Technical Tuesday: His Finger is On "The Button"! Be Careful Here!
One single human being controls the fate of the global economy. He controls your income. He controls your neighborhood. He controls the fate of Europe. He even controls the financial well-being of the people and towns in emerging countries.
Is that right? Should that be allowed?
When President George W. Bush appointed him Chairman of the Federal Reserve on February 2, 2006, the real estate market was peaking and the SEC was finalizing their strategy to deploy their own forces -- this time to the biggest hedge funds on Wall Street with a surprise audit. The SEC abolished the "uptick rule" (making it super easy to short-sell stocks down to zero), and then they forced hedge funds to "mark to market" (value their assets at the correct price -- a fraction of what they had accounted for).
Was it a coincidence that, in the months before a forced global economic disaster occurred, Bush appointed a man who had spent his life studying the Great Depression?
Working on Wall Street, I've personally witnessed countless scenarios with my own eyes and ears that would make you call every semi-sane "conspiracy theorist" you know and give them heartfelt apologies for your disbelief. The powers-that-be knew it would happen for years leading up to the crash.
And today, whether you agree with it or not, the financial WORLD is in the hands of this one man, Mr. Bernanke. And current market tensions are akin to the Cuban Missile Crisis, where the civilians (traders) are experiencing the daily stress of knowing someone has their sweaty finger on "the button". When traders believe the finger has moved away form the button, temporarily or not, they celebrate with higher prices.
It has become so bizarre that "bad news being good news" has become the accepted norm.
Case in point: Global markets have rallied for the last few days, mainly because of Friday's monthly U.S. employment report. What's the news? "Payrolls in the U.S. climbed less than projected in August and gains for the prior two months were revised down, pointing to an expansion that’s struggling to gain momentum."
In addition to the U.S. markets, emerging markets saw a sharp short covering rally that makes the U.S. rally seem tiny (actually, it is tiny -- about 1.6% for the S&P 500). This is because Fed tapering would hit emerging markets the hardest. Asian stocks are seeing their strongest rally this year, with the MSCI Asia Pacific Index advancing for the ninth straight day.
Let's hope no GOOD news comes out, eh?
What About The Big Bearish Signals We've Seen?
BOY have we seen some negative action in the long-term picture. In fact, the most recent trend has been a huge number of individual stocks breaking below their key support levels, which typically paves the way for uninterrupted declines down to lower price points. The NYSE BPI is on a long-term overbought sell signal, and has also recently moved to a column of Os. For those who don't speak the language, that means the intermediate-term picture (weeks to months) just recently joined the long-term picture (months to years): Toppy!
For the chartists, I'll direct your attention to this 5-year weekly chart of the S&P 500. I won't explain internal indicators here, but if you know the RSI and MACD, you can see the long-term RSI and MACD show overbought sell signals with a negative divergence.
But what about the bullish side of the argument?
With that in mind, we must always consider both sides of the market -- especially since markets are gunning higher for the time being. Okay...
The U.S. market is still relatively stronger than every other market on a long-term basis. Market sentiment has become extremely bearish recently (which is a contrary indicator). When sentiment is bearish, that makes for more fuel to push prices higher ,because those bears on the sidelines have money and decide to jump back into stocks. In other words, the bullish trade certainly isn't an "overcrowded" one. On the contrary, it has room for upside.
In addition to that, take a look at this 1-year daily chart of the S&P 500. We just saw it bounce off of an important uptrend line (red) and break short-term resistance (short blue line). We see a MACD buy signal and, to top it all off, we are seeing the shorter-term internal indicators gun higher after recently seeing relatively oversold levels.
Now I realize that individual investors tend to want the easy answer. In this case, that easy answer would be "Expect the short-term strength to continue in the short-term, but when you zoom out, the bigger picture is a long-term topping stock market." So if you want to pretend the stock market is full of cut and dried scenarios, then you should run with that. It might very well turn out to be exactly what happens.
But I think that it's foolish at this point to say you are 100% bearish (or bullish for that matter). It's certainly likely that we see a major long-term correction soon. The historically volatile month of October IS just around the corner. But I have a way to profit from this...
The way I've positioned the accounts that I manage is with relative strength strategies. It's truly the best game in town, because you don't have to be so concerned about whether the general market is going up or down. And you don't have to take a completely "market neutral" stance by having exactly 50% of your account in bullish positions and 50% of your account in bearish positions. You can be 60/40 bearish, 30/70 bullish -- whatever floats your boat.
In this short-term rally, I'm becoming a bit more bearish. The idea is to have the accounts with bullish and bearish positions, but slanted to the bearish side of things. The ultimate goal is to still make money if we're wrong and the market pushes higher. It's not the worst thing if the market advances by 5% and we only see a 1-2% gain.
But you have GOT to manage your accounts this way during times like these.
So, the idea is to take bullish positions and bearish positions. But on what? How do you know what's most likely to go down or up? I'll tell you how...
I, personally, don't want to do this with individual stocks, because a single news announcement can send an individual stock up or down 50% overnight. Let's eliminate that risk by using SECTOR ETFs. For those of you living in a dark cave for the last 20 years, an "exchange traded fund" represents a basket of stocks -- usually over 20 and sometimes thousands -- with just one security. It's like trading an individual stock, without the individual stock risk I've just described.
How do you know which sectors are likely to go up or down? How do you know when they are overbought or oversold?
There are many ways. But the absolute best way is to use our alert system that tells you when sectors just recently started seeing major institutional buying or selling and are breaking key levels. The stock market is broken down into 42 broad sectors like Oil & Coal, Oil Service, Clean Energy, Chemicals, Building, Retail, etc.
So what am I getting at?
Because the market is so darn crazy right now, I'm going to offer Tycoon Report Readers (only) a chance to look into this alert service with no risk whatsoever. This system actually emails you when there are statistically significant changes in the 42 sectors. This way, you don't inadvertently take a bullish position in a weak sector about to collapse while taking a bearish position in a strong sector that's about to take off!
If you call 561-288-9014 (or toll free 877-489-2666) before the close of business Friday, or before our 200 open slots run out, I will have my customer service team offer you AT LEAST 50% off the price we've historically charged new customers. When you call, just say you've read Christopher Rowe's Technical Tuesday article and you want to check out his Sector Alert tool, and they will walk you through everything.
I have hired a few temps. I like to hire temps to manage heavy call volume. It's fun and I'm bored and I would love to get Tycoon Report readers all charged up, happy and ready to tackle the next couple of months -- which are historically volatile.
There's a 30 day money back guarantee, but people hardly ever cancel this product. Once you get it, you're hooked and you won't be able to confidently look at the market ever again without it.
How do I know? I was introduced to the concept when I was 18. And here I am... sharing it with you.