Sunday, August 24, 2014

A Top Is Very Likely In

SGS Market Timer Status:   NEUTRAL 
Neutral as of close of 8/1/2014

RTS Long Term Current and Past Portfolios
In Cash 

SPX set new all time highs on 7/3/2014, 7/24/2014 and 8/21/2014.  A more careful look at all 500 SPX components reveals that while the index itself was setting new all time highs, the number of its individual stock components setting new highs dramatically decreased:
  • On 7/3/2014, SPX printed 1985.59 while 92 out of 500 reached a new 52-week high
  • On 7/24/2014, SPX printed 1991.39 while 68 out of 500 reached a new 52-week high
  • On 8/21/2014, SPX printed 1994.76 while 47 out of 500 reached a new 52-week high 
The market has continued its rally on a narrow leadership.  It's hard to determine how long such a rally lasts, but its days are definitely numbered.


Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.
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Sunday, August 17, 2014

For Now Cash Is King

SGS Market Timer Status:   NEUTRAL 
Neutral as of close of 8/1/2014

RTS Long Term Current and Past Portfolios
In Cash 


Bull Case:  From its all time high, SPX corrected 4.3% (1991 to 1905) in the recent sell off.  As of high of last Friday, SPX has regained 3.1% of that 4.3% correction.  That's a 72% retracement which is higher than a typical bear market initial retracement (around 62%) and hence chances of SPX continuing its rally to another all time high and possibly beyond is good.

Bear Case:  From the low of recent sell off SPX has recovered 72% of its loss and NDX has recovered almost 100% of its loss while small caps represented by RUT has recovered only 36% of its loss.   Clearly a top is being formed as dumb money is piling  into large caps and momentum stocks.   Once dumb money is all in, Big Money will pull the rug from under dumb money's feet.

Times like this, it's best to stay in cash until Market makes up its mind.


Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.
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Sunday, August 10, 2014

Indices Look Terrible

SGS Market Timer Status:   NEUTRAL 
Neutral as of close of 8/1/2014
 
RTS Long Term Current and Past Portfolios
In Cash 
 
During the sell off last week, SPX was supported well by its 100 D-SMA.  Should that support fail and SPX closes below it, chances are good that SPX sells off quickly to test its PUL (thick black which was btw drawn incorrectly previously) and possibly its 200 D-SMA.

The Fed ending its debt buying is a game changer in my opinion.   In the past (since 1980) Fed tightening of interest rates caused a sell off in the short term (a few months), but indices recovered and went on to set new highs because the economy kept on growing at a healthy 3% to 4% rate. The sell off this time around could be deep because: 
  • SPX went up 199% since March 09 low (666 to 1991). It's quite probable and healthy for SPX to give up 10% to 20% of that gain before heading back up again.
  • What the Fed has done since March 2009 is unprecedented and historic. Although I  supported what they did (the alternative would have been "a collapse of world's economy"), but no one knows if our economy would continue to grow and accelerate that growth to 3% to 4% once the Fed is no longer stimulating by buying mortgage back debts. If we stop growing and enter into a recession or even grow at an anemic rate of 1% to 1.5%, then a 50% correction is very likely (i.e. Japan economy, Nikkei Index and Japanese real estate in 1990's).
  • In the last five years, SPX had two significant corrections (first one was in Summer of 2010, 17% correction, and the second one in Summer / Fall of 2011, 22% correction). Both corrections started when Fed's QE's (I and II) ended and both correction did not end until the Fed announced new QE programs.  The last QE plan  "QE Infinity" is ending in October and the Fed has no plan to any more rounds fo QE in the foreseeable future.  
From here forward, indices will react in a direct correlation to economic news. Growth rate, PPI, unemployment, initial claims data, auto sales, new homes, durable goods, Michigan consumer sentiment ... will push indices up and down.  If our economy does not start to grow at 3.5% to 4.5% rate with very little or no inflation, there is hell to pay (at least a 20% to 30% correction) in the short term no matter what.


Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.
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Sunday, August 3, 2014

SGS Market Timer Is Neutral .... Indices Are Oversold

SGS Market Timer Status:   NEUTRAL 
Neutral as of close of 8/1/2014
 
RTS Long Term Current and Past Portfolios
In Cash ... Updated for recent trades
 
As of close of Friday, SPX has corrected around 3.5% from its July 24 all time high. It closed below slightly below its Primary Uptrend Line (PUL, thick black).  At this point, SPX is oversold and chances of a rally this coming week is high, especially if it can rally to first back test PUL and then close above it. 

Big Money will try his best this coming week to rally SPX up in order to get the dumb money who has been sitting on sideline for a while to come in and buy the dip (BTFD).  Chances are good that SPX rallies to challenge its all time high and possibly 2000 within the next couple of weeks.


Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.
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