Tuesday, January 26, 2016

Markets Churning During Earnings Season; Apple Misses

Since the peak of the market's fear on January 20, exhibited by the near-30 level hit by the VXX, which I consider to be max fear or max pain, the market has climbed 5% off intraday lows. For the week, it is currently up 1.27%. The collapse did not get worse despite China's market tanking. Long term trend indicators and momentum are negative, so the only thing going for this market is the oversold condition which can give it some short term strength. Markets operate on a time/price basis: if it can't sell off within a certain amount of time, the next likely move tends to be higher. Markets certainly tend to do that during earnings season.

Apple's (AAPL) earnings disappointed as expected, but the bigger problem is that it missed even lowered expectations, and now, the point at which the market has become saturated may have finally arrived. As of next quarter, iPhone sales are expected to decline for the first time in over a decade. It looks like the market will have to wait for the iPhone 7 before this buzz-driven stock will have any reason to move higher.

Monday, January 18, 2016

Market Fear At Short Term Highs - A Buy Signal?

If you've been around the market long enough, you'll notice a trend: the short term bottoms tend to coincide with the financial pages and websites bringing on talking heads that tend to have a bearish perspective, and mentions of bear markets or market crashes being imminent tend to have a greater frequency.

To back up this observation, I decided to check out Google Trends. Notice how the following terms tend to coincide with short term bottoms in the market:

Search Term: BEAR MARKET


Peaks in these search terms came at the height of the market panic in August 2015, and before that, during the significant market drop of 2011 when the US lost its AAA credit rating, then before that, a very choppy and persistent fear-driven market during the 2008 financial crisis.

Today's search densities are at similarly elevated levels. Contrarians take note.

Sunday, January 17, 2016

It's Official: Small Caps Are In A Bear Market

A bear market is defined as a market that has lost at least 20%. As of Friday's close, the Small Cap index is down 20.9%. The high was $125.51 on June 23, 2015, and the close of $99.22 left the index in bear market territory:

Saturday, January 16, 2016

Stocks Open 2016 With Worst Losses In History

Risk metrics for the stock market deteriorated considerably in August 2015 as long term moving averages were violated, but snapped back for a furious rally that left a lot of traders and trend-followers whipsawed. But the problem with the S&P 500 was that its recovery and strong movement was largely driven by the FANG stocks (Facebook, Amazon.com, Netflix, Google), so what you had to do to get a clearer picture of market breadth and health was to look at the Equal Weighted S&P 500 index (symbol RSP). That would have made the picture more reliable and would not have subjected you to whipsaw back and forth around the buy/sell point around the moving averages.

In fact, it would have kept you on the sidelines and given you reason to think that the rally was an illusion and was for suckers. The snap back to earth when rallies fail can be breathtaking, and 2016 unfolded with a -9.15% loss for worldwide market indexes and a -7.88% loss for the S&P 500, for the worst start in stock market history.

The Warren Buffett Indicator shows that the market is still overvalued. The profit recession is on the horizon. US manufacturing is contracting.

The only thing holding up the stock market's hope for a rebound is the continued strength in US jobs growth. As of January 17, 2016, numbers were still healthy:

...and with VIX at elevated levels, there's a good chance a short term trading bottom is getting near. The only tricky part, as always, is guessing where the VIX will top out. Picking tops and bottoms is hard; it tends to go farther than people expect:

Friday, January 8, 2016

FINRA Penalizes Big Brokers For Overcharging For Mutual Funds

InvestmentNews reported that some of the biggest brokerages were caught overcharging their customers for mutual fund purchases. The guilty parties were fined for overcharging customers for charitable and retirement accounts. The companies and their fines:

Wells Fargo Advisors paid $15 million
Edward D. Jones & Co. paid $13.5 million
Raymond James Financial Services Inc. paid $8.7 million
LPL Financial paid $6.3 million
Stifel Nicolaus & Company Inc. paid $2.9 million
Janney Montgomery Scott paid $1.2 million

These problems may have been avoided had the industry been held to the Fiduciary Standard. Currently, they are held to the Suitability Standard, and there is a big fight taking place to prevent the higher standard of care of the Fiduciary Standard from taking place. RIAs, Registered Investment Advisers, are held to the Fiduciary Standard and have fewer conflicts of interest than run-of-the-mill brokerage houses.

Check out the rest of the violators and fines paid here.