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Blindsided by strength! Traditionally when you have a day like Monday it leads to a modest bounce back that allows shorts to remount new positions that they covered into the depths of despair, and longs sell positions just to incur small losses or to break even. But that was the market prior to 2009. Since the QE regime began and as high frequency trading programs have increasingly dominated the markets, traditional human emotions/reactions have faded. For those who have been trading the past few years the "V-shaped" recovery is a commonly used term. That is a market that turns on a dime and just blasts upward in continuous fashion leaving underinvested longs and bears awed in its tracks. Today was one of those days. For no particular reason at all, stocks rallied very strongly with the S&P 500 up 1.27% and the NASDAQ 1.04%. Buying was widespread and across the board.
The rebound in the S&P 500 was so strong it took the index back to the low end of the ascending channel although a small sell program in the closing moments of the day - the only real selling on Wednesday - pushed it slightly below at the close.
The NASDAQ recaptured those spring 2012 highs and remains in this range it has been for weeks.
Our NYSE McClellan Oscillator has regained about 50 points in 2 sessions - a massive move.
Lately we mentioned the weak cyclicals of late; there was a comment asking to explain a bit. In a strengthening economy we want to see pro cyclical groups leading the market - areas such as financials, semiconductors, energy, industrials and materials. This would indicate the markets are rallying due to economic expansion rather than say multiple expansion or "Ben Bernanke is forcing the market up with a flood of liquidity." That had been missing lately as all the strength was focused on consumers staples and utilities, etc. Here is a good index to follow if you use stockcharts.com for how cyclicals are doing - you can see they broadly beat the market today by a 2:1 ratio.
One star of the day was LinkedIn (LNKD) which surged on two upgrades and has been one of the trio of new go to momentum leaders along with Google (GOOG) and Netflix (NFLX).
Evercore’s Ken Sena raised his price estimate to $200 from $160 and wrote in a research report today that LinkedIn could reach $280 within five years. Blake Harper at Wunderlich initiated coverage with a buy rating and a $195 target price. “While LinkedIn has a large consumer-facing audience component, its businesses are increasingly akin to software enterprise providers,” Sena wrote. Those companies have“sticky subscription revenue streams, vast addressable markets” and high margins, he said.
On the not so bright side, Groupon (GRPN) reported after the bell and was creamed in the after hours sessions to the tune of a 26% loss. If the print in the $4.40s holds tomorrow it will have lost 3 months worth of gains.
Groupon Inc lost a quarter of its market value on Wednesday after the company began to take a smaller cut of revenue on daily deals, sacrificing revenue and profits to attract and keep merchants. "This raises questions about how these guys are going to be able to scale the business," said Tom White, an analyst at Macquarie. "The forecast is underwhelming."
Original post: STTG Market Recap Feb 27, 2013
We have been witnessing the abnormal situation in the intermarket correlations for quite some time now, i.e. positive correlation between dollar and gold and silver (or virtually no correlation at all) , and negative one between the general stock market and precious metals sector. Such a set-up is not the best from the precious metals perspective, as the overall medium-term outlook is bullish for stocks and bearish for dollar. But last week seems to have brought some important changes to the structure of correlations. Before we analyze them, let’s see what happened on the currency market last week – we’ll focus on the USD Index (charts courtesy by http://stockcharts.com.)
On the very long-term chart we see a move above the declining long-term resistance line which normally would be a big deal. However, in the middle of last year when this happened, it was followed by an invalidation of the breakout and a subsequent decline. We expect to see the same thing here once again. Keep in mind that we have not seen a weekly close above this resistance line and really need to see several before stating that the breakout is truly confirmed.
Let us see how the medium-term perspective looks like.
We include this chart in today’s article so that we could make some points about the head-and-shoulders pattern. We see that it is no longer perfectly symmetrical, but this does not invalidate the pattern. It could still be the case that a double right shoulder is forming. If the index declines below the 79 level, the pattern and the outlook will once again be just as bearish as if the breakdown took place last month.
Finally, let us take a looka at the short-term picture.
In the short-term USD Index chart, we see the index right at its cyclical turning point. The sharp rally this month brought the index to its November high and the last part of this rally severely exacerbated the decline of gold.
With the index at its November 2012 high, at a cyclical turning point, and with RSI levels above 70, a decline here is quite likely very soon if not immediately.
Let us take a look at gold and silver correlations to see how such a decline in the U.S. dollar could translate into precious metals prices.
The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector (namely: gold & silver correlations). We continue to see some return to normalcy between the precious metals and the USD Index. Unfortunately the reason is that precious metals declined as the USD Index rallied. Of course, this must be considered a better scenario than if the metals had declined in price for no apparent reason. The indications are that when the USD Index reverses, the precious metals will do the same. With the USD Index at a cyclical turning point therefore, we could very well see higher prices for precious metals and mining stocks in the coming weeks.
We have mentioned the importance of cyclical turning points in the analysis of the currency markets and we would like to address one of our subscriber’s question regarding that matter, as this technique seems to raise doubts among our readers.
Q: Hi there, I was wondering if sometimes cyclical turning points just don’t happen at all. For example, we’ve been waiting for a cyclical turning point in the USD but it just hasn’t happened. And it now seems to be forming a right shoulder of a head-and-shoulders pattern. Is there a variable or certain rule about cyclical turning points that I don’t know about and would like to understand?
A: Yes, sometimes cyclical turning points just don’t happen – just like any technical tool. Good tools work most of the time and excellent tools can be expected to work 80% of the time or so (and it can be the case that something doesn’t work a few times in a row only to then work 20 times in a row). Expecting anything more than 80% is not really realistic and thus cyclical turning points also have to not happen at times. It still seems that they will work this time, though.
Summing up, the outlook remains bearish for the dollar. The implications from the currency markets appear quite bullish for the precious metals sector in the weeks ahead.
To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you’ll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It’s free and you may unsubscribe at any time.
Thank you for reading. Have a great and profitable week!
Przemyslaw Radomski, CFA
Gold Investment & Trading Website – SunshineProfits.com
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Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Up until the Martin Luther King Jr. holiday, the S&P 500 had been tracking its pattern from both 2012 and 2011 extremely closely. The 2012 pattern has gone off the rails since then, however. As shown below, last year the market kept on chugging along higher through early March before it saw any kind of pullback, while this year we saw a decent sized dip in the final weeks of February. The S&P 500 is currently up 6.3% year to date, but last year at this time, the index was up more than 9%!
While the 2012 pattern no longer compares too well, 2011 is getting interesting. At this point in 2011, the S&P 500 was up 5.3%, and it had just bounced back after experiencing the exact same pullback in late February that we've seen this year. The bounce back at the very end of February 2011 was short lived, however, and the index quickly turned lower again and actually ticked into negative territory for the year by the middle of March.
The bearish sentiment that began to form last week and early this week appears to have quickly dissipated, and it seems like the bulls are eagerly anticipating a new bull market high in the coming days. Just remember that we're not there yet, though, and we would tread carefully until we take out the February 19th high.
Below is a table highlighting the year-to-date performance of the major stock markets for 77 countries around the world.
The average YTD performance of the 77 countries listed below currently stands at 4.01%. Sixty of the 77 countries are in the green so far this year, while the other 17 are lower. Of the G7 countries, Japan and the UK are up the most, but remember that much of these gains are due to local currency depreciation. The US ranks third with a YTD gain of 6.5%, which really puts it on top given the currency impact on Japan and the UK. Italy has been the worst performer in the G7 with a YTD decline of 2.74%.
The BRICs (Brazil, Russia, India, China) have not had a great start to the year. China is up the most of the BRICs, but it's only up 1.94%. Russia ranks second with a gain of 0.64%, while India is down 1.41% and Brazil is down 6.09%. Brazil has been the third worst performing country on the list so far this year.
With the whipsaw action we've seen in the market over the past few trading days, we're interested in how our knowledgeable readers currently view the stock market. We've created a short survey for you to complete, and once all of the results come in, we'll analyze the data and publish a detailed report with our findings. Participation benefits the entire Bespoke community!
After completing the survey, you'll be entered into a drawing for a free $50 Amazon.com gift card as long as you provide your email address. Rest assured that your survey responses will remain anonymous, and your email address will not be used for anything other than the gift card drawing.
Please click on the link below to proceed to our Bespoke Market Survey. Thanks for your participation!
If all goes well, we plan on conducting this survey on a regular basis (likely monthly), which should really provide some interesting insight into investor sentiment going forward.
SFGate - Oil steady as Fed's Bernanke eases concerns - SFGate
The price of oil was little changed near $93 a barrel on Wednesday as markets digested the Federal Reserve chairman's fairly sanguine view about the risks emanating from the central bank's super-easy monetary policy.
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