Will Consumer Kill This Rally?

I have been worried about the health of U.S. consumer in the past month. I wonder around in different shopping centers on weekends, gathering my area's retail traffic, in order to predict the direction of the stock market. It does not look vibrant, to say the least. One may ask - why and how can a small town USA shopping center control the stock market? It can, because as a whole, America is a collage of densely populated shopping areas connected by the interstates. If you drive from one area to another you will find one retailer which is woven into the fabric of daily American life. The retailer I am talking about is Wal-Mart. This company can tell me about the state of the country. No, I am not exaggerating the power of lowest prices and their affect on consumers. Prices move inventory, period. Those who think that everything is fine with American consumer should take a quick look at WMT. I can't quite put my finger on what exactly is wrong at the moment, but the stock is telling me to be worried. So I am...

Here is something interesting that I saw when I plotted WMT over SPY and XRT. In September of 2012, WMT made a new high which was not confirmed by SPY and XRT. This time, in September of 2013, the picture is reversed.

Another interesting detail may be in the mix here. Last year, September FOMC meeting marked a dead high. Bernanke may be singing Britney Spears' song: "Oops!... I Did It Again". And yes, I can see that after some turbulence into mid-November, stock market resumed its march higher. Can we assume that everything is just fine, when WMT is making series of lower highs and lower lows? Only time will show...

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Still Confused?

Trading is a game of deception. Do not be fooled by these mini moves before a bigger leg down comes. Market likes to shake the players out at key reversal levels. One is coming up here. Be ready, be strong, be smart!

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Next Stop for S&P 500?

On my chart below I show a possible trip to 1600 for SPX. It is debatable by how much the Fed will taper at the September meeting. Based on weaker-than-expected jobs report today (especially the revisions), it may not taper at all. But I am not in a camp of no Septaper, and expect a small gesture from our central planners. Who is going to jump out of the window if the Fed cuts its monthly bond-buying by $10B? I say we should worry about the consumer here, and not the Fed.

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Are TSLA and TNX Ready to Dive?

You never know what you may find on comparison charts these days. This weird correlation just came up on my radar. TSLA and TNX are the least expected trading vehicles to be plotted on the same chart (at least by this blogger).

I think that high-fliers along with US 10-Yr Treasury Yield are going to take a dive soon. What will trigger the plunge? Here are my reasons:

• Lack of meaningful taper at the September FOMC meeting. I expect a small symbolic gesture from Fed (on the scale of $10B monthly bond-buying reduction) totally spooking and confusing stock market bulls.
• Syrian crisis. A quick military campaign is a dream, imho.
• Weak seasonal pattern. Middle of Sep to beginning of Oct is almost always a stock market turbulence trigger. 
• And some corporate earnings disappointments in a form of pre-announcements from discretionary sector, as consumers' exuberance is taken back by rising gas prices (as a result of the Middle-Eastern conflict), and by the lack of sustained recovery in the job market.

So why am I mentioning TSLA? For me, TSLA symbolizes a stock market pipe dream under current unlimited liquidity conditions. Good news gets better, shorts get killed, and nobody cares where the valuation is any more. It reminds me of AAPL at $700, when everything was priced in the stock. I see TSLA down at $130 before the end of the year. Yep, a bear market recharge (pun totally intended).

And in the case of TNX, it is up against a tough 3% barrier, which even if breached for a day or two, may end up being the high for 2013. I see it coming down to 2.5% and consolidating there before the next leg up starts.

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Does This Look Similar To You?

I wanted to share this E-Mini SPX futures chart with my readers. Note how similar the structures are. If this scenario continues to unfold, it looks as if there is going to be a little dance with prior highs next week, but then it may be followed by a steep decline. FOMC meeting may give the price the reason to double top. Perhaps the anticipation of QE4Ever and subsequent disappointment will make the chart look similar to the end of May, when the wheels came off the wagon.

I am so sorry to rain on bulls' parade, but I can't be bullish at this level, as SPX cash has already reached my 1680 year-end target. Anemic GDP growth, corporate revenue recession, and possible peak in operating margins are some of the reasons not to raise my year-end target. And of course, the biggest reason for my view on market's possible pause here - is the TaperTrade.

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Beginning Of The End?

Could today be the beginning of the end for stock market's ascent higher? Good earnings from AAPL did not help SPX penetrate 1700. I am not an AAPL fan, nor do I want to make too much emphasis on the stock. But I think that AAPL is heading higher. What is more surprising - I think that at the same time SPX is going to go lower. What??? Yes, this is my outlook: AAPL will outperform SPX for the rest of the year, and in the next month or so tremendously. I think that SPX will eventually catch a bottom around 10% or so below today's high, and will head higher as well.

While I do not really give a darn about AAPL, which now looks like it may have put in a double bottom, and may be trading in 505 - 555 area by the end of the year, I do want to zoom in on SPX and try to predict its possible targets on the downside. It is all going to depend on how the price reacts to the yellow lines on my chart below. Once they go, blue lines are going to act as magnets.

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Are You Ready For A Double Top? - Part II

So I am doing my usual weekend reading, and of course Detroit bankruptcy is dominating the headlines. I typed Detroit in the Google news search (on this a little later) and I did not believe my eyes: "Goldman Sachs is shuffling aluminum between their storage warehouses in Detroit". Can you say double top? Here is my simple and quick explanation. 

Financials are going to be under pressure on this development. It is going to be a stinker. Let's bring back those "fat cats" and cut their tails off. Don't mess with the man's soda can! Commodity sector will take a beating on this as well.

And as promised above, Google missed its Q2 earnings by a mile. Anyone who thinks this one gets forgotten quickly is simply dreaming. Their main business metric - cost per click - was atrocious. And on the same day MSFT reminded us what a dinosaur it really is, missing its earnings. Tech took a serious beating on Fri, including IBM, which supposedly did really well on its earnings just a day before, gave all of the gains back - not good.

So here you have it - two largest weighted sectors of S&P 500 are going to be under pressure. I do not see how this can be brushed aside by the "energizer bunny" stock market this time. I say we have a little double top with 10% correction here. 

I will add charts (of all discussed subjects) to this post later today. Time to hit the beach...

Here they are...

 

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Are You Ready For A Double Top?

Picking tops has not been a kind proposal this year. This time it may be no different. Price may once again go through the prior high like hot knife through butter. But what if it won't? Will you be ready?

So what to do now? If you are long, you may not need to do anything at all, just trail your stops. But if you are looking to get (conservatively) short, patience will definitely be needed, as the price will have to reverse and slice through some supports first. Aggressive shorts will be establishing between here and 1687 on SPX (without waiting for the reversal). Targets are aplenty below, all the way down to -15% from current level.

This may sound like a pipe dream, but volatility may come out of nowhere and increase exponentially in usually slow and illiquid end of summer. My favorite scenario is a double top here with steep downside through the beginning of September, followed by steady rally into the end of the year. Nobody is talking about a possible double top here, hence no one is ready for it.

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Follow Dollar/Yen

As goes USD/JPY so may SPX. From the bottom in November of 2012 the two have been in lockstep. But now that Helicopter Ben decided to burn the dollars again, he may throw some carry trades under the bus, SPX included. Fed Chairman may be surprised at the eventual outcome of his dovish stance (earlier today). The market is celebrating QE4Ever tonight. But after the dust settles, market participants may finally concentrate their attention on the main reason for Chairman's dovishness - his fear that rapidly rising interest rates will choke the slow economic growth.

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SPX - Keep It Simple, Stupid

I started writing a macro note on what this morning's negative GDP revision means for stocks. But I stopped, as I had to examine my head more than once while typing it. So I said, screw this nonsense and stick with charts.

S&P 500 is nearing an important pivotal moment. If 20 dsma crosses below 50 dsma, there is a very strong possibility of price heading down to 200 dsma.

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