Open Thread

Ok, so Thor stole my day.

My day.

Like I never did it to him.

:-)


“I’ve been down so God Damn long that it looks like up to me” Doors

Bloomberg interviewed Tom DeMark. A smart man, no doubt. He predicted the latest rise to 1255, and hit the timeframe exactly. This may be a misinterpretation of what he said, but this is what I got out of it.

DeMark’s looking at 1973, and a repeat of those trading times, where in 1973 there was an August 23rd low, and an 18% rise in the same timeframe that our Oct 1 low to now exhibited.

He’s saying that he’s looking for several higher closes than yesterday, (now when you read this, day-before yesterday) then back down to 1206.

Still in our trading range, but we got a little higher on the high side. I thought we might have a little higher high because of the commitment volume we had on Aug 3-6. DeMark was saying that the 4-6 sequential higher closes to come in the next few days will be a bulltrap. He also said the fall in Nov 1973 was a sharp downside move.

Me, I’ll just trade the tape. Right now, the tape is telling me we’re headed lower. See the VXX chart below. The MACD is rising, the stochastics are heading higher, we’ve crossed the (blue) short term resistance line convincingly with not enough volume for me to believe there’s conviction here. If I saw a lot of volume, then I’d say look out below. Without that volume, DeMark is likely correct we’ll see some higher closes.



DeMark’s prediction may be right. After a couple of down days, we could see a turnaround and go back up to the 1255 range and have a few higher low closes.

This coincides with Mannwich’s belief that money will be flowing from the Eurozone into the US markets and treasuries (maybe gold too). That money will peter out, and then we go lower. That coincides with DeMark’s stuff, That money may cause a few slightly up days, and when it’s done, we thump back to 1206. Remember the market is like the Queen Elizabeth—it takes some time to reverse course.

These churn markets are really hard to make money. Maybe I should get my day job back. (ha).

The last chart that Thor wants to throw up (*burp*) is the 3LB of the SPXA50 from Stockcharts. This is the chart which shows how many stocks are trading above their 50 day moving average. Looks like it’s at the top. Maybe time to start a reversal?



Well, we had a 4 hour warning on the turnaround. See this updated VXX chart:

On AAPL

AAPL is suffering under the same malaise as HP and Dell. Notebook sales are down, and repairs are up. A lot. People are fixing rather than discarding and buying new. AAPL’s problem is the use of Gorilla glass and the requirement for a special clean room to do the repairs, so only their manufacturer can do it. If they qualify other sources, you’ll see the repair time go down dramatically and yet even more reduction in NB sales.

AAPL needs to find more revenues with good margins this quarter. Even the forecast for phones won't keep their revenues and margins growing, they need margins from Notebooks or other revenue sources.

A multi-billion dollar organization that has a hands-on design and marketing capability and forced focus from the CEO is extremely unusual. This fundamental is probably the main reason for AAPL’s success, and I’m thinking that the consensus approach between marketing, sales, design, product and project management will cause the demise of this success. Steve Jobs, being the tyrant, where it was his way or the highway, kept focus and complete faithfulness of his subordinates. This is AAPLs success. Now the question is posed: how far out of the grave can Steve Jobs’ single-mindedness and control reach?

Could Steve forsee the market trend changes? I don’t think so, because AAPL missed earnings estimates (even though the earnings were stellar), and this miss happened too soon after Steve’s death for any changes to be brought about by his successor(s). I’m thinking Steve did not have a plan to overcome shrinking notebook sales.

So what’s next for AAPL?

Maybe we could use the comments section for ideas, and perhaps if one is good, somebody could forward it to them.

Here’s my $.02.

I used to tell my management that if we wanted to show growth, all we had to do is take a tiny piece of the big guy’s market through either targeted design or marketing initiatives. Even though AAPL’s visibility is high, they really have a very small piece of the smartphone market, which is owned by RIMM and various Android providers. Can they kill RIMM by providing multiple database connectivity and encrypted email (a targeted design)? And perhaps other RIMM features, to replace them in the market.

You know the old saying, “Kick ‘em when they’re up, kick ‘em when they’re down”..

Perhaps the Sprint penetration is the first of several targeted marketing initiatives to come to capitalize in this area.

Exit overnight?

Beyond the research on the relative strength of the herds, I did an analysis of overnight trading.

I don’t understand how such tiny volumes overnight can affect the market at the open in such huge ways. I’ve looked for articles and books that explain it, and haven’t found any. That’s huge leverage, and I’m wondering how the SEC isn’t investigating how this happens. I think it gives less credibility to the market, and influences the small investor to go find something else. Anyway, that rant over, here’s the information:

Since Sept 1, we’ve had 3 cycles on the S&P. From Sept 1-9 there was a down phase, 12-16 an upswing, 19-21 a down phase, 22-26 an upswing, 27-Oct 3 a down phase, and from Oct 4 to now an upswing. I recorded the overnight change for each day during those three cycles in the SPY and in SKF. Here are the results.

1. In any individual down or up phase, there is no trend in the overnight spreads. One might expect in a down phase, for example, the overnight spread to be down. It is not.
2. The SPY is flat from Sept 1 to today. The summation of the pop up overnight total is 12.08, and down is 13.88. So basically, it’s flat.
3. The SKF is up $2, from 72.81 to 74.95 today. That’s pretty flat, with just a $2 increase. However, the summation of the pop up overnight total is 31.65, and the down is 23.15, the standard deviation is .34, which is significant.

As we know, the SPY is an average of 500 stocks. The SKF is an inverse ETF of the banks, and is therefore a small (inverse) segment of the SPY. The data trend might indicate that if you invest in a small sector ETF, you need to stay in overnight in order to realize a net 0 gain, however if you invest in a broad-based ETF, it doesn’t matter if you stay in or get out to realize a net 0 gain.

A sample of 2 ETFs is too small to prove any theorem, and I’d love to continue this study, but it takes a lot of time to do all these calculations. If anyone knows of an automatic way to do it, let me know in a comment.

One more thing I’d like to mention in this post. My favorite indicator, which based on earlier analysis leads the market price, the $SPXA50 from Stockcharts,com is trending up. Based on where we are, it seems the market will extend higher. Here’s the chart:



I had commented earlier that at the turnaround on Oct 4, if we saw volume follow-through the next day or two, I believed we would get a higher high, and may break out of our trading range. We did see significant volume, and Based on the SPXA50, these seem to reinforce this probability.

I was looking for a turn-around, but I’m usually early. The SPXA50 says I’m early again.

Weekend Open Thread

Popping up in our trading range

I see the SPY support confirmed, by big volume, after our dip below 1115. If I see volume follow through in here, then I think the next move upward will have commitment and will be looking for a higher high (that is, above 1195). If I don’t see volume follow through at the 1115 area, I think the next leg up will see a lower high. All that’s assuming we stay in our trading range.

However, If Cobra's right, and with bad news out of Europe (they're saying recession now) we see 1000, then I think the next move up will fail and we'll ultimately go still lower. Lower highs, lower lows, combined with a weak earnings season would give me that feeling. Probably lower by the end of the year; we've had a downtrend in December 2 of the last 3 years. The one year where the trend was up was because the market was held up by the Bernank’s weakening of the dollar.

There's a lot of support at the 1115-1120 area. Look at the volume 8/05-8/11 and 9/21-9/23. If this leg downward goes below that, with all that committed volume holding it up, I think Cobra's going to be proven correct.

If we go to 1000, look for policy makers to do something to move the market up.

We're still in the trading range. I don't think we'll break out, even on a weak earnings season. I saw a report on Bloomberg that said that money has pretty much stopped coming out of the market. The report said that with no money coming in means we’ll stay in the range. It said the movement is typically a result of share buybacks by corporations, that this is the source of new money coming in to the market.

So here’s an interim herds report.

First, over the last 20 days, we haven’t made any money long. However, several ETFs have performed better than the S&P, showing strength.

RTH: 5.5% is the best. RTH is mostly retail. The homebuilders ETF is in the pits. So I'm wondering how retail is doing so well.

$DJULTC and XLU: 5% Utilities are safe havens during downtrends. People look to them for dividends as the value drops.

SMH, XLK: 3.9%. Tech. However, the NASDAQ has not been leading the SPY, which is bearish. So they’ve still participated in the downtrend.

Then we have BBH at 3.8%, IGV at 2.6%, and ITA at 2.5%.

The worst are TAN at –44%, SLV at –27%, KOL at –25%, and XME at –21%. These may be oversold now, and perhaps an investment in First Solar or Alcoa (who hit a 52 week low the other day) could pay off. But that’s gambling, I’d rather invest in strength as we go up.