Exec Spec – September 4 2014 (premium)

ExecSpec-Sept14-AlibabaIP Oh!

Initial Public Offerings (IPOs) of stock to raise capital are heating up with a possible record setting launch of Alibaba this month (~16—$20 Bill’). US IPO’s are on course to reach 14 year highs in issues and dollar volume this year, still well below the 90’s pinnacle. A long term peak in IPO’s coincide with major stock market tops.

After a stellar 12 months of stock market gains > 23% without any serious correction and a record level of investor optimism, will the continued onslaught of new companies being launched suck too much air out of the demand for stocks?

Long term that is unlikely due to low interest rates, record sideline cash, strong earnings growth and an early stage IPO market only a year into a multi-year surge such as the 1990’s. Short term, September and October will be of interest with all the good news from Google, Apple, Samsung, Facebook and now Alibaba coming out and draining investor cash from current stock holdings and exhausting sideline cash temporarily.

ExecSpec-Sept14-AlibabaAdditionally there is the ongoing and escalating risk of Russia tightening its grip on Ukraine as the US and Europe keep playing Checkers with Putin. Ukraine has been a Russian/Soviet puppet for decades and there is no way he will allow it to align with Western countries. As we expected months ago he is now sending in tanks and troops to slowly extricate Eastern Ukraine. Before the winter is through it’s likely Putin will virtually bank-rupt Western Ukraine as it controls most of its energy supplies as well as for much of Europe.
ISIS threats targeting the West are also a growing risk.

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Stock Market seeing some froth, but still rising since August Buy signal

ExecSpec-Sept14-StockStageDue to the abrupt nature of down markets and the protracted pattern of rising prices Buy Signals are FAR more precise and reliable than Sell Signals in technical analysis of the stock market.

These momentum/breadth indicators below show the same Buy signals that correctly caught excellent entry points previously. While Tops are harder to pin-point these indicators have not yet indicated excessive froth.

ExecSpec-Sept14-S_P500-StocksExecSpec-Sept14-S_P500-RelativeCNN Money’s “Fear and Greed Index” has only been around a few years, but has an encouraging resume. As usual the Buys are fairly precise while the Sells may take a while to work. The favorable news here is that the strong early August Buy signals require rising stocks until some point “after” this index moves well above 70—currently ~50. Thus higher prices before a >5% correction is favored.

ExecSpec-Sept14-Fear-Greed-IndexBelow: The option put/call sentiment ratio has given 2 clear Buys in 2014 in early February and earl August and another mild Buy in April. While tops can be uncertain you can see that when the 10 day p/c dipped to 54 or lower and turned up, a timely Sell was at hand. Currently this sentiment gauge is still working off of its early August Buy signal but trending toward overbought levels should stock prices continue to rise.

ExecSpec-Sept14-S_P500-Close

ExecSpec-Sept14-14DayOptionSentiment Buy: Market-Harmonics.com has a nice Options ratio incorporating momen-tum and resistance. This sentiment gage has given correct Buys and Sells all year and is still rising out of its early August Buy signal with higher stock prices likely before there is a hint of a short to medium term Sell signal. All stock indices have jumped as expected and in spite of prices testing frothy levels above SP 2000 and above DOW 17,100. Even higher prices near term are possible prior to any 7+% correction.

Individual Investors (AAII) and Professional Advisors (II) are once again nearing relatively rare levels of ex-treme optimism yet such measures can have a lead time of months. The options sentiment gauges shown here glean the more volatile short term trader confidence. For now it’s still a Buy from earl August.

ExecSpec-Sept14-Advance-DeclineBreadth—Advance/Decline Buy: The Advancing issues to Declining issues measure of stock market breadth has consistently supported this Bull market for years. Using a moving average crossover of an Advance/Decline Oscillator we can see some cor-rect Sell zone crosses in January/March/July and most recently a Buy signal in early August.

While a basic Advance—Decline line negatively di-verging with the SP/Dow will be a clue someday of a longer term top, for now we will only focus our A/D attention to this more finely tuned A/D oscillator of momentum changes as shown here. While current-ly working off of its August Buy signal we can see the high odds of a Sell signal appearing before the end of September.

ExecSpec-Sept14-21DayArms

Another breadth measure using up and down volume as a ratio with advancing and declining issues shares some of the same correct signals shown by the our other indi-cators on previous pages. Richard Arms’ Trading Index as used here did generate several nice Buys & Sells this year but did-n’t give a renewed Buy in August. If the market continues to rally it could set up a new Arms Sell signal later this month.

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