Showing posts with label stock market. Show all posts

Monday, June 4, 2012

Bear Market Is Here

Stock Market Cliff | Bear Market

Last week was a horrible week for markets and it ended on the worst day of the year in 2012. It is very bad fundamentally from a Europe debt and currency standpoint and from a slow growth and double dip recession view. Spain and Greece are in deep trouble and there don’t seem to be any strong and practical solutions coming forward anytime soon.

And, it is also in a very bad state based on the charts using technical analysis. Whenever a market loses more than 10%, it is a bear market by our standard. The S&P 500 has now lost 10.5% from the high on April 2, 2012. It is also extremely bearish when the markets close below their 200 and 250 SMAs. That happened on Friday on all 3 major US markets. The heavy selloff was fueled by a terrible US jobs report. The Labor Department reported the U.S. added a paltry 69,000 jobs last month falling well short of estimates calling for an increase of 160,000. The unemployment rate moved up from 8.1% to 8.2%.

The only ray of hope this week is that there is typically a bounce around these moving averages on the first level test so a few bulls may be lurking in the short term. However, if the markets close this week without the ability to get any buying above the 200 and 250 SMAs, then a repeat of the steep summer drops from 2010, 2011, and maybe even 2008 are likely and can’t be ruled out. From our studies in technical analysis, breaking through these 2 key moving averages can be like dropping off a cliff with quick and heavy selling pressure.

The Europeans are simply moving way too slow for investors. A big European meeting is happening at a June 28-29 EU summit, but that may be too late. German Chancellor Angela Merkel is now pressing for a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice. She is also seeking a coordinated European approach to reforming labor markets, social security systems and tax policies. Until states agree to these steps, the officials say Berlin will refuse to consider other initiatives like joint euro zone bonds or a “banking union” with cross-border deposit guarantees. That kind of strong and unreasonable stance just won’t work for the markets. Finally, Germany’s insistence on gold bullion as collateral for supporting debt relief measures kicked off a strong gold rally on Friday.

The European politicians and the ECB need to act very soon if they want to help lessen the severity of what could be another financial collapse later this year or possibly much sooner. It is hard to predict at this point how it would compare to 2008 but it definitely will crush investors with too much equity exposure. It is not too early to start playing defense, raising more cash, and reducing equity risk.

As long as the Euro currency keeps falling and Europe has bank runs, stock markets are at a huge risk for a sharp selloff. It could happen anytime, it could involve a massive down day, and the depth could be 10% to 30% or more over the next several months if the right safety measures by the world’s central banks and funding organizations aren’t taken. Continue to RAISE CASH andREDUCE EQUITIES.

Here are the key levels for the S&P 500. More weakness this week could create a technical bounce between 1250 and 1260 but selling probably resumes after that without any positive European news.

More Selling Ahead:

Power Stock Picks:

MR is still looking at shorts. Here are a few more in addition to last week’s picks.

Investor Notes:

Gold and silver had strong bounces late last week and they may have higher to go in the short term. Oil is still looking for a bottom and investors can scale in on any more weakness a little at a time. The caution alert for retirement accounts and investors is still present. Selling more equities to protect from more heavy selling is prudent at this time, especially if you can take advantage of selling at higher prices during a market bounce. Make sure to be ready to sell even more in case the Euro completely unravels and takes the markets down hard.

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Good luck in your trading and investing,

Keith Hugenberg

CEO Jalexa Trading Consultants, LLC

Friday, May 18, 2012

Stock Market Caution Alert

Stock Market Update Caution Alert

Gold and silver bounced up today as we expected from being oversold and with some short covering. Hopefully they are putting in a bottom and base now. Natural gas sold off early but recovered and unleaded gasoline and WTI Crude Oil held steady. We are still looking for a bounce for gas and oil fairly soon as well.

As for the US markets, the DJIA was up almost 90 points in the futures last night and a good bounce seemed likely today. Unfortunately more scares of runs on European banks and poor US domestic data this morning gave the short sellers ammunition. The very oversold markets continued to move towards the support target we expected near 1,300 on the S&P 500 – just much faster than anticipated.

The problem now is that there are very few buyers willing to step in front of the cascade down. It has the earmarks of some panic selling from funds to avoid the big 6 week stock market losses that we had the last 2 years (May 1 to June 16).

The only positive as we indicated last night is that our oversold indicators are hitting the buy triggers that could start a short squeeze back up starting tomorrow. But the weekend is always dangerous to hold longs with this negative cycle in place.

Facebook’s IPO could help trigger some upside stock market momentum tomorrow but our S&P 500 forecast points to a move lower to the 1,285 to 1,275 area (1,279 is the 200 SMA and next strong support). That would complete the Head and Shoulders Pattern retrace that we have been showing on charts for several weeks. It may happen next week without any good European news – like guaranteed deposits in banks, etc.

We wish we had better news but the Eurozone is unraveling and there doesn’t seem to be any answer close at hand. It could get much worse from here so scaling back even more on your equity exposure on any bounce is recommended. Cash is always a good position until more certainty comes in.

STOCK MARKET CAUTION IS WARRANTED FOR NOW!

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Good luck in your trading and investing,

Keith Hugenberg

CEO Jalexa Trading Consultants, LLC

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Thursday, March 15, 2012

Stock Market Breakout Holds | Commodity Value Stocks

Technical Breakout Holds and Commodity Value Stocks

The market bulls overcame the key levels finally this week with a strong breakout yesterday. After numerous failures at these levels and a selling scare last week, the buyers reacted positively to the Fed comments yesterday along with some important bullish action in the financials.

We have been watching for 5 things to get more bullish overall about the market at these highs. It is one thing to get near old highs but it is another to get a breakout to new highs. The rule of thumb in markets is that new highs usually lead to more upside.

The five things we are watching to give us a bit more confidence about the technical breakout are:

1) The major markets need to hold their breakout levels (1,375 S&P 500; 3,000 COMP; 13,000 DJIA) – today was a good pause and hold day above them and these levels NEED TO HOLD going forward.
2) The financials have to participate for a more sustained move higher – yesterday was a huge breakout technically for financial stocks and it was good for investor confidence with a passing of their stress tests.
3) The DOW transports and the Russell 2000 have bounced strongly to close the huge divergence with the rest of the markets. This had to happen to push higher instead of having the major markets be pulled down with their recent weakness.
4) Oil prices needed to stabilize and that has happened in the last 5 days.
5) The long term treasuries needed to show significant weakness (selling) to signal the big institutions are finally more comfortable about putting money back to work in equities. That happened in a big way the last 2 days with strong selling and a breakdown in the TLT below the 200 SMA. The TLT could have small bounces from here but the intermediate trend is down and that is the key.

It has been an impressive move up of 6 days in a row after the selloff. However, once again we can’t provide an all clear just yet. In the short term, AAPL has gone parabolic again at close to $600 and the VIX bounced strongly today suggesting a pullback is close. A minor pullback to relieve the overbought conditions would be natural and retesting the key breakout levels for support is often very typical price action. MR has a hold recommendation right now.

Using the Power Stocks Table:
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.

Commodity Value Stocks:

Many commodity stocks in materials, energy, and agriculture and related stocks in railroads and shipping are still at some very attractive valuations. The statistics so far coming out of the US in 2012 are much better across the board. China’s growth is slowing but it is still close to 8%, and the reports out of Europe are only indicating a mild recession.

And, because oil and some refined products are going up in price, many of the energy stocks should do better going forward with earnings. This is the second list of stocks in our investor series on value stocks in these sectors. This is an excellent investment opportunity to pick up some of these stocks at real bargain prices if you hold them for 12 months or more.

Top Commodity Value Stocks:

Investor Notes:

Gold and Silver:

Gold and silver pulled back a bit after the Fed’s release and their comments this week. Investors took the news as a reduced probability of QE3 and it was supportive of the dollar in the short term. But both gold and silver are still holding their longer term trendlines and are actually tracing out bullish inverted Head and Shoulders patterns. These are strong patterns for big moves up if they play out and our recent blogs support higher prices later in 2012. It may take some patience in the short term with some choppy price action but scaling in on weakness is still prudent for long term investors in our opinion.

MR will publish a blog later this week on the inverted head and shoulders patterns along with a list of some beaten down and good value plays in the gold and silver miners. Check our our recent blogs.

Gold and Silver Game Changers

Gold and Silver Investment Supplies Dwindling

Long Term Treasuries

Also, we wrote a very important blog in February about how the Long Term Treasury Bond yields could only go up. We were in fact correct as the TLT has been mostly lower since that blog. And, the last 2 days finally started the heavy selling that we forecasted for 2012. This is good for equities as this money will be put to work in stocks and it is a vote of confidence that things are getting better. Read that earlier post and look to buy the TBT (Ultrashort Treasury) for bigger gains this year.

Time To Short Long Term Treasury Bonds – A Safe Bet

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Monday, March 5, 2012

Will Bulls or Bears Win the Stock Market Battle at Highs?

This blog will focus on the very important price levels in the stock markets and whether a battle at the former highs will be won by the bulls or the bears.

The stock markets continued to defy gravity with a very small move up last week. The S&P 500 closed above the closing high of 2011 by a few points but still hasn’t tested the 1371 intraday high from 2011. The DJIA had its second intraday high above 13,000 last week but still closed below it at 12,981 on Friday. And the COMP is approaching the 3,000 level after its close at 2,964. These are all big milestones for the stock markets that haven’t seen these levels since 2008 or even earlier for the COMP.

So now that the markets have reached these elevated levels, albeit very slowly in recent weeks, what will they do next? Here are some stats for you on the DJIA move up that started 45 trading days ago (9 weeks) on December 20, 2011. There has been only 1 day in 45 that has exceeded a 1% or more closing loss and only 1 other day more than 0.7% down. There were only 3 more days that had more than a 0.5% loss. In fact, the stock markets have had only a few small consecutive down days. The rest of the days were up days or close to flat days.

Needless to say, that is very unusual statistically for such a long and extended move without more of a pullback.Another reason to believe a pullback is near in the stock markets is that the CBOE Volatility Index is setting up a double bottom at very strong support near the 16 to 17 level. That is bullish for the volatility increasing which means that a pullback is likely very soon.

So with that backdrop in mind, the stock markets will decide this week whether they will all breakout to new highs or whether the short sellers will win. Remember that some traders and investors have been waiting for the test of these 2011 highs in the first quarter since the beginning of the year. Momentum Rider forecasted this move in their yearly 2012 forecast – although not straight up. However, we also predicted a pullback from these levels when they were reached so this week means a lot and it is very important.

Reading Stock Markets

While MR provides stock market predictions and forecasts that assist in determining the next move of the stock markets in our newsletters and subscription services, we still ultimately trade on the ACTUAL PRICE ACTION AND TREND OF THE STOCK MARKETS. In other words, while we discuss divergences in indicators and stretched stats out of the norm that would normally produce a pullback, we still buy and sell stocks based on what the stock markets actually do. But it can be important sometimes to anticipate future moves.
If the stock markets continue to trend higher and stay above their 20 SMA trendline, we will continue to recommend staying long in the stock market in the short term (see chart below). As long as the markets trend higher and stay above their 50 SMA, we recommend staying long for intermediate term traders.

It certainly seems that the improved consumer sentiment on Friday and the rest of the better than expected US data that continues to show up every week are keeping the stock market bulls happy. And, fortunately, the European and world leaders are also getting more sensible. This weekend’s report was encouraging from the G20 and also from a proposed European bailout merger plan.

The G20 finance chiefs are actively working on Germany as they try to secure roughly $2 trillion in resources by the time they next meet in April and draw a line under the two-year-old euro-zone crisis. And, a merger plan was proposed between the EFSF and ESM to create a single $1 Trillion fund and increased IMF resources would back that up. The bottom line on this “alphabet soup” is that credible plans are being formed to help secure more financial stability going forward and all of that is good for investors and confidence.

The fundamental valuation for most US stocks is still attractive based on a PE ratio of 15 benchmark. So assuming that another Euro crisis or a crazy Iran move doesn’t hit the stock markets in the next few weeks, and that the Euro plans described above move ahead, the bulls would seem to have the edge to keep moving higher. Any pullback would likely be bought quickly based on the past two months’ price action. The rising oil prices are only a minor concern at the current levels and probably won’t adversely affect the stock markets until above $115 or more.

So with that overview in mind, we still are looking at longs, and will look to buy the stock markets on pullbacks.

Investor Notes:

We wrote several recent blogs that identified gold and silver price breakouts. Here are some of those blogs and also some of the recommended ways to invest in higher gold and silver prices.

Top Gold and Silver Stocks – Junior Miners (B)

Top Gold and Silver Stocks – Big Miners (B)

Best Gold and Silver Stocks To Buy for 2012 – Large List (B)

It looks like gold is headed to $1,800 in the short term and silver to $37.00. MR is going to write a blog later in the week about a potential for silver to make a huge move later in 2012. Watch out for it as silver could be one of the best investments this year if certain events happen as anticipated.