Sunday, January 24, 2016

The Daily, Part 1 of 3, 1-23-16

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1/23/2016 Investment House Report
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Targets hit: None issued
Entry alerts: SPY
Trailing stops: AMZN; FB
Stop alerts: COST

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- Second day of the bounce holds as the relief move firms.
- Hope of further stimulus in Japan, China, and even the US (really?) has the market bounce working for now.
- Davos elites' words show their lack of understanding of what they tell us they understand.
- Lack of leadership in good patterns still points to just a relief move but that works.

The Wednesday reversal and the extreme internals and sentiment finally started yielding results. Thursday's gain was mostly frittered away. Friday, however, futures rallied very early and held the moves to the open. Stocks gapped higher and pretty much held the moves to the close. Oh there was a midday fade but it was really not that bad, just coming back to the pre-market levels. Stocks rallied back to near session highs at the close.

SP500 37.91, 2.03%
NASDAQ 119.12, 2.66%
DJ30 210.83, 1.33%
SP400 2.46%
RUTX 2.34%
SOX 1.85%

VOLUME: NYSE flat; NASDAQ -12%. NYSE trade was more or less flat, still holding above average. NASDAQ trade fell to the lowest in 12 sessions, still slightly above average. Lower volume on the rallies is characteristic of a relief move. No surprise there.

A/D: 8.4:1 NYSE, 43:1 NASDAQ. Impressive breadth, not typically characteristic of a relief move. Of course all stocks have been hammered lower so more stocks can rebound on an oversold bounce.

For once a strong price move following a reversal held. Okay, not the first time a good move higher occurred during the last could of weeks; 6 sessions back a strong reversal off a strong drop looked quite promising. The promise was broken the next session with a massive drop. Now the market has two upside days following the reversal. That is also not new in rebound attempts during this selling, but thus far this move is acting more like the rebound we were looking for, the one that bounces SP500 toward that mid-September high at 1990ish. Extremely negative internals, sentiment, and down 12+% from the late December low. It was ripe and Thursday and Friday were a good start.

Okay, so the stage was set. What was the trigger, or in common stock market 'analysis' on the financial stations, what was the cause?

What has caused all of the stock market moves since March 2009? Stimulus or the hope of stimulus. Friday speculation of more stimulus from around the world, from Kuroda in Japan this coming week, from China at any time, and even some conciliatory language from Chairman Yellen at this week's FOMC meeting.

It worked for the session, but will it work beyond a market bounce? Speculation, that is. It will take more than stimulus speculation to right the market such that new highs are reached. The economic condition is bad and worsening and won't change without major policy changes. That will take an election and then the right policies. If that is done, the next President could preside over a major economic expansion, a real one, as small business returns to the US. If anything were to happen before that, it would take more Fed easy money such as a return to QE. There is a lot of talk of negative rates, but negative rates will not have the same effect. It will force the rest of the money supply out of time assets (e.g. interest accounts), but it won't have the same impact as wanton QE.

So where does that leave this bounce? In the bounce category. Without a serious driver from the economy or the Fed's free money there is not much to push stocks upside. The large corporations did better thanks to QE and free money, but they are not doing as well now that QE ended 15 months ago and the economy continues to slide. Of course the small business climate remains horrid as the US still loses more businesses than it creates in this sixth year of this great recovery. Lower wages, poor job quality, higher costs (e.g. healthcare thanks to the Affordable Care Act) has pushed the middle class below 50% for the first time since the industrial revolution. Despite the glowing self-praise heard at the State of the Union Address a couple of weeks back, the state is not good.

That is extraordinarily perplexing to the ultra-wealthy class. Friday Blackstone's billionaire CEO Steven Schwartzman, in Davos of course skiing and carousing between 'hard-hitting' meetings regarding world affairs, expressed exasperation at the psyche of the average citizen: "I find the whole thing astonishing and what's remarkable is the amount of anger whether it's on the republican or democratic side. Bernie Sanders, to me, is almost more stunning than some of what's going on in the republican side. How is that happening? Why is that happening?"

If there was EVER a "let them eat cake" Marie Antoinette moment for modern times, that was it. Nothing at all against wealth, but wealth coupled with a lack of understanding of the real world issues that inhibits others from creating wealth and joining the wealthier classes IS a real problem. It is the fallacy of Davos where elites gather not to discuss solutions to class division, access to markets, etc., but to maintain their relative rank in the world wealth and power order.

Why are people angry? Look at the facts below the headlines and you will see the issues. I see the current average American mindset much like that of revolutionary times: we are being set upon by all form of regulation (EPA, ACA), taxation, limitation, confiscation (zero tolerance, IRS levy, asset forfeiture, eminent domain) even as we elect, both democrats and republicans, representatives to effect specific policies. Yet, neither side is acting once in DC, at least not acting pursuant to the positions taken to get elected. What is this? Taxation (and confiscation, regulation, incarceration) without representation. There is a revolt taking place in America. Thus far it is contained mostly to the primary selection process, but it is also erupting elsewhere, e.g. Black Lives Matter, militia actions in Oregon, Nevada, and elsewhere, Occupy movement, the Tea Party. The change of this administration has spawned massive counter-movement for change in different directions.

Some of the Schwartzman homes: St. Tropez, Palm Beach, Water Mill. Nice places, good for Schwartzman, but his comments show a complete lack of understanding regarding the plight of the average citizen.

End part 1 of 3
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