Displaying articles for: 12-25-2011 - 12-31-2011
Reflection
adurlam
We're about to close the books on this year, and around this time we look back on what went wrong or right, where we can make changes for better results in the new year.
I don't spend too much time looking back, but if I don't look at the mistakes then I'll never learn - probably go insane as Albert Einstein reminds us; the definition of insanity as doing the same thing over and over expecting different results. 2011 presented traders/investors with some of the biggest challenges ever, let's hope for a bit more 'sanity' and calmer waters in 2012.
We know each year gives us some unknowns that are tough to handle, but I cannot ever recall a year like 2011. The turbulence was unreal and not all natural. The quake/tsunami in Japan was a gamechanger and really set the tone for what would be a volatile year.
As the uncertainty unfolded from that fallout there were several uprisings in the Middle East/North Africa that would change the look of that region forever. If it weren't so oil-centric the revolutions in Egypt, Libya and other countries would have been largely ignored.
Let us not forget about the uncertainty from our own government. The decision-makers are woeful, I won't spend much energy discussing what we already know, but suffice to say the voters will let them know about it in 2012. Lest we forget the European debt crisis, a case study of ineptitude with governments unable to come to an agreement on fixing their problems.
One thing is certain - if anything, we have some good can kickers around. Let's hope for less stress and angst in 2012 from the Euro zone.
It wasn't an easy year, but with all that we saw in 2011 that could have taken markets down into the abyss we find ourselves slightly higher on the year.
An amazing achievement with bonds having another stellar year, gold likely to finish higher for an 11th consecutive year and the big Chinese economy slowing down from dizzying heights. They should still be a driver of growth for the world in 2012 along with the US.
Lastly, I should remind everyone that we take our trading cues not from the macro events, chatter, rumors and stories.rather we trade based on what we see in markets. The noise makes us tone deaf to what is really happening.
If there is one thing I can pass along to help you become better in in the new year and beyond it would be to pay less attention to the noisiness, focus on what is meaningful - data, charts, statistics
Bob Lang is the Founder of option trading newsletter Explosive Options
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After a rough start on Monday, it was nothing but buying last week, as Santa Claus brought his usual bullishness. Granted, volume was light, and the rally was largely due to the fact that there just weren't too many compelled sellers.
But still, the recent strength undid a great deal of the damage inflicted two and three weeks ago. As a result, the bulls are (1) back within striking distance of a legitimate breakout, and (2) further away from floors that - if moved under - would likely spark a more intense selloff.
We'll flesh out the details below, right after a closer inspection of the macro economic numbers.
Economic Calendar
Well, surprise surprise - the construction market isn't as bad was first assumed. Housing starts soared to an (adjusted) annual rate of 685K last month, easily topping the expected rate of 627K. Building permits-issued jumped from an annual rate of 644K to 681K. Granted, most of the improvement stemmed from new multi-housing development, but it's progress. New home sales ticked upward from 310K to 315K, which isn't red hot, but again, it's progress.
Even existing homes are looking a little more marketable. The NAHB Housing Market Index pushed upward, from 19 to 21, and though the National Board of Realtors still has egg on its face (thanks to years of over-stated sales activity), existing homes sold at a rate of 4.42 million in November, up from October's annual rate of 4.25 million.
While real estate and construction are looking healthier, the nation's factories and productivity isn't. The GDP growth rate for Q3 was revised downward, from 2.0% to 1.8%. Durable orders soared 3.8% in November, but only because of cars. Taking autos out of the equation, orders were only up 0.3% last month, well off October's growth pace of 1.5%.
The average consumer isn't looking a whole lot healthier though. Incomes grew at only 0.1% last month, versus an expected 0.2% increase. Spending also grew at a tepid 0.1% in November, short of the anticipated 0.3% increase.
The rest of the details are below as always. Overall though, the health of last week's economic numbers would be given a grade of B-... maybe a C+.
Economic Calendar
As for the coming week, we've got a lot less in store. The only items we're really interested in aside from the continued saga of new and ongoing unemployment claims - which are still inching lower - are Tuesday's consumer confidence (Conference Board's), and Thursday's pending home sales. The former is expected to move higher again, from 56 to 58, matching last week's uptick in the Michigan Sentiment Index. The latter should have grown by 0.6%... an impressive number really, given October's stunning 10.4% increase.
S&P 500
We're going to switch the normal order of our chart analysis this week, starting with the weekly chart of the S&P 500 (SPX) (SPY), and then a look at the daily chart. We're doing to because the weekly chart - a 'bigger picture' viewpoint - will add a needed perspective for the near-term outlook.
In a nutshell, the weekly chart has actually been progressing as we'd basically expect it to within a cyclical bull market. [Yes, we said that.... we're in a bull market.] The August pullback was horrifying, and though faster than we normally see pullbacks unfurl, the total depth of the cut wasn't anything odd. Once the bleeding was stopped, that lower 20-week Bollinger band (blue) did its job, pushing the index back into bullish mode and letting it gain more than 17% from the early October low. It's just been a very erratic bullish mode.
Perhaps more important, the SPX is fast approaching a known potential resistance area - the upper 20-week Bollinger band, at 1301.7.
The upper Bollinger band isn't inherently a bearish pivot point. In fact, most of the time since early 2009, the upper band hasn't pushed the market lower, but has rather served as a guidepost, tracing the market's string of higher highs. We only point it out now to let you know there's a possibility of the market hitting that ceiling at turning tail... right at a point in time when it seemed like a breakout was underway. As was said though, the odds favor continued bigger-picture bullishness now that the S&P 500 has fought its way back above all of the key moving average lines.
SPX Weekly Chart
We can also see on the weekly chart just how far and how fast the CBOE Volatility Index (VIX) (VXX) (VXZ) has fallen over the last few weeks. This is another bearish red flag, in that the move was not only excessive, but also pulled the Volatility Index down to its lower Bollinger band (which is usually where the downtrends have stopped).
Ideally - for the bulls - the VIX's lower band line won't actually act as a springboard for a bounce, but rather, start to act as a guidepost and gently let the VIX drift lower.... mirroring the S&P 500s gentle brush with its upper Bollinger band. There's a lot of tension with the VIX right now though, so let's tread lightly.
With the daily chart of the SPX, we can see the index has made its way back above the 200-day moving average line (green). It's not cleared the key resistance level of 1268 though (red, dashed), which has been a major ceiling since early November.
As nice as it normally would be that the SPX has hurdled the 200-day average line, at this point, it's not rally that big of a deal in the grand scheme of things. Aside from being overextended already, the 1268 level is the bigger deal, and beyond that the upper 20-day Bollinger band (brown) at 1278 - and falling - is an even more telling make-or-break line.
The market's on the right track, but it could take some time and a few swings to really make our way above this collection of technical ceilings. In the meantime, the key to long-term bullishness will be for the S&P 500 at the very least to keeping finding support at the 20-day and 50-day averages at 1234.
Anything in between 1234 and 1270 is limbo-land.
SPX & VIX Daily Chart
It's also on the daily chart we see a slightly-more-bullish angle with the VIX; it's crossed under its 200-day moving average line at 25.74. Though it still runs the risk of pushing up and off its lower 20-day Bollinger band, this is a great sign of overall net progress in terms of investor confidence/comfort. We'll just be curious to see where the VIX hits a ceiling again the next time it's really tested. That 25.74 line really needs to be a resistance area for the bulls to have complete hope. We'll have to cross that bridge when we come to it though.
Bottom line: Though in a bullish mode, the market's biggest risk to further bullishness (or even bearishness) is the erratic swings it's been making.
Were we not in a mental "all or nothing" mode and could make better-paced moves, trend-spotting would be much easier. As it stands right now though, violent swings in both directions are making it tough to trust stocks. Last week's 3.7% pop is a prime example. The potential profit-taking is already in place, and with a couple of key technical ceilings dead ahead, it's going to be very tough for the SPX to get past the 1270 area. It just needs a better-paced upward move if any rally is going to be sustained.
Trade Well,
Price Headley
BigTrends.com
