Traders, get ready for a great November

Longer-term technicals show both the Nasdaq and Russell are breaking out.

By Stock Traders Daily Oct 25, 2013 10:27AM

Arrow Up (© Photodisc/SuperStock)By Thomas H. Kee Jr.

 

The FOMC may not taper anytime soon, but the market sure needs to. There may be a few more positive catalysts coming next week, but after that it may be all clear for a short-term pullback.

 

Our longer-term technicals show us that both the Nasdaq ($COMPX) and the Russell are breaking out beyond longer-term resistance levels, and although the S&P is only flirting with a breakout, that is enough for us to understand that literally anything can happen. This is not usually what investors want to hear, but the liquidity-driven market that we are in today ignores fundamentals. We know that will change soon, but if the FOMC continues to infuse capital into the system, asset prices will also most probably benefit.

 

With that said, this type of market environment can be great for traders. In fact, the next tier of our technical analysis, our midterm channels, suggests that very attractive trading conditions lie ahead for the remainder of 2013. This does not imply more upside, but it does suggest volatility, exactly what traders crave.

 

First, there are a few very important takeaways to understand. Margin levels have recently hit all time highs, and that means people are taking out loans to buy stocks. This is usually a contrarian indicator, and it usually is followed by overbought market conditions, but as of Friday, October 25, the market was not overbought according to our Sentiment Table. 

 

Also, and equally as contrarian sometimes, short interest by Hedge Funds was officially at a YTD high recently, and although that data is often delayed, and we never really know what is happening in real time based on this data, it is interesting that Hedge Funds have had a short bias while the general public has been leveraging their portfolios to buy more.

 

When combined, this information tells us the market is currently being bought by the little guy.  Clearly institutional investors who may have pulled out of the higher beta names like LinkedIn (LNKD), Groupon (GRPN), and Facebook (FB) recently have seemingly already flocked to Google (GOOG), but the little guy may not be done. 

 

In fact our technical analysis tells us that the market has a little higher to go before it experiences a 5 to 8 percent decline in November. With Apple (AAPL) slated to release earnings on Monday and the FOMC rate decision on Wednesday, there is probably just enough expected good news to keep the market from falling over the next few days, but if the trading patterns line up according to our current combined midterm analysis we expect the market to conduct its own tapering thereafter.

 

Accordingly, we would prepare to short aggressively soon (not immediately) using short based market ETFs, and then look to buy back sometime in November. Using short-based ETFs allows this to be done in IRAs too, and that should benefit retirement accounts as we go through the next month’s market cycle. If the pullback comes as expected there may be every reason to buy the market on the heels of the dip as well, again producing an exceptional opportunity for traders. 

 

Disclosure: Stock Traders Daily, Thomas Kee, and/or the investment portfolios managed by Thomas Kee may own any of the above ETFs at any time, and the same may be sold at any time, without notice, based on the corresponding market channels that exist.

 

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52Comments
Oct 25, 2013 12:31PM
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The Stock Pumpers must be getting ready to unload their shares.
Oct 25, 2013 12:45PM
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First they told us to get ready for the Sept swoon and then the Oct Crash, now they tell us to get ready for the Nov Boom? They were wrong concerning Sept and Oct, they will likely be wrong for NOV? However, with all the Funny Money floating around, no reason why it should not keep booming. Booming until it burst in Flames.
Oct 25, 2013 1:13PM
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So according to the article the market is "breaking out" on the upside for who knows how long, however get ready to aggressively short soon because it also might go down in the near future.  Then get ready to buy back in at some unspecified point in the future.

Thanks for an article that basically told me nothing. 

Oct 25, 2013 12:49PM
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The market is to volatile and the economy to predict what will happen, to many variables.
Oct 25, 2013 11:11AM
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that's really scary given our track record with grey and black swans in this market!
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Pretty the market is way way over priced and the Fed is keeping it that way.

 

sooner rather than later the whole house of cards is going to fall apart

Oct 25, 2013 12:20PM
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November? I don't think so...the cracks are becoming more evident everyday.
Oct 25, 2013 12:56PM
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Tags: $COMPX APPL FB GOOG GRPN LNKD

Just wanted to be sure everyone knows who the target audience is. This article isn't for intelligent people with commonsense... it's for brainless text pecker zombies who wouldn't know a decent investment scenario because they no longer think for themselves.
Oct 25, 2013 1:59PM
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The article stated the little guys are fully invested with a lot of institutional money on the sidelines.  That's a sure sign the market will be going down.  If it wasn't for the Fed pumping in the funny money, the market would be at 10,000-11,000.  As the article stated, nobody is looking at the fundamentals.  Almost half of the companies reporting show no growth or a decline in revenue, but an increase in profits.  The only way you can increase profits without increasing revenue is to cut expenses and/or use some accounting gimmick.  And, you see a lot of the big companies doing a lot of layoffs.  Without the Fed continuing to decrease the value of the dollar by pumping more of them into the market, the proverbial sh#* will hit the fan in the markets.
Oct 25, 2013 1:09PM
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Ever notice how when Obama is taking a beating the spin stories start on how good things are?

Oct 25, 2013 3:13PM
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Hey Old Geezer,  how do you suggest we solve our debt problem?  How about cutting social security, medicare and medicaid?  Will that get us where we want to be or will that turn us into a third world country?   How about raising taxes on the rich to where they were for GWB?  Not a good option?  Or how about dropping the income limits for social security which would solve that problem forever?  Oh no, you want to see the middle class take the blows and leave the rich alone.  How stupid is that?
Oct 25, 2013 2:46PM
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All the words they they used here doesn't reflect our world economy at all. Everything is crafted to the investor. PROFIT/BUY/SELL...
Oct 25, 2013 3:49PM
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Anyone who invests and doesn't set a target for when they will sell and go to cash is just asking to be scalped.
Oct 25, 2013 2:42PM
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Investor cannot buy and sell quickly like a couple year ago. In the old day stock can go up and down 500 points or more quickly, but after they have a strict penalty rule you don't see it go up down that much in a day anymore.

Oct 25, 2013 1:01PM
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I like all these people who are bearish.When everybody is fully invested,down is the only way

the market can go.Remember 2006 when everybody thought they were a real estate expert?

There`s trillions on the sidelines getting next to nothing in cash.Corporate profits are at record

levels.When that money goes into the stock market the market will skyrocket.

Oct 25, 2013 3:43PM
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....we all know the Santa rally phenomenon.....................

 

This Thursday could be the Halloween re-treat!! The ballon is ready to burst!!

Oct 25, 2013 3:36PM
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Don't be a pessimist and bet on a pullback, go long and be optimistic!  Optimists get laid more.  It's a proven, scientific fact.  You can't argue with science.
Oct 25, 2013 3:56PM
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Bittersweet:

 

I would like to see the portfolios of those who see nothing but doom and gloom in the future of the Market...

 

Will the Market fail, well of course it will, will the Market rebound and adjust and grow even higher,

well of course it will.. 

 

Did some of us miss out on the greatest boom in Market history .. 9/11 6,700 points today 15,400,

of course we did..

 

That my friend is "the cry of despair" we are hearing today.. It must fall so I can get back in..

 

 

 

 

 

Oct 25, 2013 2:42PM
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Oh, I thought they were talking about the weather....
Oct 25, 2013 3:03PM
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BigThank....There are many lucrative ways to trade stocks anymore...

 

You can be out on the Golf course or Fishing on the pond, while your stock trades.

I use limit orders on just about anything, unless it may be an IPO..

There are stop losses, and trailing orders that can buy and sell the stock for you also or vis a vis.

I don't use some of that stuff, because I'm a little more hands on, some days.

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