Tuesday, May 9, 2017
SPXA150R S&P 500 Stocks Above 150-Day MA and SPX S&P 500 Weekly Charts
The SPXA150R is one of Keystone's favorite indicators. When it moves above 85 and 90, you can bet the farm on the short side. When the price drops below 20%, you can typically bet the farm on the long side. After over eight years of central banker intervention goosing markets higher, the SPXA150R obviously remains at elevated levels currently at 72.60.
When stocks bottomed during the financial crisis, note how the SPX price made a new low in early 2009, as Federal Reserve Chairman Bernanke contemplated a quantitative easing policy that would prevent stocks from dropping further (spitting in the face of capitalism and free markets), the SPXA150R made a higher low. This divergence identified the bottom in the stock market in 2009 and the central banker money printing, now on a global basis, continues pumping equities higher over eight years later. The central bankers are the market.
For this year, the SPX makes a higher high in price as the SPXA150R makes a lower high. Is this divergence identifying the multi-year top? (it is likely very near over the coming weeks and months)
If you are a retail investor new to stock trading and are patting yourself on the back at your great gains on the long side, in fact, you are thinking that you may be one of the best investors of all time, you had better get a reality check. These are not your grandfather's markets. The likely smartest approach going forward is to cash out of all your longs and simply remain in cash through the summer. Enjoy the nice weather. Take a trip to the beach. Look at things again in the late summer and Fall. Going forward it is likely more prudent to steadily and slowly bring on shorts against the indexes.
Pundits will cite great data and a calming geopolitical scene as reasons to buy the long side. Of course these money managers and analysts are pumping and hyping stocks because they are distributing shares to the retail sucka's now showing up to buy (pump and dump). In reality, the economic data remains soft and wage inflation is not occurring thus overall inflation will not occur shooting the Fed's plans for ongoing rate hikes in the foot. Most importantly, a recession will hit at anytime and you will see the economy and markets drastically deteriorate in a matter of weeks and a few months once it begins.
The stock repurchase programs are a virus that has entered markets. The buybacks take advantage of the Fed's easy money, and company cash reserves, to buy back stock (which is not the best idea with prices at record highs). This behavior has artificially boosted stock prices by at least +30% and more. The PE ratio, generally around 18 and 19 for the broad stock market is deceivingly low because of the buybacks. If none of the buybacks had occurred over the last few years, the PE ratio would be well beyond 20 (small caps have been above 20 for the last three years).
Looked at another way, the earnings at, say 130/share right now would be at least -30% lower or more. A 130 earnings and 18.5 PE gets you SPX 2400 right where we are at with the broad stock market. Earnings are only boosted because shares are disappearing from the buybacks. If the buybacks never occurred, earnings may be around 90 or 100 which would equate to 1765-1850 on the SPX. This will get everyone's attention when it likely occurs at some point over the next couple years. When everyone looks back a couple or more years from now, they will say how could we miss the impact of massive stock repurchase programs that went on for years?
The 18-year secular cycle has been mentioned often by Keystone. This is a very reliable stock cycle. The stock market is in the secular bear cycle from 2000 to 2018 so the last couple years or so should play out negatively for stocks considering the recent years of upside joy. It is very common, actually expected, to see dramatic and strong countertrend cyclical rallies inside the secular bear such as 2003 to 2007 and 2009 to present. Also, remember, the markets are artificially goosed for the last eight years by the central bankers.
A secular bull 18-year cycle will run from 2018 through 2036 which makes sense since inflation and hyperinflation in the coming years will drive stock prices strongly higher, such as Dow 30K and SPX at 4 or 5K years down the road, however, the US dollar will be toilet paper so the gains will not equate to much purchasing power for the average citizen in the 2020's. This will be a new set of problems for a future day. Even though stocks will be strongly higher in the 2020's, it will not be much fun paying 10 bucks per gallon for gasoline, or 6 dollars for a loaf of bread or 10 dollars for a gallon of milk.
Back to the present, due to the obscene central banker Keynesian intervention for many years, the current 2000-2018 secular bear cycle may become right-translated and extend to 2019 even 2020. Time will tell. Those expecting inflation, the vast majority on Wall Street, will be disappointed as disinflation and deflation likely remains on the table for another one to perhaps four years. Watch your wallet. 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.