newsletterresults


Snoopy-Typing-Away-1-CVV14J0D95-1024x768

For some reason I thought that today was a public holiday in the US and that the markets would be closed. As a result, I have just sent out this week’s duCati Report, but of course it will be late. Apologies, I’ll add an extra issue to all subscriptions.

Snoopy-Typing-Away-1-CVV14J0D95-1024x768

Life’s but a walking shadow, a poor player, that struts and frets his hour upon the stage, and then is heard no more; it is a tale told by an idiot, full of sound and fury, signifying nothing.

William Shakespeare

Federal Reserve

Well, after all the hype, the taper finally was announced. It remains to be seen if the reduction in purchases translates into a negative for the financial markets.

As the Fed must continue credit creation to maintain the short end of rates, the only area that will be affected are banks still trying to unwind losses in MBS’s. That they can now only unload a marginally smaller amount each month may impact the housing sector, but time will tell.

COT Index

The COT index number continues the trend of weakness at [-4.7%]. This continues a COT seasonal weakness through the Christmas period.

Technical

The technical picture confirms the COT number, although the bear trend has flattened after the huge rallies after the Federal Reserve minutes were released. Resistance still sits circa the $182 level. Thus into the holiday shortened week I would expect some selling.

Support sits circa $177. Both the areas are found on the 15 day chart which is the current time period most strongly correlated with the price action, therefore I will use it in looking at the technical levels.

Therefore, in anticipation of the January effect, and that seasonally the COT numbers tend to reflect buying, I would be looking at long trades in the support area.

Confirmation

Due to currently placing market neutral trades, there is no real requirement to wait on confirmation. For directional trades, I would wait to see if the support area holds rather than anticipating that it will hold. The reason being that on the daily charts, the pullback is very shallow and could go deeper, the current reaction being a bounce from the lows.

Trade

snoopychristmas

Give me six hours to chop down a tree and I will spend the first four sharpening the axe.

Abraham Lincoln

The COT index number this week stands at +0%. This continues the trend of lower COT index numbers over the last four weeks. This has correlated with the market that has topped out and last week moved lower. This week’s number would therefore suggest further weakness in the market, and potentially a weaker market for the moment. Thus I would avoid buying the dip for any longer term positions. I would only consider any new long positions for a swing, counter trend type of trade.

Technical

However the technical picture suggests that a counter trend move higher may well be on the cards. On this basis, with support at circa $177.oo, I would be looking for the market to bounce, but, it would be a counter trend trade until the current short term downtrend is reversed, if indeed that is the outcome. I would look to close any swing long positions circa the $181.oo area, but be prepared to close any trades quickly.

Longer Term Positions

These positions can be managed, or simply be left to themselves currently until a trend develops. As they are market neutral and can profit from a move higher or lower, no decisions need be taken currently, unless they are currently sitting in profit, where locking in that profit may be an option.

Federal Reserve.

There is again chatter in the market with regard to a December taper. Really? With the economy a mess, unemployment static and corporate profit growth largely non-existent, the chatter is just that chatter. Of course, those that can offset short term positions may do so, which is one reason why the COT number has been trending down the last four weeks. The message is simply wait until the market is satisfied that there is no taper to be announced by the Fed, and the COT trend to reverse.

snoopychristmas

“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”

The best trades since 2009 have been in sitting tight. Holding positions for the big trends. On a longer term basis, one of the trends looks as if it could potentially be preparing to roll-over and reverse. There is a fundamental basis underlying this potential change, which is the change from Bernanke to Yellen.

The COT index numbers from last week and this current week are +12.8% and +8%. So while the index numbers are weakening, they are still bullish, and dips should be bought.

Technical

On the 15day chart, which has correlated most closely to last week’s price action, the resistance is currently at $182.50 with support at $180.50. Thus early in the week I would expect a bullish early part of the week.

This bullishness correlates well with the longer term charts, specifically the 6mth chart in which the recent weakness constituted support.

The area of the market that could potentially push the market higher are the financials which have technically moved higher, and in fact broken through a resistance point in price, but have underperformed the broad market.

Gold

Has made a double bottom on the 4yr chart. This looks as if a year+ of frustration is ready to reignite higher. There could definitely be a trade available [long] for gold. Silver, which more or less echoes gold is also on for a potential long trade.

Federal Reserve and Employment

The employment numbers came out last week. They were not great. Of note is the increase in the non-participation rate, or, those just giving up looking for work. The result? QE operations will continue for at least the first 6 months of next year. Certainly Bernanke will not alter anything until he leaves next year. Yellen will hold the line I’m guessing most likely until 2015. The thing is that she is a vocal dove. She may well think and act on the belief that more inflation is what is required…and now she has the power to act. The ‘taper’ may be further postponed under Yellen, or, QE interventions increased.

The economy is not going to improve. The reason that it is not going to improve really comes down to the natural rate of interest as against the rate imposed by the Federal Reserve. If the natural rate was high, at least higher than the Fed Funds rate, Corporations would be borrowing and investing. They are not. They have not been, save the odd exception, for a number of years. They have predominantly been cutting costs. This is not a growth economy.

Stocks and markets are rising due to the offsetting inflationary effects of stocks. Gold and silver have been involved in a serious correction, which was possibly a wait and see approach, made stocks [i] the only game in town and [ii] lent credence to the “there is no inflation” brigade, looks as if the markets are ready to change once again.

If gold and silver once again enter bull markets, what happens to stocks? I have no idea at the moment, but it is something worth watching going into next year.

Trade of the Week

Snoopy-Dog-with-Christmas-Tree-Wallpapers

Last week’s data has now been released. The COT number from last week will be included in this week’s newsletter.

Snoopy-Dog-with-Christmas-Tree-Wallpapers

This week’s COT data is delayed due to the Thanksgiving holiday, so, as soon as it is released I’ll grab it.

Snoopy-Typing-Away-1-CVV14J0D95-1024x768

The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.

F. Scott Fitzgerald

This week’s COT index number is +16.4% which suggests that the bull continues to run on Wall St.

Certainly we are entering on a seasonality basis, one of the best segments of the year for stocks. Add to that the emergence of Yellen as the lead choice for the Fed Chair, tepid economic growth, close to negative real rates, and you have most of the ingredients for a continued rally into February.

Technical

Looking first at the 5day chart, we see an uptrend, but price trading at the top of the range. Resistance is at $181.25. The 10day & 15day charts are unimportant this week. The 3day chart has resistance circa $182.25. I would suggest that the 5day chart will likely come into play. Therefore we can expect a pop in prices to open the week, and a decline from the resistance to support around the $179.oo area.

Valuation

Certainly the market valuation is getting a little rich. If you assume earnings growth remains lack-lustre, then valuations become increasingly rich. This has a number of market analysts calling for a decline. With no other options available, money managers continue to allocate cash to stocks. Hugh Hendry being the latest bear to succumb.

Market Neutral

With a market neutral strategy, any decline should it occur, can still provide significant profits to our positions and therefore the actual direction of the market is only of academic interest. We simply require a trend to develop in any given position to generate profits.

Snoopy-Typing-Away-1-CVV14J0D95-1024x768

This week’s duCati Report now in the post.

Snoopy-Typing-Away-1-CVV14J0D95-1024x768

An artist is not paid for his labor but for his vision.

James Whistler

The COT index value this week remains positive at +13.5%. This would suggest continued strength in the market.

Increasingly around blogoland you will hear arguments with relation to valuations, bubbles in financial assets, duration of the current bull run, a weak economy, although this can be construed as a bullish argument. They are all true, but also irrelevant.

The market is running on sentiment, lack of alternatives and of course the seemingly unending QE from the Federal Reserve. With Yellen seemingly the front runner for Bernanke’s position, the continued QE looks secure into the majority of 2014. If that is the case, market valuations will continue to rise in the face of almost any data that you care to look at.

Technicals

On all time frames, 1yr, 6mths, 3mths, there is plenty of [technical] room to move higher into what is now blue sky territory. Breakouts from consolidation are largely correlated to the length of time that the consolidation took place. The charts show a consolidation from 2000, so thirteen years. This bull market could have a lot of legs under it still.

In the very short time frames; 3days, once again the market is in a very neutral area, in an uptrend. Therefore, if the market dips on the open this is a definite buy-the-dip opportunity. This would be in the $178.5o range. Should it gap higher, avoid shorting for a pullback, these trades are going to carry excessive risk if the market runs higher fast.

The only time frame that I would watch, where a pull-back could occur is the 15day time frame. Resistance is present at the $180.5o area. I would expect to see this price target hit early in the week. After that, there could possibly be grounds for a pull-back into the end of the week, but, this could be very news dependent, with short-term sentiment carrying the market through the level.

Seasonally we are entering a very bullish time for stocks. This is not a time to be initiating short positions. Rather it is more about holding winners and extracting as much profit as possible from them into late February, possibly even early March.

Snoopy-Typing-Away-1-CVV14J0D95-1024x768

tsla

The daily chart indicates a bottoming pattern, if, and when, we get an up candle tomorrow.

tslaw

The weekly chart does not yet confirm the bottom, but that is to be expected.

I will add a small position tomorrow assuming that the stock does not trade lower below the low over the last three days.

« Previous PageNext Page »