Technicals Calling For a Market Top...

[pedro01]

Sorry about the title... No technicals here...

There is much nervousness in the markets right now - something that doesn't appear on the charts but something that a lot of people you talk to are feeling and something evidenced by a lot of pundits invited to talk on the news. Even Soros is now speaking out about the market being due a pullback.

Against the market pullback is the fact that the US has been printing money, it's created no jobs but ended up propping up the market. Also is the fact that many people consider the market to have overreacted down to the March lows and now the currenct correction is actualy fair value coming back to those instruments that were pounded.

Earnings have been OK but revenues down - a natural effect of cutbacks. How long can this last ? Perhaps the answer is "about 2 weeks".

Next Week - we have 91 companies making announcements. The following week almost 450 companies.

Eyes will be on revenues, not earnings. I really do think that if next week, the 91 companies show overall poor results, then poor results the following week should be enough to push things over the edge.

For sure - it will be an interesting 2 weeks and there should be plenty of opportunities for the well prepared.

Some of the companies announcing next week are in the attached spreadsheet. Make of it what you will.

 

[dcraig1]

Nice summary, IMHO.

I thought it said something about the market when MSFT missed last estimates, and the broad market shrugged it off in a day or so. It might not be the same story this time around.

 

[poborsky]

'Money on the Sidelines' Is a Myth -- Seeking Alpha

 

[Black Swan]

pfftt...the recession/depression/meltdown is over, the Aussies have just raised their base interest rate and UK house prices are back to 2008 levels.... To imagine that the worst and arguably the biggest financial crisis in living memory, can be ended inside a year by; ZIRP, printing/creating money as fast as computers can operate, encouraging every man, his dog and the banks into equities is absurd...

Not sure where the 'clever' money will go once the crazy equity bubble bursts, but money's value/worth has been crippled by the handling of this crisis, the true damage hasn't crystalised... yet. The whole handling of the crisis was a lifeboat exercise in order to protect the system and therefore the ultra wealthy elite. There was more appropriate medicine at the time, but those in power, particularly in the US pre Obama, were hell bent on protecting themselves and their system. The thought of passing the bill onto future generations might have been viewed as a masterstroke at the time but medium to long term it'll prove disastrous.

I'd suggest markets were over-sold by March this year, but the false rally has been over cooked by a considerable margin IMHO, perhaps a 20% correction is baked in...

 

[Technically Fundamental]

I'd suggest markets were over-sold by March this year

Were equities really oversold or were the indexes too heavily weighted against the financial sector?

 

[poborsky]

Were equities really oversold or were the indexes too heavily weighted against the financial sector?

or/and the oil sector?

 

[Technically Fundamental]

Dunno how you can even tell with all this bloody algo trading. Volume figures were probably worth balls 3rd Q last year

 

[Black Swan]

Were equities really oversold or were the indexes too heavily weighted against the financial sector?

Look at the mad rally in retail stocks and how that has driven up the index, is that 'cos all the 'Mom & Pop' stores are closing down and the super markets are hoovering up the business, therefore they produce record profits? More likely they continue to use accountancy rules and clever spin/pr companies in order to continue with the economic Potemkin facade. If you travel around most city centres (other than Londinium) all you see is young folk proudly brandishing Primark bags...

Here's a thing I'd never considered fully until everything went tits up last October, just how much debt so many large companies are in (quoted and unquoted) and how they're reliant on billions of credit just to operate/stay in business...

Take the two utter bags of 5hite that are Littlewoods (or whatever the hell they're called these days) and Gala Bingo. The former uses accountancy rules to make their 250 mil loss look like 125 mil the second has just re-structured 1bil worth of debt in order to stay in business. 1 bil for a bingo/leisure company ...you couldnt make it up. Overall point is there is a lot of businesses still on respirator, a lot of them in the FTSE 250. Consider the Philip Green empire saddled with a 2 billion of debt after he paid his wife the 1 billion in dividends...

Anyhow, heres something. A surprise 2.5% fall in industrial output...a surprise, really? Not to the hundreds of thousands who got their p45's over the last six months it isn't...I dont buy into v shaped or w shaped recovery, there is no recovery, the huge injections of capital into banks so the elite could shake out the spoofers and provide exits for themselves has been used up. It's generated nothing of use in the real economy/main street. The recession/depression isn't over, it's simply hit the doldrums looking for direction...

Surprise 2.5% fall in industrial output casts doubt over recovery | Business | guardian.co.uk

 

[Technically Fundamental]

I agree with you black swan. Esp on the accy larks. I've had to learn three diff sets of accounting standards since 2005 lol (currently on international). It's an absolute joke tbh and I can't see why the big 4 audit firms aren't under serious investigation.

I think the corps are going to be dreaming up new ways to raise capital/improve cash flow. You seen bonds being advertised by barclays on TV. Could be the way forward for all.

What I meant was have the stocks been held on to by individuals and pension funds etc and was the volume merely algo trading...

As you know I don't know much about the markets but from what I can see this whole fiasco since march still surprises me. I wouldn't be surprised if they were using this opportunity as an experiment to see how elastic the market is under coordinated coercion.

As far as economic figs are concerned, I'm surprised whenever we seen numbers a fair amount into the green lol.

 

[poborsky]

Sweden prepares for financial collapse in Latvia and major bank losses at home - Credit Writedowns

 

[pedro01]

OK - so let's see how we are doing this week....

RPM - Monday - beat earnings estimates but revenues down 7%.
Mosaic - Monday = misses by 12c revenues down 66%
Robbins & Myers - Monday = beats estimates, revenues down 31.9%
Team - Monday - misses estimates, revenues down 18.2%
Chattem - Tuesday - beats est - revenues up 2.9% (but some one-off exes)
Pepsi Bottling - Tuesday - misses estimates, revenues down 4.7%
AngioDynamics - Tuesday - beats estimates, revenues up 13.1%
YUM Brands (Pizza Hut, KFC, Taco Bell) Tuesday - beats estimates, revenues down 2.3%
Costco - Today - beats estimates, revenues down 3.1%

Note that beating earnings estimates does not mean earnings have risen - it just means they were better than expected.

Most of these companies are predicting a better year ahead as the economy recovers. So - are we learning anything new here ? Revenues are down, companies have cut back, less people are employed.

I guess - even if the 550+ companies to report over the next 2 weeks show declining revenues, it could be seen as news we already know. Cost cutting means less employment though which means less customers which means next year doesn't get any better.

Perhaps the next 2 weeks won't spook anyone as we are expecting lower revenues. Perhaps the answer is in the sales figures for the next quarter....

Anyway - we shall soon see.

 

[Black Swan]

OK - so let's see how we are doing this week....

RPM - Monday - beat earnings estimates but revenues down 7%.
Mosaic - Monday = misses by 12c revenues down 66%
Robbins & Myers - Monday = beats estimates, revenues down 31.9%
Team - Monday - misses estimates, revenues down 18.2%
Chattem - Tuesday - beats est - revenues up 2.9% (but some one-off exes)
Pepsi Bottling - Tuesday - misses estimates, revenues down 4.7%
AngioDynamics - Tuesday - beats estimates, revenues up 13.1%
YUM Brands (Pizza Hut, KFC, Taco Bell) Tuesday - beats estimates, revenues down 2.3%
Costco - Today - beats estimates, revenues down 3.1%

Note that beating earnings estimates does not mean earnings have risen - it just means they were better than expected.

Most of these companies are predicting a better year ahead as the economy recovers. So - are we learning anything new here ? Revenues are down, companies have cut back, less people are employed.
I guess - even if the 550+ companies to report over the next 2 weeks show declining revenues, it could be seen as news we already know. Cost cutting means less employment though which means less customers which means next year doesn't get any better.

Perhaps the next 2 weeks won't spook anyone as we are expecting lower revenues. Perhaps the answer is in the sales figures for the next quarter....

Anyway - we shall soon see.

Last weeks disastrous US job numbers (both NFP and ADP), arrived with an interesting stat; if current trends continue (for the rest of the year) the US of A would have to create 3 mil jobs a year for 5 years to simply get back to where they were before the recession started in 2007. The report went on to state that the US would then be ready to hit the next inevitable recession... The most jobs created per year (iirc) is just under 2 mil a year, under one of the Clinton administrations...

 

[Technically Fundamental]

Looks like the first two black presidents might be joining forces behind closed doors.

 

[GladiatorX]

People always say 'Market is oversold' with no real evidence or reasons... I think its
A) To comfort the fact they haven't profited from the uptrend
B) To re-inforce there own belief that they shouldn't conform to their impulsive need to get in
C) To be able to say 'Told ya!' when the market finally falls

The market is in an uptrend. Stop trying to guess when it will end and just roll with it This hole time everyones been saying the market is oversold and its just continued rising... I still haven't heard a valid reason for the oversold... How can it be oversold when last year it was @ significantly higher prices;

I had fears the other day that the markets would continue falling in the current small pullback and therefore i was slightly fearful entering a few positions in a few ETF's but i thought to myself; I have no logical reason for assuming this is the end of the uptrend, it is an uptrend and we are currently in a pullback and therefore logically its essentially a 'bargain' within the uptrend and i have no reason to believe otherwise.

We had a big down day and i bought at the close the FXI which was at my supportive trendline... If the trend continues, great i make a nice profit; If the trend ends, i have a small loss, with a good risk:reward ratio.

I then thought; Now if i genuinely believe i have a valid reason that the market will fall - I should short, i have no reasons and i went long and boom 5% Up on the account.

Just a small lesson for me there because i was so uncertain on entry and thats the third time this exact thing has occured in the entire rally.

 

[tenbobtrader]

Forest Gump

good post Gladiator


"In the early days of the Internet, before the explosion of financial information related to the current mania, there were few places where traders could exchange information outside of the brokerage business. I stumbled upon the AvidTrader site and they had a free chat line. I hung around there for a long time and one day, a gentleman using the handle "oleman", an S&P futures trader, came into the site. We became regulars on the site and at some point, I sent him an email, asking him about his methods.

He replied that he traded like Forrest Gump.

His basic logic went something like this. We are told to buy low and sell high. We are told to follow the trend. These would appear to be mutually exclusive at first glance. The only way to make these two statements reconcile is if we change it to "buy high, sell higher" or "sell low, buy back lower". I was struck dumb by the power and the simplicity of his idea. It was as if I had sailed for a lifetime on the open ocean expecting to fall off the edge and suddenly discovering that the earth was round instead. Perhaps it was like the moment when the apple fell on Isaac Newton's head and he "discovered" gravity. Suddenly it all became clear to me. I was free.

Let's get technical. What is an uptrend? What is a downtrend? Victor Sperandeo, in his first book, Trader Vic- Methods of a Wall Street Master, defines it perfectly:

Upward Trend - An upward trend is a series of successive rallies that penetrate previous high points, interrupted by sell-offs or declines, which terminate above the low points of the preceding sell-off. In other words, an uptrend is a price movement consisting of a series of higher highs and higher lows.

Downward Trend - A downward trend is a series of successive declines which penetrate previous low points, interrupted by rallies or increases which terminate below the high points of the preceding rally. In other words, a downtrend is a price movement consisting of a series of lower lows and lower highs.

This is simple enough but 90 percent of traders probably couldn't tell you off the top of their heads. Once we know the definition of uptrend and downtrend, we are already ahead and on our way. The next thing we need to do is to draw a trend line correctly. It becomes a game of connect the dots.

Sperandeo continues:

"For an uptrend within the period of consideration, draw a line from the lowest low, up and to the highest minor low point preceding the highest high so that the line does not pass through prices in between the two low points. Extend the line upwards past the highest high point. It is possible that the line will go through prices past the highest minor high point. In fact, this is one indication of a change in trend, as will be demonstrated shortly."

"For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point preceding the lowest low so that the line does not pass through prices in between the two high points. Extend the line past the lowest high point downward."

Armed with the definition of uptrend and downtrend Oleman said that in his trading he would buy every dip on the way up and be wrong once at the top, whereupon prices would fail to make a higher high. And on a downtrend, he would sell every rally and be wrong once at the bottom when it would fail to make a lower low. How much simpler could it be? It sure beat what I had seen being done by the desk traders and retail clients all around me, namely, buying every lower low trying to catch the bottom and then shorting each higher high to try to get a top. These people were trading their egos. I thought it would be a good idea to just trade like Forrest Gump and make money instead. I did not press him further for he had parted with a real gem. He did say something about using Average True Range. I did not think it was right for me to ask for more handouts. It was time for me to find a way to employ this fundamental truth. The secret was so simple and so correct. I had indeed missed the "Forrest" by getting too close to the trees.

My mission was defined. I already knew how to take my losses quickly but I was not too elegant in my approach. I wasn't great at letting my profits run because I had the trader's version of permanent post-traumatic stress disorder caused by the Crash of '87. First, I would go back to my pile of books to find methods of identifying uptrends and downtrends. Second, I would find ways to identify and buy each dip on an uptrend and to sell every rally on a downtrend. Out of those ideas, I could find better places to put stop loss orders and find ways to use stop loss orders to alleviate my anxiety when I was up on a trade."

 

[pedro01]

Let's get back on track - 2 weeks of major earnings results starting Monday.

Earnings may/may not be on target. I doubt they'll be off target to the downside across the board. Saying that, the target is merely estimates of the year which is based on performance expectations taking into account current market conditions. On target does not mean better than prior year.

So - earnings may be spot on BUT it's revenues that are tricky. Cost cuts may have helped with profits but pretty much every announcement I hear goes along the lines of "earnings on target/missed/above, revenues down, management expects a better year next year".

Now - multiply that by 550 companies in the next 2 weeks, big names too. At some point, will people start to view this market in a less positive light ?

You can talk about economics all you like. You can quote guys from your favorite book all you like BUT Right here, right now - what do people think about the next 2 weeks ?

No opinions ?

My opinion is that poor revenues in the first week SHOULD push a rational market down but we aren't in a rational market. I would say that if the majority post in-line earnings, then the markets will go up irrationally, despite decreasing revenues and fluffy promises about recovery based growth.

There is however, palpable nervousness in the markets - everyone is expecting a pullback and there's a lot of fingers on a lot of triggers. ? If the bottom does fall out of the market, it will attract a lot of followers.

Fingers at the ready...

 

[pedro01]

Picture worth a thousand words & all that

Given this - what do we think the markets reaction should be to Alcoa & Ruby Tuesdays results ?

On one hand, both did better than expected. On the other hand, Alcoa revenue declined by 33%...

 

[pedro01]

'Show-Me' Earnings Could Be Make-or-Break for Stock Rally

Published: Wednesday, 7 Oct 2009 | 12:47 PM ET

Text Size


By: Jeff Cox
CNBC.com


As Wall Street contemplates whether to rally or retreat, third-quarter earnings could be what settles the debate.


That was the case in the second quarter, when the market traded in a fairly tight range for three months but then broke out when July came and earnings showed positive surprises by a nearly 3-to-1 ratio.

Really Jeff ?

More at 'Show-Me' Earnings Season May Be Make-or-Break for Stocks - Markets * US * News * Story - CNBC.com

It's a con though - seems to be saying that if the people estimating earnings got it wrong to the downside, then we should have a pop up. What if they were just being cautious ? It doesn't mean that the companies are really improving their business because the estimates were wrong...

To me, it's still revenues that matter. You can't increase revenues by cost cutting after all....

 

[elitejets]

This "beating estimates" is a load of cr*p.
These are not the estimates of last quarter, the estimates or guidance are always strangely revised to just below figures a few weeks before the numbers are released and "surprise" they "beat" estimates!

 

[pedro01]

agreed - note that CNBC heard this here first