum of the previous two (0,1,1,2,3,5,8,13,21,34,55,89,144 and so on).
This famous sequence reflects the Golden Ratio 1.618 (or .618), a proportion one can observe in the shape of galaxies, ocean waves, the human body and face, molecules, and throughout the natural world.
Among the many examples of Fibonacci in nature is the world’s fastest animal, the Peregrine Falcon.
This bird does not comprehend the Fibonacci sequence, but it instinctively applies the Golden Ratio as it approaches its prey at over 200 miles per hour.
You see, the Peregrine Falcon doesn’t dive straight down when aiming for prey. It approaches its meal in a logarithmic spiral.
You might think that descending in a spiral would take longer than plummeting straight down. Not so, because a straight-diving Peregrine would have to shift its head to the side to constantly keep the prey in its field of vision. Duke University’s Professor Vance A. Tucker observed:
Although the spiral path is longer than the straight path, a mathematical model…shows that the falcon could reach the prey more quickly along the spiral path because the speed advantage of a straight head more than compensates for the longer path.
The Peregrine Falcon descends in a logarithmic spiral that is similar to the one imposed over this idealized stock market price pattern below (note how the spiral demarcates the market’s trend changes):

Can we both theorize and observe that the stock market operates on the same mathematical basis as so many natural phenomena? The answer is yes…The Fibonacci sequence governs the numbers of waves that form in the movement of aggregate stock prices…
….Does the Fibonacci-based behavior of the stock market reflect spiral growth? Once again, the answer is yes. The idealized Elliott concept of the progression of the stock market, as presented in [the figure above], is an excellent base from which to construct a logarithmic spiral…In this construction, the top of each successive wave of higher degree is the touch point of the exponential expansion…
Elliott Wave Principle, pp. 122 and 125
Co-authors A.J. Frost and Robert Prechter continue this line of thought a few pages later:
…market action is governed by the Golden Ratio. Even Fibonacci numbers appear in market statistics more often than mere chance would allow.
….the Wave Principle suggests the idea that the same law that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse.
Elliott Wave Principle, pp. 127-129
Yes, Fibonacci-based patterns appear in market prices time and again — and even in the time spans between major market junctures. In other words, Fibonacci math can be useful in stock market timing.
Inside the latest Elliott Wave Theorist, you’ll find five pages devoted entirely to stock market timing. We suggest that you read this useful analysis so you can find out why 2012 is such a key stock market year.

 

Jumping into stocks? Have a plan first

Posted in Articles on February 17th, 2012 by Renn Valo

By Walter Updegrave @Money February 17, 2012: 1:34 PM ET

NEW YORK (CNNMoney) — With the stock market up almost 4.5% last month, the best January since 1997, I’m becoming more confident about the stock market and thinking of cashing out CDs and putting about $100,000 into stocks. Is now a good time to do that? — Nick

If you’re thinking of investing in stocks as part of a long-term strategy that includes not just a broadly diversified portfolio of equities but bonds (and perhaps other assets as well), then now’s as good a time as any to get started. But if you’re ready to throw $100,000 into the stock market because you believe January’s strong performance is the start of something big, then you’re making a mistake.

Yes, I’m well aware of the “January Barometer,” which basically says that if stocks do well the first month of the year then the market will be up over the following 11 months. But I consider the January Barometer just another example of data mining, or the dubious practice of poring over historical data in a desperate search for patterns and relationships that will predict future performance.

The investing world has long been fertile ground for all sorts of wacky forecasting models — the Super Bowl indicator, Sports Illustrated swimsuit covers, butter production in Bangladesh, etc. — and will continue to be, if for no other reason than computing power that can crank through masses of data.

But these indicators mostly show correlation or chance rather than causation and have little or no predictive power, which was what this study conducted by economics professors at Massey University in New Zealand found when they examined the January Barometer in the U.S. and 22 foreign stock markets.

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I also don’t think you or other individual investors should view Warren Buffett’s recently publicized paean to stocks as a reason to jump into the market now.

I have great respect for Buffett and share his upbeat view on the prospects for stocks. But it’s not as if he’s making a market timing call, as if he thought stocks were too dangerous to own before but it’s okay to load up on them now. His Berkshire Hathaway (BRKA, Fortune 500) has long invested billions in wholly-owned business, as well as stocks.

But even the mighty Buffett keeps billions in Treasury bills for ready cash. And before investing in stocks, individual investors need to consider not only liquidity needs but how much they might want to insulate themselves from the market’s occasionally violent convulsions by holding bonds and cash.

Best New Money Moves

All of which is to say that before you start pouring your CD stash into equities, take a little time to answer a few key questions: How much of your dough should you set aside for immediate needs or emergencies? Whatever that amount is, it should stay in short-term CDs, savings accounts or high-quality money funds.

How long will the rest of your money remain invested? The longer that is, the more you can likely afford to invest in stocks; the shorter your investing time horizon, the more you’ll want to devote to bonds and cash.

0:00 / 1:59 My panicked trade

Also ask yourself: How anxious would you get watching the value of your stock holdings occasionally decline by 20% or more? If you’d freak out, you may want to scale back the amount you’d devote to stocks.

Translating these issues into an actual portfolio is as much art as science. But you can increase your chances of ending up with a mix of stocks and bonds that reflects your needs by going to a tool like Morningstar’s Asset Allocator, which will give you an idea of how different blends might perform. And to create a stocks-bonds mix that’s appropriate for the money you’ve earmarked for retirement, check out a tool like T. Rowe Price’s Retirement Income Calculator.

Instead of asking whether now is a good time to invest in stocks, you should ask yourself what role stocks should play in your investing strategy based on your financial goals and tolerance for risk. I can guarantee you that the stock market’s performance in January — or, for that matter, any other month — will have absolutely no bearing on the answer.

I say "Focus on the market first then buy or sell good stocks accordingly" – interesting article from Seeking Alpha:

Posted in Articles on February 17th, 2012 by Renn Valo

Focus On Stocks, Not The Stock Market (Difu Wu from Seeking Alpha) –

Too many investors can’t see the forest for the trees. Being too focused on the general stock market, trying to time the market’s ups and downs, they lose sight of the simple fact: In the long run, stocks go up as earnings go up. Let us contrast the earnings of two types of stocks:

Type A: The Cyclical Stock

The cyclical stock is one whose earnings fluctuate with market conditions. In favorable market conditions, earnings and stock price go up; P/E may be low or high, depending on whether the earnings go up more or less than the stock price. Then recessions or depressions come, and the stock price drops along with earnings; P/E may be low if stock price drops more, but could be deceivingly high if the earnings drop more. Many of the Dow (DJIA) stocks fit into this description, for example, DuPont (DD), General Electric (GE), and Alcoa (AA). Below are the earnings-per-share of these three companies over the past 10 years.

Earnings-per-share for DuPont (DD), General Electric (GE), and Alcoa (AA), 2002-2011.

Year DD GE AA
2011 3.68 1.23 0.55
2010 3.28 1.14 0.26
2009 1.92 1 -1.05
2008 2.2 1.78 0.28
2007 3.22 2.2 3.24
2006 3.38 1.86 2.54
2005 2.07 1.64 1.43
2004 1.76 1.59 1.56
2003 0.99 1.4 1.2
2002 1.83 1.52 0.61

Sources: MSN Money; SEC 10-Ks.What these three companies have in common is that their earnings rise and fall with the economy, down from the recessions of 2002-2003 and 2008-2009, and up in the favorable market conditions of 2006-2007. DuPont’s earnings have fallen in 4 of the past 10 years, General Electric’s in 3, and Alcoa’s in 3. They differ, however, in the extent of their cyclicity. Dupont is only mildly cyclical, as earnings remained positive in all the past 10 years, and show an up trend. General Electric is more cyclical, as earnings remained positive, but show greater variability and no gain over the past 10 years. Alcoa is the most cyclical of all, with earnings turning negative in 2009, and no gain over the past 10 years.

Most Dow stocks are cyclical. Those that are similar to DuPont include Exxon Mobil (XOM) and Caterpillar (CAT). Those similar to General Electric include Pfizer (PFE) and Merck (MRK). Those similar to Alcoa include Verizon (VZ) and Bank of America (BAC).

Type B: The Defensive Stock

The defensive stock is the opposite of the cyclical stock. The defensive stock company sells products or provides services that are in demand in both good and bad economies. Earnings show consistent growth every year with few exceptions, in both favorable and unfavorable market conditions. As a result, the stock price also tends to go up consistently, producing consistent returns. Within the DJIA, Procter & Gamble (PG) would be a good example. Take a look at the earnings-per-share of Procter & Gamble over the past 10 year.

Earnings-per-share for Procter & Gamble, 2002-2011.

Year PG
2011 3.93
2010 3.53
2009 3.39
2008 3.4
2007 2.84
2006 2.45
2005 2.28
2004 2.15
2003 1.85
2002 1.54

Sources: MSN Money; SEC 10-Ks.Procter & Gamble shows minimal cyclicity, with earnings increasing in each of the past 10 years, except for year 2009. Even for year 2009, the decrease is very small.

Other defensive Dow stocks include 3M (MMM), Coca-Cola (KO), McDonalds (MCD), and Wal-Mart (WMT).

Which of the two types of stocks make better investments?

That depends on the investor’s time frame. Take a look at the short (3 years), intermediate (10 years), and long term (30 years). (Note: For speculators with much shorter time frame than 3 years in mind, earnings do not matter nearly as much as technical analysis and investor psychology.)

Short-Term Performance Comparison of Procter & Gamble, DuPont, General Electric, Alcoa, and the S&P 500, February 20, 2009 to February 16, 2012.

Source: Google Finance.

Since 2009, cyclical stocks like General Electric and DuPont have done very well, doubling or tripling from their recession lows. Alcoa also did very well in the initial 2 years post recovery, but has since come down. Procter & Gamble, a defensive stock, underperformed not only the cyclical stocks but also the general market, as represented by the S&P 500.

Intermediate-Term Performance Comparison of Procter & Gamble, DuPont, General Electric, Alcoa, and the S&P 500, February 22, 2002 to February 16, 2012.

Source: Google Finance.

For the past 10 years, however, the story is markedly different. Procter & Gamble, the worst performing stock over the past 3 years, outperformed not only the cyclical stocks, but also the S&P 500. The cyclical stocks, on the other hand, underperformed the S&P 500. Stock prices roughly reflected earnings: those with earning increases over the past 10 years (PG and DD) gained, while those with earning decreases over the past 10 years (AA and GE), dropped.

Long-Term Performance Comparison of Procter & Gamble, DuPont, General Electric, Alcoa, and the S&P 500, February 19, 1982 to February 16, 2012.

Source: Google Finance.

Over the long run, since 1982, stock price essentially reflected earnings, and Procter & Gamble, the defensive stock, is the best performer. Alcoa and DuPont underperformed the S&P 500. General Electric significantly outperformed until 2000, but has since declined as its business model deteriorated, and its earnings suffered.

Conclusion

Investing in cyclical stocks require market timing. Investors in a cyclical stock must know not only when it has hit a bottom in a business cycle, but also when it has hit a top. Correct timing means great short term profits. DuPont has more than doubled from three years ago. Alcoa doubled in 2 years from its 2009 low, but has since come down. Understanding the business cycle, buying low and selling dear, is the key to cyclical stock investing. Cyclical stocks are generally riskier, and more suitable for active investors who feel compelled to trade frequently and those with a short term investment horizon.

Investing in defensive stocks, in contrast, does not depend on market timing, although timing could certainly help. The key trait of defensive stocks is consistently growing earnings, which drive stock prices over the long term. Conservative investors can sleep soundly investing in defensive stocks like Procter & Gamble, without worrying too much about the stock market or whether they got their timing right. Defensive stocks are generally safer, and more suitable for passive investors and those with a long term investment horizon.

In sum, stocks vary greatly in their performance based on the nature of their earnings. Rather than focusing on the stock market, investors should focus on the individual stocks themselves, looking at earnings for the past 10 years to get a feel for the cyclicity of the stock, to see how the stock may fit with their investment horizon and risk tolerance.

Disclosure: I am long MRK, XOM, WMT.

TheStreet.com (Michael Baron)considers the over bought market – after a brief moment of selling the bulls are back in force.

Posted in Articles on February 16th, 2012 by Renn Valo

Market Preview: That Frothy Feeling

Stock quotes in this article:AAPL, ZNGA, PEET, GMCR, SPY, ^GSPC, ^IXIC, ^DJI

Updated from 8:13 p.m ET to include added analyst commentary on Peet’s and Moody’s decision to downgrade a number of European countries.

NEW YORK (TheStreet) — Timing is either everything or nothing apparently. Maybe it depends on when you consider the notion.

On Monday the market got back to its winning ways, reclaiming most of Friday’s losses and putting the bears on the run once more.

The impetus for the buying was fairly opaque, some combination of hand-clapping because Greece managed to fall in line with another round of austerity promises to get the money it needs to stave off default again from Europe’s leaders. Other factors were mildly favorable reviews of President Obama’s budget plan, and infectious enthusiasm about Apple(AAPL_) cresting above $500 to reach a new all-time high.

Nothing all that concrete for the broad market but the bulls were back nonetheless, maybe drawing some courage from the Barron’s cover story over the weekend that trumpeted a high probability of the Dow Jones Industrial Average topping 15,000 in two years.

The odds of the blue-chip index reaching 17,000 in that span are 50-50, Barron’s also stated, citing “cyclical patterns of market history” that it takes a full five paragraphs to reveal are the product of a single source, Wharton School finance professor Jeremy Siegel, who unsurprisingly has a book to sell.

The sentiment is fine for what it is, and data is integral to market analysis, the more of it the better usually being a good rule of thumb. But there’s something downright frothy about getting this carried away so soon. The article glosses over the current state of the U.S. economy and Europe’s debt problems, basically saying fears have subsided on both fronts so away we go.

The argument can be summed up as the last five years have been so bad on a cumulative basis, the next two years have to be really good to keep up with various patterns stretching across 141 years of equity performance. Anytime 1871 is used as a reference point for where stocks are headed in 2012, there’s some serious market timing at work.

But as anyone investing in stocks knows it’s all about when you get in and when you get out. There’s no doubting the patterns — that’s the past and it’s smart to take into account — still fundamentals matter too, especially when the U.S. is still coming out of a generational financial debacle.

Interesting article on Market Timing by Jeffrey Cooper -Time, Price, and Pattern on the S&P 500: The Message of the Monthly Chart

Posted in Articles on February 16th, 2012 by Renn Valo
Read more: http://www.minyanville.com/businessmarkets/articles/jeff-cooper-jeff-cooper-minyanville-jeff/2/15/2012/id/39422#ixzz1mbCrUiHc

Editor’s Note: The following is a free edition of Jeff Cooper’s Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.

Tooth for tooth eye for an eye
Sell your soul just to buy buy buy

– “Crossfire” (Shannon, Layton, Wynans)

The tape action yesterday played out to expectations — up to the last half hour when someone let the dogs out.

I’m sure that John and Jane Retail looked at each other with 30 minutes to go in the day and decided they just had to buy with the market at the lows of the day.

That being said, note the increase in volume on the 10-minute (SPY) just before the explosion off the low of the session.

This will embolden the bulls who have been well-rewarded for buying every dip as they disabuse the Street of the notion that discretion is the better part of valor in a stretched-out market.

For the bears’ part, they’re used to getting slapped around as the market has come back from serious setbacks in the summer of 2010 and 2011 like Wylie E. Equity off a Debt Cliff. It will be interesting to see what happens to psychology from a break into Complacency Chasm as crashes don’t occur from irrational exuberance but from excessive complacency.

I say stretched out because since December 19, the S&P has not shown more than one to two days against the trend. While this is the hallmark of momentum moves, a rubber band stretched beyond a point will snap back in your face — no matter how slow the stretch.

Sentiment levels are above those of the October 2007 all-time highs while the S&P is 200 points below those levels: Is that a bearish divergence, or does it suggest that if there is this much bullishness below the all-time highs, that the market has room to run?

My view is that market participants speak their book, and high levels of bullishness imply that those that want to buy have bought for the most part.

Current levels square out many highs in recent history and there are major cycles due to exert their influence to the downside as well.

While a market can rally substantially on light volume, which has continued to be meager and dry up in this advance, if we see a sharp break, it’s anybody’s guess as to where bids will show up in any kind of size.

It’s important to remember that stampedes can happen on low volume, too.

The bullish case is underpinned to the idea that an upside stampede is imminent, luring in all the sidelined money ensnared with near-zero returns in bonds, driving the stock market to new highs. Anything is possible, but in reality history shows that volume doesn’t come in until the final LOW — not at the TOP.

While “the trend is your friend” is a cliché, clichés are so called because they are often true. Following the trend and staying with the market has rewarded the bulls, but the last 12 years have shown the benefit and necessity of market timing: cycle analysis has proven its value.

While momentum moves in the market embrace another cliché that reminds me of a former girlfriend who knew the price of everything but the value of nothing, as legendary trader Bernard Baruch said, “Speculation is about anticipating the anticipators.”

And Facebook founder Mark Zuckerberg admitted “I have no idea what a company should be worth.”

As we saw in the summer of 2010 and the summer of 2011, the market turns on a dime; most traders cannot and most institutional investors will not.

Readers of my articles, and subscribers to my service (free trial), are familiar with the shorter-term and intermediate-term time and price square-outs around current levels, and around this timeframe.

The big picture decennial cycles show a top for the year in February 1962 on the 50 year cycle (600 months).

Ten years ago in 2002, the S&P found a high for the year in the first quarter as well, collapsing into October.

On the 75-year cycle harmonic (900 months) of the 50-year cycle, from 1937, shows tops in early March.

Following the first little sell signal (Train Tracks) in late January, I assumed that an initial top would likely lead to a multi-week correction followed by one more push-up into March. Although not particularly shallow (33 S&P points), that correction proved to be just one more multi-day correction.

But here’s what’s interesting:

From the big October 27 high (which long-time readers will recall was a forecasted major trading day square out) to the breakout over the Neckline of an Inverse Head & Shoulders on January 3 was 66 days.

Another 66 days from January 3 projects to the end of the first week in March. Of course March 6, 2009 was the low at 666.

After the November 25 low came an Expansion Pivot buy signal on a strong thrust through the 50 day moving average. The first correction following that signal bar was 66 S&P points into December 19.

In other words, the first correction after a big-buy signal was 66 points and around 10 days.

Now, as noted above, we had a first little sell signal on January 26 that saw a decline to 1300 S&P.

A run-up of a symmetrical 66 points gives 1366. Basically a double top with last May’s 1370 high.

Finally, from the major April 2010 high at 1220 to February 22, 2012 (2/22/12) is 666 days.

That’s a lot of 6’s squaring out. That’s a lot of vibration with the low and the upcoming third anniversary of that low. Many market participants think of anniversaries as voodoo technicals; however, the third anniversary of the November 2008 crash low proved pivotal.

In addition, apart from the 2009 low, the first week of March or so also ties to the anniversary of major turns in 1937 (high), 2000 (high) and 2003 (low).

Given the symmetrical 66-point decline that shook the tree after the first buy signal, is the S&P carving out a mirror-image foldback of 66 points following the first sell signal in the short term that has squeezed players that will define the longer-term cycle highs?

As regards to the big picture, my takeaway is that if more than a nominal new high above the 1370 high is achieved — let’s say an authoritative move over 1400 — the S&P is probably heading for the all-time high.

This is the message of the monthly chart.

From the 666 low to the important 1220 high in April 2010, which was the first primary high since March 2009, is a 554 point range. From the 2010 low at 1011 plus a symmetrical 554 points gives 1565. This of course ties to the all-time high in October 2007 at 1576. Got geometry?

Now, from the closing low of 735 in February 2009 to the 1220 high is a range of 385 points. 385 points plus the 1011 low gives 1396 S&P.

I think a close above 1400 with authority implies a third drive up to the all-time high, and that the lows in the summer of 2010 and 2011 were double bottoms supportive of that move.

Note the turndown of the three-month chart in the summer of 2010 defining the 1011 low in price, and the large range outside-up month last October that followed a ‘test’ of those lows.

Also, note the large range outside-up month in July 2009, which saw the S&P run up another nine months following a reaction after six months.

My advice: watch these 3, 6, 9, and 12-month harmonics. Yesterday, a trading bro pinged me to remind me that February was a big high for European stocks.

A weekly chart of the S&P shows that last year’s high was defined by an Up Down Up Sequence in the 3-Week Chart. After the chart flipped down the second time, the market waterfalled. Note that this occurred just below the 1300 level, which ties to the big late October squareout high last year. Following the breakout over that high near 1293 put the market in a strong position, underscored by the behavior on the first weekly turndown 3 weeks ago that left a bullish outside up week.

Conclusion

Currently there is no ‘rapid flipping’ of the 3-Week Chart. However, that is not a requirement for a top, it is just one potential pattern to be factored in.

More important I think, is the pattern on the monthly chart which may carve out 3 drives to a high on a nominal new high above 1370. And it’s possible that a failure to exceed the last swing high plays out within the spirit of 3 drives to a high.

That is why this time period into March and the idea of a nominal new high or a breakout is so critical here. There’s good news and bad news. As I see it, either a third drive will play out somewhere between here and 1400, OR a leg up to the all-time high will carve out a larger third drive up toward 1550/1600, completing what is probably a quite bearish run of triple tops from 2000, 2007.

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John Paulson proves the difficulty of timing the markets – interesting article, too bad Paulson didn't use OBOSS to help him time the markets!

Posted in Articles on February 15th, 2012 by Renn Valo

By Nathaniel Popper

February 15, 2012, 8:24 a.m.
Reporting from New York —

Investors are supposed to buy low and sell high, but the psychology of markets often leads them to do the exact opposite, buying just as a stock reaches its peak and selling when it bottoms out.

This is not true for just naive retail investors, as hedge fund magnate John Paulson proved in his latest regulatory filings.

At the beginning of last year, Paulson, who became wildly rich with a bet against the subprime housing market in 2008, was expecting Bank of America stock to hit $30 by the end of 2011. Instead the stock dropped over the course of the year to around $5. Paulson’s big stake in the bank was one of many bad stock picks that helped lead one of his most high-profile funds to a 52.5% plunge last year, DealBook reported.

The regulatory filings Paulson submitted Tuesday show that the pain finally became too much, leading Paulson to bail out of his Bank of America position in the fourth quarter of last year, selling his $400-million stake in the company.

Any frustrated investor can guess what happened next. Yes, Bank of America bottomed out just as Paulson was selling, and shot up in the new year, rising 43% as of Tuesday.

The filings submitted by other hedge funds Tuesday show that several prominent managers had better luck timing the markets. Eric Mindich’s Eton Park fund was buying Bank of America just before it began its surge, Reuters reported. And David Tepper, who correctly timed the bank comeback in 2010, bought a bunch of shares in Apple in the fourth quarter of 2011, just before its jump in the new year.

But Paulson’s experience is a good reminder for every home investor who thinks the simple key to investing is good timing. Last year Paulson wasn’t the only brilliant hedge fund manager who struggled. Hedge funds on the whole lost 4.8% last year, according to Hedge Fund Research, in a year when leading U.S. indexes were up.

It is enough to recall a recent survey by the Initiative on Global Markets in which 0% of economists said that they believe investors can “consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day.”