Simply Amazing

Just wow!  As you know my expectation for a top of between 165-172 for SPY is now in the zone.  But I expected a sharp selloff before that happened. Maybe in the age of robots we are going to go directly to the target zone that is programmed into the computers.

I have been trying to back of the envelope this move based on the nearly one for one relationship we have between the Fed's balance sheet growth and the stock market.  As of Friday the SPY is on a 37% annualized gain trajectory.  The FED's balance sheet is projected to grow 32% over the next twelve months, if they keep the same pace, and 20% until the end of the year.  So getting overvalued on this measure, and that is not including if Ben slows or stops printing.

The earnings yield on the S&P is is 5.4%, which is triple the current ten year rate at 1.88%.  The dividend yield at 1.95%.There is still room to run here, with the big assumption earnings and interest rates rise and stay low respectively, doubtful.

The stock market is rotating out of defensive names and into growth names, and they are rotating out of bonds. This should move money into resource and energy names; kiss of death for margins in a non pricing power environment.

According to Sam Stovall and the S&P, under the current scenario, is if bond yields stay constant to earnings yield is stock price growth of 11% one year out, if the this ratio compresses however, results fall off dramatically.

So giving the devil his due,  the blow off price can rise to 185 on the SPY.  But having said that, I believe that ramp brings along energy prices and bond yields and will start causing some market spasms as it tries to get there.  My bet is will get at least a 5% pullback before June OPEX.

I am staying with my short SPY with puts for June OPEX, same with long volatility, and long energy (uranium, coal, and drillers).  I closed my gold puts for now, and may reenter if we get a spike and fail the 20 again. I also bought lottery puts (June 80)on DUST this week, as DUST is now 100% over its 200 EMA (I did the same play in April to great success),.  I am expecting gravity to take hold again, and bring it to at least the 50 EMA.

The other play I am having good success, and passing to my subscribers, is a little program I wrote on short squeeze candidates.  Recent names that have worked well have been CLF, COCO, BTU, JRCC, and NILE.

I will share a few of the buy ideas that hit my undervalued screen for next week, below.

Ben has Caught the Tiger, Now What

The narrative we are being fed is that all is well, and everything is improving.  That is all well and good for the  Central Bankers if they can jam the stock market higher, at the same time contain energy and financing costs.  This week that has changed, and I think the incredible amount of hot money coming out of Japan is starting to wash over the globe, and investors have taken note.

In Japan and the U.S., bonds are being dumped, Central Banks in Asia are being forced to cut rates as to not disadvantage their exporters. The net effect of all this is commodities have awakened.  Coal, uranium and oil and gas drillers popped, as well as steel and rare earth companies.  I traded CLF, NFX, JRCC, UEC, BTU, SGY, URRE and CHK.  Still in most of these names, plus a few miners (which will awaken as a group very soon).

I may not be the smartest guy, but higher financing and input costs in an economy with no pricing power, debt saturated, and with no income growth cannot be bullish.  We are going to go from the virtuous circle of Fed liquidity to its vicious side.

The Fed and Wall Street have trapped themselves with their own meme.  If things are so great investors are now thinking, let's dump the bonds, buy growth, and protect against the coming inflation.  This will not end well.

For me, I am short SPY into June OPEX, long volatility, long energy and select commodities, dabbling in miners, slightly short gold (until the Yen abates it's fall, or GLD breaks over it's 200), and am interested  in the for profit education names, as they just popped onto my buy screen.

I posted a few charts below.  Enjoy your weekend, as will I. Summer has arrived in Southern California.

I SPY

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 www.chartingforsuccess.com

May Day or MAY DAY!

Talk about a successful test for SPY.  It almost ran all the way up to the highs from two weeks ago.  I am not sure if Thursday PM/Friday softness was some profit taking, or worry about comments Bernanke made. As far as I am concerned if the stochastics are pointing up and we are over the 20 on the hourly, shorting is a fools game.

What is interesting though is we have EVERYBODY waiting for the May crash, Bernanke shovelling in money, the euro forming a right shoulder, and the Yen showing no signs of abating. Talk about cross currents. I also read that the Fed and the BOJ are creating much more money than the local Treasury markets need, and I think that is one reason we see the IEF continue to rise with the broad market, and European debt markets getting a bid.

I think the G-20 blessed Japan's moves is the understanding that they will buy up euro debt and keep the game going a while longer.  It is difficult to see a market collapse unless they lose control over the debt or commodity markets, or Bernanke seeing how much extra currency being created feels like he can create a narrative of an improving economy and say he will dial back a bit on purchases of Treasuries next week.

This move still has one more month, and another 5 to 7% to match  the biggest run on record, and Bernanke is not giving us many choices other than stocks to play with.

For the week ahead, I am in cash as of Friday close.  People who follow my signals had a great week.  We shorted DUST, and it dropped $30, and we rode SLW, SAND, SWC and DDD long.  We even made money long VXX and XIV.

I am uncertain as to direction and there is a lot of news and expectations next week.  I'll probably just play volatility and watch gold, silver, and GDX for some scalps with SAND, SLW, and NUGT or DUST.  Cash is a position, even for those of us addicted to the markets. LOL.

I am going to do some basic and advance charting classes in May, if interested you can register here.

http://realtimetradingsignals.com/webinar_registration.html

Here are a few charts.

Is this it?

It sure looks like distribution has started, but the SPY had another successful test of the intermediate bull/bear line at the 50 EMA.  To boot, it also double bottomed.  The good news is the market is now giving us something to work with here.

A failure of the 50 now with stochastics still falling or maybe embedding gives us confidence of a move down to next level of support or to the 200 EMA.  If stochastics cross back up then I am watching the 20 EMA, then to see if it forms a right shoulder, double top, and then a move to new highs.

At this point I am not going to play from the long side other than some special situations, and any short term buy signals I get on my XIV trades (more on this in a minute). From the short side I am going to play a SPY failure with REW.  Technology is weak, and a triple short of a weak sector is my focus.  EDZ probably is a good play, as well.

Regarding volatility, and XIV.  I offer a service for buy signals for XIV, and it is very profitable, and a consistent winner.  This week shows why I love this instrument so much.  Volatility was very elevated this week, but XIV fired off four buy signals, two were profitable, with a net gain of $.94.  Since I margin this trade, the net annual gain for me for the week  was 8.75% or 450% annualized.  It would be higher except that we had a trend change which means until the trend changes back I sell all of my buy signal wins EOD, and the first signal was stopped out for a $1.00 loss (instead of a $.7 gain if sold it EOD) as it was still operating under an uptrend signal.

Why you ask am I fooling around with XIV an inverse to volatility in a rising volatility environment?  It is the nature of this particular ETN that the moment the pressure subsides, it acts like a cork and flies up, as traders remove protection.  I will make a lot money trading this in a stock bear market due to that attribute, and if I sell EOD.  It is rare I will get so many buy signals in one week, so even those under pattern day trade restrictions can take all signals most weeks.

I rarely shill for my stock services, but my business partners asked me to create a special service for this, and I did, and we priced it so that everybody can take advantage of it, or test it out to see if it is worth it to you ($10/month). Current paid subscribers of my other services get this for free, so no need to sign up for it.

This pricing will not last though.

Don't trade XIV in this environment unless you have access to your account and can trade it intraday.  Also, this is just a piece of the portfolio for me, so don't load up on one stock.  Email me to get sign up information.

Event Horizon

The Fed has taken on Trillions of assets on their balance sheets to enable banks to speculate in the stock market and to spark the animal spirits and the cascade of capital gain taxes our government needs to return to the glory of a balanced budget at some point in the future.  But other than the stock market, the Fed is failing miserably.  Jobs are falling, economic activity is waning, confidence is dropping, and prices are falling. Yes, falling.  For Keynes, fiat, and debt based economy deflation is a curse to avoid at all costs(deflation good for poor people with no assets, and bad for rich people with assets), and deflation is occurring because debt is being destroyed faster than it is being conjured into existence, and velocity decelerating.

The only solution the FED desires to use, is to create more debt at lower interest costs and hope velocity gets them out of trouble and then retire that debt in the future.  But it is obvious to everyone that it is not working, as prices on most commodities have been falling since QE4 has started.  Why?

Because they are first serving their two masters, the banks, which need cash desperately that they can leverage to earn an interest or cap gains which exceed their run down on bad assets on their books, and secondly to ignite a housing bubble to relieve them of unmarked but unproductive loans, and get them over to us, through Freddie and Fannie.  Their other master is the Government.  They are engaged as the buyer of only resort for our debt, used to create a demand fueled economic recovery.

But the banks are not lending, and are only interested in speculating in the stock market, and buying government debt and investing at a 8-10 to one leverage to earn revenue.  But this strategy has reached a zenith, as JPMorgan, the gold standard of banks is slowly drifting into a profit growth less environment (in fact without accounting tricks, already has) as seen by their latest earnings report.  Without lending, which the banks will not do, for fear of loss, you cannot grow a debt based society.

The government, instead of sparking confidence in the future, is scaring the heck out of businesses with higher taxes, regulations, attitude, debt enslaving our children with student loans, and increasing transfer payment scheme of entitlements which does nothing for the growth in the future.

So what we have is an economy that is slipping into the deflation black hole event horizon, and ironically Japans attempt at QE banzai is hurting us and our exports, at the same time Germany's austerity experiment in Europe is reducing worldwide credit growth and export markets.  What's a Central Banker to do?

Check out these charts, does this look like recovery to you?

Platinum and Natural Gas

Two sectors jumped out at me last week that I believe have some ability to start a trend; platinum and natural gas.  I hold a few names in these sectors in my focus list, and below I am sharing my charts, buy, target and sell prices.

Regarding the other miners, I am ambivalent, and gold and silver need to make a higher high before I jump back in, with the exception of SAND.  I will take a shot on it, at my buy stop.

Another stock I will buy for a trade is HOV.  Rock bottom mortgage rates can't but help these companies.

I also have a buy again on XIV, which usually portends a move higher in SPY, or at least fear has abated.  The trade is usually good for three or four days, and has been remarkably reliable and very profitable.  My signal hit before both SPY swoons, and yet XIV is above my entry point.  Let's see how earnings affect the fear gauge though.

Enjoy.