Stock Mkt Movements Id'ing Key Data & Inflection Points

[smile]

Full Title: Stock Market Movements - Id'ing and Interpreting Key Data and Inflection Points
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"They" say Buy and Hold is dead and to some degree I agree, however those who bought at or near the bottom of this latest bear market plunge in early March 2009 and held on and did not trade out are miles ahead of the flippers who could not see the Armageddon trade was done and a recovery was being priced into the market.

As a personal note, I was a buyer of the market at the lows picking up ultra etf's such as SSO in the low 14 price area. What helped me id the bottom was a valuation metric I use along with other markers such as Policy. It took a lot of nerve to buy in the week ending 3/6/09 and the day of the actual bottom 3/9/09.

Identification of key inflection points at tops and bottoms of markets is crucial to the success of all investors.

The question is what data points are key to determining market turning points? There is no magical answer which fits all market occasions, but it is important IMO to be vigilant in the following Major areas

Major Data impact areas:

- Earnings Growth
- Business Cycle and macro economic growth
- Yield Curve
- Fed monetary policy
- Money Flow
- Policy changes - whether Financial, Accounting or Political. note: The broader scope for Political is the assessment of competence and its impact.
- Exogenous Events - similar to what Taleb refers to in a broader sense as Black Swans
- Valuation
- Bubble Watch - "the Next one" in the boom/bust cycle

ancillary considerations: herd mentality (momentum players) and TA (Technical Analysis)

The idea of this thread is the discovery, assessment, and sharing of market moving data. By no means is this an attempt to blow smoke up anyone's hind quarters to say all the answers are here. Going forward, I will be offering my ideas re: the above Major Data impact areas. Others are encouraged to do the same and to add to the Major Data impact area watch list and commentary where appropriate. No one person can sniff out all the opportunities, collectively however the odds begin to stack in our favor.

If value added, the discovery and look ahead parts of the above are the most intriguing and exciting.

Stay tuned.

[Ted85050]

Thanks Smile,

I put a lot of time into LVS (Las Vegas Sands) which fell to all time lows. I knew it would come back and it did, however since then I put a lot of time into some green stocks which is turning out to be a bad idea.

I thought I had a pretty good grip on the market and the waayit trends, but after reading some of the posts on Market Thoughts, I am feeling a little like a duck out of water.

[smile]

Ted85050:

First good job trading '08 & '09. Whatever you tapped to get that result you may want to re-tap now.

If my portfolio which is at an all time high as of last night with about 86% equities & 14% cash is a contra-indicator then we could get a correction any time now

If you look at the first 5 Major Data impact areas in the anchor post for this thread, that I think is the answer to your question along with Money Mgrs who missed the move from last year's recent low and retail also sidelined in cash waiting on Europe to implode. MFI on SPX index was 77.5.

The Wild card as my prior post indicated is I think the exogenous event of Iran prevent to go nuclear. The Kress data I believe needs a catalyst which could be Iran - higher oil etc.

Re: valuation issue - if that is your concern, my prior post covered S&P earnings and upper range targets using a presumption of higher multiple expansion (multiple of 1.65 to 1.75 or translated 16.5 to 17.5 pe).

[Ted85050]

I started trading in September of 2008. I sailed thorugh March of 09 with no problem. Having said that, the market we are in right now makes me dizzy. Shouldn't we be haveing a major correction down right now? What is holding the market up?

[smile]

Ok so I had a chance to briefly look at the 4 items listed in my previous post here: http://www.marketthoughts.com/forum/viewtopic,t,11643.html#48894

I'll touch on a couple of those items (boom bust cycle & Kress cycle) in this post in attempt to provide perspective for what may or may not be coming at us in 2012.

First the boom bust clock as shown here (click to enlarge):

It appears we are at about 8:45 on that clock no where near a cycle rollover high boom; on the other hand if you give any credence to the Kress cycles which you can read up on here:

Kress Q&A here: http://www.safehaven.com/article/10953/an-interview-with-a-cycle-master

[rffrydr]

[smile]

Thanks rffrydr.

re: the 2011 CNBC MDP game, but for their "free riding" break from real rules, in an all cash account, the game was actually pretty realistic. I think there were over 600,000 portfolios if I did the math conjecture correctly. So to finish in the top 100 with just two bridge jump trades was pretty freaky.

It was a tough trading year - 2011.

Seems like it's a no brainer for the bulls for 2012 considering mkt PE and potential for multiple expansion but not so fast there is still a lot of exogies (short hand for exogenous events) out there. Definitely challenging going forward.

I like your approach with options - I need to bone up there.

re: Iran and nuclear prevent - it will be difficult to discern the reality as this comes to a head. We need to look thru the bs and stay with the facts. The facts are diplomacy and even tougher sanctions will not work with the irrational Iranian leadership. We need the "MOP" with better penetration technology. I ran across this article posted today about 5 hrs ago which spills the guts on potential time frame:

http://xfinity.comcast.net/articles/news-general/20120209/US.Iran.Why.Now/?cid=hero_media

[rffrydr]

Good work all the way around, Smile. Lot's of simple valuation and technical levels last spring I missed 'cause "events" were all one-offs, seasonals and downright stupid--but they sure added up. "Sell in May" takes on new menace in a Sept. Hedge Fund redemption date on a down year.

I was unprepared on just how scared corp. boards were, running for the rabbit hole like they did (and how risk intolerant the few non-mechanized investors had become after '2008) I'd guessed just the opposite--which was true of high-yield and divy payers (NOT simply utilities) to be fair to me. Certainly not a system "efficiently allocating capital" in the mythology. $206B IPOs for $4T in turnover. Stocks have been seen naked, as ultimately just chits, and now we must begin a long journey towards collective repression. That's our new bull market. Investors, you're now trauma cases. ...but the economy, and that's what ultimately and always proves out, kept its balance and chugged right along. The "market" will always predict a recession--but at the price predicting recessions that never happen.

Too bad that "Challenge" is gamed beyond any semblance of reality. Maybe it has done more to "educate" the tyro investor than CNBC ever intended!

My take on Iran is that it's all an easy bluff to keep $100+ oil. Saudi put a cap on that yesterday. It's a riskless, costless insurance policy from a teetering regime. As long as the crude gets out. I think we got a year before things risk going awry. Iran the new N. Korea?

Looks like my '37 analogy is playing out well. Nobody trusts record peak margins on SP Earnings, but the (true) benefits of platform economy in depressionary envrionment, the natural biz cycle productivity gains, long low rates, Apple, 80% energy self-sufficiency (and the secular greening of industry), world markets and the almighty interwebs will keep these levels higher for longer. The trend has really been in place since WWII. Housing and Labor and Innovation will continue to keep inflation the matters in check.

In a broken market that makes me a dip buyer for the foreseeable future. "Stealth" dividend plays after the sector sells down and put/call combos to get in and out to make your own yield is the way. I also like messing in distressed assets aka bank suspended preferreds, select retailer debt, convertibles, newspaper debt, Eni, Ireland, Poland, Turkey, Mexico, Nokia debt, euro dividend futures, euro global food cos, Kurdistan wells, Blue Diamond debt today.....you get the idea. I look for a higher P/E, but not so high as some of the inflation watching valuations would put it--15/16ish and plateauing "peak" earnings here at $100.

I believe we've seen the worst in Europe--even though Greece may fall out in a year and the South will stagnate for years to come.

Hangin' tough, Smile. All -in-all a wicked, market destroying, Market-thoughts crumpling, off-putting year that caps a decade of the same. Buffett has come full circle. My guess is he dies with a smile on his face
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Today is the Tomorrow you worried about Yesterday!

[smile]

If you sold the 2011 seasonal in the spring of 2011 as I did and bought the dips later in the year, as suggested here your investments should be well ahead of where you were at the height of 2011 - I know mine are.

I'll need some more time to think about the subject question of where we are and what to anticipate for this year 2012.

A number of issues come to mind which I will be exploring:

Interestingly enough 3 of the 4 issues below fit under the rubric of Exogenous Events.

1) Kress prediction as discussed below: Posted: Sat Mar 12, 2011 11:56 pm Post subject: 120 year cycles - Kress ( in order to get this kind of decline I believe it will take an exogenous type event to precipate - not simply a function of cycle).

2) impact on markets when we join with Israel to deny Iran nuclear capability. I really think this is going to happen this year.

+ there should be a build up or prelude to the actual take out since we would need to take down their air defenses. I mention this cause if it were possible for this to be a 1 day quick and done, the markets would react differently than if this is a more prolonged attack.

+ as to when - depends on when they get MOP to maximum penetration.

3) Oil price impact as a result of 2 above.

I would say the seasonal will be in play again this year - so as we crest taking a little off the table as I did last year is probably a good bet again for reloading cash.

4) boom bust clock

I'll also be looking at earnings and valuations going forward as well as the ECRI growth 2nd derivative metric. BTW we are so far spot on in going against the ECRI prediction of "tipping into recession" which they called for last year.

the Bernanke put is firmly in place.
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On another note:

I decided to play the CNBC Million Dollar Portfolio game in 2011. I wanted to test my investment methods as I cite here to see how they faired against the day traders.

All in all I would say not a bad result - I was in the top 99.99% or top 100 with basically two trades. After the game was reset, I started short then went long. In order to win you had to day trade the heck out of your account - which essentially in real life would have been a violation of the SEC "free riding" rule, but unfortunately was OK as far as the MDP game rules were concerned. Good experience.

[smile]

[smile]

The Fed is still easy, remember QE2 lite is still out there, and helicopter Ben has guaranteed low interest rates till 2013. I'm still deploying cash on the dips. No recession is my call.

Last year ECRI growth turned around to positive after QE2 was announced. For 2010, ECRI growth was negative by 6/4/10. The economy this time around stayed positive on that metric until 8/12/11 almost 2 months after QE2 ended. The US economy needs to heal from the political idiocy the Republicans threatened with the debt ceiling. Also Euro zone and PIIGS need to get it together. Not too hopeful on either account but the market has a way of working through these issues given some time. We are not falling off a cliff. The negative macro news is having an impact, but I think we will come out of this ok. If I heard correctly this past Employment Report said 71k gov't jobs were lost - I thought that is what repubs wanted

smaller gov't right.

We as voters have got to get these idiots in Congress to work together or fire the lot of them... for the good of the country. The Simpson Boles debt reduction plan should be given another look and modified as Obama wants to do and not hit Defense spending so hard so early on, we still have terrorist threats and a war or two left to end. Put it up for a vote after the slight modification on the defense cuts part Obama objected to. If the Congressional idiots can be led to work on tax simplification (closing the loopholes and lowering the rates) and a national energy policy which begins to do as Boone Pickens has been advocating to get away from foreign dependency at the same time develop the next generation fuel, conservation, nuclear etc. the economy will get a boost. Natural Gas is the bridge fuel but we cannot let the idiot specs drive price up - heavy margin requirements of over 50% up to 99% should be in place for specs only, not those in the business of producing or receiving product that might need the hedge.

These three things should be at the top of Obama's agenda to get done. Obama can no longer simply provide a broad framework and let Congress do what it does. His administration must put something specific up on the board as a marker, he should gather top leaders in business that are patriots and at the top of their field, gather input and put together a package which can be supported by Dems and Repubs.

Also we need to figure out how big government services should be and pay for it. If we cannot pay for it we should not do it.

If Obama changes course and does the above we can turn this around. We can't get stuck in the old ideology - both sides have to give and do what is right for the country to move forward.

Another idea is for those who are under water on their mortgage and cannot take advantage of the low interest rates and refinance - change the rules there to allow that portion of the loan which is not underwater to be refinanced at lower rates. The higher rate portion of the loan could be discharged first with the savings from the lower rate portion of the loan. Default would be handled proportionately based on loan amounts. This would only be used for those in this position who have shown they consistently paid their mortgage on time and are financially stable. Something could be worked out here - maybe - forget the legal mumbo jumbo.

It's late - I'm starting to feel like Tom Cruise's character Jerry Maguire - wondering whether I should let this fly to post - ah what the hey - show me the money

[rffrydr]

As predicted below, QEIII was not the driver for this rally off Aug 9 lows. Failure-to-Deliver (after excoriating for the very thought of) sell was met with buying.

The short-ban continues to mix things up....but this will be bullish medium term.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Failure to deliver by the bearded Dove will keep the bearishness percolating but that's not really the heart of the matter. Indeed, it will give us the oomph to get right back up 1250-1294 range however. This was bank selling, met tax dumping...meets euribor dollar asset dumping and allows plenty of scope for higher prices--even if that's just somebody's depression short.

Today shows yesterday was no fluke and supports Aug 9th bottom call. No death-cross here:

http://stockcharts.com/h-sc/ui?s=RTH&p=D&b=5&g=0&id=p92864992661
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Today is the Tomorrow you worried about Yesterday!

[smile]

As expected, the double dip crowd has been very active of late, I still think we are ok and will not dd and continue to put cash to work on pull backs. Today was a good day for the bulls with the Dow up over 300 pts. I hope the market is not expecting something from Bernanke Friday.

The wild card is of course the PIIGS and the sovereign debt issues which lead to contagion fears.

1) 2nd derivative ECRI growth is showing a decline of -103.37% mom @ 8/12/11 with the first negative value recorded this year of -0.1 contrasted against last year where we were negative by June 4, 2010 and stayed negative till 12/17/10.

I still think the US economy is much stronger than most think. I do not think the Bernanke will go to QE3 - if you look at QE2 one of the reasons given was to stave off deflation which is not what we have today. He will stick will the low interest rate mantra till mid 2013 nonsense.

2) 2011 bottoms up S&P earnings @ 8/18/11 are slightly higher @ 98.81 than the prior June update. There appears to be only a slight concern over earnings reductions and margins going forward as noted in the following comments by the S&P analyst:

[smile]

Not much change from the last update @ 5/29/11 bold added where relevant.

bottom line is as long as the Fed is accommodative, the boom bust cycle is in recovery mode, and valuations as measured by S&P earnings are not excessive, I'll be accumulating on the dips.

Although Kress is calling for a crash based on cycle work, and others too for various reasons, without a major negative catalyst like a US debt default, I do not see it happening. The wild card is the debt ceiling negotiations and whether Congress can reach a compromise - not looking too good so far but hopefully we don't have complete idiots and financial incompetents in the Congress.

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update of the 3 areas + MFI + Ablin technical:

1) 2nd derivative ECRI growth is showing a decline of -42.47% mom @ 6/17/11 and we finally broke down thru the median value of 3 for the growth metric which is significant but compared to last year the rate of decline does not appear to be as great.

see excel visual below for current data & 2010 comparative

trust me it is not as bad as last year - the implication of this for me is the economy is stronger than it was last year at this time - just my take however.

2) 2011 bottoms up GICS S&P earnings @ 6/21/11 are about flat with the prior update at a 97.81.

Looking at the most recent Top down Op. Earn. figure @ 6/8/11 of 94.87, it is essentially flat from the prior update - which leaves my projected range for the S&P static at 1565 to 1660 using a growth rate of 10 and a multiple of 1.65 to 1.75 (16.5 to 17.5 PE). Also I am noting the projection into 2012 on OP Earn. shows +14% higher @ $111.83.

3) As noted last time we have the makings of a policy event which has the potential to be a financial event or as I refer to them as exogies (exogenous events). Teleb calls these black swans. Of course I am referencing the debt ceiling issue. Who will cave the Dems who say everything is on the table in mapping to a solution or the Republicans who say don't touch defense and no tax increases on the top 2% by letting the Bush tax cuts expire in '12. Will Obama step in again and broker a deal and cave or will he stand his ground this time and risk the market reaction to the downside? I think Boehner will blink this time especially if we get around the August 2 deadline and the market has a couple of 300 point down days... we shall see.

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new updates:

4) Money Flow Index or MFI has been below a recent historical median level of 50.22 ever since about 5/16/11 and currently as of last night sits at about 44.85.

we all know money flow is the life blood in the equation to higher stock prices.

5) Ablin technical - although wrong last year ( c this link: http://www.cnbc.com/id/37576951 ) I still watch it along with the death cross. Ablin came pretty close to zero but has not gone negative yet.

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excel view of 2nd derivative growth @ 6/17/11




2nd D same period for 2010 for comparison:

[smile]

3 update areas: growth, earnings, & exogenous events/Policy changes

Just a quick glance or take @ the 3 areas:

1) 2nd derivative ECRI growth is showing a decline of -25.19%mom @ 5/20/11

we are still over the median of 3 but declining slowly towards that threshold level

looking at last yr's #s, we were almost in this exact same place except the decline last yr was more pronounced... I expect with the Fed ending QE2 and only reinvesting dv. (QE2lite or minime) that funds flow attenuation will hurt the market a bit - to put it differently, the fed's foot is backing off the accelerator.

see excel visual below

2) 2011 S&P earnings continue to show resilience with a 97.94 bottoms up Op. earnings target however top down OEs are in the 94.89 area about 3% lower. Using the top down OEs # we get a projected range for the S&P of 1565.685 to 1660.575 using growth rate of 10 and a multiple of 1.65 to 1.75 (16.5 to 17.5 PE).

3) so what could mess us up presuming we get a nice seasonal decline with the double dip loon crowd setting up for a buying opportunity bull run in a recovering economy? With the Kress cycle warning still on my mind, I'm looking for any 'exogy' out there for a financial impact.

As I listened to the political discussions this morning (McConnell & Schumer - see link below), it struck me we are on a collision course with a possible debt downgrade and a major financial crisis because the Republicans don't believe there will be a financial impact of not raising the debt ceiling. The question is with the political parties so far apart will they roll the dice and create a default on US debt by not reaching a political compromise to cut spending and raise taxes and the debt ceiling?

Unbelievably after I listened intently this morning I walk away shaking my head saying this is a very real possibility. Republicans are unwilling to address the Revenue side of the equation saying it is the spending which is the issue. Democrats are correctly saying both spending and revenues are the issue. This morning I see no compromise to be had. I could be wrong, but for me to be wrong, Republicans will have to pull a Bush senior moment - read my lips and then proceed to raise taxes on their heavy donors - I don't see it happening. Also the Repubs will have to back off the Ryan plan of ending Medicare to turn it into a voucher program.

President Obama's task force Simpson Boles has the making of a compromise if they can work the kinks out of it - the problem is I think it has tax increases which Repubs will not go for.

So bottom line is our Congress cannot come together to solve our long term debt problem. Easy answer from my perspective would be simply to lower the age for the rug pull on medicare from Ryan plan of 54 and under down to about age 44, and means test the million n billionaires out of the system... you know all those ol' farts out there who are on medicare who travel back and forth to 2nd homes in Hawaii who really should not be on medicare and should be footing their own medical expenses.

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Schummer/McConnell: http://www.bing.com/videos/watch/video/mcconnell-schumer-roundtable/6wo1968?from=

excel quick view of growth 2nd derivative decline - on track w/ last yr