Friday, June 01, 2007

Back To Stock Indices


Dear Readers, You know, by now that when we get a high Sell Pressure readings we get into the countdown. We are now into the second day of such countdown. Frankly, more of these countdown days better we like. Before the big drop in March this countdown has lasted to 5-6 days. That is important, cause what we have here is the principle of distribution. More days the stock stays sideways/littleup after the sell signal better the chances of distribution. More suckers have loaded up on stocks. That is why we like those kind of situations. So, relax and watch the gages, let's hope that we get 2-3 more days of distribution.

Has anybody noticed 5% 10Year Notes? Thanks

To Dear Sqroot's comments. I think he means and I agree that hitting actual higher number on SPX than the high of 2000 will be a very big psychological point. It will convince everybody and their mother about new bull market beginning now. If/When market turns down after that and closes weekly lower than week before I believe that will be a historical moment, meaning of which will only be known to the suckers "at large" years after...

Good Trading

23 comments:

Sqroot said...

re: 5% ten-year.
Yep, I noticed Boris and going short because of it. That should cool the market, maybe just for a while though. I still think we hit your 1550 before we are done. Good Luck!

boris said...

Dear Sqroot, we have practically hit this level, but I think I know what you mean.
Good Trading.

Sqroot said...

Oh, I wanted to get your opinion of the sideways market. Wouldn't that relieve the over-bought condition w/o actually going down, thus producing a new buy signal?

boris said...

Dear Sqroot, You are correct, that could happen. What we are talking about though is that "it is the same" sideways churning that is a necessary, but not not entirely sufficient prerequisite for market to go down big... Look at the Gage Graph. You will see that every decline of significance comes after the sideways ( slight up ) market. But in the bull market, the phenomenon you observe is "a must". That is how markets move up. And notice that Markets spend far more time going up then down. Remember that?

Good Trading

Sqroot said...

Well said Boris!

R K said...

As it relates to 'SUCKERS'

Since '04 the market has had ZERO turns down or any significance while 15 day ISEE readings were below 200. currently, the 15 day ISEE reading is 132 or 51% from an area that warrants CAUTION. Historically, it has taken a minimum of 2 months of SUCKERS to start loading the boat with CALLS before this pristine indicator has gone on sell signal. Just the FACTS.

R K said...

As it relates to SUCKERS...

My previous post should say since '02....thats 5 years of data that suggest SUCKERS are not and have not been buying this rally. Even if they start buying now, given their track record of LOADING up, it would take another 2 months of lodaing before 'daboyz' would have unloaded to them.

boris said...

Dear R K. there are many sentiment indicators. Thanks for informing us about the ISEE situation. We are not blind to this information. It is clear that there are a lot of people shorting this market and that is one of the reasons it is not going down. Our tools Pressure Gage is, in a short term, a swing trading tool and an a long term it can indicate the intermediate turns. We happen to think that the Gages have factored in all the info necessary for us to consider. Outside info may color our thinkin, but they have limited use to us. Now, pure swing trader would just go with the trend. After all the trend is your friend and it is up. The only problem with that thinking is that Relly Big One will be missed. And Really Big Ones come exactly out of nowhere and I personally think one is coming sooner rathar than later. So, we try to short the market ( being able to do that without punishment encourages that in us) and we/i view this a lot more fun, cause the profits on the downside, when they come, are swift and sweet. Trader needs to live by something and that something for us is 1) FUN 2) DO-NOT-LOSE 3) Use minimum info, cause more you use more you get confused...
That does not mean we do not love to be informed with kind of info you just provided Dear R.K. We appreciate and lover you comments.
Good Trading

boris said...

Dear R K.
A bit about Suckers. I have stated this before. American public got wiser, after being screwed... 1) in the stocks market and 2) in the housing market. They have lost faith in the system. Nevetheless, a lot of their money is in the market, cause it is managed for them. Now tell me are not the suchers the ones ( pension fuds , enauments etc ) who put the money in Private Capital peoples funds? Do you really think all these will be able to unload their comapnies onto the public that does not want it now and will not want it later? So, what is goin on is that the "suckers" have been found in places where they did not yet taste how bad the "sucking" can be. This means Brazil/China/Russia/India/Israel ... you can continue the list. When these "suckers" have learned how bad stock market can treat them the end will be at hand. And that may not too far. So, as a result of the above I consider USA market in better shape ( less speculative ) indeed. But when the bubble bursts we will all lose.
GOod to have this exchange Dear R K

R K said...

Boris.....you are the best at exchanges.

I agree that sooner or later the house will fall, the million dollar question is when and at what price level. From an interst rate cycle perspective, we saw unprecedented money pushed into markets over last 6 years (ever seince 9/11), but even before that we have larger cycle which tells of this FINAL push being one of unpredented preportions, afterwhich, a very very very long bear is upon us.....i mean a bear unequaled, even greater than the great depression. BUT, a timing model calls for that not to occur until very late this year.....perhaps from SPX 1800 level.

boris said...

Dear R K. we have a model too. But this model is not stuck in time. Really. It is more based on the idea that the market has been going up on a lot of $, as you correctly noted. So, in our articles "it is the Dollar Stupid" we have a model that shows what price of the SPX should be for the retarce of 2000 to 2002 decline to reach 62% FIb. The matrix is there in the "it is the Dollar Stupid 1,2" and you can see that it allows for all kind of prices, including 1800. As to the time. We think any time is good for tradable top, and the absolute top maybe any of them.
Good Trading

John said...

S&P just released an estimate of 500 earnings for the balance of this year and a first cut at 2008.

I would strongly suggest that anyone who is short to be very cautious. This year the S&P is expected to earn about $94.11 on a "bottom up basis" for a 7.3% growth rate and a p/e of 16.13.

In 2008, it is expected to earn 105.80, a p/e of 14.35 and growth of 12.40%.

Putting these numbers in my "model", the 500 "fair value" today is 2,300...and based on earnings for next year, "fair value" would be about 2,800.

I will try to spend some time this week end on this stuff. It gets quite complicated and sometimes far beyond my ability.

On more observation...buy the Q's...tech is projected to be big for the next 18 months...and the consumer is expected to come back in full force.

It sure appears that the economy is really starting to ramp up. If that's the case, what happened in China could be visiting here this summer. Imagine going from 1,500 to 2,500 over the next 6 months!!

Good Luck

John B

boris said...

Dear John, Appreciate the information. Do you have the similar information fo ryears 2000-2001 from S&P?
I would be very interested.
Good Trading

John said...

I have the earnings on the S&P and the 10 year treasury. What I do is calculate what yield is required to discount the future earnings on the S&P to its current price. My inputs are today's price, estimated growth rates for the next 3 to five years and the current 10 yr yield. After 3 to 5 years, I assume a declining growth rate to a steady state of about 8%.

Then I compare the discount rate with the yield of the 10 year and determine a spread or as bond traders call it, a "yield pick up".

In the period 200 to 2001, the yield pick up was 2.79%. The average pick up since 1987 is 4.92%. Currently, with the earnings estimates released yesterday, the pick up from the 10 year into the S&P is 8.42%, the widest it has been since 1987.

The narrowest the pick up was March 2002 at .40%.

This tool is not very useful for market timing but instead tells you when the wind in to your back. Right now, that wind appears to be a gale. However, this model would have gotten you out of the market on 12/31/99 and back in on 3/31/03.

John

John said...

Sorry for mistype...meant 2000

boris said...

Dear JOhn, would you kindely present this in a tabular and/or graph form. If you can not do it. You can email me the data and I will present in graph and/or tabular form. Thanks for the info. As always we appreciate the contribution. Good Trading

John said...

Boris,

I tried posting a chart but this comment section does not allow it.

Give me an email and I'll send it in chart and tabular.

John

boris said...

Dear John, My email is in the profile section "bchikvash@aol.com" Thanks and Good Trading.

boris said...

Ok Dear John, Thanks for your info. I received and posted here. Dear Readers, please observe and get any comments you can generate. To me personally, this does not speak much, because the Interest Rates are heavily manipulated and so is inflation. Which at the end of the day means that the quality of $&P earnings are suspect too much. But this is another view of where we are in the market And I welcome any other views that maybe in direct contradition to my thinking.
Good Trading

Austin said...

The Fed Model is worthless. If the market goes to 2500 in the next year, we are witnessing the end of the world. Because that means the dollar will have fallen by at least 50%.

I can cite time and again where the Fed model has failed equity markets over the last two hundred years. But, since no one ever goes back to do a historical analysis beyond the greatest bubble building process in history, (1982-2000) all of the gullable types use the Fed model. There is zero ability to build a trading model or investment model around the Fed Model without curve fitting. Sorry.

John said...

Austin,

I agree the FED model is worthless. That's why I gave up using it as any input over 10 years ago.

The graph shown is not the FED model, nor does it use any contrived interest rate assumptions or earnings projections. What I am attempting to show is a comparison of when the greatest return or yield is, stocks or bonds.

This is not a timing tool nor a forecast. What it shows is at this time, stocks are favored over bonds for a person hoping to maximize return. What is interesting is the model did show that bonds were favored over stocks in 2000 and stayed that way until March 2003.

John

boris said...

Dear Austin/John, I appreciated the comment and response from you guys. Considering what John said, I have no problem with this graph's "statement" that Stocks are favored over bonds. I am also with Austin, cause this statment "stocks are favored over bonds" is failing exactly in kind of economic situations which we are/entering now. Highly inflationary ( even if hidden by Gov Statistics). At these times it is more important to talk about other assets, such as GOLD , which will be waking up again within next 4-6 weeks. My projections to say away from it into Jun/Jul though, was exactly precious.
Good Trading

Austin said...

effectively, it is the fed model.