Courtesy of our Friend Phil at Phil’s Stock World
What a pretty picture “THEY” painted yesterday!
I titled yesterday’s post “8,900 or Bust” and it did look like a bust around lunch as we tested our hold targets of Dow 8,800 (8,811 was the low), S&P 946 (944), Nas 1,860 (1,892), NYSE 6,200 (6,084) and Russell 530 (518) but, just after 1pm, a miracle occurred and the buy programs kicked in, leading to an absolutely frenzied finish that brought us right around our upside targets of Dow 8,878 (finished at 8,915), S&P 956 (954), Nas 1,909 (1,916), NYSE 6,231 (6,154) and Russell 535 (525).
Both the Russell and the NYSE were pumped up near their breakout targets first thing in the morning but both failed there and both broke below “must hold levels.” Keeping an eye on our levels allowed us to make bullish plays on ZION (hedged to $10.16 and another at $9), IWM (that one stopped out), C (bull call leaps) and CAL (hedged to $7.50). We also added more YUM calls in our $5,000 Portfolio as well as a bearish ratio backspread on WFC, expecting them to have rough internal numbers, as are many banks this Q (something that kept us from being too bullish overall). We covered all this bullishness by half uncovering our long DIA puts, still wary of a pullback but ready to re-cover (flipping bullish) if the Dow holds the nonsense move they made into the close. As I said yesterday – keep up the nonsense for a couple of days in a row and it starts looking like firm support.
As we were discussing in Member Chat last night, perhaps it’s not all nonsense. Take a look at this visualization of earnings beats by Bespoke. I said back when we went bullish two weeks ago that we need 66% of the S&P to beat estimates in order to sustain a rally and we are now well ahead of that pace with almost 72% of the reporting companies coming in BTE. How bearish can you be in the face of such overwhelming results? Yes the expectations were low and yes the “beats” are still coming in with revenues that are about 20% or so lower than last year but 20% is not 40%, and that’s how far off the top our markets still are. These numbers are market FACTS, as opposed to the rumors and panic that took us down to the low end of our trading range just two weeks ago, when I literally had to fight the bears off with a stick!
In general, I am neither bullish nor bearish – I am rangeish as we have settled into the trading range around Dow 8,650 (5% up is 9,100, 5% down is 8,200) that I predicted almost a year ago as the “right” level for the markets given our outlook for the economy. There is certainly nothing in this quarter’s earnings so far to change our view on the lower end of our range and we still haven’t had the move we need from our two broad indexes (Russell and NYSE) to justify us moving our midpoint higher to accomodate a move by the indexes over the June highs. If we can get through the next 2 weeks of earnings with results like the ones on this chart – THEN we need to rethink the market’s value but, until then, I remain rangeish and we will keep selling at the top and buying at the bottom until some real evidence dictates otherwise.
Currently in the market, there are good bull cases to be made and good bear cases to be made and every day we get “evidence” that adds to the arguement for one side or the other. Do you know what that means? That probably means we are at a proper point of equilibrium. Markets don’t HAVE to go up or down violenty by 20% or more. Sometimes (in 9 out of 10 years on average) they stay within a fairly narrow trading range, moving up or down slowly over time. While it’s possible that program trading and other “black box” systems like the one stolen from GS may mean we will never return to calmer markets – I will point out that the market was fairly violent during the run up ahead of and after the great crash of 1929 and then proceeded to do nothing all that exciting at all for 40 years. We entered a violent upswing in the late ’90s, dropped down, came back and dropped down again – very similar to the move into 1930 and then again in 1937 but that second dip led to 7 years of flat-lining followed by 25 years of general market improvement.
Notice there is nothing that was predicted in this chart, from 2004, that has really been violated other than that silly bubble spike up that was driven by GS and other commodity pushers looking to steal all the peoples money, wipe out their competition and take over the government. Now that they’ve accomplished all that, we are back to business as usual, very likely in a decade-long consolidation between 7,200 and 11,700. Currenly, we are in the lower end of that range but this chart is measured in years, not weeks and investors with a long-term view are very likely to be rewarded. Previous consolidation periods lasted 18, 13 and 15 years – this one began in 2000 and is 9-years old. Will it be the shortest consolidation on record? Will it be the first time since the dark ages that the world economy regressed over 20 years and began to shrink long-term? If not, then we are likely to be range-bound for quite some time and I urge you to consider that you don’t have to be bullish OR bearish – it’s OK to be rangeish…
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