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.
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.
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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