investment research – Page 3 – 50 Park Investments

14 Nov

Week in Review: Stock Grind Higher… For Now

November 14, 2014
By info@50park.com

Stocks Grind Higher…For Now

Not much changed last week. The market remains exceptionally strong as nearly all pullbacks remain almost nonexistent. Over the last two weeks we saw the Bank of Japan & The European Central Bank step up and announce aggressive measures to stimulate their lackluster economies. The benchmark S&P 500 (SPX) continues trading near its record high and the market remains very strong. To be clear, the market is very extended right now and a light volume pullback into support (prior chart highs near 2019, then the 50 DMA line) would do wonders to help the market consolidate its very strong rally. Remember, the SPX was trading like a penny stock in October (which typically ends poorly). In the first two weeks of October, the SPX plunged -8% and then turned higher on Oct 15 and soared a whopping +11% in the last two weeks. That is a huge move (both up and down) and that type of volatility after a big move (bull market is now 5.5 years old) typically does not end well. Remember, in a non-QE world, a 10% annual gain was considered healthy. So 11% in only two weeks is abnormal and very impressive. Easy money from the Fed has played a major role in sending stocks higher since the historic March 2009 bottom. The SPX soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. The Fed ended QE 3 at the end of October but the market did not fall? The reason is because the QE trade has evolved, like famous investor Mohamed El-Erian so eloquently described it last week. The Fed may have ended QE 3 but they are still adopting an “easy money” stance. Additionally, other central banks around the globe, primarily European Central Bank (ECB) and the Bank of Japan (BOJ), recently began their version of QE. That’s how the QE trade has “evolved.” Instead of just the Fed printing gobs of money everyday we now have the ECB and the BOJ printing as well. So instead of the old Fed Put (the notion that the Fed will step in and save the day if Main St or Wall St weakened), it has now shifted to the Central Bank Put and this is a huge bullish fundamental backdrop for stocks.

Monday-Wed’s Action: Stocks Grind Higher…For Now

Stocks edged higher on Monday as sellers remained almost no where to be found. In China, Monday was their equivalent to our cyber Monday. Shares of Alibaba (BABA) (giant Chinese retailer) soared after the company said they sold over $1B in 17 minutes! For the day, the company said sales topped the $9B mark which is a staggering some by any normal measure. The word, WOW is an understatement. In other China-related news, Chinese stocks rallied after China’s securities regulator approved a new law which allows foreigners to invest directly in Chinese stocks. In Europe, a report from the ECB showed that it bought 2.6 billion (Euros) of covered bonds in the prior week in an attempt to stimulate markets.
Stocks were quiet on Tuesday as the market paused to digest the recent rally. Thomson Reuters reported that out of the 449 companies in the S&P 500 that have reported third-quarter results, 74.6% have posted earnings above estimates, while 59.3% beat revenue expectations. That data bodes well for the ongoing recovery. Stocks opened lower on Wednesday after the U.S. and China reached a deal to reduce carbon emissions to combat climate change. Once again, the bulls (a.k.a. the buy the dip crowd) showed up shortly after the open and sent stocks back to break-even on the day. Wholesale inventories rose +0.3% in September, beating expectations for a +0.2% gain.

Thurs & Fri’s Action: Stocks Trade Near Highs

Stocks were quiet on Thursday as investors sat back and watched energy prices continue to implode. Crude oil plunged -2.5% and slid below $75 a barrel while RBOB Gasoline futures continued leading the way lower, plunging another 3.7%, hitting the lowest level since 2010! Shares of Wal-Mart (WMT) broke out of a big multi-year base after the company reported a larger-than-expected profit and said comparable sales at U.S. stores rose for the first quarter in seven. In other news, it was encouraging to see shares of Lennar Corp. (LEN) also break out of a very big base (earlier in the week) which also bodes well for the ongoing economic recovery. The Labor Department said initial jobless claims rose by 12k to 290k, topping estimates for 280k. On a more positive note, the total number was below 300k for the ninth consecutive week. Before Friday’s open, U.S. retail sales topped estimates and rose by 0.3% in October, which beat the 0.2% forecast. This echoes the bullish action we saw in a slew of retailers, led higher by the big base breakout in WMT on Thursday.

Market Outlook: The Central Bank Put Is Alive And Well

Remember, in bull markets surprises happen to the upside. We have also noted that the bull market is aging and may be in the process of forming a large topping pattern but that topping pattern was negated as stocks repaired a ton of technical damage in the latter half of October. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). As always, keep your losses small and never argue with the tape.

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07 Nov

Daily Market Commentary

Week In Review: Stocks Rally As Easy Money Party Continues

November 7, 2014
By info@50park.com

Stocks Rally As Easy Money Party Continues!

The market remains exceptionally strong as nearly all pullbacks remain almost nonexistent. Last week we saw the ECB join the QE party as the benchmark S&P 500 (SPX) hit a fresh record high. To be clear, the market is very extended right now and a light volume pullback into the 50 DMA line or prior chart highs would do wonders to help the market consolidate its very strong rally. Remember, the SPX was trading like a penny stock in October (which typically ends poorly). In the first two weeks of October, the SPX plunged -8% and then turned higher on Oct 15 and soared a whopping +11% in the last two weeks. That is a huge move (both up and down) and that type of volatility after a big move (bull market is now 5.5 years old) typically does not end well. Remember, in a non-QE world, a 10% annual gain was considered healthy. So 11% in only two weeks is abnormal and very impressive. Easy money from the Fed has played a major role in sending stocks higher since the historic March 2009 bottom. The SPX soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. The Fed ended QE 3 at the end of October but the market did not fall? The reason is because the QE trade has evolved, like famous investor Mohamed El-Erian so eloquently described it last week. The Fed may have ended QE 3 but they are still adopting an “easy money” stance. Additionally, other central banks around the globe, primarily European Central Bank (ECB) and the Bank of Japan (BOJ), recently began their version of QE. That’s how the QE trade has “evolved.” Instead of just the Fed printing gobs of money everyday we now have the ECB and the BOJ printing as well. So instead of the old Fed Put (the notion that the Fed will step in and save the day if Main St or Wall St weakened), it has now shifted to the Central Bank Put and this is a huge bullish fundamental backdrop for stocks.

Monday-Wed’s Action: The Rally Continues

Stocks were quiet on Monday as the market digested its recent and very robust rally. Over the past two weeks, the benchmark S&P 500 soared 11% which is very strong. Elsewhere, crude oil continued to fall and hit fresh multi-year lows as global demand remains weak and global supply continues to grow. Saudi Arabia announced they were lowering the price of a barrel that it sells to U.S. customers and raised prices for Asian customers. The ISM manufacturing index jumped last month to one of its highest readings since 2002! The index rose to 59 from 56.6, beating estimates for a gain of 56.1.

Stocks ended mixed on Tuesday as oil prices plunged another 3% and the GOP won big in the mid-term elections. Net U.S. exports fell by $3 billion in September from -$40 billion in August. Stocks rallied on Wednesday, after Republicans officially took control of the Senate. The ADP said private employers created 230,000 new jobs in October, topping estimates. The ISM service index was less encouraging as the index slid to 57.1 in Oct from 58.6 in September. Remember that the service sector currently makes up approximately 2/3 of the U.S. economy.

Stocks closed mixed on Wednesday as traders digested Tuesday’s big win by the GOP across much of the country. Political conversations were the dominate topic across many trading desks as traders debated what will happen in D.C. over the next two years (rest of President Obama’s term). After Wednesday’s close, Ben Bernanke spoke at the Schwab Impact Conference in Denver and said it would be very difficult for the ECB to engage in QE, which we found a bit odd. Not that it would be difficult for them to engage in QE- but rather, that Bernanke decided to comment publicly on another central banks actions.

Thurs & Fri’s Action: Stocks Take a Breather

Before Thursday’s open, the European Central Bank (ECB) made it clear that they are preparing to join the QE party and expand their balance sheet. ECB President, Mario Draghi, said at his press conference that the ECB expects to continue its purchases of covered bonds and asset-backed securities at least until 2016. He also said that the ECB wants to expand its balance sheet by at least a trillion Euros to put it at a similar level that it was in 2012. They will do this by purchasing other assets such as sovereign bonds, corporate bonds, and equities. The euro fell hard on the news and the ECB’s actions supports our thesis (discussed last week) that the Fed Put has now shifted to the central bank put. Before Friday’s open, the Labor Department said U.S. employers added 214k new jobs (230k est) in October as the jobless rate slid to a 6-year low.

Market Outlook: The Central Bank Put Is Alive And Well

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31 Oct

Daily Market Commentary

Week In Review: Stocks Soar As The QE Trade Evolves

October 31, 2014
By info@50park.com

The Fed Put Has Shifted To The Central Bank Put!

October 2014 is now in the history books. It was one of the wildest months in the history of Wall Street. The benchmark S&P 500 (SPX) is trading like a penny stock (which typically ends poorly). In the first two weeks of October, the SPX plunged -8% and then turned higher on Oct 15 and soared a whopping +11% in the last two weeks. That is a huge move (both up and down) and that type of volatility after a big move (bull market is now 5.5 years old) typically does not end well. Remember, in a non-QE world, a 10% annual gain was considered healthy. So 11% in only two weeks is abnormal and very impressive. Easy money from the Fed has played a major role in sending stocks higher since the historic March 2009 bottom. The SPX soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. The Fed ended QE 3 at the end of October but the market did not fall? The reason is because the QE trade has evolved, like famous investor Mohamed El-Erian so eloquently described it last week. The Fed may have ended QE 3 but they are still adopting an “easy money” stance. Additionally, other central banks around the globe, primarily European Central Bank (ECB) and the Bank of Japan (BOJ), recently began their version of QE. That’s how the QE trade has “evolved.” Instead of just the Fed printing gobs of money everyday we now have the ECB and the BOJ printing as well. So instead of the old Fed Put (the notion that the Fed will step in and save the day if Main St or Wall St weakened), it has now shifted to the Central Bank Put and this is a huge bullish fundamental backdrop for stocks.

Monday-Wed’s Action: The Rally Continues

Stocks were quiet on Monday as investors focused on the Presidential election in Brazil and the results of the latest European bank stress test. Our friends at Minyanville reported that, Incumbent President Dilma Rousseff won re-election by the tightest margin in over 60 years, taking just 51.45% of total votes but the market sold off because Rousseff’s economic policies are viewed as ineffective. The results of the ECB’s Asset Quality Review (AQR) was greatly skewed towards an undercapitalization in Italian banks. Of the 25 banks who failed the stress tests, a third were from Italy. The worst bank of them all was Banca Monte Paschi (BMPS), which may need to raise 2.4 billion Euros of debt or seek a merger. In the U.S., pending home sales for September rose a less-than-expected 0.3% from the prior month, up from a 1.0% decline. Economists had expected an increase of 1.0%. From a year ago, sales are up 3.0%.
Stocks rallied nicely on Tuesday after Central Banks in China and Sweden announced a new round of easy money policies. The People’s Bank of China announced a new round of financing and a proposal was announced for new free trade zones in China. The news helped boost Chinese stocks. Sweden’s Riksbank (their central bank) cut its main policy rate to zero from 0.25% which topped analysts estimates for a cut of 12.5 basis points. The central bank also lowered the path of future rate policy and did not rule out a currency intervention with the Krona (their currency) and are open to “non-standard measures” (a.k.a they are open to their version of QE). The Russell 2000 (RUT) closed up a very strong 2.85%. After the close, Facebook (FB) gapped down after reporting their latest quarterly results.

On Wednesday, the Fed officially ended QE 3 which was largely expected. The Fed cited improvement in the jobs market and believes that the economy will be able to stand on its own two feet if QE 3 ends. Remember, the Fed was engaged in a hyper easy money stance (QE plus zero interest rates), now they have shifted to just a normal easy money stance (zero rate environment). The Fed has made it clear that QE 4 or other options are available, if needed.

Thurs & Fri’s Action: Bulls Remain In Control

Stocks rallied on Thursday after the latest reading of U.S, GDP grew at 3.5% quarterly annualized pace. This easily beat estimates for a gain of 3% and bodes well for the on going economic “recovery.” The stronger than expected GDP data was largely due to an increase in government defense spending and a larger drop in net exports. The real level of gross domestic purchases remained low, which prompted many economists to lower their Q4 GDP estimates. Stocks soared on Friday after the BOJ surprised markets by increasing QE. The Nikkei (the Japanese stock market) surged and Nikkei futures hit limit up which means they could not go any higher on the day which is incredible and almost unheard of.

Market Outlook: The Central Bank Put Is Alive And Well

Remember, in bull markets surprises happen to the upside. We have also noted that the bull market is aging and may be in the process of forming a large topping pattern but that topping pattern was negated as stocks repaired a ton of technical damage in the latter half of October. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). It is never a dull moment on Wall Street. As always, keep your losses small and never argue with the tape.

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29 Oct

Blog

The Case For QE 4

October 29, 2014
By info@50park.com

Easy Money From Global Central Banks Continues To Fuel This Market

Since the historic March 2009 low, the benchmark S&P 500 has surged a very impressive 203% making it one of the strongest bull markets in history! The primary driver of this entire 5.5 year bull market has been an easy money stance from global central banks. The U.S Federal Reserve was the first to begin quantitative easing (a.k.a. QE) which takes the easy money stance a step further and allows them to print money to stimulate both Main Street and Wall Street.

Let’s Look At The Facts:

QE 1: The March 2009 low (and this bull market) began shortly after QE 1 was announced. After QE 1 ended in early 2010, the S&P 500 fell -17% very quickly.

QE 2: Then in the summer of 2010, the Fed hinted that QE 2 would be announced and the market took off again. In November 2010, QE 2 officially began and the Fed would begin buying $600 billion of Treasury securities by the end of the second quarter of 2011. When QE 2 ended, the S&P 500 quickly fell -22%.

QE 3: Then, you guess it, the Fed stepped up and announced another round of QE 3 at the end of 2012 which sparked the latest leg of this very strong bull market.A third round of quantitative easing, “QE3”, was announced in September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new round of QE and buy $40 billion per month of agency mortgage-backed securities. The market barely budged on the news, then a few months later in December 2012, the Fed essentially doubled down and said it would buy a total of $85 billion per month of bonds to help stimulate markets. Stocks surged on the news and never looked back. In addition, the Fed has held interest rates near zero since the 2008 financial crisis.

Other Central Banks Are Printing As Well

The Fed is not the only one on the dance floor. Nearly every major central bank in the world has adopted an “easy money” stance and is working hard to stimulate their economy. What amazes me is that even with all this stimulus – the global economy remains anemic at best. Imagine how much worse it would be if global central banks were not pushing hard.

The Fed Has Two Jobs: Dual Mandate

It is important to note that the Federal Reserve is in charge of monetary policy. When the U.S. Congress amended the Federal Reserve Act in 1977, it essentially gave the Fed a dual mandate: to promote maximum sustainable employment and price stability. Price stability is usually interpreted as low and stable inflation. Put simply they have two goals: help create jobs and keep inflation low.

The Case For QE 4:

At this point, the jobs market is slowly starting to improve but deflation remains more of a threat than inflation. Also, investors know that the global economy remains anemic at best and the last two times QE ended, stocks fell hard. So a very strong case is being made for QE4. Remember, that one of the consequences of printing all this money is inflation. Many people are concerned that once inflation does kick in, it will become rampant and uncontrollable. But until then, the fans of QE 4 argue that more stimulus is needed to help Main Street recover from the worst financial shock since the Great Depression and keep Wall Street moving higher. Keep in mind that this is an unprecedented coordinated experiment from global central banks and no one, not even the Central Banks, know the outcome.We are optimistic that everything will work out well but also would be remiss not to mention the risks involved with this unprecedented global experiment.

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03 Oct

Daily Market Commentary

Week In Review: Another Normal Pullback For Stocks?

October 3, 2014
By info@50park.com

Stocks Pullback

The major averages fell in September and squeezed out a nominal gain for Q3. September was only the third monthly decline for the S&P 500 (SPX) in 2014. The bigger concern from where we sit is something virtually no-one is talking about- What will happen when QE 3 Ends? Remember the S&P 500 (SPX) soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. It will be very interesting to see how the market reacts when QE 3 officially ends later this month. Since September 15, a slew of leading stocks, and the major averages, have been acting somewhat sloppy (erratic price swings). The small cap Russell 2000 (RUT) remains the weakest index and continues to woefully under-perform its peers which remains a concern. The last time all this happened was in March/April and that preceded the deepest pullback of the year (-6% decline in the S&P 500). So far this pullback is -4.61% under two weeks which is just about the normal depth of all the pullbacks this year (see chart below). It is encouraging to see the bulls show up on Thursday and send stocks higher in the latter half of the week.

Monday-Wed’s Action: Stocks End Month & Quarter On A Weak Note

Stocks opened sharply lower on Monday after protests broke out in Hong Kong. It was encouraging see buyers step up and send stocks higher by the close, helping the major averages close near their respective highs for the day. Economic data failed to impress. Pending home sales slid 1% in August and a separate report showed personal income in the U.S. rose 0.3%, matching estimates. Shares of Facebook (FB) rallied after news spread that banks may request access to their clients’ accounts on the social media site to determine whether or not the person has a stable friend network to determine their credit risk.
Stocks were relatively quiet on Tuesday as the month and quarter came to an end. After all was said and done, stocks barely edged out a small gain in Q3 and fell in September. A slew of commodities were hit hard in the month and quarter as the US dollar soared. Remember commodity prices traditionally are inversely related to the US dollar because a higher dollar makes it more expensive to buy commodities.
Stocks fell on Wednesday as sellers returned on the first day of the fourth quarter and economic data remained lackluster at best. ADP, the country’s largest private payrolls company, said U.S. employers added 213k new jobs last month, beating estimates for 200k. Manufacturing data in the U.S. also missed estimates. Markit’s PMI mfg index slid to 57.5, missing estimates for 58. The ISM manufacturing index slid to 56.6, missing estimates for a reading of 58. Two biotechs (SRPT & TKMR) that are working on a cure for Ebola rose after the first case of Ebola was diagnosed in the U.S. The CDC confirmed late Tuesday that a man from Liberia had the virus and was being treated in a hospital in Dallas.

Thurs & Fri’s Action: Sellers Getting Exhausted

Stocks opened lower but closed near their highs on Thursday which was a welcomed sign. It signaled that sellers may be exhausted in the short term. On Thursday, the ECB concluded their latest meeting. Mario Draghi (head of the ECB) did not take additional measures which disappointed some investors. Instead he outlined details of his asset-backed securities (ABS) purchase program (their version of QE). The US dollar fell as it pulled back from deeply overbought levels. Overnight, former Japanese Finance Minister Fuji said the Bank of Japan may be forced to intervene directly due to the recent decline in the Yen in the market to prevent it from falling even further. This is one of the strongest comments from a major central bank regarding the recent and very strong 12-week rally in the greenback. Stocks rallied on Friday after the U.S. government said employers added 248k new jobs last month and the unemployment rate slid to 5.9%, both figures easily beating estimates. The unemployment rate slid to the lowest level since mid-2008.

Market Outlook: Market Finally Pulls Back

The two best words to describe this market are “melt up.” Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007) but until we see signs of sustained distribution (heavy selling) the market deserves the bullish benefit of the doubt. Furthermore, the S&P 500 has not experienced a 10% correction since 2012 which is longer than most historical comparisons and illustrates how strong this bull market is. As always, keep your losses small and never argue with the tape.

S&P 500: Pullback in 2014:

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02 Oct

Blog

The Market Is Getting Weaker, Not Stronger…

October 2, 2014
By info@50park.com

The Following is an excerpt from a FindLeadingStocks.com Intra-Week Update

Market In Early Stages of Forming A Large Top; Still Needs To Be Confirmed

The Market Is Getting Weaker, Not Stronger…

The market is in the early stages of forming a large topping pattern. The top needs to be confirmed by more than one major average breaking below support. We noted in early reports that a “normal” pullback this year has been about 5% which would bring the S&P 500 down to 1918. So, although this appears to be another ugly, the sky is falling, sell off- it may, in hindsight (if the bulls show up as they have done every other time the market has pulled back in recent years), might not be that big of a deal. The difference here is that this bull is getting “older/weaker.”

Path of Least Resistance Is DOWN

Suffice it to say we are still in “pullback” mode for now- which means the path of least resistance in the short term is down. Eventually these shallow pullbacks will get deeper. We want you to be prepared for when that does happen. As you can see from our approach, we “stopped” buying stocks a few weeks ago and that was a great call. Then we slowly trimmed our open holdings, again letting the market guide our hand. At this point, our stops are in (we are protected from any further downside action) and are doing our best to give our leaders the bullish benefit of the doubt. In case this turns into another shallow pullback. Furthermore, we are about to enter earnings season and want to see how the market responds. Of course if, at anytime, you are not comfortable with your holdings, move to cash. Remember, there is nothing wrong with being 100% in cash, cash is a position.

Russell 2000 Forming A Large 8-Month Top

Since February 2014, we have written several times about the bifurcated conditions occurring beneath the surface in the stock market. The basic notion is that the small-cap Russell 2000 was woefully under-performing the large indexes as this bull market crossed the 5 year mark. We said one of two scenarios will occur: either

The market continues to rally and this is a short term phenomenon or
This negative divergence will drag the market lower.

So far, the latter scenario is unfolding. It is normal to see small cap stocks “lead” the market up and down. From 2009-2014 the small caps “lead” the market higher (stronger % gain) and are now “leading” the market lower. At this point, the short term outlook has changed from “up” to “sideways” and will change to “down” if/when the Russell 2000 breaks and closes below support of its large 8-month large topping pattern (1082). As of this writing (Thursday morning), not surprisingly, this week’s low was 1083 – or 1 point above support of its large 8-month topping pattern (flat base). See annotated chart.

Russell 2000: Forming Large 8-Month Top

The Day Something Changed; Defense is King

The bearish stars are growing as the market, and leading stocks, continue to get hit. As of yesterday’s close, the S&P 500 has only had 2 up days in the past 10, not a healthy sign. Over the last few weeks we noted that September 15, was the day “something” changed. We saw a slew of leaders get hit in heavy volume and “stopped going up.” That was not healthy. A few days later the market briefly tried to rally but that was short-lived as the bears showed up and sent stocks lower. The market remains sloppy up here and defense is king until further notice. Another important tool is to study how “leading stocks” perform during bull markets. Eventually, all stocks top out and fall. When several leading stocks top out, it usually serves as a great tell that the broader trend may be changing for the market. We will have more on this in future reports.

Market’s Biggest Problem

For weeks, we have written that market’s biggest problem is (virtually no one is talking about it right now), is what will happen when QE 3 ends? Remember, when QE 1 ended, the S&P 500 fell -17%, when QE 2 ended it fell -22%. What will happen when QE 3 ends? The reality is no one, not even the Fed, knows the answer to this question… The “good” news is that Central Banks have said the easy money train is here to stay and if conditions worsen, they have made it clear that they have no problem providing more “liquidity” (e.g. QE 4, anyone?), If needed. It will be very interesting to see how this plays out. We want to see where the market closes tomorrow and will have a full report for you this weekend.

26 Sep

Daily Market Commentary

Week In Review: Sellers Fighting For Control

September 26, 2014
By info@50park.com

Sellers Fighting For Control

Stocks fell in the last full week before the month and quarter officially end (Tuesday’s close). Barring some unforeseen rally into Tuesday’s close, the benchmark S&P 500 (SPX) fell in September but ended higher for the quarter. If stocks close lower for the month, this will be the third monthly decline for the SPX this year. It was encouraging to see the bulls defend the SPX’s 50 DMA line on Friday. The bigger concern from where we sit is something virtually no-one is talking about- What will happen when QE 3 Ends? Remember the S&P 500 (SPX) soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. It will be very interesting to see how the market reacts when QE 3 officially ends next month. Leading stocks are also acting sloppy and the action in the market over the past few days is starting to get a little sloppy (erratic price swings). The small cap Russell 2000 (RUT) continues to woefully under-perform its peers which remains a concern. It will be interesting to see how this plays out. The last time all this happened was in March/April and that preceded the deepest pullback of the year (-6% decline in the S&P 500).

Monday-Wed’s Action: Struggle For Direction

Stocks fell on Monday after weaker than expected data was announced in China and the U.S. Overnight, China signaled it would not boost stimulus measures to help its economy. In the U.S., the National Association of Realtors said previously owned homes fell by -1.8%. William Dudley, Head of the NY Fed spoke at the Bloomberg Markets Most Influential Summit and said the Fed’s monetary policy remains data dependent- which means that the Fed will step up and help if either Main St or Wall Street gets in trouble. Meanwhile, the small cap Russell 2000 index, which has been lagging the larger indexes for most of this year, and experienced a death cross (50 DMA line undercuts the 200 DMA line).

Stocks opened lower on Tuesday after the latest round of economic data was announced from China & Europe. China Markit Manufacturing PMI topped estimates. Chinese industrial production and import growth declining while exports remain relatively strong, the upside in the PMI may be driven by external demand. In the Eurozone the story remains negative as Germany and Eurozone aggregate manufacturing PMI continues to decelerate and is now only marginally above the 50.0 level. Economic activity in France was better than expected but still at levels indicative of contraction, and France remains the laggard in the region.

Stocks enjoyed very nice gains on Wednesday after an official from China’s central bank provided some dovish (easy money) comments and healthy data from the U.S. housing market was announced. New home sales jumped 18% in August to 504k, easily beating estimates for a gain of 435k. That was the first time that new home sales topped 500k since May 2008!

Thurs & Fri’s Action: Sellers Regain Control

Stocks plunged on Thursday as investors were worried about global growth. Fears spread regarding the situation between Ukraine and Russia. Reuters reported the draft law, submitted to Russia’s parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for those whose assets were taken in foreign jurisdictions. The proposed measure comes after Italy froze luxury properties owned by a longtime friend of President Vladimir Putin, Bloomberg reported. In the U.S., economic reports were mixed. Durable goods fell by -18.2% in August, missing estimates for an 18% decline. Meanwhile, weekly jobless claims rose by 12k, to a seasonally adjusted 293k last week. Shares of Apple (AAPL) fell after news spread that their new phones were able to bend (and break) easily. The new term is called #bendgate. Apple responded and said there have only been 9 complaints (so far) of the new iPhone bending. Stocks rallied on Friday after Q3 GDP rose 4.6%, topping the prior reading for 4.2%. A separate report showed consumer confidence rose in September.

Market Outlook: Market Finally Pulls Back

The two best words to describe this market are “melt up.” Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007) but until we see signs of sustained distribution (heavy selling) the market deserves the bullish benefit of the doubt. Furthermore, the S&P 500 has not experienced a 10% correction since 2012 which is longer than most historical comparisons and illustrates how strong this bull market is. As always, keep your losses small and never argue with the tape.

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25 Sep

Blog

The StockMarket's Biggest Problem Is…

September 25, 2014
By info@50park.com

The following is an excerpt from a FindLeadingStocks.com Intra-Week Update

FLS Update: 9.25.14

Defense is King; Sellers Back In Control

Sellers Are In Control

In Tuesday’s update, we mentioned “the day something changed” and said that, “On Monday (Sep 15) something changed. A slew of leaders were hit in heavy volume. We wrote the following day and said the action is not healthy and reminds us of how the market looked in March/April of this year (which preceded the year’s largest pullback). It is tremendously important to continue to watch how leaders behave in the days/weeks ahead. If the selling gets worse this little pullback will likely get worse.” So far, the selling has gotten worse and the sellers are now in clear control of this market (in the short term). Defense is king as we are now seeing a lot of technical damage occur across many important areas of the market. To be clear, the market is acting toppy up here (we’ve mentioned in recent weeks that “it feels a little top heavy up here”) and we will continue to monitor the situation closely for you.

Biggest Problem

From where we sit, the biggest problem, that virtually no one is talking about right now, is what will happen when QE 3 ends? Remember, when QE 1 ended, the S&P 500 fell -17%, when QE 2 ended it fell -22%. What will happen when QE 3 ends? The reality is no one, not even the Fed, knows how to answer this question…since this is the largest (and unprecedented) coordinated experiment from Global Central banks. The “good” news is that Central Banks have said the easy money train is here to stay and if conditions worsen, they have made it clear that they have no problem providing more “liquidity” (e.g. QE 4, anyone?), If needed. As always, it is never a dull moment on Wall Street, stay tuned…

Bifurcated Market Continues

Earlier today, I was quoted in MarketWatch (read here) where I expressed my concerns about the market (in the short term). The Russell 2000 remains the weakest index and continues to woefully under-perform its peers. I told MW, “While small caps had previously led the stock-market rally, it’s normal for them to begin to lag as bull markets mature, Sarhan said, but it could point toward further overall weakness.” “Now that they’re rolling over and lagging, that could be a canary in the coal mine that a big top is [potentially] forming in small-cap stocks,” he said. “If it starts forming in the S&P and Dow and Nasdaq, then you can have a more ominous picture develop for the short [and] intermediate term.” I attached an annotated daily chart so you can “see” what I’m seeing. To put it nicely, the action is “not pretty.”

Good Job Not Buying

The service has been very selective over the past few weeks. Turns out, that was a a great call. Stay with us as we continue to keep you two steps ahead of the market.

Russell 2000: Large Top Forming?

19 Sep

Daily Market Commentary

Week In Review: Stocks Hit New Highs As Easy Money Continues

September 19, 2014
By info@50park.com

Bulls Back In Control

Stocks rallied in the third week of September after several global Central Banks across the developed world clearly reaffirmed their easy money stance. From where we sit, the primary driver of this very strong 5.5 year bull market has been easy money from global central banks. Remember the S&P 500 (SPX) has soared when QE has been in effect and fell -17% after QE 1 ended and fell -22% when QE 2 ended. It will be very interesting to see how the market reacts when QE 3 officially ends next month. At this point, the action in the market remains very healthy and, barring some unforeseen large negative event, the bulls remain in clear control. We also noted previously the bullish monthly trend of seeing the market open lower but close higher on a monthly basis. That is exactly how you want to see bull markets behave. As long as this healthy action continues- weakness should be bought until further notice.

Monday-Wed’s Action: Stocks Bounce Off Support

On Monday stocks ended mixed but there was a lot going on beneath the surface. For the first time since March/April we saw a slew of leaders fell in heavy volume. Shares of Twitter (TWTR), Facebook (FB), Weibo (WB), LinkedIn (LNKD), Yelp (YELP), Netflix (NFLX), Tesla (TSLA) and others all slid between 3 & 12%. This might just be a one off but we will continue to closely monitor the situation to see if it gets worse in the weeks ahead. Overseas, China reported its first decline in electricity production since 2009, while Industrial Production (6.9%; expected 8.8%) grew at its slowest pace since December 2008. In the U.S., Industrial Production slid by -0.1%, missing estimates for a gain of +0.3%.
Stocks enjoyed nice gains on Tuesday as the Fed began their two-day meeting. Stocks ran to session highs during a webcast on the Wall Street Journal’s website, in which journalist Jon Hilsenrath (largely believed to be a mouthpiece for the Fed) made the argument that the Federal Reserve would maintain its easy money stance. His comments could be a coincidence – and we’ll let the market decide. Other bullish news came from China. China’s central bank said it lent 500 billion yuan to the five largest Chinese banks through a special lending facility. The move is the equivalent of a 50bps rate cut to the banks’ reserve requirements which is another form of “easy money.” Global central banks are clearly doing everything in their power to stimulate both Wall St & Main St and the market is noticing.
Stocks opened higher on Wednesday as traders anticipated bullish comments from the Fed. Separately, shares of FedEx (FDX) and Lennar (LEN) both gapped up after reporting their latest quarterly results. This is bullish for Main St because FedEx is a good proxy for the overall health of the economy and Lennar is a good proxy for the stagnate housing market. In the afternoon, stocks rallied after the Fed concluded their 2-day meeting and Janet Yellen held another press conference and reiterated the Fed’s easy money stance. Separately, the “Fed put” is alive and well which means if either Wall St or Main St gets in trouble, they will step up and print more money.

Thurs & Fri’s Action: Stocks Hit New Highs

Stocks rallied nicely on Thursday as Scotland voted to stay in the UK and US economic data was mixed. Weekly jobless claims fell to 280k from 316k and beat estimates for 305k. This was the lowest reading since July and properly supports the view that the weak payroll growth seen in August is likely to be revised higher. Elsewhere, housing starts slid to a seasonally adjusted annualized rate of 956k units in August from a revised 1.117 million units in July, which missed estimates for a decrease to 1.045 million units. Building permits slid to a seasonally adjusted annualized rate of 998k, missing estimates for 1.054 million. A separate report released from the Philadelphia Fed Survey for September fell to 22.5 from 28.0 which also missed estimates for 23.5. The latest readings of U.S. Core CPI and PPI both remain tame which means inflationary pressures remain subdued. Keep in mind the Fed wants inflation to remain near 2% so any lower readings are not ideal. That, coupled with the ongoing anemic economic recovery, is why the Fed decided to leave the “considerable time” language in its latest FOMC statement. The much anticipated Ali Baba (BABA) IPO (largest in US history) finally began trading. We’ll be watching this to see if a proper IPO base develops. Until then, it’s anyone’s guess what happens.

Market Outlook: Healthy Action Continues

The two best words to describe this market are “melt up.” Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007) but until we see signs of sustained distribution (heavy selling) the market deserves the bullish benefit of the doubt. Furthermore, the S&P 500 has not experienced a 10% correction since 2012 which is longer than most historical comparisons and illustrates how strong this bull market is. As always, keep your losses small and never argue with the tape.

Here are the latest 5 pullbacks and subsequent rallies in the S&P 500

17 Sep

Blog

Are Hedge Funds Dead?

September 17, 2014
By info@50park.com

What Is A Hedge Fund?

In the simplest sense, a hedge fund is a firm that invests capital for its investors. Typically, hedge fund clients are institutional investors (anyone who is charge of allocating a large pool of capital) or accredited investors (e.g. high net worth individuals).The traditional definition is that hedge funds are able to place both long and short positions – (e.g. make money in both up and down markets). The vast majority of the portfolio managers are long only – meaning they only make money when markets go up. Therefore, by definition, hedge funds are considered alternative investments and are different than a typical long only strategy.

Why Invest In Hedge Funds?

The short answer is for better returns. The unique value proposition from the hedge fund industry is that they are able to attract the best talent (superior managers with very strong track records) and offer their investors superior risk-adjusted returns. In exchange for this “privilege” hedge funds charge higher fees than most other investment vehicles and if they do not perform well the large fees hurt their performance. In some cases, when the hedge fund puts up solid numbers the fees are justified. The only problem is that there is no way to know for sure which hedge fund will be able to put up solid returns at any given year. Before 2008, most hedge funds were charging 2% and 20% – that is a 2% management fees on the assets under management and 20% incentive fee on any profits they produced. After 2008, returns are harder to come by so most hedge funds now charge 1 & 20. For example if a hedge fund has $100 million under management they would get a base fee of $1 million and then 20% of any profits they generated. If the fund was up 10% that year- they would get an additional $2M incentive fee. So the total income for that year in this example would be $3M. As you can see that is a very lucrative business and a strong reason why some of the most talented people on Wall Street move in that direction.

The Problem – Post 2008- The World Has Changed; Hedge Funds Are Not Performing Well

Since the 2008 financial crisis, the world has changed in many ways. From an investing point of view, hands down the strongest asset class in the world has been the stock market. In fact, the returns are so strong (largely due to easy money policies from global central banks) that other asset classes (currencies, bonds, and commodities) have been left behind as nearly all capital continues to flow into stocks. As a result, the average hedge fund has been under-performing the largest benchmark in the world- the S&P 500. Remember, if the hedge fund manager has a real problem if she is not able to beat the S&P 500. The primary reason why hedge funds charge high fees is because of their ability to beat the market. Therefore, the fact that most hedge funds are struggling to put up strong returns is causing investors to re-think their allocation to this space. According to the Barclay Hedge Fund Index, hedge funds overall returned only 11% in 2013, while the S&P 500 soared 30%. In 2014, they are only up 4.5%, which pales in comparison to the S&P 500’s nearly 8% advance. Eventually, the environment will change and the stock market will not go straight up. But until it does, hedge funds face a real problem.

Hedge Funds Are Losing Clients:

The California Public Employees’ Retirement System’s (better known as Calpers) announced this week that they are going to stop investing in hedge funds. The largest pension fund in the country currently manages $330B and only had $4B in hedge funds. The fact that they are pulling their investment for now will likely hurt the stagnate hedge fund industry as more investors will likely follow their lead and pull their money from under-performing hedge funds. Last year Calpers only earned 7.1% paid over $135 million in hedge fund fees. Remember, that the S&P 500 returned 30% so that return does not justify they high fees that were charged. Everything runs in cycles and this just happens to be a low point for the hedge fund business. Down the road when the stock market turns lower, or other asset classes start performing well again, the alternative investment space will likely shine.

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Stocks Grind Higher…For Now

Monday-Wed’s Action: Stocks Grind Higher…For Now

Thurs & Fri’s Action: Stocks Trade Near Highs

Market Outlook: The Central Bank Put Is Alive And Well

Stocks Rally As Easy Money Party Continues!

Monday-Wed’s Action: The Rally Continues

Thurs & Fri’s Action: Stocks Take a Breather

Market Outlook: The Central Bank Put Is Alive And Well

The Fed Put Has Shifted To The Central Bank Put!

Monday-Wed’s Action: The Rally Continues

Thurs & Fri’s Action: Bulls Remain In Control

Market Outlook: The Central Bank Put Is Alive And Well

Easy Money From Global Central Banks Continues To Fuel This Market

Let’s Look At The Facts:

Other Central Banks Are Printing As Well

The Fed Has Two Jobs: Dual Mandate

The Case For QE 4:

Stocks Pullback

Monday-Wed’s Action: Stocks End Month & Quarter On A Weak Note

Thurs & Fri’s Action: Sellers Getting Exhausted

Market Outlook: Market Finally Pulls Back

S&P 500: Pullback in 2014:

Click Here to Watch Our Popular (& Free) Educational Webinars

The Market Is Getting Weaker, Not Stronger…

Path of Least Resistance Is DOWN

Russell 2000 Forming A Large 8-Month Top

Russell 2000: Forming Large 8-Month Top

The Day Something Changed; Defense is King

Market’s Biggest Problem

Sellers Fighting For Control

Monday-Wed’s Action: Struggle For Direction

Thurs & Fri’s Action: Sellers Regain Control

Market Outlook: Market Finally Pulls Back

FLS Update: 9.25.14

Defense is King; Sellers Back In Control

Sellers Are In Control

Biggest Problem

Bifurcated Market Continues

Good Job Not Buying

Russell 2000: Large Top Forming?

Bulls Back In Control

Monday-Wed’s Action: Stocks Bounce Off Support

Thurs & Fri’s Action: Stocks Hit New Highs

Market Outlook: Healthy Action Continues

Here are the latest 5 pullbacks and subsequent rallies in the S&P 500

What Is A Hedge Fund?

Why Invest In Hedge Funds?

The Problem – Post 2008- The World Has Changed; Hedge Funds Are Not Performing Well

Hedge Funds Are Losing Clients:

FindLeadingStocks.com (Only $3/day after that)

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Click Here to Watch Our
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