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It’s Turnaround Tuesday, The Bonds Are Becoming Parabolic, And Maybe The Hindenburg Will Strike Iran – Not Israel!
The stock market opened sharply lower yesterday after disappointing economic news but then recovered its losses and traded sideways for the rest of the session to finish the day mixed. The Dow slipped 1.14 to 10302.01, the S&P was up 0.13 at 1079.38, and the NASDAQ rose 8.39 to 2181.87. Volume was light and breadth was positive.
Although we saw some real safe-haven buying yesterday with gold and Treasuries rallying, inside the stock market we saw the opposite. Small Caps (IWM +0.80%) stages a decent rally compared to a small decline in Large Caps (SPY +0.05%), but Small Caps had underperformed recently and maybe now they are trying to regain lost ground. And despite the weak economic news, economically sensitive stocks didn’t do too poorly (XLI -0.20% and XLY -0.03%) yesterday. But of course, the Materials sector was the top performer (XLB +0.45%) as metals staged a big rally. Technology was not far behind (XLK +0.19%) after Dell (DELL -0.42%) said it would buy 3Par Inc. (PAR +86.53%), a data-storage company that specializes in virtualization-storage services, for $1.15 billion. On the other hand, Healthcare stocks fell (XLV -0.52%) after analysts at Deutsche Bank initiated coverage of Amgen (AMGN -1.71%) with a hold rating, citing valuation and weakened sales. Hold ratings from Deutsche Bank also pushed down shares of two other major biotech companies. Shares of Celgene (CELG -0.32%) and Biogen (BIIB -0.16%).
The S&P fell below its 50 day moving average last Thursday. For the last three days, it has barely budged as it sits just below that key level. We are entering a cyclically weak period, one that is prone to violent moves, especially down. I am open to playing either side of the market, but given the time frame and the recent decline, I am obviously more inclined to play the down side especially if can stage a rally this week and perhaps even into the end of the month and Labor Day weekend. Start of th business year, end of vacations, and back to school made September a leading barometer for many, many years and now portfolio managers back after Labor Day tend to clean house.
I recommend you watch the Russell 2000 if the market does move down here. While the S&P is trading 6.8% above its July low, the Russell 2000 is just 4.7% above its low and the small cap index is more prone to quick moves than the large cap indexes. If the market heads lower. It will likely be the small caps leading the way and the Russell 2000 is very likely to be the first major index to break down to new lows. [By the way, the less followed S&P 600 Small Cap Index is only 3.8% above its July low. Watch this one as well.
Platinum subscribers took profits last week on my inverse ETF recommendations and are now awaiting a re-entry opportunity, hopefully on a rally.
Gold
Gold rose to a six-week high amid safe-haven buying after some disappointing economic data, a weak Dollar, and renewed concerns over sovereign debt in peripheral euro-zone countries. Gold rallied 10.10 to 1225.50. There is growing press that Israel will attack Iran on or about August 21. Former U.N. Ambassador John R. Bolton is attributed to the story and revolves around the story that the clock is ticking sparked by the news that Russia will begin loading nuclear fuel rods into the Bushehr reactor next week. Technically, Gold has the potential to explode here to the upside.
The Hindenberg Omen (via Money Talks)
Even Hindenburg Omen Is Right Sometimes
The Hindenburg Omen is once again predicting a stock market crash, and we don’t know whether to ignore it and relax because (even) the Wall Street Journal has picked up on it this time, or to batten the hatches because sometimes even lousy indicators can be right. Over time, however, the indicator, invented by a blind mathemetician named Jim Miekka, has racked up an unimpressive track record. While virtually every crash since 1987 has indeed been signaled by the Omen, there have been so many false signals that the indicator’s overall accuracy has been a dismal 25 percent. Now, according to Miekka, the Omen is signaling a crash in September, having registered two key statistical events. For one, NYSE highs and lows both exceeded 2.5%; and for two, a rising 10-week moving average for the NYSE diverged relative to a negative McClellan Oscillator.
The Journal had no trouble rounding up the usual skeptics to comment on the voodoo aspects of an indicator that takes its name from the fatal and still-unexplained 1937 explosion of a German passenger airship docked at Lakehurst (NJ) Naval Air Station. Thirty-six people died, including 35 people of the 97 people who were on board, and the cause of the fire was never determined. “We always love good conspiracy theories,” market strategist Joseph Battipaglia told the Journal. “I for one dismiss all these things because they usually erupt most numerously during bear markets.” Well, at least Battipaglia seems to be acknowledging that stocks are in a bear market. Many in his and the Wall Street Journal’s line of business – i.e., telling the public what it wants to hear abolut the economy – have yet to accept that all of those “green shoots” that supposedly were springing up a little more than a year ago were just hallucinations. For the hard-core optimists, the stock market’s weakness over the last three years, including the Dow’s horrific, 7728-point plunge from the October 2007 high, has been a mere correction in a long-term bull market begun in August 1982.
Who Is Rick Ackerman?
Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. But to the gang at CNBC, he’s been a pariah for the last ten years – a shoot-from-the-hip kinda guy whose irreverent style got him banned from the show after an interview on Squawk Box was alleged to have gone awry.
His professional background includes 12 years as a market maker on the floor of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader. His detailed strategies for stocks, options, and indexes have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders.
Rick Ackerman is the editor of Rick’s Picks and a partner in Blue Fin Financial LLC, a commodity trading advisor.