Understanding Global Debt Epidemic

Posted by Patrick Ceresna on Nov 26, 2013 11:14:00 AM

There is no topic more misunderstood. Our educational system fails to teach it.  The mass ignorance of the problem is evident.  I had the opportunity to ask 10 grade 12 graduates - what was money? What was a fiat currency and who creates our money?  Not a single graduate could explain.  13 years of education and graduates do not know what money is and even how to balance a cheque book or how to manage personal debt. I took it a step further.  I asked the questions to 5 MBA graduates and shockingly only one was able to explain it to me. I then asked him how he learned it and he said he watched a video online.  Really?  Admittedly that is not a very large sample size and I am sure there are MBA courses that teach the theories of banking. But it does truly emphasize that the vast majority of people go through life never understanding the paper bills they have in their wallet and the debt that is inseparably linked to it.  

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Topics: s&p500, Global Debt, Money

Enhanching Yield - The Covered Call vs. Credit Spreads

Posted by Jason Ayres on Nov 21, 2013 4:03:00 PM

One of the most powerful characteristics of the options market is the seemingly endless number of strategies available to meet various investor objectives.

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Topics: dividends, risk, covered call

What does US Steel have In Common with Gold Stocks?

Posted by Patrick Ceresna on Nov 20, 2013 4:26:00 PM

Over the last 6+ months we have been prematurely looking for a bottom in gold stocks.  It is human nature to want an investment to immediately validate your purchase by increasing in price. Inversely, there is substantial amount of emotional and financial stress that is associated with the investment continuing to decline and a prolonged depression of being trapped in a losing investment. The interesting part is that the very best buying opportunities occur when an investor feels the most dreadful about their investment.  In fact the only time you can make the absolute most money in a stock is when there are no investors left to sell and therefore the downside risk is mitigated. When all the short sellers have already sold short there fill and the weak hand investors have been margin called or capitulated into a depressed sale of their shares, the stocks entire float becomes held by the strong hand investors. 

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Topics: Gold, gold mining stocks, GDX, US Steel

Is the S&P500 Heading to 2000?

Posted by Patrick Ceresna on Nov 13, 2013 3:25:00 PM

This past weekend Barron’s had two articles discussing raised bullish price targets: “Will a Stock “Melt-Up” Really Solidify?” and “Lifting the Odds for a Market Melt-Up”.  This is just a sample of many of the new articles that the media is openly discussing. There are  a growing number of analysts that are raising targets for next year to the 2000 level on the S&P500. In spite of my repeated bearish concerns the market still continues to relentlessly advance. 

stock market roller coaster

So can we hit 2000 on the S&P500? The answer has to be yes because in the markets anything can happen, but the more important question is about how realistic or probable it is for it to happen. At the start of the year almost every bullish analyst on the street set targets of 1650-1750 on the upside and to date they have been correct. The problem is that bullish analysts cannot have targets that are below the current levels, which means the bullish analysts must all raise their targets even higher to justify holding their investments.  This does not necessarily always lead to a new fairy tale advance. 

No better example of that are Apple shares back in 2012.  In January 2012 Apple shares started the year around $400.00 a share. Most bullish analysts had set price targets in the $600-$700 range which represented a very bullish 50-75% advance.  To everyone’s delight the stock rocketed to $640.00 in just 4 months.  Over the subsequent 6 months every analyst rushed to set $800, $900 and $1,000 price targets for the stock.  To feed everyone’s euphoria, Apple proceeded to rise to $700.00 a share and everyone was certain that everything was going to be blue skies from there.  Yet it was from that moment that Apple began a significant bear market decline that seen it wipe out all gains back to $400.00 a share over the subsequent 9 months. 

With that in consideration, recognize that the S&P500 could advance to 2000 like all the super bull analysts are expecting but if Apple has any less to teach, it is that the market can only be at its highest levels when everyone is most bullish. We, on the other hand, will respect the trend but we will unmistakably remain skeptical of its sustainability and cautious of the risk of a market correction when everyone least expects it.

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Levels to watch S&P500 December 2013 Futures:

The S&P 500 has now tested the 1770.00-1775.00 area three times and is attempting to retest it again today. This week’s trend will be decided off this level.  If the bulls can breakout the market to new highs, there are measured moves toward 1800.00 on the upside which could see bullishness into Friday’s November options expiration. Alternatively, if the bulls fail to make higher highs, a reversal and retest of the 1735.00-1740.00 would be possible. If at any point the market has a legitimate breakdown below 1735.00, it would open the window for the next bigger picture correction or crash.  We will remain neutral for a few more trading sessions to see if the market will show its hand for the next market move.

Market Breadth:

Ceresna Market Breadth Index: Sell Signal Alert
52 Week Mean Price of S&P500: 1587 (183 points below market) (201 point peak 2 weeks ago)
Volatility Index: 12.95% (Already near year highs)
Number of Stocks Making 52 Week Highs: 226 
(Year high 894 Jan 2nd
Number of Stocks Making 52 Week Lows: 30 (Year high 504 Jun 24th
Number of Stocks Above 50 Day Moving Average: 61.11% (Year high 89.54% Jan 22nd)

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Topics: s&p500, market outlook, Market Levels

Difference Between Investing and Trading

Posted by Patrick Ceresna on Nov 11, 2013 4:06:00 PM

It is surprising to see how few people identify the primary differences between investing and trading.  What is most surprising is the number of people that mistaken the two approaches as the same. There are fundamental differences that every investor should recognize. 

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Topics: s&p500, session trading, market timing, trading vs investing

Will the Market Crack at this Level?

Posted by Patrick Ceresna on Nov 8, 2013 12:24:00 PM

Anyone reading our blogs over the last week is not surprised that the market is taking a breather. A pullback was overdue and we identified that 1730.00-1740.00 area as a level that would very naturally be tested if the bulls failed to break the market out. So what happened in the last few days? The market corrected lower to the support and is now using the Jobs numbers as short term momentum back toward the highs. Should we be concerned or on high alert?

Things supporting bulls:
  • The bull trend remains intact
  • Bonds are correcting as interest rates rise (short term)
Things supporting bears:
  • The S&P500 traded over 200 S&P points above its mean indicating that the market is overextended on the upside.
  • The leadership stocks (Tesla, Facebook, financials) have stopped advancing in spite of the index being at its highs.
  • Market sentiment is very complacent. 
  • Breadth indicators have rolled to give sell signals. 
So should we be on high alert? In the big picture, yes we should be.  On the short-term we have to have a more neutral stance as the market can still squeeze ambitious shorts (artificial buying). Today bonds rapidly declined (interest rates up) on the release of the Jobs numbers.  This defuses the immediate risk but does not solve the problem.  The best way to describe it is that we are standing at the bottom of a mountain looking at a rather large ridge of snow that if disturbed, could trigger an avalanche that would bury us all. Rocks are being thrown at the ridge, but surprisingly it does not give out. With everyone watching rock after rock being thrown, we start to believe that the rock will not be able to start the avalanche based solely on the evidence that it has not happened yet.  That breeds complacency.  The saying goes- a boxer does not get knocked out from the punch he expects. So complacently put your guard down, because a robust stock market rally like this can’t end badly, right?       
market conditions market breadth index 
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Topics: s&p500, S&P, market outlook, stock market, Market Levels

Twitter and Other IPO’s Signalling the Top?

Posted by Patrick Ceresna on Nov 6, 2013 1:10:00 PM

Over the last two decades I have learned to look at the market for key clues to major turning points. I have learned that one of the most important input variables is market sentiment. The trick with sentiment is that it is hard to identify when it has gone too far in one direction.  The best analogy is comparing it to blowing up a balloon. When you blow air into a balloon, you can identify that it is growing in size.  After a few good blows, you look at the balloon and say that it looks about the right size, you blow air into it again and it grows and you say it looks big and it is going to pop. Then you blow some more air into it and to your amazement it grows bigger and still does not pop.  You blow again and it still grows bigger. If you keep this up you know the final outcome, but it is always an amazement to see how long it lasts.

describe the image

So why try to gauge when the sentiment is too high when you can have the smartest financial professionals do it for you? I believe that the IPO market is one of the best ways to get your clues. Here are some realities:

  • IPO’s are a major revenue source for investment bankers.  The more IPO’s they can issue, the more money they make.

  • It is almost impossible to raise money in the IPO market if investors are scared, nervous or insolvent.

  • The absolute best time to get the maximum for an IPO is when investors are most bullish and frothy for profits.

Here are some facts:

  • 2013 will have the most IPO’s in a year (225) since 2000 (over 13 years ago).

  • November will have the most IPO’s issued (6 this week, 30 this month) since 2007.

  • The record IPO’s are occurring with the market being over 350 S&P points higher on the year. 

  • The market is now 200 S&P points above is 52 week mean levels. 

You can make your own conclusion, but my suspicion is that the big investment banks are rushing to cash in as much as they can while the party is going.  Maybe they know when the balloon will pop.  Maybe they have a pin and can pop the balloon when they want. Maybe.  But what we can definitely conclude is they are doing record IPO business in a very big hurry.  What do they know that we don’t?

Read our blog from weeks ago where we first discussed the TWITTER IPO

Tesla Beat the Street and Dropped

Tesla beat expectations and dropped $20.00 in price. This is a clear warning that the leadership stocks have extended to their maximum, and the smart money is using the current high stock prices to lock in the gains made throughout the year. If Tesla cannot rally back within the next few days, consider the Tesla party to be over. Note that Ford failed to follow through on its earnings and has been selling since.  General Motors gapped higher on earnings but cannot exceed its previous highs and Cummins continues try to undo the damage done on its earnings.  Toyota also is struggling at its 6 months highs.  Watch for clues that the automotive bull market may be over.

Levels to watch S&P500 December 2013 Futures:

The S&P500 just retested the 1770.00 level.  Will we see the market reject off a double top retest?  If the bulls can push the market to higher highs, then we can see an advance to 1780.00-1800.00.  If we reject, the downside window will open very quickly for a drop to the 1730.00-1740.00 area and potentially solidifying the high of the year. While we have a downside bias, we remain neutral for a few more days to see if the market will show its hand.   

Market Breadth:

Ceresna Market Breadth Index: Buy Signal Alert (rolling over)
52 Week Mean Price of S&P500: 1574 (185 points below market) (201 point peak last week)
Volatility Index: 13.30% (Already near year highs)
Number of Stocks Making 52 Week Highs: 252 
(Year high 894 Jan 2nd
Number of Stocks Making 52 Week Lows: 28 (Year high 504 Jun 24th
Number of Stocks Above 50 Day Moving Average: 73.17% (Year high 89.54% Jan22nd)

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Learn how to use options to hedge your portfolio, join our free webinar on November 13th at 9:00pm ET. Register here.

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Topics: s&p500, Twitter IPO, IPO, Twitter

Understanding the Leasing of Gold by Central Banks

Posted by Patrick Ceresna on Nov 4, 2013 2:20:00 PM

During our live webinars we have numerous times referenced the gold inventories at the bullion banks. To our average investors and traders it appears that it is all shrouded in complexity. We have been looking to put together a video explaining the process.  Recently I had the opportunity to watch the following video by Grant Williams. His explanation of the current gold system is very well done and worth sharing with our members. 

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Topics: Leasing of Gold, Central Banks, Gold Breakout

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