Saturday, May 4, 2013


Last week I spoke about the SPY and it's relationship to the 20 EMA and Stochastics, and the foolishness of shorting. What a difference a week makes.  SPY's relationship to it's moving averages and momentum has changed immensely, and based on the recent characteristics of this year's rise, we are due for a pullback to at least the 50 EMA before or if we move higher.

Some stats:

  • SPY is on a 28% annualized pace as of Friday
  • SPY is already up over 20% in six months, nearly breaking the longest streak for the stock market before a major correction (21% over 7 months)
  • 20% of the SPY components are 20% over their 200 EMA
  • YHOO, BBY, NFLX, GME, and three Biotech names are 40% over their 200 EMA
  • The SPY has been moving in 10 point bursts before succumbing to a correction the 50
  • The first two bursts in 2013 took seven weeks, the last 2.
  • Friday marked an inverted Hammer
  • The two main competitors of SPY; gold and oil are waking up from their FED induced slumber
  • Margin is at an all time high, amazing!  There is no money on the sidelines.
I am looking for a 6 point correction in SPY over the next two weeks.  I am short with some June SPY put spreads, and VXX, hedged with some energy stocks (SGY and NFX) and specific miners (NUGT and SLW).

If I am wrong and we push higher, it will drag up the laggards which are the miners and energy stocks.  The narrative all is well, so the all is well names should recover.

For the record, I believe there is at most 10 more SPY points left, which is at most 5 more percent of performance.  It is inconceivable to me that with the FED's liquidity producing only a GDP growth rate of 1.5%  at peak earnings and margins we can continue this rate of ascent.

Some charts

PS I am conducting some basic and advanced charting and portfolio management classes this month at


  1. Bob, That was a great report and I like your charts too! I look forward to peaking in on your classes at ,since I have seen you develop some new ides that have been helpful to me in the past.

    Keep up the good work!


  2. Nobody cares if GDP is 1.5% - they only care if the FED gooses the market with 85 Billion buckos a month. Welcome to the new wall street.

    1. Actually you can see the Fed's balance sheet expansion and the stock market capitalization expand correspondingly. It is now reaching a natural end as the earning yield and dividend yield compete with the 10 year bond yield. So this simply can't continue ad infinitum regardless of future printing. The money will simply flow elsewhere, and to places the Fed absolutely does not want it to flow; commodities and gold. Plus at some point very soon the banks must drive loan growth or their ability to sustain interest earnings evaporate as their loan books are flat, and their non performing loans continue to slowly rise.

    2. One more point to directly answer your assertion. Another 1 Trillion of Fed asset purchases will only drive a 1.5% increase in GDP, and stock market gains will always revert to the slope of this mean. Currently it is sloped at a higher angle than GDP growth. Remember the world's total credit is now falling, not rising. This is the great governor on stock prices, regardless of the rhetoric. See my other point why the banks will stop buying ever increasing amounts of stock.