Friday, March 7, 2014

PKW Buyback ETF Weekly Chart Overbot Negative Divergence Tight Bands to Squeeze Out Strong Move

In a healthy bull market, "stocks climb a wall of worry." That has not been the case for this record long 5-year stock market rally. Instead markets continue running higher "on a wall of Fed." And more specifically, "a wall of buybacks." Buybacks paint a rosy picture. Many companies are flush with cash and operating lean and mean, whipping employees daily to do more with less. Instead of hiring workers or investing in equipment, the cash is used to fund stock repurchase programs (buybacks). This action pumps the stock price higher. Even more obscene, is that other companies do not want left behind, so they take the Fed's easy money and fund buybacks of their own so they can pump their stock price higher. Again, the Fed's easy money is not used to hire workers, expand and invest in capital equipment. Instead, the low rates provide easy money that can be used to fund the repurchase programs and allow the wealthy (that own stocks) to become wealthier.

The shame about the Fed's, Congress and president's easy money Keynesian policies is that they do nothing to help the structural employment while they increase the country's debt, creating inflation and hyperinflation in the years forward, while also making the rich rich. And the wealthy bankers were instrumental in creating the financial crisis that started the whole mess in 2008 and they benefit the most. Only about one-half of the country own stocks so most folks do not benefit from the Fed's actions. The rich bankers are protected, however, since they lead to lucrative paydays for the people involved. Ex Chairman Bernanke just collected $250K for a 40-minute speech; that ought to pay a few bills. The banksters take care of their own and Bernanke will be rewarded for his service to make the wealthy wealthier.

Buybacks and the BOJ weakening the yen were the two key reasons stocks catapulted 30% higher last year. Earnings overall increased about 5% or 6% but the stock market increased 30%; there is a disconnect. It is easy to see that buybacks were the reason. The number of companies that announced buybacks hit record levels last year. Simply note the increase in the PKW in 2013 from 29 to 43, +50%, outperforming the broad market. The buybacks pumped stock prices from +10% to +40% higher. This is why the PE for the broad indexes remains at the 15-17 area. If the buybacks did not occur, the PE would be in the 20's verifying the overvalued markets. (The RUT small caps PE has been in the 20's for many months.) So the extent of further buybacks in 2014 holds the answer as to how much upside the stock market has remaining. The buybacks seemed to start fizzling out but came back with a vengeance over the last month which created more euphoria in the stock market. PKW jumped from sub 40 to 44 in the latest rally, over +8% off the bottom.

To no surprise, the chart technicals are the same as the DVY chart posted this morning. If viewing this chart at a later time, type 'DVY' in the search box at the right to bring up that chart. Price is topping and should receive another negative divergence spank down. It would not be surprising for price to return to the highs again after a pull back if the 20 MA support holds. The projection is for sideways to sideways lower for the weeks and months ahead so the anticipation is that everyone that wanted to, or could, announce a buyback, has pretty much done so over the last year. Once the buyback heroin disappears, the junkie goes into shock. The tight bands will squeeze out a strong move going forward. The presumption is down. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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