Traders, get ready for a great November
Longer-term technicals show both the Nasdaq and Russell are breaking out.
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.
More from Top Stocks
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.
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
Ever notice how when Obama is taking a beating the spin stories start on how good things are?
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.
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.
....we all know the Santa rally phenomenon.....................
This Thursday could be the Halloween re-treat!! The ballon is ready to burst!!
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..
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.
Copyright © 2014 Microsoft. All rights reserved.
The idea of US crude being a shelter from turmoil abroad may not be as far fetched as it seems.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.