Tactical Over Passive, Until This Happens

The above chart is a chart that gets thrown around a lot by the perma-bears and fear mongers, to let people know that the market has gone up too much, and it's due for another 50% decline.  As you can see, the chart has been publicised countless times---when the SP500 was up 95%, 125%, 150%, etc...

Bull markets can last longer than people can stay rational.  But something is about to happen that will put the wind behind the perma-bears backs.  The simplest and most general definition of whether or not we are in a bull or bear market is if we are trading above the 10 and 20 month moving averages. Bull if we are above, Bear if we are below.  Many money managers tend to get defensive ( tactical) when the market is below those averages.  By looking at the chart below it is easy to see why.  Bad things tend to happen when we are below those monthly averages.

Unless the SP500 rallies 8% tomorrow, we are going to close below the 10 and 20-month moving averages.  What that means to me, is that tactical investing makes more sense than passive investing until we get back above those averages.

Staying tactical when we are below the 10-month moving average has bode well over time.  Meb Faber has done extensive work on this subject, below are some of his charts that prove that timing the market base on the 10-month moving average has paid-off.

Tactical doesn't mean you sell everything and go to cash, or go 100% short because we are trading below these moving averages.  It means, be ready for things that happen in bear markets; rallies get faded, panic will be bought, you will get many fake head starts, bear traps will lead to huge 1-day rallies, despair will come into play, you can easily chop your account to pieces during this time, experience day-traders will do well, mom and pop will have 2008 flashbacks, Robo investors will second guess their strategy, etc.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Facebook Crushes Earnings

Facebook just hit the ball out of the park again.  The stock is up 14% due to its earnings announcement last night.  Revenues rose 52% year-over-year to $5.84 billion dollars, and earnings per share grew 46% year-over-year to .79 cents per share.  The 14% spike in the stock completely erases its 2016 losses and puts it a stone throw away from all-time highs.

Wall Street Analysts are tripping over themselves increasing their price targets:
Morgan Stanley $130 to $135
Susquehanna $130  to $140
JP Morgan $127 to $136
Wedbush $115 to $128
Cowen $125 to $140
Deutsche Bank $125 to $145
Piper $155 to $170

What now?  I'm not a big fan of chasing huge gaps on big cap names.  I would allow the stock to consolidate for a few days if I wanted to get long.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Make Your Move Now

On Wednesday of last week, we finally had some panic and despair show up, Google trends for the search of bear market hit levels not seen since 2008-2009.  If you remember, the S&P500 was down to the tune of 50% from its 2007 all time high.  

So far this correction is in line with the average intra-year decline for the last 30 years which is roughly 14%, 15% is the average intra-year since 2009.  Despite the average intra-year drops of 14.2% the SP500 has managed to close higher in 27 of 36 years (75%).

Before today’s rout the SPY managed a 5% rally from the lows, if you believe that this will be 2008 all over again, then take the recent respite to get your house in order. DO NOT WAIT UNTIL THE MARKET FALLS UNDER PRESSURE AGAIN.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Top Post Of The Week

It's Too Late To Short/Sell

Originally posted Wednesday, January 20, 2016

It's simply too late to short.  With SP500 down 11%, QQQ -13%, IWM -15%, since their 12/30/2015 high, it is simply too late.  If you believe that this will be 2008 all over again, chances are high that you might get an opportunity to short at better prices.  As you can see in the chart below, 2008 started with a 14% decline that was followed by a 10% dead cat bounce that led to some sideways action.

The largest rallies have happened in bear/corrective markets that are below the 200-day moving average as you can see below:

Be patient, you will get your chance.

Update 1/23/16, if you were panicking, if you believe this 2008 all over again, then take this 5% rally and get your house in order.  Don't wait until the market falls under pressure again.

Frank Zorrilla, Registered Advisor In New York

If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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It's Too Late To Short

It's simply too late to short.  With SP500 down 11%, QQQ -13%, IWM -15%, since their 12/30/2015 high, it is simply too late.  If you believe that this will be 2008 all over again, chances are high that you might get an opportunity to short at better prices.  As you can see in the chart below, 2008 started with a 14% decline that was followed by a 10% dead cat bounce that led to some sideways action.

The largest rallies have happened in bear/corrective markets that are below the 200-day moving average as you can see below:

Be patient, you will get your chance.

Frank Zorrilla, Registered Advisor In New York

If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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This Chart Is Stretched To The Limit

2008 Redux

Market In Turmoil

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This Chart Is Stretched To The Limit

The selling so far this year has been non-stop.  Every breadth measure you look at is extremely oversold. The rubber band is stretched in the short-term, over the coming months and quarters, this could very well be the beginning of something bigger.  Make sure you have a plan.

One of the most interesting breadth charts I just came across is the one that shows the percentage of stocks above their 20-day moving average.  That number stands at 5% right now. Since 2002, we have never closed anywhere close to this range on a monthly basis, which includes 2008-2009 debacle, 2010 flash crash, 2011 Greece worries, and last year’s summer hit.

Frank Zorrilla, Registered Advisor In New York

If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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2008 Redux?

The futures are tanking today again, the start of this year has been dismal.

Many know that losses are inevitable, but a majority don't accept it and act like it's not supposed to happen.  You can't avoid losses.

This small correction feels more brutal than any that we've had over the last couple of years, many think that this 2008 all over again. Maybe, it's a possibility, whatever.  The chart below shows how 2008 played out--in case you forgot.

Live to fight another day.  All you have to find motivation for the future is look at what the market typically does after big corrections.

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Market In Turmoil

Straight down is what the market has done so far this year.  The Nasdaq is down 9 out 10 days, -11% in a straight line, Small caps -12%, and -16% from the December highs.

It’s all about survival here, survive until things settle down.  They always do.

I’m big in communicating, especially during emotional, volatile times.

If you want a second opinion, suggestions, feedback, etc. Call me 646-480-7463, Skype me: zorzor45. 

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A Dead Cat Bounce As Expected

We are starting the morning with the futures up 150 points; some mean reversion is kicking in.  After eight down days in a row for the Nasdaq, a complete meltdown in the Russell 2000, a bounce is to be expected and it's natural.  This dead cat bounce by no means says that we are out the woods, but even in the worse markets, the market will go up AND down not up or down.

RUN, MKTX, SJM, APIC, are some of the stocks that I will be watching for long trades today, depending how we settle down after the open.

You can also rest assure that people will gravitate to some of (ex)-leaders that have been beaten up, like FB, AMZN, GOOGL, PANW.

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All Eyes On The Futures Tonight

There's no doubt that tonight will be one of the most anticipated futures openings in a while.  The terrible start of the year has a lot of people anxious and nervous that this might be the beginning of something big like 2008.  Many either forget or disregard that the average intra-year decline since 2009 is roughly -15%, we are at -7% now, this falls within the norm so far.  Not every correction leads to one of the worse years in history. However, people love the doom and gloom.

The best case for those playing a bounce is a 2.5%-3% gap down on the SP500 that would take the SP500 to the August/September lows.  If that level holds coupled with how stretched and oversold we are, we can get a decent dead cat bounce.

For those who believe that this will be a negative year for the market, I think a level to watch on the SP500 will be the 1500 level.  Back in 2013, the SP500 broke a double top pattern; the first top was in 2000, which was retested in 2008 and finally gave way in 2013, that's about 20% away from these levels.  By no means is this a prediction, just a simple thought.

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Read This Before You Call It Quits

These Breadth Charts Say We Are Due For A Bounce

These Vehicles Are Ticking Time Bombs

A Gap Down With Huge Consequences

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Market In Turmoil

The market is off to a rocky start this year, in the last six days, the S&P500 is down nearly -7%, the Russell 2000 -8.5%,  and the Nasdaq -8%.

The news of the day again was China and billionaire investor George Soros, who said we might be in a 2008 situation again.  But the fact is that the average intra-year decline in the S&P500 in the last 35 years is roughly 14%.  Until we breach that mark then this all part of the game.

With today's near 400 point decline in the Dow Jones, CNBC and Bloomberg both have a "Market in Turmoil" scheduled for tonight.

More importantly, breadth in the short term is getting a little stretched to the downside that might lead to some short-term respite (3-5 days).

Here are the stretched breadth charts:

SP500 vs. NYSE, NASDAQ, AMEX, one-day decliners.

We saw a significant spike in stocks down 4% or more today; spikes tend to be short-term positive.

We also saw a large spike today in stocks down 13% or more in the last 34 days; spikes tend to be a short-term positive.

The percent of stocks above their 20-day moving average is also pointing at a dead cat bounce, unless of course we crash, and that rarely happens.

We saw a huge spike in 1 month fresh new lows; again spikes usually mean short-term exhaustion.

The same can be said for 3-month fresh new lows.

The percent of Russell 3000 stocks above their 10-day moving average is also at exhaustion levels.

The percent of S&P500 stocks above their respective 3,5 and 10-day moving average is singing the same tune.

I want to make something clear; these short-term breadth extremes normally are short-term positives that produce 3-5 days dead cat bounces.  Then we usually get a retest of the price low, and that's when might see some positive divergences that may lead to a sustain bounce.

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4%, 13% breadth charts courtesy of Pradeep Bonde

These Vehicles Are Ticking Time Bombs

The market has started the year under pressure.  China has been a mess and now we hear that billionaire trader George Soros thinks that we might be in a 2008 situation all over again.

During volatile times, a lot of investors tend to gravitate to a few volatility vehicles; TVIX, UVXY, VXX.  These vehicles are complicated, and most investors don’t understand them. The most frequently asked questions are; why is the VIX up 10% and the VXX is only up 2%? Now and then you can and will make a significant amount of money in them, but these vehicles are ticking time bombs.

Below is an article from September 2015 that gives you a thorough explanation why you are better off staying away from being long these vehicles for too long.

Over time, this cost adds up, and is the primary reason VXX is down an eye-popping 99.6 percent since its launch, and down significantly in every year since inception. Fluctuations in the underlying VIX Index matter, too, but over longer-term horizons, contango are what’s been killing returns for the ETN.–ETF.COM

A perennially poor performer, VXX and similar products such as the ProShares VIX Short-Term ETF (VIXY | B-61) and the VelocityShares VIX Short-Term ETN (VIIX | B-62) have lost tremendous value over virtually every time period.Since its inception in January 2009, VXX is down 99.6 percent; from a year ago, it’s down 2.8 percent; and year-to-date it’s down 15.1 percent.

Read the rest of the article here 

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The House Always Wins

WYNN Resorts to me is a stock of interest here in the short term.  The issues that company has faced and his facing in Macau are no secrets; the stock has suffered dramatically because of Macau. Since hitting a high of $250 in March of 2014, it's been all downhill since.

Things got interesting in December when WYNN was removed from the Nasdaq 100, probably due to the stock's performance, but at the same time, Stephen Wynn (CEO, etc.) bought 1 million shares in the open market.

The indices have a habit of removing stocks after the stocks have suffered huge drawdowns and include them after years of serious outperformance, think of Apple's recent inclusion to the Dow Jones in March of 2015.  Many stocks that get booted from the indices perform better immediately after than those that replaced them in the index.

Bottom line, WYNN is a long candidate as long as it stays above $64.

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Something Positive Amidst a Down 200 Point Day

Many blogs have written about how horrible breadth has been for the last year or so (including this one).  And, how F.A.N.G (Facebook, Amazon, Netflix, Google) single handily kept the SP500 afloat last year, which is true.  However, today the Russell 2000 traded down to the August 2014 panic lows but the amount of stocks trading above their 200-day moving average is well above the August levels as you can see in the chart below.  This could be viewed as a positive divergence.

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A Gap Down With Huge Consequences

Today's breakaway gap to the downside will more than likely be the talk of the town as the week progresses.  If you remember, the first trading day of 2013 the SP500 gapped up 1.89% and never looked back, that gap is still unfilled.  Many might assume that today's breakaway gap down might have the same effect as the 2013 gap up, but obviously in the opposite direction. Regardless if that is the case or not, I believe that today's gap will be very significant going forward and will more than likely act as stiff resistance in the days and weeks to come.

2013

Today's Gap

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The Market Starts The Year Oversold

The SPY (SP500 ETF) started the year down 1.70%, and it immediately triggered its first oversold reading of the year.  As you can see in the chart below the average amount of SP500 stocks above their 3,5, and 10-day moving average is at a level that has historically produced bounces. These bounces have allowed opportunistic traders an opportunity to make some money on the long side and have given others better prices to sell into days later.

Welcome to 2016 and our first oversold reading of the year. We will all be watching to see if this oversold reading acts the same way it has nine out ten times over the last couple of years--with a bounce.

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