Last week provided the start of another leg down in what has been an unpredictable stock market, and the market now appears to be in the midst of forming another bear flag. Since rolling over and selling off strongly in late April, the market has demonstrated all sorts of conflicting formations that have confounded trend traders and investors.
That’s why at Sabrient we prefer an absolute return long/short approach that is indifferent to market direction, relying upon our fundamentals-based quant models to create relative rankings among stocks for identifying the best longs and shorts for a given portfolio, no matter what direction the market takes. Nevertheless, for long-only traders or those who use our quant rankings to create watch lists for swing trades based on technical entries and exits, an indication of where the charts are indicating the overall stock market might be headed can be helpful.
So, as we enter the final week of summer, I’d like to review the various chart patterns that we’ve seen since the market peaked in mid-April, and take a stab at where the charts are telling us the market might go from here. I’ll focus on the widely traded SPDR Trust exchange-traded fund (SPY), which tracks the broad S&P 500 Index. Read more…
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The positions our model portfolio {RSY} has open at the present time are:
ANAT 100 at $78.01
IVR 400 at $20.51
NGPC 500 at $7.71
I also should have noted that when I mention limit orders that I am considering it a GTC (good until canceled) order. Thus we will need to keep a record of the open orders as well as the executed transactions in our tracking, which at present are none.
IVR and NGPC are sagging some with the market malaise. ANAT has shown a lot more volatility than we desire but we will be waiting until after the ex-dividend date to look for an exit strategy.
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Courtesy of Phil at Phil’s Stock World
BHP offered to pay $38.4Bn for POT this morning.
Is BHP high or is this market seriously undervalued? Well, for one thing, POT turned them down saying the offer ($130/share – CASH) “substantially undervalues PotashCorp and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects.” CEO Dallas Howe continues: ”We believe it is critical for our shareholders to be aware of this aggressive attempt to acquire their company for significantly less than its intrinsic value. The fertilizer industry is emerging from the recent global economic downturn, and we feel strongly that PotashCorp shareholders should benefit from the current and potential value of the Company. We believe the BHP Billiton proposal is an opportunistic effort to transfer that value to its own shareholders.”
Considering POT closed at $112 yesterday, so a 16% pop in the offer but POT was at $85 at the beginning of July and hasn’t been over $130 since the 2008 crash, although they did top out at $239.35 so I suppose a very patient investor could imagine that within 5 years, $200 is not an unreasonable goal. Still, is that enough reason to turn down $130 of cash now, with the proverbial 1.3 birds in the hand being worth 2 in the bush?
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By Phil of Phil’s Stock World
China became the World’s 2nd largest economy this weekend.
![[JECON.2]](http://sg.wsj.net/public/resources/images/AI-BE537_JECON2_NS_20100816014415.gif)
Or rather, Japan became number three because it’s not so much what China did as what Japan did not do, which was (or was not, in this case) grow. Japan’s GDP came in at a pathetic 0.4% annualized pace in Q2, about 1/6 of the 2.3% pace expected and 90% slower than the 4.4% pace of Q1. At least we can’t call Japan a “double dip” – they haven’t been out of a recession since the ’80’s…
This post will be mercifully short as I’m in Washington, DC this morning, hoping to avoid having China pass us by next by pushing my “New, New Deal“ (and don’t even bother reading this if you are a Conservative as it will just upset you or, even worse, make you think) and generally making a nuisance of myself as I try to get a handle on what is real in this town (quite a trick, actually).
One surreal thing I noticed is that the Washington Post does not have a full Business Section. That’s right – our capitol’s largest newspaper and one of the oldest in the nation, has NO full business section – today it’s just 2 pages on A9 and A10 (at least it’s in Section A!). It is the fifth largest paper in the nation but, more importantly than that, it is read by 582,000 people a day, which is about 1/2 of all of the people in this town DOES NOT HAVE A PROPER BUSINESS SECTION. They do have a Style section and Classifieds and Sports but, on Monday at least, no Business Section. Don’t you think that may somehow color the way Washingtonians view the World, when their own paper de-emphasized Business to the point where I would comparatively call the USA Today in-depth?
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Courtesy of Phil of Phil’s Stock World
David Rosenberg is the special guest on CNBC this morning.
Sometimes I get the impression they intentionally counter-program any bullish point I bring up (we talked about Rosenberg in yesterday’s post). As I did say yesterday – fear sells and CNBC is in the business of selling fear, driven by their own fear of declining ratings (new lows in the last book) and irrelevance. I think one of the problems with CNBC is that they forget they are on television. On the right, I am SHOWING you a chart of weekly unemployment – TV is supposed to be all about showing you things but the only things they show you are gigantic talking heads and the dreaded “octo-box” where the loudest guy with the best one-liner wins (I guess).
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By Phil Davis of Phil’s Stock World
The markets are clearly insane.
I diagnosed manic depression in the markets years ago but it’s been getting worse and worse to the point where we now have mood swings from week to week and sometimes even day to day. Much of this is politically driven with the Conservatives currently in overdrive – looking to “prove” that every single thing the Democratically controlled Government does is nothing short of a disaster. Nothing works, nothing will work and nothing proposed will work other than more tax cuts and “throwing the bums out” (the Democratic bums, not the Republican bums).
There is a 24-hour television network that is slightly conservative and, if you look on the Fox website, you will find out that 8% of the children in the US are born to “illegals,” that cutting the World’s largest defense budget will make U.S. less safe (YOU DECIDE – they say), Democrats IGNORE ethics cloud by attending Charlie Rangle’s 80th birthday party, Democrats are using the Tea Party against the GOP (but don’t worry because “the tide is turning at the polls“), the drilling ban is crippling the Gulf, we’re “wasting” Billions of dollars by sending aid to other countries and, best of all, the page is sponsored by BipolarDepression.com!
Heck, after reading that page I’m ready for a few Xanex myself!
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By Phil at Phil’s Stock World 
Forget the GDP.
We’ll get the report on Q2 GDP at 8:30 tomorrow but I’ll be watching the Employment Cost Index to see if we are recovering. I know it seems like ”commie talk” to my Conservative friends, but rising wages and benefits are signs of a healthy economy and you can plot the rise and fall of the stock market very neatly against how well the workers are treated.
It was Henry Ford who first “discovered” that, if you expect American consumers to buy your products, you have to pay American workers enough to afford them. In January of 1914, the Ford Motor Company announced they would pay $5 a day to its workers. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn’t automatically apply to every worker, it more than doubled the average autoworker’s wage. Workers came from all over the nation and all over the world to work for Ford, who had their pick of the best and the brightest, which led to a 60-year legacy of dominance in American Industry. Read more…
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Courtesy of Phil Davis at Phil’s Stock World
Our last Beige Book was June 9th and we liked that one. My comment to Members at that time was:
Wow, this is good stuff! Ben was not BS’ing - It’s a slow, tedious recovery but a recovery nonetheless! On the whole, a pretty good report! Not enough to support $75 oil but a nice, not too inflationary recovery is in the works. It’s no quick fix though, as it will take 2 good Qs before corporations will be willing to add staff so I bet not much until next spring unless the government steps in (and they’d better).
At the time, the S&P was at 1,055 and we flew up to 1,120 on June 21st before the next market flip-flop, which we have just flip-flopped back from and yesterday we tested 1,120 again and here we are, back at the Beige Book. So now, the market is about where it should have been based on the last BBook (and no government help so far). I thought yesterday was too early to pop through ahead of the data and it turns out it was. If anything, I’m a lot more worried that a deteriorating report tanks the markets this afternoon (2pm release). Read more…
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Courtesy of Phil Davis at Phil’s Stock World
Wow, this market goes from zero to sixty in record time, doesn’t it?
Our 1,013 mark (see yesterday’s post for charts) was tested and broken on the S&P yesterday (see David Fry’s chart) on a silly stick save into the close but, seeing that, it was very obvious that “they” are looking to paint some impressive moves on the charts this week so strap yourselves in – it’s going to be a wild one.
1,020 is our next big test on the S&P along with the satanic 666 on the Russell and 10,700 is the next big test for the Dow (as 10,500 seems well in hand). Advancers led decliners 20:1 on the Nasdaq, which shows you what a total farce the market is because we had the same ratios going down so stocks are either ALL good or ALL bad on a random daily basis. Human beings do not trade this way my friends, this market has been totally taken over by machines and the affect of your individual trading is about the same as shooting a water gun into a wave to slow it down. Read more…
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By Phil Davis of Phil’s Stock World
Yawn!
As I said in our last 5% Rule Update, way back on May 5th, I’m not a big fan of TA. We have our 5% rule and it serves us well enough but that’s a statistical analysis, not a technical one. The only TA I put a lot of stock in is Fibonacci Retracements but that, also, is really statistical science and has nothing to do with trying to predict the movement of squiggly lines on a chart.
The 5% Rule does NOT tell you which way the market is going. It does tell you where the resistance points will be. Of course, knowing that and knowing what kind of bounces to expect and knowing where a proper breakdown or break-out occurs is kind of useful and, when it coincides with the tea leaves that are read by the “real” TA guys – you can really have something good to go by! Read more…
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