PKW Buyback ETF Monthly Chart; Negative Divergence; Overbot; Upper Band Violation

Buybacks are the mother's milk of higher stock prices creating a never-ending rosy scenario for bullish traders. Central banker easy money provides plenty of cash for companies to implement huge share repurchase programs. The intent of the Federal Reserve's and other central banker's monetary policies is to provide easy terms so companies will buy capital equipment and hire workers to create a recovery. Screw this.

For the last few years, the greedy wealthy, investment banks and privileged class instead use the central banker money to fund buyback programs. The repurchase programs pop stock prices higher providing pocket fulls of money for those that hold large stock portfolios. The rich take care of their own. Every day of life is easy and great if you are wealthy and own a lot of stocks.

PKW is a buyback ETF. Obviously, it runs insanely higher over the last few years as buybacks are all the rage. However, the monthly chart is topping out. The daily and weekly charts are negatively diverged and want to see a retreat in price in the near term. The monthly chart displays universal negative divergence over the last 3 and 4 years (red lines). The bulls are trying to create a sliver more of strength (short green lines) which would be another month or two but the overall longer term neggie d should take command and roll PKW over to the downside.

The stochastics and  RSI are overbot open to a move lower. Price has violated the upper band so the middle band at 47.73 is on the table. It appears that the buyback game is coming to a conclusion. The obscene buybacks drove stock prices to their record highs last week. What happens when the buyback joy is over?

When everyone looks back a year or two from now, they will ask how could we not see it all coming (a drastic selloff in the stock market)? In the 2007-2009 financial crisis, subprime lending was clearly the culprit as well as the nefarious activity by the banksters. The thing that everyone is missing now is that the PE's are actually a lot higher than reported if adjusting for the impact of buybacks.

The buybacks have pumped most stocks at least +30% higher in price than they would have been without the buyback programs. This shorter term joy always occurs but it leads to longer term disappointment. The buyback eliminates stock shares so the earnings per share automatically moves higher. Isn't financial engineering great? Thus, if the PE is say, 18.5 now with earnings at 130 that yields the SPX at 2400. But taking away the buybacks, earnings would be more likely down at 90 to 110 (or adjust PE higher) which is an SPX at 1700-2100.

The 8-1/2 year central banker Keynesian experiment continues. The Fed has not been able to create inflation all these years despite their radical money-printing. Deflation likely wants to take a chunk of flesh out of markets since it was cheated from properly clearing markets back in 2009. A huge fuel supply for higher stock prices is buybacks but the buyback train is sputtering and likely running out of gas. 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.

Note Added Sunday, 7/3/17: The banks release stress test results last week and all pass to no surprise. The Federal Reserve loosens restrictions on the banks due to the passing grades. The banks announce dividend hikes and big buybacks. Financials rally. This is how the Wall Street game is played. PKW ends the week at 53.67.