Market Outlook: All Clear? Not So Fast

Last time i wrote about market outlook, I felt gloomy. A pity I didn't act on my feelings. A lot has changed in three weeks.

Fundamentals. Still suck. Inflation is inching lower, and if anybody thinks that 1.7% (official number) or 1.5% (market anticipation based on difference between 10-year treasuries and 10-year TIPS) is good, well, they probably don't need a job. Of course, mumbling Fed didn't help things, it helped somebody to orchestrate huge bear raid on all fixed income. I didn't believe that those somebodies wanted to break the Fed. But two comments persuaded me in the opposite: Rick Santelli said last week, as an off-cuff comment, that bear raid on Treasuries looks stupid, unless Fed is broken, like Bank of England in 1992. Another comment by Richard Fisher (head of Dallas Federal Reserve) was: "You can't break the Fed". Which just tells me that somebody wanted exactly that. I don't know if such bear raid is illegal (it would be on a stock market), but the size of it is scary. And, of course, I'd like to know the conductor.

In other fundamental news: 2013 1Q GDP revised down, a lot, to under 2%. That's huge. Market took it as a good news, counting on Fed not to end QE any time soon. Well, I have no doubt in QE forever, or at least for the next 10 years, which is the same in investment outlook.

Technicals. Not good. The only good technical signal comes from VIX index: it railed to make a new high on Monday, when indices made a new low. But so far S&P failed to get over 50-day moving average. And yesterday 13-day MA crossed below 50-day. In the last 5 years, every time such cross happened, bear market (or correction, whatever you call it) continued until 13-day MA started rising. During this rally, which started in January, S&P ran over 50-day MA all the time, every attempt to cross it was a buying opportunity. Now 50-day MA is a resistance instead of support. History tells us that we have at least couple of weeks more of jitters before (if) bull market starts over again.

Sentiment. Good. I mean gloomy. But being a contrarian indicator, it's good.

If my feelings are right, we have several stormy weeks ahead. Watch Treasuries and 50-day MA on S&P.

The Street Gold Event: Shame On Cramer

I want to repeat again: I really like Jim Cramer. He made me a lot of money and I hope for more. But sometimes he falls in love with a stock, or a person, or an asset class and his view is clouded.

Great example: yesterday I watched webcast on thestreet.com. The headline was: "Gold: Dead Cat Or Raging Bull". I was hoping for in-depth analysis of gold as an investment. Boy, was I wrong!

It was not a discussion. There was a bunch of gold bugs on this show, Cramer is the least shameless of them. Each one pimped gold as the only way to avoid hyperinflation which is supposedly created by Central Banks of the world. There was not one skeptic on this show, never mind outright gold bear.

Their arguments and my response:

A. Central Banks are printing money and it will cause hyperinflation

R. Inflation expectations are discounted by market at 1.5% for the next 10 years. In other words, Central Banks are not printing (and what's more important, are not going to print) enough money for normal 2% inflation.

A. World is going to catastrophe, gold is the only asset in such case.

R. If so, food, arable land, weapons and ammo are much better investments

A. Central Banks are manipulating markets and one day it will end with everybody buying gold.

R. Never fight the Fed. Everybody who did ended miserably.

To Jim Cramer: discussion means collision of different points of view. When you have only one point of view on your show, it's not a discussion.

Gold is down again, now below $1230.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

How Many Idiots Are Happy Now?

I've heard a lot of cries about low interest rates. The main theme was that people don't earn enough on their fixed income. Well, interest rates are up. A lot (0.9% on 10 years threasuries in 3 months - that's a lot). Of course, fixed income principal is down, a lot. So much, that you need several years of income (even at higher rates) to make it even.

So, fixed income idiots, are you happy now?

Buying Cosmetics

I opened position in L'oreal (LRLCY.PK) today. Two reasons: I wanted into cosmetics and I wanted into Europe. L'oreal is one of the best (some think the best) cosmetics company in the world, and it doesn't have much pharma exposure, unlike many other cosmetics. Today's panic looked like a good time to start a position. As usual, I might be wrong...

Disclosure: I am long LRLCY.PK.

Additional disclosure: Positions can change any time

Oil: Pattern Changed

Oil (both WTI and Brent) had a set pattern last couple of weeks. Was going down overnight and then up after US markets open. Today pattern was reversed: oil up overnight and going down since 10 AM EST.

I traded this pattern several time. Today it was a loss. Well, let's wait for another pattern to emerge.

Possible tools to play if you don't have futures account (I qualify but prefer to trade on the safer side with ETFs):

USO (long WTI ETF)

DTO (double short ETN)

SCO (double short ETF).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DTO over the next 72 hours.

Additional disclosure: Positions can change any time.

Changing Trends, Continued

New trends are settled. I wrote in March that:

Reverse dependency between dollar and asset classes is broken.

Commodities are flat or down.

Stocks are up.

Bonds are up.

The only change since is in bonds: they are down hard. 10 years Treasury yield is well above 2%, again. Don't know if this new trend continues, don't see any reasons for it.

What can we deduce from these trends?

Power definitely shifted to equity. In more broad terms, power shifted to more risk for more return. This is a good trend. Now, I would be glad if that happens, because in the long term, stock market is on the way to the new long-cyclical bull market (average 35 years cycle). The only thing which bothers me, bullish stock market is only supported by valuation expansion, not by fundamentals. Oh well, whatever works. Can't complain when most of my money is in stocks.

Another trend of last couple of months: Europe stock markets are up, a lot. If Europe repeats US path, that means that in about 4 months we are going to see end of recession there. Not sure if it's true, but if it is, great. I'm looking for good investments in Europe. That's beside my position in Banco Santander (SAN), which is OK, but doesn't shine.

Another change from beginning of year: we are back to ETF market. In the beginning of year, it was mostly funds market. It was quite obvious when big funds were buying huge amounts of stocks. Now we see that most of buying starts with big ETF buys. And it's all markets, equities is just one of them. Same picture is obvious in commodities and bonds. Maybe it's because markets are thinner and more trades are done by tradebots? No idea, your guess is as good as mine.

Commodities are still going down. All of them. Something still keeps oil above the water. Gold kinda stabilized around 1400. Everything else is down. Agros, metals, natural gas (after runup in January-March). For me, it means that most traders came to their senses and don't believe in big inflation ahead (never mind hyperinflation).

Every trend above is great for stocks. I'd like to see fundamental support for the stock market, but I'm taking every buck market gives me. With gratitude. The only problem here: you can't expand valuations indefinitely. Economic growth should support stock market, or we are up for another crash.

Disclosure: I am long SAN.

Additional disclosure: Positions can change any time.

Playing Oil

Shorted oil yesterday, by buying PowerShares DB Crude Oil Double Short ETN (DTO). CLosed this position today in the morning, when oil was down. I have a temptation to short again, when WTI is above 95, but don't want to hold such volatile trading position over the weekend.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DTO over the next 72 hours.

Additional disclosure: Positions can change any time. I can use different tools than DTO for the same purpose.

Stock Market: Correction Or Bust?

Current status of the market:

Fundamentals: suck big time. GDP growth is anemic, unemployment is still high, latent unemployment is growing, corporate profits are growing slowly or not growing at all. Inflation close to be non-existent (that's not a good sign). The rally which started since New Year raised valuations, which might be a good or a bad sign, depending on how you look at it. I don't know.

Technicals: Still good. S&P holds 50-day MA. Actually, if you believe that rally is going to continue, now is a great time to buy, buy, buy.

Sentiment: It's a toss. It was way too bullish just a week ago. Not so much now. Cramer is in doubt. Many traders are in doubt. Some changed bullish stand to bearish.

Total is mostly bearish. Fundamentals are most important for me and I don't see any improvement so far. Current slump might be a sign of a change or just a correction. The bight spot is in technology right now, which is just fine with me. I don't see a reason to make big movements. My fixed income moved mostly to munies, effective yields are higher there. Got some beating in fixed income, I don't think it's deserved.

One bright spot is Europe. I am looking at good investments there.