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The Elves are Distracted…

The Elves are running around like mad, trying to finish up their Christmas toy-making duties while keeping a sharp eye on the markets... or at least that's what they tell me. I am not so sure

The Elves are running around like mad, trying to finish up their Christmas toy-making duties while keeping a sharp eye on the markets… or at least that’s what they tell me. I am not so sure since there always seems to be a long line at the eggnog bowl (heavy on the nog)…

After blocking his bee-line to the nog-bowl, I got the following out of the Chief Elf, “The Bull-to-Bear ratio for this week is 2.5-to-1 in favor of the Bulls. The red line (Short Sell) appears to be moderating its downward trend, but is still moving away from an oversold condition. The black line (Composite of Short Sell and Long Buy indicators) continues to be indicating that it is bottoming. This is often a pattern that precedes a move higher in the near-term of the broader market, but this bullish pattern is somewhat less bullish than last week. The S&P 500 (green shaded area) is trending a bit higher. The market appears to be teetering on the edge of moving lower. Short plays are not strongly recommended, but hedging long positions could be prudent.”

I attempted to engage the Chief Elf in some serious man-to-Elf talk by asking, “Ok… I agree with your assessment that the market is likely to move lower. But, I really think there are some seriously profitable short trading opportunities on the table. Are you saying that I should NOT be shorting this week?”

Keep in mind that during this discussion, I had to keep dancing left and right as THE Elf attempted to bypass me, straight to the libatious-induced eggnog.

Then, he stopped, squinted at me through his outrageously bushy white eyebrows and grumbled, “If I give you an answer, will you quit bothering me and let me get on with my far more important duties?!” I glanced at the punchbowl and mused about debating the phrase, “far more important duties”, but thought better of it and simply said, “Yes”.

He responded, “Shorting only makes sense if your risk tolerance is high enough!” and before I could ask for more clarification, he darted around me and began guzzling eggnog. By the way… a guzzling Elf is not a pretty sight…

Time-Cycle Analysis…

  • 10 out of 49 time-cycle forecasts have SuperCycles beginning on or before this coming Friday. 80% are Bearish.
  • 35% of the forecasts are in significant inversions with more than 90% of those inversions being Bear-Biased. This means investors are probably more bullish than they should be right now.
  • The S&P 500, DJIA, Nasdaq and Russell 2000 are all trading at or near their respective upper resistance levels. This could mean that shorting when time-cycle data support it, may be a good strategy.
  • Should the S&P (which closed on Friday at 1255) break through its current resistance level (about 1260), we could see this index move to the 1360 level before encountering its next significant resistance level. However, the time-cycle data indicate the more likely trend is lower for the next 3 weeks; not higher. Should the market move lower, the next support level is about 1160.
  • In the very near term, Gold looks weak and may fall to the 1650 level before rebounding somewhat. The longer outlook for gold is bearish to very bearish between early January into late February with a downside low of about 1450. However, there is a decent technical support level at the 1650 level. With all the uncertainty ongoing in Europe, it is not inconceivable that gold prices would benefit from any heightened level of fear in the global economy.
  • Silver, on the other hand, looks somewhat more bullish for the next couple of months, with the possibility of moving from a 32 handle to a 39 handle by February. This dichotomy between gold and silver is troubling and puts a lot of risk on the table to trade either. The better strategy would be to wait until both metals are more in alignment. Given the choice right now, I prefer silver over gold on the long side and I am considering shorting gold for just the next couple of weeks.
  • Nat Gas could move all the way down to $2.90 by mid-February. This is another potential short that I am considering. The downward trend is in a well-defined Bearish channel and does not look to break that trend until late February.
  • Bonds look to drift downward into mid-February and could see a decline of as much as 7%.
  • The US Dollar, for the most part, looks to strengthen in the near-term, while the Euro looks to weaken. A strengthening Dollar could put additional downward pressure on the US economy, and by extension, US stocks. This action lends some support to the market moving some lower. Keep in mind… I am not expecting a massive Bear market… I am only saying that my interpretation of the charts is the market is more likely to move lower in the upcoming week than higher.
  • Crude oil is trading very near a pretty strong resistance level. The time-cycle data point to some significant weakness in oil for the next three weeks, starting mid-week this coming week. West Texas Intermediate could move down to the $91 level before rebounding. Shorting oil is another one of my considerations for this week.

Stock/ETF Analytical Review…

  • Out of roughly 6,000 stocks/ETFs, this week there were 7 new Strong Buys, 153 new Buy Signals, 682 equities moved into a neutral position, there were 115 new Sell Signals and 10 new Strong Sell Signals.
  • All 9 of the Market Sectors are in a Technical “Long” position, which means all of them have triggered a technical buy signal in the past and have not stopped out of that signal.
  • Basic Materials and Technology Sectors dominate my Top-10 most recommended stocks, while large cap and Basic Materials ETF’s occupy the Top-10 list of ETFs.
  • The ratio of Bull-Biased Technicals versus Bear-Biased Technicals favors a Bullish trend. This kind of Technical observation is often seen at market tops.

My conclusion: A purely technical analysis would support that stock prices could be moving higher in the near-term. There are many indications that the market is at or near an upper resistance level. Were it not for the time-cycle forecasts indicating we are at a market top, one might be looking for upside break-outs and going long.

Change in Weekly Report…

Beginning this week, this report will include an increased level of tactical, actionable trading information. There will be specific trading ideas and trade-timing suggestions.

I cannot give you specific buy/sell recommendations as that violates SEC regulatory rules and laws. As such, I will not tell you what specific security to buy or when to sell. But, you will find more information about what I plan to buy/sell/short/cover. You should read the trading disclaimer above very carefully as it gives you a clear warning about following the information in this report when it comes to the trading (buying/selling) of securities.

In addition, starting the first of 2012, I will be providing my paying subscribers with a Monday/Wednesday/Friday video commentary about the market and my then current thinking and trading strategies that I am using at the time.

A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.