Tuesday, January 31, 2012

Facebook IPO filing: What to look for

Facebook IPO filing: What to look for: What to look for in Facebook’s first official IPO filing, which is widely anticipated to be coming this week.

Economic Report: Consumer confidence dips in January

Economic Report: Consumer confidence dips in January: A gauge of consumer confidence fell in January, partly reversing substantial gains in the prior two months, as views on current business conditions and employment declined, the Conference Board reported Tuesday.

Economic Report: U.S. house prices slide 1.3% in November

Economic Report: U.S. house prices slide 1.3% in November: U.S. house prices dropped sharply in November to mark the third straight decline, according to a closely followed index released Tuesday.

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I came across these news right after my commentary a few days ago in regards to the load bearing walls of our economy, and the fact that housing - one of them - wasn't holding well.

Thursday, January 26, 2012

Bears Running Out of Real Estate, and Why Fundamentals Dont' Matter.

SPX and VIX Updates: Bears Running Out of Real Estate -- and Why Fundamentals Don't Matter

By Jason Haver Jan 26, 2012 9:50 am

The long-term bear counts are very close to being knocked out, and the market can rally even when everything's crummy.

16 Comments

Yesterday, the Federal Reserve announced that it would continue to keep interest rates low "until late 2014 or until we all get fired, whichever comes first."

The market immediately rallied, as hopeful investors cheered the news that the Fed could get fired. As I predicted, there was no announcement of QE3; however, the Fed has effectively stated that it's going to keep juicing the money supply as much as it feels is necessary to continue driving inflation higher. Inflation creates higher prices in all asset classes, including of course, stocks and commodities.

It seems to me that the Fed realized some time ago that the scenario it faces now is basically "inflate or die." The practical difficulty it is challenged with is outlined in the quote below (from Paul Samuelson's 1948 Economics textbook):

By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the Reserve Banks can encourage an increase in the supply of money and bank deposits. They can encourage but, without taking drastic action, they cannot compel. For in the middle of a deep depression just when we want Reserve policy to be most effective, the Member Banks are likely to be timid about buying new investments or making loans. If the Reserve authorities buy government bonds in the open market and thereby swell bank reserves, the banks will not put these funds to work but will simply hold reserves. Result: no 5 for 1, "no nothing," simply a substitution on the bank's balance sheet of idle cash for old government bonds.

Their hope seems to be that they can keep everything afloat just long enough to move into a recovery period, at which time the economy will pick up and the banks should start lending again.

So far, it's been a pretty tepid recovery, and it's difficult to see what, if anything, has changed since 2011. The market sure seems to have gotten ahead of itself -- but since the money the Fed pumps to its primary dealers ends up in stocks and bonds, which drives higher prices, reality isn't much of a factor in the market these days.

If you want some illustration of that fact, consider that the Dow Jones Industrial Average (^DJI) is currently at the same price level it was in early 2007 -- and then compare the fundamentals between then and now. Fundamentals don’t drive the market; liquidity does.

So, fundamentals aside, there's a cardinal rule to Elliott Wave Theory that wave 2 cannot exceed the start of wave 1. Several indices are still some distance away from violating that rule; however, the Dow is only 120 points away from its 2011 high; 12,876 would be the line in the sand for the bear count in the INDU. And since the Dow leads, it is probably safe to assume that if the Dow knocks out its bear count, the S&P 500 (SPY) would follow soon after.

We're not quite there yet, but it's an awfully close shave for bears right now. As such, today I'm going to present an alternate long-term bull count alongside the bear count. If the Dow knocks out its bear count, this bull count is likely to become my preferred view, though I'll have to do a lot more cross-market studies before committing fully to a new preferred count. I'll need to see what form the knockout takes. However, I'm getting a bit ahead of myself here, since the market still hasn't knocked out the bear count. In any case, I wanted readers to get an idea of one possibility (chart below).

Click to enlarge

There are of course, always other possibilities, but we'll burn that bridge if and when we come to it. First things first, though.

Part of the reason I'm giving serious consideration to the bull counts at this stage is that numerous overbought indicators have been failing to generate any sort of meaningful pull-backs in the rally. This is usually a hallmark of bull markets. But price is the ultimate indicator, so let's see whether the bear counts get knocked out or not.

Speaking of indicators, below is yet another top indicator that triggered recently. This indicator uses the ratio of the Volatility Index (^VIX), which measures one-month volatility, to the VXV, which measures three-month volatility. The VXV is generally more stable, so low readings in this ratio indicate investors have become complacent quite rapidly, which is often a recipe for disaster for equities. It's not my best "top" indicator, with roughly a 64% win ratio over the prior four years -- but it is yet another addition to a long list of recently triggered top indicators.

Click to enlarge

Note the current development of this second signal trigger, about a month after the last one. The last time this happened at a one-month interval is highlighted on the chart, and in that prior instance, the second signal did nail the top. I've also noted the bullish falling wedge in the VIX (bottom panel), mainly to point out that it might not mean anything.

Recall that the VIX acting bullishly is actually bearish for the broad market, as the VIX rises when the market goes down... however, I recall similar talk of these VIX patterns in the past, and indeed you can see on the chart that the prior two falling wedges both failed. It seems that VIX traces out falling wedges with some regularity, and I think it's an error to read too much into that pattern on VIX.

But maybe in concurrence with the sell signal trigger, this time will be different. We'll find out soon enough.

Last but not least, the SPX short-term count. Once again, my alternate count is the one that played out yesterday. I keep favoring the bearish counts based on the indicators, and as the indicators fail, the bear counts fail with them. Be that as it may, the current preferred count appeals to me a great deal. I continue to feel that the first portion of the rally counts best as a leading diagonal first wave, and that suggests the market is now in the final stage of this leg upward. This might be the last hope for bears over the intermediate term. However, until the market knocks out the long-term bear case as outlined earlier, I will continue to play this rally as a bear.

The count below suggests that the market is due one final gasp into the target zone. If that count is correct, then the rally is finally getting ready to roll over. Yesterday did have some hallmarks of an exhaustion day. If that count's not correct and the rally keeps going, then it's likely the INDU will knock out its bear count.

Click to enlarge

In conclusion, if the bear case still holds water, then it's time for the bears to make a stand. The indicators continue to signal a top -- but if this is no longer a bear market, it would not be uncommon for these indicators to fail. The price action over the next few sessions is key. Trade safe.

This article was originally published on Pretzel Logic's Market Charts and Analysis

Has Bernanke Broken the Dollar Rally?

By Toby Connor Jan 26, 2012 2:20 pm

Now may not be the best time to short the stock market.

Comment

It has been my theory that this year we would see one of the worst performances by the stock market since 2008. However, that has always been dependent on Federal Reserve Chairman Ben Bernanke not being able to break the dollar's rally out of its three-year cycle low. As of this morning, the dollar has printed a failed daily cycle. More often than not, a failed daily cycle is an indication that an intermediate degree decline has begun.

Click to enlarge

I have begged and pleaded with people not to short the stock market over the last several weeks. For one, it's very hard to make money on the short side for the simple reason that markets move down differently than they move up. Now I'm going to give you another reason not to short the stock market.

If the dollar has begun an intermediate degree decline, then we should see it continue generally lower for the next seven to 10 weeks. If this turns out to be the case, then we are not going to see any meaningful declines in the stock market during this period. As a matter of fact, the risk is great that the stock market could enter a runaway-type rally if the dollar has begun the move down into an intermediate degree bottom.

As you can see in the chart below, the last runaway move in 2006 lasted almost seven months.

Click to enlarge

Runaway moves are characterized by randomly spaced corrections, all of similar magnitude and duration. As you can see in the chart above, the corrective magnitude in this particular runaway move was about 20 to 30 points.

Keep in mind we don't have confirmation that a runaway move has begun yet. We would need to see how the first correction unfolds. If it is mild and brief, followed by the market moving back to new highs, then the odds would escalate that a runaway move has in fact begun.

Another big clue will come when the dollar bounces out of its daily cycle low, which is now due at any time, and if that bounce fails to make new highs before rolling over. If that occurs, it will reverse the pattern of higher highs and higher lows and confirm that an intermediate decline has indeed begun.

The scary part is that this may also signal the top of the three-year cycle. If so, then we are looking at an extremely left translated three-year cycle that should generate huge inflationary pressures by the time the next three-year cycle low is due in the fall of 2014.

Click to enlarge

It has been my expectation that we would see another deflationary period in 2012 before the cancer infected the global currency markets. As of this morning, I'm not so sure that process hasn't already begun. Bernanke may have broken the dollar rally yesterday.

If this scenario unfolds, it has the possibility of generating the bubble phase of the gold bull market.

Editor's Note: Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market.

Texas Instruments rises as CEO calls bottom

Texas Instruments rises as CEO calls bottom: Texas Instruments reports an unexpected drop in profit, but its sales came in higher than expected. CEO Templeton calls bottom in the downturn, as company announces closing of two factories, cutting of 1,000 jobs.

Movers & Shakers: Thursday’s biggest gaining and declining stocks

Movers & Shakers: Thursday’s biggest gaining and declining stocks: MarketWatch’s daily rundown of shares making sizable moves in the U.S. stock market.

24/7 Wall St. - Insightful Analysis and Commentary for U.S. and Global Equity Investors

Short Sellers Increase Bets Across the Board
Posted: January 26, 2012 at 6:33 am

For the first time in a long time, short sellers have increased their bets that the stock prices of most large companies and in most large sectors will fall. The NYSE and Nasdaq released their figures for short positions as of January 13.
Short sellers increased their positions in all four of America’s large banks. The short interest in Bank of America (NYSE: BAC) rose 18.5% to 186.1 million. The price of its stock, and most other bank stocks, have risen as it appears that the worst of their balance sheet problems have faded some. Shares sold short in Citigroup (NYSE: C) rose 19.1% to 50.3 million. The short interest in Wells Fargo (NYSE: WFC) was up by 11.4% to 47.1 million. Shares sold short in JP Morgan Chase (NYSE: JPM) were up by 21.5% to 40.6 million.
Shares sold short in the two big car companies also rose. The short interest in Ford (NYSE: F) was up by 14.7% to 147.1 million. Shares sold short in General Motors (NYSE: GM) were up 13.7% to 62.3 million.
The short interest in almost all major tech stocks was up as well. Shares short in Microsoft (NASDAQ: MSFT), which posted relatively good earnings, were up 49.8% to 101.5 million. Shares sold short in Intel (NASDAQ: INTC), which also posted strong numbers for the fourth quarter, rose 12.2% to 131.8 million. The short interest in Dell (NASDAQ: DELL) was up by 6.1% to 69.9 million. Shares sold short in Oracle (NASDAQ: ORCL) were up by 40.8% to 27.4 million.
Douglas A. McIntyreRead more:

Short Sellers Increase Bets Across the Board - 24/7 Wall St. http://247wallst.com/2012/01/26/short-sellers-increase-bets-across-theboard/#ixzz1kbrsS085

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Well there must be a reason why all the big boys on the street are betting the market short.
Are they right? Or is just the expected sentiment (too bearish) that will be a catalist for the opposite?

Stocks to Watch: Stocks to Watch Friday: Juniper, Ford

Stocks to Watch: Stocks to Watch Friday: Juniper, Ford: Juniper Networks, Amgen Inc., Ford Motor Co., Chevron Corp. and Procter & Gamble Co. are among the companies whose stocks could see active trading on Friday.

Economic Report: December new-home sales dip to end worst-ever year

Economic Report: December new-home sales dip to end worst-ever year: Sales of new homes slumped 2.2% in December, disappointing analysts who had expected another big gain in the month after a strong report in November. Sales for the year hit a record low.

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How can an economy be improving when one of his load bearing walls is still crumbling down? New home sales worst ever year... On the opposite, it is being said also in the news sources that foreclosed homes have been rising in price, with Detroit as having one of the greatest increases. Really? But lets see, in Detroit where you can buy a foreclose home for as little as $500 so now it is being bought for $550. Why don't we look at the secondary retail real estate markets and see how prices for previously owned homes are improving there? You will probably see price improvements near to none.

So it seems to me that real estate prices may be near a botton, but not quite yet. Now, the question is how long is it going to be before we see any sustantial recovery on home prices? That there may give you a good indication of how long it is going to be before the economy in general starts to pick up.