http://www.reuters.com/article/2013/11/01/us-usa-fed-bullard-idUSBRE9A00IF20131101
Inflation too low now so stocks will go sideways/up even but not much…
All taper talk is about cooling hot markets off. Inflation however is not near targets at all therefore QE continues. But the market gets nervous anyhow when they talk of taper.
The Fed will signal taper in the next meeting as the market is ‘too hot’ right now. I would expect a fall to 166-168 range by Nov. 20. SPY will then rally to high again on Dec 18.
Until inflation reaches ccpi 2.0 perhaps April? next year, the rebound game continues. Down after Fed meeting and up on Fed minutes. After Fed minutes, any ROC20 -1- and OEXd turns above 4dma buy, and sell on Fed meeting. I prefer not to short, but rather play rebounds in bull market. In a way, a very useful market.
It looks like October will be an ‘up’ month for SPY. RSI is 63.7 with upside to 70. The OEXd 4dma shows at least a week of run left. The peak price is the day of the Fed meeting or 1 day after whichever is the ‘up’ day. SPY will peak in the 175-176 range on Oct 30 or 31. The Fed will send signals about improvement because SPY will be at a high. This will send SPY down through November. So November will be another low perhaps 166 by the 3rd week. It may hit the 200dma at 163 but unlikely.
Oct/Nov Setup:
1) SPY rises to Oct 30 or 31
2) SPY falls from Nov 1-25 (5days after Fed minutes)
3) Christmas Rally from Nov 25 to Dec 18 (Fed Meeting).
The November setup is looking good as oil continues to fall. Cash now and deploy to SPY at -4.5% and OEXd 4dma turn point or possibly 162-200dma. The first week of November econ numbers wont be good see retail data below…setting up a ROC20 in SPY of -4.5% or to 200dma 162. The OEXd 4dma has turned down. MBB, JNK, and TLT have turned down so interest rates will rise sapping more consumer spending.
http://advisorperspectives.com/dshort/guest/Lance-Roberts-131015-Retail-Sales.php
“U.S. auto sales in September fell to a five-month low…it is clear that the consumer was already feeling the pressure of the surge in interest rates, higher energy and food costs and stagnant wages”
However, gas buddy is leveling off but it is still too early to tell. I have noted that gas buddy is good for knowing inflation for the entire month but not so good for determining transitions for SPY. For example, SPY ran nicely in September but gas buddy was falling in September. A rapid rise of 2c per day as seen this Feb is bad for SPY but anything else is not that important.
As a side play, there’s a very cheap option right now … AAPL 300 puts Jan 2015 at $6.10. AAPL has
1) Falling Revenue
2) Falling Earnings
3) Book Value $135
and the stock has barely corrected (-20% yoy)! It could easily fall to book value by Jan 2015 as emerging markets, taper worries, and weak consumer spending dominate stocks next year.
I would be careful of buying SPY at this point due to JNK at top of its BB and WTIC downturn.
JNK leads SPY
http://stockcharts.com/h-sc/ui?s=JNK&p=D&yr=1&mn=0&dy=0&id=p42768446259
$WTIC leads SPY
http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&yr=1&mn=0&dy=0&id=p56793667557
The most interesting here is how junk bonds lead the SPY! I have added both links to secondary indicators.
Despite a possible rally in October after Oct 17/22 debt resolution, it is better to wait for 5-8days after the Fed meeting Oct. 30. Since June, the top is put in at the Fed meeting and there’s a sell off afterwards.
Nov. 4-7 : If a rally is already underway past the 165 level, wait for next year to play risk/off trade. If the -4.5% / rebound condition exists, play SPY rebound to Dec 18 ‘Christmas Rally’. If opportunity is missed in early Nov, there’s always the risk/off trade next year.
The first week of July and the first week of September were still not too late to buy into rally!
When ROC(20) crosses -4.5% or greater and OEX 4dma crosses on the upside, the SPY rebounds in 1 month. Payrolls will be a non-issue on November 1 as bls is furloughed.
By waiting for a -4.5% drop or more in 20 trading days, a rebound of 1 month occurs: Jun 2012, midNov 2012-midDec 2012, Jun 2012-Jul 2012, Aug 2012-Sep 2012. The OEX 4dma is then referred to for the rebound re-entry point and avoids the falling knife.
(1) ROC (20) falls below -4.5% :
http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=1&mn=6&dy=0&id=p99357778083
(2) OEX 4dma as a rebound confirmation after (1) occurs –
http://stockcharts.com/h-sc/ui?s=$OEXA200R&p=D&yr=0&mn=6&dy=0&id=p22104518314
Sell point is Fed meeting or +5% on ROC(20). Now that worries about taper exist since June the best sell point is the Fed day as ‘no taper’ is confirmed.
“Mr. Spitznagel has gained credibility in the investment world by predicting two market routs in the past decade, first in 2000 and then in 2008….
Mr. Spitznagel said, and when the Federal Reserve stops its quantitative easing program of buying Treasuries, the market will have to readjust…
Stanley Druckenmiller, a former strategist for George Soros and founder of Duquesne Capital Management, recently told Bloomberg TV that when the Fed begins to taper back its quantitative easing program, he expects the market will go down….
The Fed can keep spending as long as inflation stays low, hoping that eventually there will be a strong economic rebound.”
My strategy is when inflation is high enough Fed will stop spending/taper and ‘readjustment’ will be big.
If SPY touches the 200dma Nov 4-7, it’s a buy. October is a ‘down’ month. As long as cpi <2.0, a ‘down’ month (Oct) is followed by an ‘up’ month (Nov).
Once ccpi 2.0 is achieved, the break will be great see below:
http://finance.yahoo.com/news/blackstone-were-epic-credit-bubble-144901589.html
The high valuation of many companies today makes it harder for them to grow. “The biggest risk to returns of this vintage is that exit multiples are depressed,” Baratta said.
“We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta, The Blackstone Group (BX)’s global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. “The cost of a high yield bond on an absolute coupon basis is as low as it’s ever been.”
My comments:
This is good news as the Fed will have to ‘twist’ shortly after tapering next year! As the yield spread between gov’t and junk bonds widens, twist will cushion the rise in corporate interest rates.
In order for economy to have enough strength for a taper, gas buddy should hit 3.20 and start rising as you can see here in Dec 2011 and Jan 2013:
The consumer gets enough extra money in the pocket for the economy to have a 3 month boost.
I say be cautious this month as taper worries and debt limit will cause SPY to drop and go sideways. I want to hold off until SPY hits the 200 dma (not October as 200 dma is 160 and November will be 162). After a rebound, I will also watch for $0.75 below the middle of the BBdaily. This occurred last year on Nov 19 indicating a return to bull mode. As gas buddy keeps falling, the best opportunity will most likely be Nov 4-7 (8d after Fed mtg). The econ numbers in early Nov may not be good as Oct will be a bad month for econ and stocks.
SPY has now crossed the middle of the BBd and is headed down.
Credit Flow Investor 