Keeping On

So here’s our head and shoulders.




I’m thinking that today’s visit to 1300 was not the pullback from what looks like a H&S pattern, but was rather a bear trap. I saw a report on Bloomie where they talked about their interview with Tom DeMark, who called a top this week, but now he’s delaying the call. I think (not sure, didn’t write it down) was that the top would be around 1340 or so. Anyway, that same call was made for last Christmas: see

http://www.bloomberg.com/news/2011-12-05/demark-s-p-500-at-1-330-by-christmas.html

Which was wrong.

So, in light of that, here’s this week’s sooth:
http://www.bloomberg.com/news/2012-01-20/demark-says-s-p-500-may-reach-1-342-by-next-week-before-falling.html

I know, I know, he gets paid a lot more than I do for his sooth saying.

There used to be a sage XYL that commented here but she’s gone now, who had wise advice about calling tops or bottoms. As I recall, she used to say that you don’t know a top’s in until after the top is made, and sometimes that takes months.

I personally don’t think we’re going to see a top for awhile. I am hoping for a pullback, because we need one to advance with strength. I was hoping the pullback would come when the earnings were down, but was not to be. I was hoping the pullback would come when Greece failed, but news coverage has beat that to death, and everybody is expecting that to happen. I was hoping the pullback would happen when the S&P announced they would downgrade everybody’s sovereign debt, but when that happened, that too went out with a whimper. I was hoping for the pullback when Iran said they were gonna block the canal, but they backed down from that, so once again, a mild breeze.

Maybe we need a black swan for a pullback. There’s so much support from lenders of last resorts and bank’s earnings faking success from the rubble of mark-to-non-market, that without a black swan, well, how can we get a pullback? I don’t want this trading in a range crap. It’s very hard and takes complete concentration to make money. At my age, I shouldn’t have to work so hard.

So for now, I’ll just keep on keeping on. Buy the dips, and sell the blips. It makes me kinda sad that I wasn’t involved in the market before this systemic manipulation came to be. It must have been an exciting place. Mannwich commented about the moving average intersection, but things are so cooked these days I’m in the camp of believing that nothing historical matters. What will be, will be.

I still can’t short SHLD. So what will be will be, as long as it’s what’s permitted.

Failed to Track our Rally

I have run some scans, and have some conclusions.

I think the way is up. Still. The Dollar is destined to go down, as the Euro goes up. Why is the Euro going in the up direction? Because people are starting to face the facts. Face it, ladies and gents, the ubra-riche will not let the economy disintegrate, because their fortunes would disintegrate along with the economy. True, they’d still have their real property, and their gold, but you can’t eat marble pillars.

We’ve had a 20-day up-channel in the SPY. Looking at the daily chart, it seems we see a nice W formation with the right side higher, a very bullish formation. Now to continue on with strength, we need to see a pullback. The problem is I don’t see a reason for the pullback, so I’m guessing it will be done by the traders on a technical basis. The psychologicals are up, people are bullish, Greek debt is under control to fail, and we all see the ECB and the Fed stepping in to save the banks. Again. No surprise.

The fundamentals are up. Meeting or beating expectations, whatever that means. I guess it means fundies are up (they are not but the use of “expectations” gives poetic license for me to say the fundies are up)

Structurals are up. Any doubt about capital liquidity flowing into Eurozone and the LIBOR improving?

Technicals are, well, a function of low volume and trader’s sentiment. I can only see in the short term a sentiment change, when everybody says “Overbought!! Overbought!!” and the charts start to turn south.

I ran several screeners and developed a list of stocks that haven’t tracked our rally (yet). I’ve mentioned a few of my favorites that are in my investment account, but these are the ones that may (or may not) have the least to retreat when there is a pullback, and the most to gain. The one piece missing from this chart, which is most important, is the future revenue guidance. For example, TIF is on the chart, but their future revenue guidance is down like 20% from last year. If you take this information, add to it the revenue guidance, I think you’ll have some possibilities.

You can’t use P/E, because as we all know, the E can be adjusted by the accountants, so P/E is almost worthless, it’s included here because some people believe it’s not.

I had to do this with pictures, because I couldn’t get the colums to line up and look like it was meaningful. Sorry. Blame my ignorance, or blame blogger, one of the two is the culprit for sure.

Looking up, my son

There’s a great class on divergences at one of our links:

http://blog.afraidtotrade.com/


Walking by the Priest, the boy asked “how’re things, Father?” to which the Priest replied “Looking up, my son”.

So here we are, today, looking at the SPY. Remember I drew the pennant, and said the breakout buy/sell points would be 128 and 122? Well, we hit and passed the 128, and are currently trading around 129. So we broke through. However, we see some caveats:

1. Low volume (little new money coming in so no commitment, and remember a significant percentage of the volume comes from the HVTs and HFT’s)
2. We got here way earlier than we were supposed to, in order to complete the pennant

Here’s the SPY now:



I had to go back to July, 2009 to get a similar pattern. And this pattern, we all know, resolved into Up Up and away for months.

Which brings me to the importance of the other 3 aspects of the market: the psychologicals, the fundamentals, and the structurals. As you recall, in July, 2009, we were beginning QE2 and the Fed was pumping in liquidity like mad. And, corporate profits on earnings were going up, as the corporations became leaner and meaner. And the psychologicals were down in the dumps, as were the bank balance statements and fundamental insolvency.

Isn’t that exactly where we are today? Billions being loaned/given to the ECB, Eurobanks balance sheets suck, and everybody says “oh woe is the Eurozone and therefore by contagion, oh woe is me”. And in earnings season, doesn’t it look like we’re beating expectations (again).

Looks to me like a repeat of July, 2009. Up Up and away.

Now, we may see a minor correction to bring us back into the pennant, as you can see from the “Oversold” and “Turning Down” comments on the chart above,. And here’s my favorite indicator, the SPXA50 from StockCharts.com





Which indicates we are at or near the top of the cycle range. Indicating a turndown may be in store for us. But after that, should it happen, I think things are Looking Up.

Watchlist

Better late than never.

Rock’s Watch List

Here are a few of my watchlist picks and why they are on the watchlist.
First, we are significantly affected by headlines, so temper your trades accordingly. Second, I’m sorry if any of them offend your political, moral, or religious bents. Third, I look at the indicators I see and they all point up, so these are on my watchlist as the market goes positive. Fourth, I will not trade the banks because of their lying balance sheets, and at any moment, they could become insolvent. If Congress gets any balls, which may be unlikely, but possible.

1. VMW. They have a great product and have expanded into the APPL zone. As we get more and more HTML3 and straming movies, there will be more server farms deployed and VMW is the choice for these installations. Their chart is on the bottom, stochs for the 3, 15, and 60 minute is <20. Their money flow is the same and is tipping up, so I’m thinking this is the time. On the financials, they have been profitable at around 18%, and their levered free cash flow (what they have left over to invest in their business) is a whopping 1/3 of their revenues (3.5B).
2. POT I like the smell. I grew up working summers on a farm, and it smells good. Food and water are going to be important going forward, unless the dictators in Africa are successful in killing off the locusts. It’s forming W’s with the right side higher. Their profit is around 40% (huge) but their free cash flow is is only around 12% of their revenue. Since their operating cash flow is about 40% of revenue, that says they’re reinvesting heavily in their company. Good long term strategy while the prices are low, as we get inflation, and companies that don’t invest now will not grow quickly as the economy cycle progresses. Their charts are a little high, but I like the W’s.
3. MCD. I don’t enjoy the product too much, when I go there I get a McDouble and side salad. However, their management team is the best. The chart action is not a formation I like to see, so the entry point may have to be risky or delayed. Profit is huge, 25% or so. Levered free cash flow is around 12% of the revenue which is great, and is about 50% of the operating cash flow, so they too are investing in their business. A lot.
4. AAPL. What can I say. I’ve made a lot of money on AAPL, and I believe sex sells, and if they get somebody sexy to replace Steve, this is a winner.
5. MON. Profit is good, around 12%. Cash flow is good as well. They’re reinvesting around 10% of revenues back into the business. On the chart, the weekly shows a W formation with the right side higher.
6. TIF (RL and COH too). Yep, as the economy turns, look for TIF to outperform. Profit is around 16%, but their levered free cash flow is negative. I can’t explain that other than they may need new management. Operating cash flow is around 10% of revenue, so they may be positioning to sell the company. “Will see”. I still like that play and look for it to hit 85 again.
7. I like several of the metals. I am playing XME because of the headline risk. I expect XME to hit the 76 and would gladly take the 50%. You can do some investigation on SLX AA ATI CCJ CENX CLF CMC CMP CRS CU FCX GGB IPI MT TML NUE POT PKX RS SCHN STLD TIE TX VALE WORX.
8. I don’t trade drugs because of the headline risk again, but some of the pharma ETF’s are on my list. I have not entered yet, but as my aches and pains get worse, I’m seriously considering it.
9. GLD The pullback in GLD is probably tradable since it’s so heavy on the psychologicals. I would keep my stops tight, because as the dollar strengthens, I expect GLD to decline. However, it looks like it’s downtrend M’s have been broken. One more day of follow-through with significant volume will probably kick me off to start a position.

I have established positions in AAPL, VMW, XME and POT. I have half-positions in MCD