How Low can the S&P 500 ($SPX) Go?

Here is a chart showing corrections since the big one in 2008. The last correction was 10%. There was a panic at the time. Do you even remember it? It was the "Ebola Is Going to Kill America" scare.



(Updated chart)

To be sure, markets can go lower. I'm not trying to call a bottom here. But I will point out that the underlying economy in the US is quite strong. If there is a global panic, money from around the world may try to "hide" in US stocks.

Two more important points ...

1. Sell-offs like the ones we are seeing now – 800 points down indicated on the Dow – are USUALLY much closer to the bottom than the top.

2. The really good news is some companies we’ve always wanted to buy are going to get CHEAP!

Bring out Chanos to scare everyone so we can really call the bottom.

Mixed Signals Leaves This a Show-Me Market: S&P 500 Chart

Yesterday, the S&P 500 turned lower from its recent downtrend (the Russell 2000 small-cap index did the same thing). If we traded strictly on technicals, this would be a short.

On the other hand, how much is due to some whackaloon shooting up the Canadian parliament. Also, stock prices seem to move in sympathy with oil prices recently. Transports sold off big yesterday, despite the fact that lower oil prices is good news for transports. So, maybe there's a bit of hysteria in the market right now.


(Updated chart)

I've put two momentum indicators on the chart to show the mixed signals. 

I often use RSI for short-term momentum. and it banged its head, looking like it will turn down. That seems bearish.

MACD is better for the longer-term trend. And it just gave a buy signal.

See what I mean about mixed signals?

I was going to add a new recommendation today, but I think it's best to wait and see how this sorts out.

The Running of the Bulls: Most Wall Street Economists Are Idiots

Today, we see the kick-off of the Running of the Bulls in Pamplona, Spain.

The running of the bulls is when idiots and/or men with something to prove about their manhood run in the streets before a pack of animals that will later be ritualistically tortured to death in an arena. 

Surely, man at his best. And yes, that's sarcasm. I've seen a bullfight in the flesh once -- for I was also a young idiot in my day -- and I don't need to see another.

Meanwhile, Wall Street has its own Running of the Bulls.

The stock market closed last week up 189% since its bottom in 2009.  The S&P 500 index has gained 7.4% for the year so far, building on last year's 30% spike.

Also last week, the Dow pushed through 17,000 -- which any trader will tell you is just a number. Still, it's a big number.

This week, the market is looking to start off with a slump. The reason is economists working at Wall Street banks are moving up their expectations of when the Fed will start hiking interest rates.

And the reason for that is last week's stellar jobs numbers. The Bureau of Labor Statistics showing U.S. employers added 288,000 jobs in June, well above the 215,000 expected by economists. The unemployment rate unexpectedly fell to 6.1%, from 6.3% a month earlier.

Previously, most Wall Street banks hadn't expected the Fed to start raising rates for at least 3 more quarters -- potentially not until 2016. Now, many think the Fed will raise rates sooner and quicker, seeing that jobs are improving so much.

This just shows that most Wall Street economists are idiots. Hey, they missed the jobs growth, didn't they?

U.S. gross domestic product fell at a seasonally adjusted annual rate of 2.9% in the first quarter, the fastest rate of decline since the recession. Most estimates are that GDP is growing at 2% this quarter ... maybe. That's not much. Sure, GDP not a primary indicator for the Fed.  But it has to be worried that weakness will continue.

What's more, while inflation is picking up, the official inflation rate is still just 2.1%. 

Sure, the Fed will probably get behind the curve as inflation increases. You know how to protect yourself from that. The fact is, the Fed doesn't see inflation now, and that's what matters.

Also, just last week, Fed head Janet Yellen signaled that she would keep interest rates lower for longer than most people think possible. Specifically, she said that it would be a bad idea to raise interest rates to fight financial excesses. 

She added: "efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment.”

So no, Wall Street. Yellen is not taking away the punch bowl any time soon. She doesn't want to be the Fed Chair who killed the recovery. Hell no!

I know -- I KNOW -- that it's been more than 1,000 days since the S&P 500 suffered a correction. Specifically, the S&P 500 hasn't suffered a 10% drop from its recent high level mark since October of 2011. That's a long time. A correction seems due right?

But just because you expect it to happen doesn't mean it will happen right now.

Look at it this way: We have central banks around the world keep pushing easy money. From the U.S. Fed to Japan to Europe - which now has negative interest rates - the money sluices are open.

Now, add in that the U.S. and global economies continue to recover. Chances of a "hard landing" in China are receding in the rear-view mirror. However, the recovery remains weak. As long as it remains weak, the Fed (and other central banks) aren’t likely to tighten their easy-money policies.

Meanwhile, Wall Street isn't "euphoric" about this rally. Indeed, it's still widely hated.  Many big funds are woefully under-invested. That can be juice for the next big leg up. 

So be prepared. The bulls will run. As the guys in Pamplona will tell you, it's best to run with them.

Chart du Jour -- The S&P 500

I sent a version of this to my Gold & Resource Trader subscribers earlier today.

(Updated chart)

It bears watching.

Good luck and good trades.

Market Still in the Phantom Zone -- 3 charts

Superman fans among us (the older ones anyway, harumph-harumph) will remember the Phantom Zone as a place where things were exiled and remained essentially unchanged until they exited the Zone.  I believe the S&P 500 is in the Phantom Zone right now.

Here are some charts of the S&P 500 that I'm watching ...

(Updated chart)

The S&P 500 has recovered nicely from its recent sell-off. But it's still not in the clear. It has to regain -- and hold -- the 50-day moving average.

Here is a longer-term chart for perspective ...

(Updated chart)

Finally, remember that market pullbacks are essentially politically driven over the past four years, and there is another potential debt-ceiling battle coming up in a couple weeks.

(Updated chart)

By the way, new Fed Chairwoman Janet Yellen speaks to Congress today, and it turns out she's not a giant pinata stuffed with money.  Wall Street, stick in hand and blindfold at ready, is pretending not to be disappointed.

Good luck and good trades today.

Why The Market's Next Move Could Be Much Higher

It's not a sure thing.  We could see even see another consolidation to the bottom of the range, especially if Goldman's recent warning that the market is "overvalued by almost any measure" gains some traction. But this chart also shows the upside potential ...

Source: Stock Trader's Almanac Blog, via Reformed Broker.

Bullish or Bearish? Setting the Table for 2014

The broad market has pulled back the last couple days. This is a very data-heavy day, so we could see some more swings. But remember, the pullback in the S&P 500 is in the context of a broader rally.

Now we have to think about 2014. Are you bullish or bearish?

First, let's get politics out of the way. Ask yourself, does the market care who is or isn't President?

Source: Yardeni.com

Obviously, the market doesn't give a flying fig whether the President is Republican or Democrat. You could make a case that Congress has held back economic growth by sitting on its hands and refusing to spend money rebuilding bridges, roads and other infrastructure, but the market generally goes up no matter who is in charge.

Now, what else does the market have going for it? Here's a short list ...

• Record corporate profits
• Near record-low interest rates
• Improving federal deficit relative to our economy
• Improving housing and jobs picture
• Reasonable stock valuations
• Declining oil prices
• Low inflation

You want a picture? Here's one ...

Source

The S&P 500’s operating profit margin is at a record high of 9.7% (based on the trailing four-quarter average). Wow! Is this as good as it gets? Or can it get better?

Is there anything bearish? Two things.  Let's start with wage stagnation, as this chart makes clear ...

Source

Wage increases have averaged only 1.8% since 2009. That's the downside of soaring corporate profit margins. The companies aren't sharing with rank-and-file employees.

On the plus side, the ISM manufacturing index is up, construction spending is increasing and gas prices remain low(er), which increases relative purchasing power. So maybe wages will start to improve.

And the second big worry is that the Fed will start its "tapering" in December. I don't believe it will, but I could be wrong.

So are you bullish or bearish?

As you read this, I'm in San Francisco for a pow-wow with mining and energy companies. 

It should be interesting. Gold has hit a fresh five-month low in every session this week. Technically, having broken resistance at $1,220, the metal is now vulnerable to touch long-term support of $1,200. That, in turn, opens the door to a test of the 3-1/2 year low of $1,180 hit in June.

 Stay tuned.

One of My Favorite Market Charts

Could we revisit the bottom of the recent range? Sure.  But those calling for a 45% to 55% correction are probably barking up the wrong tree.

Source: http://www.thereformedbroker.com/2012/02/05/get-your-shit-together/

By the way, this chart is from February. The S&P 500 is at the top of the range now, and a little beyond.

Important Heads Up on China Gold Prices

I'm lifting this straight from Kitco ...

Gold on Shanghai Gold Exchange Wednesday traded below the international price in London for the fourth time within the last seven days, says Commerzbank. The discount reportedly amounted to $2 per ounce at times, the bank says. “By contrast, April and May were still seeing premiums of up to $30 being paid,” Commerzbank continues.
The bank says the discount lately is likely due to fears that lending regulations in China could be tightened, which is already being reflected in rising interest rates.
“The seven-day lending rate climbed significantly again today to 5.55% and has thus achieved its highest level in nearly four months,” Commerzbank says. “Interest rates are still a long way off their July high, however. Nonetheless, gold holdings were presumably sold as a result in order to generate liquidity. If this trend were to continue for any length of time, this could also lead to weaker Chinese gold imports.”

XX Sean's note -- this bears watching.

Another important point -- you have to understand that I am buying gold miners right now because of what I perceive as extraordinary value. And evidently I'm not alone, considering what the GDX has done since it bottomed on October 15-16 ...

(Updated chart)

So gold miners have done well. I'm buying them for value. But there are many investors buying them for performance.

Why is that important?  Because the S&P 500 looked like it had run into overhead resistance, so many performance chasers rotated out of the S&P 500 and into what was working (gold miners). But this has to be taken in the context of the fact that the S&P 500 has been on an incredible bull run. And now there are some very smart people saying that bull run could continue, with the S&P 500 going up perhaps another 5% into the end of the year.

If that happens, where will the performance chaser go? Back into the S&P 500, that's where.  And money would likely rotate out of miners.

That's just something to keep in mind.

That said, there's nothing wrong with buying the S&P 500 if you think it's going to go up. Heck, since the S&P 500 broke out to the upside on October 17, I've been waiting for a decent pullback to buy it, but we haven't gotten one ... yet.

These are all things to keep in mind as we watch gold and miners this week.

Why Stock Market Bulls Should Worry -- Chart

Heck, I'm a stock market bull, and this chart worries me.  Perhaps it should worry you ...

(Updated chart)

The S&P 500 has been channeling higher, and it's at the top of its channel.  Could we see a correction of 2 to 3 weeks? Sure.  But a correction -- if it comes -- could also be shorter and shallower for a whole bunch of reasons.

And there's also the potential that the S&P 500 could break out from here and head higher, simply because it seems most traders are betting on a pullback.

So, I worry, but I don't let it stop me from trading. I took three positions off today, and added two new ones. Look for a post on that in a bit.

Friday's Must-Reads

I'm entering some more trades today, and I'll have the charts up after the close. Why enter more trades when the S&P 500 just hit a new high?

Let's look at an updated version of this chart of the S&P 500 again, the one I posted on September 18 under the heading, "Your Next Best Buying Opportunity"

(Updated chart)

You can see that despite all the wailing and gnashing of teeth in Washington, the market shrugged off the crisis associated with breaching the debt ceiling.

It's not just that it's an artificial crisis, as I pointed out in my original post. I believe it's that the market saw three previous artificial crises on this side of the Atlantic alone in the past three years. Now, the market barely pulls back in a "crisis."

So, sure, we'll have another debt crisis in February. But it sure looks like the market is becoming immunized against these shenanigans.

Now, let's add in the following bullish facts ...

• So far, 85 S&P 500 companies have reported quarterly results, with earnings topping expectations by an average of 4.2%, according to the latest data from Thomson Reuters.
• S&P's bottom up operating earnings estimate for the SPX is currently $107.58, leaving the SPX's PE ratio at almost 16. Next year's estimate is $121.66. If the SPX continues to trade at that PE multiple, it renders a price target of 1946. 
• The US is now the top "oil" producer, if you measure by all liquids, and not just the black gooey stuff. That continues to help our balance of trade enormously.
• Overseas, in the other big economy that matters, China's economy grew at its quickest pace this year between July and September, at 7.8%.  Sure, experts are calling for a slowdown into the end of the year.  It wouldn't be the first time they've been wrong.
• Finally, the generational low is in the rear-view mirror. And we're breaking out higher. Holding 1575-1530 keeps this breakout intact.
  

Source


Those are the good things. Bearish headwinds include: 

• Consumer confidence that has been battered by all the political shenanigans. 

• The government shut-down sucked $24 billion out of the economy. This caused S&P to lower its forecast for annualized US growth to 2% from 3%. For more details on what the government shut-down cost, see this.
• Wall Street will start anticipating another, even worse budget battle in February. That will slow down corporate spending and money could flow to the sidelines again.

You can add your own ideas to this list.  Bu they say the market climbs a wall of worry, and that's just what I think it will do into the close of the year. 

Now, for those must-read stories ...

Chinese Scientists Invent Lightbulbs That Emit Wi-Fi 

Britain's gold exports to Switzerland are surging. And from there, it goes to Asia.

The Average 401k Balance Has Nearly Doubled Since the 2008 Crisis 

The "Baffling" Moves in Gold. Somebody's fat finger is showing.

Goldman: Now is Not the Time to Short Gold. Hey, wait a minute. You just said .... aw, shoot!

President Obama Bashes Bloggers Then Shills For Monsanto. Yeah, I saw that, too.
The Truth About the Deficit

Look for my charts later today. And if you slide early into the weekend, have a great one. Chill out and relax. Here, this will get you started ...

Your Next Buying Opportunity ...

Many investors get frustrated because the market takes off when they least expect it. Then they get so frustrated they chase the market. That's not helpful or productive longer-term. There are ALWAYS pullbacks. And thanks to the miracles of government, those pullbacks are getting pretty regular.

To see what I mean, look at this chart of the S&P 500 ...

(Updated chart)

You can see the last six major pullbacks since 2010 all had a government trigger -- either in Washington D.C. or in Europe. And now we've had this big, long bull run.  Gee, if only there was another made-up government crisis to give you a buying opportunity.

Enter Ted Cruz.

Personally, I find Ted Cruz hilarious.  He was born in Canada, his father fought on Fidel Castro's side in Cuba, and yet he wants to run for President. His personal history is all the things Republicans make up about Barack Obama, and yet Ted Cruz is a Republican, and the far-right of the Republican party is just fine with him. 

And now he wants to shut down the government.  It's true that John Boehner is nominally in charge of the House of Representatives, but Mr. Boehner is very ineffective, and seems to have lost control of the Tea Party wing of his party, which is being led (for now) by Cruz. People like David Brooks say that Cruz is running against his own party, and is willing to push the country into a crisis to do it.

A fight is brewing over the debt ceiling.  Boehner is content to let Cruz lead the Republicans on this one, taking the position that the debt ceiling will not be raised. 

But what about Eric Cantor, you ask? Surely he'll put a stop to this plan, which is just going to make Republicans look extreme. Nah, Cantor is going along with Ted Cruz's plans, too.

I expect the usual Washington/media histrionics on this totally avoidable crisis. And if history is a guide, this totally avoidable crisis will send stocks lower.  And if you believe that there is more drama than real crisis to the budget battle, that might be a buying opportunity.

Of course, I don't have a crystal ball. I'm just looking at previous chart action as a guide. You'll have to make decisions for your own investing needs.

By the way, if you're wondering about my Nevada trip, I have two more interviews in the can, and I just edited a 14-minute video of my trip into an underground mine. That looks great! But I've asked my bosses if I can post those videos here on the blog or if we'll use them at Oxford Club. So stay tuned.

Today, I'm going to go visit another company. First, I'm going jogging. These mining-camp meals are murder on the waistline.

Friday Chartapalooza -- Gold, Dollar, and Anti-Gold

I'm preparing for my trip to Nevada, which starts on Saturday. I'm visiting 5 miners in 7 days, and I'll be driving all over the state. If you hear about some Florida hick who got jacked by a bunch of post-apocalyptic road warriors in the Nevada desert, that's probably me. Still, preparation is half the job, and so I'm making sure I have everything I need.

Also, I got a link from IncakolaNews -- and thank you very much for that. I mean, it's nice to get a link from an analyst I respect. So, I guess I better put up some charts. Here are some updated charts of gold, as well as some new charts of what you might want to be watching -- seven charts in all.

First, the biggie -- gold.  This is only updated through last night's close, because that's how Stockcharts.com rolls on commodities. Still, it's obvious that gold got hit with an ugly stick yesterday ...

(Updated chart)

You can see that gold was channeling higher, but it clearly broke down yesterday.  Next support is at 1275, but it's not especially strong support.  RSI, a measure of momentum on the bottom of the chart, has dropped below the 50 line, giving us a moderate "sell" signal.

To say that gold is not following its usual plan in September -- usually one of its strongest months -- is an understatement. And this is happening while something else very curious is happening. I'm talking about the relationship between gold and the US dollar ...

(Updated chart)

Usually gold and the US dollar move in opposite directions. More recently, though, they are both moving kin the same direction -- down. This is a classic "risk-on" trade. In other words, credit less-apocalyptic news out of Syria, credit whatever you want, but investors are less scared, and so they are willing to take money out of "safe" investments like gold and the dollar, and put them in more "risky" investments.

But what could that be, you ask?  I'm so glad you asked ...

(Updated chart)

Just look at the Nasdaq Composite. It recently broke out of a range, and set a new high yesterday.  Add in the fact that the Nasdaq has rallied more than 17% in the past 5 months. 

So put yourself in the Gucci loafers of a momentum investor.  Ask yourself: Where do I want to invest? In go-go Nasdaq stocks or sad-sack gold miners?  If you're honest with yourself, you know what those momentum investors are saying.

That makes the Nasdaq the anti-gold. I'll show you another "anti-gold" in just a bit.

Now, does this mean I hate gold miners? No! I think there's extraordinary value in select mining stocks, and that value is going to become even better.

Considering that I just got word that my new Oxford Club resource newsletter isn't going to launch until late November, this is actually a good turn of events for me.  Heck, in the most selfish part of my dark little heart, I kinda hope that gold and miners sell off right until the day before my publication launches. That will only make select mining stocks even better bargains.

Why? Because the long-term fundamental forces in precious metals -- including rising mining costs, growing demand from the emerging middle class in Asia, and other forces -- are still in place. If anything, those forces will probably grow stronger, making these bargains even more incredible, as short-term sentiment drives weak hands to fold.

Now, speaking of the miners, let's look at an updated chart of the Market Vectors Gold Miners ETF (GDX), a basket of the biggest diggers in the industry.

(Updated chart)

Oh, this is painful.  You can see that the GDX has plainly fallen below support. And what used to be support now appears to be overhead resistance. We'll have to see how it closes out the day and the week (especially the week), but it looks like miners as a group have more work to do on the downside.

Where might that bottom be? Maybe the August low, maybe the June low.  Since the chart failed last time, let's wait for the gold miners to tell us where they want to bottom.

Now, let's look at how various groups are performing over the past two weeks ...

(Updated chart).

Dang, it's been a tough month for gold.  Bonds also suck wind, and the US dollar is dragging. Oil, despite its recent breakout, is still only average. The euro drifts along, barely positive. The big outperformer? Stocks, at least as measured by the SPY (S&P 500).

Over the past couple weeks, I've shown you other outperformers, including oil industry stocks and solar stocks.  Now, let's take a look at another "anti-gold" ...

(Updated chart)

You can see that Anheuser-Busch InBev (BUD) is trending higher.  It looks ready to tackle that August high. Bears tried to sell off the stock yesterday and couldn't budge it, even on high volume.

This is happening despite the fact that BUD disappointed on second-quarter earnings, with earnings per share of $0.93 versus estimates of $1.03.  Something's up with this stock.

Now, it could be the full-year outlook. Analysts expect BUD to earn $4.82 per share on revenue of $44 billion. This would represent a growth of 5.9% and 10.6%, respectively, compared to 2012. BUD is trading at just 12 times trailing earnings, 17 times forward earnings, and it even sports a 2% dividend yield.

A bet on BUD is a bullish bet on the U.S. economy. Sure, it's a global stock -- more than 200 brands of beers, and it holds the No. 1 or No. 2 market position in 19 countries. But it also holds more than 4% of the US market, and an improving US economy will boost BUD's sales.

Or maybe it's just all the miners crying in their beer, eh? 

There are other ways to play a rotation out of gold and the dollar and into stocks. This is just one of them. This is not an official recommendation; do your own due diligence, and do whatever is best for your own portfolio.

Other things I think look good right now are online jewelry seller Blue Nile (NILE) and October sugar.  NILE is a bet on falling gold prices -- all those sparkly gems are set in gold and silver, and as the price of precious metals fall, NILE's prices DO NOT go down, and its profit margins widen. I've made the case for brick-and-mortar jewelers in the past, and that worked out quite well.

(Updated chart)

Looking at a chart, you can see that NILE has traded in a range for months. However, it looks ready to test the top of that range, and potentially break out.  Meanwhile, the indicator on the bottom, NILE divided by the GLD, shows that as gold gets cheaper, NILE goes higher.  So if we expect gold weakness for at least the next few weeks, that could be a good time to be long NILE indeed.

Again, do your own due diligence. I'm not your investment advisor.

As for sugar, well, there are bunch of fundamentals on that one.  Not least of which is that India has had a great monsoon season, and the Indian government is putting its boot on the neck of gold sales, AND Indians are sugar-crazy (India is already the world's biggest sugar consumer).  If they can't buy gold, Indian farmers will probably indulge another way.  Just something to think about.

Meanwhile, on a per-capita basis, the U.S., Brazil, Argentina, Australia and Mexico consume more than double the world average of sugar.  So let's not go pointing fingers at people in India.

Could I show you more charts? Hell, yes. But I have a lot more work to do before I hit the road for Nevada.  So, take care and have a great weekend. My posting will probably be light next week, but I may have some video updates from the road as well. Stay tuned.