Pumping Iron

My Minyanville article this week, "Barbells Will Strengthen Your Portfolio", describes the barbell approach to the current stock market climate using large and mega cap issues on one side and emerging markets on the other:

"On the assumption that my bifurcated earnings season produces underperforming mid- and small-cap sectors (resulting in the long overdue stock market correction), one very attractive investment strategy to employ while waiting would be a barbell approach with large and mega cap on one side and emerging markets on the other. The Smids (small and mid cap) would be held to a minimum.

This strategy covers both the short and near-term bases and should enable..."

To read this week's Minyanville article, click here
To view all my Minayanville articles, click here

Beyond the Sound Bite: An Interview with Alec Young

In my second interview with the International Equity Strategist for Standard and Poors we discussed the S&P economic outlook, the rebound in global trade, the advised investment focus on global cyclical leadership, and risks of an economic double dip.

All Beyond the Sound Bite podcast interviews can be found at beyondthesoundbite.blogspot.com
To listen to this week's interview, click here

Not So Fast

Yesterday's dramatic intra day reversal followed by this morning's early up then down stock market action has led some to conclude that the big correction has finally arrived. To that I say, "Not so fast".

As noted in several blog postings last week along with my podcast interview with Phil Roth, fully synchronized markets without meaningful divergences rarely produce declines more than that which was experienced from September 23 to October 2* (with its 3 to 5% drop).

Investment Strategy Implications

As noted in my Minyanville article last week, earnings expectations remain high for all size categories of stocks for the remainder of this year into next. This is where I suggest the investment strategy focus should be placed. A bifurcated earnings season in which second tier (and lower) US centric companies fail to beat expectations should portend seriously negative economic outcomes in the coming year. Reminder: 2010 will be a highly political year. 10%+ unemployment with virtually no wage growth can evolve into a protectionist broth with a very bitter economic taste.

From a stock market perspective, this concern MUST be reflected in the price action of the stocks BEFORE the real economy fact. The actual manifestation of this should come in the form of a price divergence between large and small cap issues. To date, no such non confirmation divergence has occurred. Until such an occurrence, the odds of something more than an air pocket decline in stocks (as described above) are remote.

This is the essence of combining fundamental with technical analysis. Or, to paraphrase Orson Welles, "I will sell no stock before it's time."

*click image to enlarge

Minyanville article: Big and Small Companies: Divergences You Must Follow

This week's Minyanville article brings into sharp focus the points made on this blog and in the media these past week's re bifurcated earnings season and stock market divergences.

excerpt from article: "As investors move deeper into the thick of earnings season, the perspective as to its meaning for near-term stock-market action becomes of great value. What I'm referring to specifically is to watch for any divergence in earnings performance between big and smaller companies..."

To read this week's Minyanville article, click here
To view all Minayanville postings, click here

Beyond the Sound Bite: An Interview with Don Rissmiller

My third interview with the Chief Economist at Strategas Research Partners focused on my bifurcated earnings outcome, the US employment situation, the political dynamics of 2010, the dual exit strategies of monetary and fiscal policy, and the inevitability that the deficit bill will come due, among other topics.

All Beyond the Sound Bite podcast interviews can be found at beyondthesoundbite.blogspot.com
To listen to this week's interview, click here

Resetting the Market Top Call

You may recall that starting mid September the posts on this blog focused on a market pullback of the more moderate type (3 to 5%) followed by a run to new recovery highs. This was articulated again during my October 2nd appearance on CNBC at precisely the time when the S&P 500 was 5% off its intra day high of 1080. What followed was the expected run to new highs. What did not follow, however, was the probability that concerns over a bifurcated earnings season (big stocks meet or exceed consensus forecasts while the Smids on down do not) would produce a non confirmation high as big and mega cap make new recovery highs while the Smids on down do not, thereby generating a non confirmation and the increased prospects for a more substantial (as in 15 to 20%) decline.

As the accompanying charts* show, both the US size indices as well as various global indices all confirmed the new recovery high. Therefore, when it comes to making the (inevitable) market top call (melt ups notwithstanding) we are back to square one – a pullback (this time perhaps more than 5%) followed by another up move to new recovery highs with a keen eye toward the non confirmation vital to a major market top.

Investment Strategy Implications

Fully synchronized markets producing confirmation moves means the probabilities for a major market top at this time are quite low. This is one of the major points brought out in my podcast interview with Phil Roth last week.

So, while the bulls are sipping the sweet returns of a most liquid(ity) kind, as was the case in mid September a pullback of a more moderate flavor is all the bears are likely to taste.

*click images to enlarge.

V - TV on foxbusiness.com

My segment begins at the 4:30 mark.



Note: If the video isn't available immediately, try reloading the page. If that fails to work, visit beyondthesoundbite.blogspot.com

Beyond the Sound Bite: An Interview with Phil Roth, CMT

It's always good to check in with the Wall Street veteran and Chief Market Technical Analyst for Miller + Tabak, who stills sees an absence of public and traditional institutional investor participation in the equity markets, no trend divergences to signal a major market decline ahead, recognition that a 10% correction can materialize without warning, expectation that gold can double or triple from current levels, and a country, sector, and style outlook.

All Beyond the Sound Bite podcast interviews can be found at beyondthesoundbite.blogspot.com
To listen to this week's interview, click here

Minyanville article: Momentum Readings Suggest Top Is Coming

This week's Minyanville article re the odds of a stock market top due to bifurcated earnings season ahead is posted.

To read this week's Minyanville article, click here
To view all Minayanville postings, click here

Beyond the Sound Bite: An Interview with David Rosenberg

"Hope always seems to spring eternal in liquidity-driven financial markets. That is very much the case today in the aftermath of the biggest liquidity injection in modern history." So writes Stephen Roach, Chairman, Morgan Stanley Asia in today's FT. And liquidity is where my interview with David Rosenberg, Chief Economist and Strategist with Gluskin Sheff & Associates begins. We go on to discuss the state of the global consumer and new frugality, the continuing process of deleveraging, the probabilities of top line growth, and asset valuations, among other timely topics.

All Beyond the Sound Bite podcast interviews can be found at beyondthesoundbite.blogspot.com
To listen to this week's interview, click here

New Delhi TV tonight

Haven't had your fill of Vinny the short term bear, then tune in to New Delhi TV at 9:30 PM (eastern) tonight.

Two Technical Analysis Risks to this Rally

Last week’s Divergences on the Horizon posting gave the long and near term context for concern re the cyclical bull rally since March. This week I would like to zero in on the very short term price action in the form of two charts that I believe illustrate the key technical analysis areas to keep a close watch on.

The first chart* highlights the divergences point mentioned last week. Since the S&P 500 hit its intra day of 1080 on September 23rd, the five indices tracked (represented by the large cap S&P 500 (SPX), mega cap S&P 100 (OEF), mid cap S&P 400 (MDY), small cap S&P 600 (IJR), and micro cap (IWC)) have followed the proper correction rules as the higher risk sectors (MDY, IJR, and IWC) dropped more than the lower risk sectors (SPX and OEF). However, now that we are in the midst of a rebound rally (that must exceed its first rebound high of 1070 – more on this shortly), the higher risk sectors must follow the rally rules and outperform to the upside. As the first chart shows, the price action is showing signs that the second tier on down sectors are not doing what they’re supposed do – revert back to outperformance. Maybe they will. And that is precisely the point, and the tie in with earnings season.

Should we experience a bifurcated earnings season (see September 23rd blog posting "V Shaped Rally ≠ V Shaped Recovery"), the price action of the large versus mid and lower cap sectors should complement the real economy results. If so, a major divergence will occur as large caps make a new high BUT the Smids on down do not. Stay tuned.

The second chart illustrates a key point referenced in this week’s “Sectors and Styles Strategy Report”**, which deals with the potential of a failing rally. At present, all systems look like a go for a new high and the aforementioned potential divergences. However, a failing rally in the form of a lower high cannot be ruled out.

As the second chart* shows, the key price point in the S&P 500 is 1070 – the lower high reached last Tuesday. The risk here is for yet another lower high producing the bouncing ball down the stairs effect – lower highs followed by lower lows. This pattern, it should be noted, is usually not easy to identify until after the fact. To spot the failing rally during the fact requires a look at the power behind the move in the form of the index’s momentum and MACD, both of which are mediocre at best (for spacing purposes not shown but take my word for it, it is so).

Investment Strategy Implications

On September 24th I made the following short term forecast, “Three percent to 5% down right now, followed by unconfirmed new highs, followed by a 15% to 20% correction. Can’t get more specific than that. Now, let’s see what unfolds.”

Well, here we are. The first part of the forecast has delivered, now let’s see what follows.

*click images to enlarge
**subscription required. Click here for more information on the subscription services of Blue Marble Research.

Bloomberg radio today

Vinny the short term bear takes his views to Bloomberg radio's Taking Stock with Pimm Fox at 4:00 (ET) today, if you're so inclined.

CNBC Today

Vinny the short term bear returns to CNBC's "The Call" at 11:10 AM (eastern), if you're so inclined.

Note: Make sure you watch to the end as you will hear a new investment phrase.

Minyanville Article: Sustainability Should Top the Economy's To-Do List

This week's Minyanville article last week's posts along with yesterday's Beyond the Sound Bite interview with Subodh Kumar.

"I'm becoming increasingly convinced that the upcoming earnings season will produce bifurcated results with larger companies generating at or above consensus results while smaller, more US-centric companies come in at or below consensus readings..."

"With credit availability still constricted, deleveraging still underway, and consumer balance sheets still in repair, expecting a robust economic advance and a further equity marketrally to emerge out this soup of stress is a concoction only for the most optimistic and most hidebound to formulaic thinking (such as low inflation justifies above average P/Es)..."

To read this week's Minyanville article, click here
To view all Minayanville postings, click here