Friday, April 27, 2012

Party Like Its 1999

I have been observing the price action this year and a clear theme is emerging.  Money managers are running out of "safe" places to earn returns, with Treasuries earning peanuts and rates at zero.  They will not touch Europe.  They had an infatuation with emerging markets but subzero returns for the past two years in the BRICs have them reluctant to put more down the money pit.  They are crowding into the U.S.  And with low growth, anything that offers growth  will be priced at a premium and will outperform.  During the later stages of a bull market, value stocks lag as growth stocks continue their surge higher.

Within the U.S., they have found their object of affection.  It is the same as a dozen years ago.  Tech.  We have come full circle from love to hate to apathy and now back to love.  You know what the catalyst is.  It's the golden one.  AAPL.  The parabolic rise of a company with a market cap in the hundreds of billions has only been seen one other time.  1999.  Those kind of moves will attract fund managers in droves.  Yesterday's AMZN earnings weren't even all that great but it beat lowered expectations and it squeezed the shorts, like 1999.  FB is going to IPO in May.  With its low float, it should fly higher as fund managers scramble for anything tech and growing.

We are witnessing a rebirth of the chase for tech.  An emerging bubble.   It will be contagious.  Tech fever is coming back.  During the late stages of a bull market, tech stocks have a history of outperforming.  It is something we saw during 1998-2000, the internet bubble, but also in the fall of 2007, when the Nasdaq was outperforming the S&P before the cliff dive.  The Nasdaq outperformance has already started this year, but it will only get more extreme as the places to hide shrink further and further.  

Thursday, April 26, 2012

Correction Over

It was fun while it lasted, but they never last long, do they?  LOL.  We got our 2 week correction, now it is back to grind the shorts mode for the market.  I expect sleepy trading for the next month, along with new yearly highs for the ES.    I enjoyed the brief bit of action, now its time to go back into hibernation on the stock side and look for other fish to fry. 

More Work to Do

We are not done with this correction.  Maybe we would be if BB brought out his BBs.  But it was a tape recording of the last FOMC meeting and that is not going to pacify the scarecrows in Europe.  I am already seeing Europe deteriorate.  Unlike previous corrections in the S&P, I never saw Europe underperform the U.S. to such a large extent.  U.S. stocks are down about 3% from the high, Europe is down about 12%.  They said there is no decoupling in the global markets, but the past year has been proof that is false.  Until the U.S. market reflects some of the panic and bearishness out in Europe, this correction will continue.   Expecting weakness for the rest of the week.

Wednesday, April 25, 2012

Banana Bullets

Banana Ben is due up.  This AAPL news caught a lot of shorts off guard.  And with BB set to babble, they will want to square up positions for fear of further squeezing.  I am expecting a strong morning session as the shorts scramble over each to cover.  Then we'll probably flatten out for the rest of the day.  Perhaps we'll get slight weakness off BB, I expect him to save his banana bullets for a more urgent situation.  So same old, same old.  Tomorrow could see profit taking, depends on how today plays out. 

Tuesday, April 24, 2012

AAPL Nails the Bears

Traders never learn.  You can't fade AAPL.  They are serial sandbaggers and they ALWAYS crush their estimates.  You could see this coming from a mile away.  You had the worry warts selling down the stock based on channel checks and AT&T and Verizon numbers.  But they forgot to check the channels overseas!   Traders are underinvested here.  This AAPL beat will get the fund managers scrambling for stocks in the near term. 

Monday, April 23, 2012

1360 Buy Zone

We are in a strong area of support around 1360 and the risk reward for buying stocks right now for a swing trade is excellent.  I am adding long exposure into the gap down, expecting a move back to last week's highs ahead of Apple earnings on Tuesday afternoon and the FOMC meeting on Wednesday.  European scarecrows have beaten down the market, Americans will gobble up the discounted shares quickly. 

Thursday, April 19, 2012

Getting Ugly

I am waiting for that zone, we are fast approaching the buy zone.  It looks like no one wants to hold risk overnight, with Europe trading horribly.  A gap down tomorrow would be a buying opportunity.

Doesn't Want to Come Down

Market had all kinds of reasons to selloff today and we are positive, with the dip and run scenario.  Too many shorts out there, they are running over each other to cover.  Probably will have to wait for early next week for a selloff down to 1360.  Today we should just keep trending higher for the rest of the day.

Wednesday, April 18, 2012

Waiting to Buy

Still not convinced that we have a lasting bottom just yet.  Perhaps tomorrow or Friday we can have a buying opportunity, but I'm waiting for more weakness.  ES 1360-1365 is an area of strong support you can buy into with decent risk reward.

Panic in Spain

The European scarecrows are at it again.  Spain IBEX stock index is getting clobbered already after yesterday's short squeeze.  They are scared stiff about Spain.  Tomorrow's Spain 2 year and 10 year bond auction is on the radar of traders.  Yesterday was a one day wonder.  The correction is more than half way through, but it needs a bit more time.  The nimble traders can play it short for today, but I wouldn't overstay the short side.

The bulls used up their ammo yesterday and Europeans covered their shorts after the Spain bill auction squeezed them.  I am still looking to buy dips, but after yesterday's rally, will likely wait for either the end of today or tomorrow. 

Tuesday, April 17, 2012

Do Not Fade the Gap Up

This one looks like the real deal.  We got liquidation in the tech names yesterday and now we're coiled for a bounce back today.  I expect a gap and run day.  Even though we should close near the highs today, I think it will just be a one day wonder.  Still more work to do in this correction.

Monday, April 16, 2012

Mission Almost Accomplished

The favorites that the fund managers didn't want to sell was tech.  Now that they are in liquidation mode, they are dumping AAPL and assorted Nasdaq names.  It is getting late in the selloff, any day now we will have a face ripper of a snapback rally.  Probably sometime this week.  You have to add long exposure soon before we rip higher. 

Friday, April 13, 2012

Getting Interesting

We are finally seeing volatility in this market.  You don't see a sharp decline into the close unless there is fear.  Traders do not want to hold stocks overnight, because all of the negative catalysts are overseas.  It was odd to see the ES sell off on the Chinese GDP report when Chinese shares actually rallied after the initial dip.  Europe is a black hole, but everyone knows this and the ECB will paper things over when the market begs for it.  Longer term, a very bearish picture is developing, but we shouldn't jump the gun.  I still see this as a dip to buy (US stocks only) because of the extreme strength of the trend and the limited time we've had to consolidate this up move. 

The global equity rally is narrowing more and more, now its basically just US equities going up, and within US equities, mostly just tech carrying on the show.  This will end badly because a stock like AAPL has nowhere to go but down now, it is so oversaturated in its market and margins will get squeezed.  But the market will be in denial as fundamentals deteriorate as is usually the case.  There is still more time to go in this rally before the train gets full.

Thursday, April 12, 2012


The market is bottoming.  We got the strong rally off 1353 and this confirms that we're going to eventually go higher.  But I do believe that we have to consolidate this bottom for a few more days before we can go back to new 52 week highs but eventually we'll be back to 1420 and higher.  It will be hard for this market to break 1350.  Those looking for 1340 and lower are begging to get squeezed when we finish this correction. 

Wednesday, April 11, 2012

Reduced Risk

Still long, but cut down exposure today to add more on another dip towards recent lows.  I am still very constructive in this market, but the snapback rally will happen later than I originally expected, probably 1-2 weeks away. 

Monday, April 9, 2012

Fading Scarecrows

The lower than consensus jobs number is a blessing in disguise.  The market doesn't need more jobs.  The market needs more free money.  QE3 will always be lurking with these kind of jobs numbers.  The scarecrows will be chirping loudly today.  Their moment to shine has come, finally after repeated beatings.  But it will be fleeting.  By next week, we should be back towards 52 week highs.  Getting long and blocking out the noise from CNBC and the financial media.  Earnings expectations are surprisingly low, considering the monster rally.  Earnings should be a catalyst for further rallying.  The UPOD strategy by CFOs will fool the sheep again into thinking that earnings are good.  That should be good for a quick bounce off this dip.

Thursday, April 5, 2012

Buy This Dip

Getting long this dip, expecting more upside after the long Easter weekend.  If you don't have bad news, you don't get a buyable pullback.   Europeans are scarecrows, they get scared easily, and are dumping their stocks wholesale ahead of the Easter weekend.  Remember, they have Friday and Monday off.  They want to lighten up on risk, even at firesale prices, ahead of the long weekend.  Spain has spooked them.  We are getting the bad news (Fed minutes/no QE3, Spanish bond weakness) and you have to buy the dip.  It works till it doesn't.  I am betting that it works for a while longer because of the strength of the uptrend.  It is like late 2009, this strength.  2009 shook the tree and took out weak investors.  2011 did the same thing.  You had to buy pullbacks in November/December 2009.  If you were early, you could just ride it out because it went higher eventually.  Same thing here.

Wednesday, April 4, 2012

Getting Dangerous

I am still constructive on this market, and expect all dips to be buying opportunities.  But the easy dip buying money is gone.  The dips going forward will be trickier, probably deeper, and won't bounce back so quickly.  The market is getting saturated.  The longs have been gradually adding exposure and eventually that will weigh heavily on the market when the potential investor supply dries out.  I am expecting the sell in May and go away crowd jumping the gun and selling this month.  I am already looking forward to the FOMC meeting three weeks away, on April 25.  I expect nothing from Banana Ben and that should disappoint the crowd.   That could be a catalyst for longs to capitulate and form a bottom for us to run higher into the summer.

Tuesday, April 3, 2012

Dip Buyers vs. Scarecrows

Right now there is a battle going on in this market.  We have a large group of potential buyers waiting for a dip to buy stocks or cover shorts.  The smaller group are those that have gotten in reluctantly into this market following the trend, without much conviction.  They will sell for quick gains or cut their losses quickly.  These two will be battling it out over the coming weeks, the dip buyers prevent the market from going down much, but the scarecrows don't want to chase this market higher and are quick to take profits.  So we're at a stalemate, and I expect it to continue for the next 2 weeks, trading in a tight range.  I would not be surprised to see this market trade in a 30 point range over the next 2 weeks, not 2 days.

Monday, April 2, 2012

Nat Gas Ginsu

Early in my trading career, I had a fascination with buying stocks in huge downtrends hoping for a bounce.   If you liked it at $2.50, you'll love it at $2.  I quickly realized it was not the right strategy for me and I seized looking at the percentage losers list to find buy candidates.  Individual stocks have a strong tendency to trend, especially when they have been going down for a long time.

But, I make exceptions to this in the case of commodities.  It is about that time. Time to bring out the Kevlar gloves to catch that knife.  I am bearish on natural gas but short term patterns are coming into play here setting up a huge dead cat bounce.  We have a capitulation chart pattern where the NG May 12 contract previoius support at $2.30 held for several weeks, consolidating the down move, and then support gets broken in a big capitulation move lower, usually on bad news.  We got the bad news with the bad inventory report, and with it being the end of the quarter last week, you saw a lot of forced selling artificially deflating prices.  This presents an opportunity to buy the falling knife for a swing trade.  Natural gas could reach $2.60 within 2 weeks.