Thursday, February 23, 2017

Those Ready For Big, Scary Stock Market Sell-off Have Been Sidelined For Years

News
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”, John Templeton

The majority of investors are so worried about the next scary sell-off that they've missed the bulk of the US stock rally since 2009. David Rosenberg, a popular source for the gold bugs, has warned investors about so many impending recessions, stock market sell-off, and rallies in gold, it's a wonder anyone follows him.

Investors remain relatively neutral on stocks despite a strong rally (see sentiment).  In other words, this is the market's way of saying there's more room to run as rising prices (momentum) encourages more buying.  Smart money always backs away when the majority is overly optimistic.  While sentiment levels are widely quote by headlines to generate clicks and traffic, they're probably the most misquote and misinterpretation of all financial statistics.

Headline: Why you should always be ready for a big, scary stock market sell-off

Usually, stocks go up.

But they also come down. And more often than you think.

“The question is only one of timing and magnitude,” writes David Rosenberg, strategist at Gluskin Sheff.

Only once in the last 89 years has the S&P 500 not dropped at least 4.4% from an interim peak, and in 2016 there were four of these occurrences. In 2016, the S&P 500 rose 9.5%.


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Rising volatility is confusing both bulls and bears. This makes understanding the message of the market even more important. The message of the market, subtle and quiet in comparison to the thundering voices descending from the pulpit of opinions, is often hidden in plain sight by the daily distractions of life.

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O2/17/17 #Silver Chart $SILVER $SLV #Free

Silver Chart
Those that view the message of the market on daily basis are likely confused by trading noise. While trading noise contributes to the long-term trends, it does not define them. Human behavior tries to explain trading noise as a meaningful trend. This confuses the majority which, in turn, contributes to their role as bagholders of trend transitions.

Silver's overall trend, revealed by trends of price, leverage, and time, defined and are discussed in the COT Matrix for subscribers.

Subscriber Comments

Chart


The Matrix showed a focused bull opportunity, focused up trends in price and leverage, was generated on 02/10/17.  SLV closed at 17.02 on 02/10.

02/07/17 Matrix Released 02/10/17


The Matrix updates the the progress of this trade as well 32 other markets. It also includes Intermarket analysis that includes market leadership and risk appetite, a true economic activity composite for the United States (EAC), and long-term concentration (cycles) and direction for US stocks, bonds, and commodities. The later is important for long-term timing.

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Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.

Goldman Says Investors Too Optimistic

News
The message of the market describes investor sentiment as neutral at best ( see S&P 500 Chart or Matrix). Why listen to the message of the market when Goldman is consistently wrong?

Irrational exuberance in stocks, a condition that history shows us can last for months to years, can be very profitable for the bulls or anyone not trying to talk down the market. Goldman's equity strategist, on the wrong side of the trade, is trying to 'explain' why the market is wrong by using domestic only interpretations. Obviously, this tactic buried a lot equity strategists from 1927 to 1928, and 1995 to 1998, and so on.

The Goldman strategist points out the following:
Cognitive dissonance exists in the US stock market. S&P 500 is up 10% since the election despite negative EPS revisions from sell-side analysts (see Exhibit 1). Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward. On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017E adjusted EPS forecasts by 1% since the election and “hard” macroeconomic data show only modest improvement.

The invisible, however, will certainly ignore this reasoning. Capital flows fleeing uncertainty in Europe and slowly driving up the dollar is parking in US stocks. What happens if US stocks maintain their rally as global and domestic economy contract? Confusion, followed by panic to buying when the majority realizes they've been fooled by bad analysis.

Headline: Goldman: 'Cognitive dissonance exists in the US stock market'

Goldman Sachs analysts believe investors and traders in the stock market are acting irrationally.

“Cognitive dissonance exists in the US stock market,” Goldman Sachs’ David Kostin said. “S&P 500 (^GSPC) is up 10% since the election despite negative [earnings per share] revisions from sell-side analysts.”

Earnings and expectations for earnings growth are the most important drivers of stock prices in the long run. In the short run, however, earnings and prices will often diverge.


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Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.

02/17/17 #SP500 Chart $SPX $SPY

SP 500 Chart
Those that view the message of the market on daily basis are likely confused by trading noise. While trading noise contributes to the long-term trends, it does not define them. Human behavior tries to explain trading noise as a meaningful trend. This confuses the majority which, in turn, contributes to their role as bagholders of trend transitions.

S&P500's overall trend, revealed by trends of price, leverage, and time, defined and are discussed in the COT Matrix for subscribers.


Subscriber Comments



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Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.

Frexit Will Become Headline Reality Soon

News
Marine Le Pen, a conservative right wing, anti-EU and -immigration National Front candidate, is all about national sovereignty and independence. The similarities to Trump's platform suggests a wave of nationalism, the trend toward separation rather than cooperation, spreading across the planet. It also suggests that Trump was merely a surfer rather than than driver of a trend established by the invisible hand.

Bottom line, Brussels EU-controlling bureaucrats are scared to death of Le Pen's brash and rebelious leadership style. She wants France to take back control of its money and finances through through Frexit referendum vote; the foot dragging displayed during the Brexit  process highlights the importance of losing a majoring economy within the EU.

The Euro remains in mark down because of the growing potential for chaos from a French, Italian, Spanish, or similar exit (see Matrix). Past debt issuance dependent on strong Euro/weak dollar would be vulnerable ill-liquidity, forced liquidations, and default that would wreck havoc on global markets.  Smart money is right to be worried.

Headline: French Election Puts Possibility of ‘Frexit’ on the Agenda

PARIS—What’s striking about the French presidential election is the extent to which the two front-runners share a basic analysis of the choice facing the country. Marine Le Pen, the leader of the right-wing National Front, and Emmanuel Macron, the 39-year-old former economy minister who quit Fran├žois Hollande’s government to stand as an independent, are poles apart politically. But both agree that the defining issue is France’s membership of the eurozone.

Both point to the widening divergence between Germany and France’s...


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Wednesday, February 22, 2017

Client Trading Notes Updated

Client Trading
Bulls make money, bears make money, and but PIGS get slaughtered" is an old Wall Street saying that warns traders against the danger of excessive greed.  Disciplined traders always remove their own capital (initial investments) as fast as possible and risk only other people's money while watching TIME and trend energy. TIME is defined by cycles unique to each market, while energy is defined by DI and CAP in the Matrix.



Client Trading Notes can be accessed with a special key.

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Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.