Yesterday ECB in its meeting did not cut interest rates and did not announce more QE.  Draghi, ECB chief, has built his career on making the markets move just on talk without doing anything concrete.  Yesterday was no different.  In his conference he was dovish and talked about more easing.  Draghi comments started a moderate short covering which turned into a massive short squeeze as shorts panicked.  It is worth remembering that massive short positions were put on near the  market lows in August and September.  Those were the times when we were inundated with questions as to why we were not putting on large short positions.

In an earnings season, marked by poor earnings projections, for a change yesterday after the close MSFT, GOOG, and AMZN reported outstanding earnings.  The result was a second up-leg on short squeeze.  This morning, PBOC (China) cut both its deposit and lending rates by 0.25%.  The result is a third up-leg of the short squeeze.

Gold and silver are moving up on China rate cut.

Dollar is screaming higher.

Interest rates are moving higher as investors are selling bonds that they bought recently as a safe haven.

Oil is range bound.

Who Is Buying Stocks?

• Shorts who cannot take it any more.
• Shorts who are being forced to cover by risk control officers in their firms.
• Money managers who have drastically underperformed their benchmarks and are concerned about losing their jobs.
• Money managers who are giving preference to their own year-end bonuses; after all they are playing with other peoples’ money.
• Non U. S. domiciled investors who want to profit from the strengthening dollar.
• Investors based on traditional technical analysis; there has been a successful retest of the recent lows.
• Traditional day traders who are so enamored with the market that they are now beginning to hold for days.
• Investors who buy based on seasonality; November and December are often the best months of the year.

Who Is Selling Stocks?

• Smart Money continues to sell into the rally.
• Individual investors who want to give precedence to preserving their capital in this very high risk environment.
• Money managers who invest on macro.
• Money managers who are totally fundamentally based.
• Seasoned investors who know the history of what happens next when an advance occurs on very narrow leadership as is happening now.
• Investors who understand that the race to the bottom by central banks is a market manipulation that cannot last forever.

Short-Term Indicator

Our very, very short-term early stock market indicator is positive.

What To Do Now?

Consider adding new positions per new posts.

Consider continuing to hold existing positions.  Based on individual risk preference, continue to hold 30-50% cash or hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.

Gold futures are at $1178, silver futures are at $16.05, and oil futures are $45.21.

S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2038, 2017, and 2000.

DJIA futures are up 149 points.

Joe Biden decision to not enter the presidential race is negative for the market.  The reason is that it strengthens Hillary Clinton.  Our job is not to comment on politics but to  help our subscribers  make money.  From an investment perspective, Hillary is killing health care stocks which have been the market leaders so far this year.  If Hillary’s poll numbers strengthen, expect health care stocks to be massacred.

ECB left rates unchanged but dollar is surging on Draghi’s comments that ECB will take new measures to prop up the economy.

There was a report from an Australian broker that the Chinese government had decided not to intervene any more in the stock market.  However, our analysis of the trading data from Shanghai indicates that the Chinese government aggressively bought stocks in the last half-hour.  This is also improving the sentiment.

Steve Easterbrook is the new CEO of MCD.  MCD has a heavy weight in indices.  For the first time in two years MCD is reporting same store sales growth.  MCD stock is flying.

Employment picture continues to improve.  Initial Jobless Claims came at 259K vs. 265K consensus.

Chicago Fed National Activity Index came at -0.37 vs. -0.20 consensus indicating weakness.

House Price Index came at 0.3% vs. 0.5% consensus, again indicating weakness.

Earlier, the momo crowd was aggressively buying gold and silver.  However, after Draghi conference, we are seeing very light selling by Smart Money.

Oil is going through another episode of short covering.  We do not expect it to last.

Interest rates are range bound.

Our very, very short-term early stock market indicator is positive.

What To Do Now?

Consider continuing to hold existing positions.  Based on individual risk preference, continue to hold 30-50% cash or hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.

Gold futures are at $1163, silver futures are at $15.77, and oil futures are $45.63.

S&P 500 resistance levels are 2038, 2063, and 2100; support levels are 2000, 1962, and 1920.

DJIA futures are up 133 points.

For the first time in recent years, 2015 will end up with negative earnings growth if the current trends continue.

Yesterday we wrote

For the investor, it is important to remember that when you buy  a stock you are buying present value of future earnings. 

We will be focusing on special situations that can provide profits with low risk under these conditions.

Our models are inching towards giving a generational opportunity buy signal on some emerging markets.  However it is prudent to wait until the actual signals materialize.

In the last half-hour, Chinese government did not step in to buy stocks, stocks tanked.

Oil has taken a tumble after API data showed larger than expected build.  Oil traders are now waiting for DOE data to be released at 10:30 am ET.

Interest rates are pulling back from yesterday’s rise.

Gold and silver are also pulling back but are range bound.

Our very, very short-term early stock market indicator is positive.

What To Do Now?

Consider continuing to hold existing positions.  Based on individual risk preference, continue to hold 30-50% cash or hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.

Gold futures are at $1176, silver futures are at $15.78, and oil futures are $45.53.

S&P 500 resistance levels are 2038, 2063, and 2100; support levels are 2017, 2000, and 1962.

DJIA futures are up 65 points.

HOUSING STARTS SURGE BUT PERMITS DIP

It is important for investors to understand how our timing model works.  Our timing model is adaptive in that it automatically changes with market conditions.  As shown in the diagram above, it filters out noisy data.  The issue over the last couple of weeks is that the data has been extremely noisy to provide any guidance.

Now finally there is some clarity from earnings and data from China.  Earnings have been coming, on the average, below consensus.

Economy in China is weakening. Overnight China reported GDP growth of 6.9% vs. consensus of 7%.  In addition, the following is some of the other new data reported that is entered into our models.

September Retail Sales 10.9 % y/y

• expected +10.8%, prior was +10.8%

• (also September Retail Sales YTD 10.5 % y/y, expected is +10.5%, prior was +10.5%)

September Industrial Production 5.7 % y/y

•  expected +6.0%, prior was +6.1%
• (And September industrial production YTD 6.2% y/y expected is +6.3%, prior was 6.3%)

September Fixed Assets (excluding rural) YTD 10.3 % y/y,

• expected +10.8%, prior was +10.9%

The conclusion at this time is that risks remain too high. For this reason investors should consider remaining in a defensive posture with plenty of cash to capture new opportunities.

Interest rates are range bound.

Oil is giving up some of the gains from short covering.

Gold is pulling back on weak demand from China.

Our very, very short-term early stock market indicator is negative.

What To Do Now?

Consider continuing to hold existing positions.  Based on individual risk preference, continue to hold 30-50% cash or hedges.

Gold futures are at $1175, silver futures are at $15.92, and oil futures are $46.15.

S&P 500 resistance levels are 2038, 2063, and 2100; support levels are 2000, 1962, and 1920.

DJIA futures are down  63 points.