Acorn Wealth Corp.

Today’s market scares me. We have a technical breakout on the S&P 500 yesterday which still suggests bullish support to rally further – perhaps to the technical target of 1,430-1,450. However there is an alarmingly high amount of shorts still out there on ETF’S such as the SPY.

According to finviz.com ,44% of the shares of the shares available to be traded on the SPY are being shorted. Furthermore over the last four hours I have manually eye balled over 400 stocks and I couldn’t find hardly any stocks that looked like they were confirming any firm direction in the uptrend.

Of course after a strong rally one would expect a pullback to support. However what surprised me was that out of the vast amounts of stocks I looked at ,most had in fact broken support levels such as their moving averages. I then looked at a series of about 10 different shorts that i have been watching such as SVN and almost all of them are still moving down as the technical rules would suggest they would.

So to sum it all up, the only vehicles I see moving as they should are the shorts. Currently I am mostly out of the market. The only things i still hold are April puts on AMD as well as puts on IYT and KBH. Given the lack of ‘perfect storms’ that I found this is a red alert to me that something is up.
Based on that I highly doubt I will take any new positions until the beginning of next week. While this comment might come back to bite me – i still think there are some nasty surprises around the corner. I am not going to invest based on that, but I am going to stay out for the meantime based on that.

There is little to update tonight as we continue much of the same as we saw going into today. However what we are looking for is a continuation of the pattern we discussed last week in trading room which was an oscillating downward move in the market. Big drops followed by 2-3 day rallies which was what we suggested last week and so far that is what we’ve seen. Wednesday, Thursday and Friday we rallied and today we have turned on most indexes creating lower highs and lower lows than Friday’s range serving as an early sign this prediction may come to fruition.
Directional Movement System Indicator’s ADX is showing that movement in the market is continuing to drop which also suggests we could see at the very least a sideways consolidation or downward drop in the above mentioned oscillating fashion.

Looks like they found those jobs in the end! Markets responded well to the favorable jobs report Friday. Many funds and indexes such as XLB (basic industries fund) and the Dow Jones transport ($DJT) are still looking cautiously bearish and have rallied up into previous resistance areas established from previous support levels. A similar argument can be made for the S&P and Russell 2000.

Futures are currently fairly flat with a current negative bias as is the Hang-Seng so best case scenario for the short players out there is that we have seen a short covering snap back up before the next leg down. Fascinating markets! My preference is to be looking for stocks to play with strong technicals rather than playing the main indexes themselves as these seem to be where the most consistent performers are coming from.

The Greek deal seems to of passed through this evening which was reflected in the rally in today’s markets. One thing to keep in mind is that it can be expected that a major portion of the move expected from such an announcement has already been made. The next mover of the market will now be the jobs report.

It is estimated that at 200,000 jobs were created last month by the economy. Some expect at least 200,000. In an election year ,such as the one we are in, I would not be surprised to see a positive number tomorrow. Keep in mind it IS an election year. Why do I mention that?

Well … Oil prices have been sky rocketing recently and the US is most certainly trying to stave off a second recession.Amidst all financials of the situation we are also heading into a presidential election. What this means, is two big incentives for the government to do whatever it takes to keep this economy alive until the election is done.

Economics aside if we look back to previous campaigns the total amount of money spent by the Obama campaign in 2008 came in at $730 million, which belittled the estimated 333 million McCain spent. However despite the difference, between two candidates they spent over a billion dollars on ‘advertising’.

Gee if i had a billion dollars on the line and the state of the economy on the the brink of disaster how much money would it cost to create an extra 20,000 jobs. Well for 20,000 people multiplied by 40 hours a week multiplied by an estimated average of $7.50 per hour by 4.3 weeks on average per month that would be… $25.8 million.

The combined market cap of S&P 500 growth and value stocks as of March 08 2012 ,according to the Standard and Poors website, is 12,371.08 Billion Dollars.

So lets be completely cynical for a second. If the US government were to somehow create 20,000 jobs at minimum wage to try and keep this market from completely wetting the bed how much would that cost. 0.0258 Billion. Which is equivalent to 0.000208 % of the combined S & P Market Cap.

Just some food for thought but it sounds like there’s a pretty big incentive for the US government to keep spending money it doesn’t have.

No matter what the market does, we are overall bearish. Watch out!

Hang Seng is currently up just over 1.01% as it recoups from its quick and fast drop yesterday. However it is still underneath its resistance at 21,000 which would suggest this movement still supports the argument of the formation we expect and hoping for which is a drop base(and rally into resistance) followed by a drop. The S&P 500 also stopped short of breaking yesterdays high and staying nice…ly under the 1,360 resistance.

The next support line I would think the S&P will pause at if it continues down tomorrow will be the Jan 26th high of 1,333. To many people who are holding shorts for the overall trend payoff this may not mean much but to the day traders and short term traders out there watch out for short term rallies off of this area.

Meanwhile, as many of you know i rarely trade the gold sector as I am not much of a commodity follower. Having said that I was browsing through my favorites list tonight and was looking at Goldcorp and was thinking, “that looks like its bang on support and potentially going to shoot up….” I then took a look at the Gold chart and found that interesting enough gold has found itself right back on its 161 day exponential moving average. This is a key support level for gold that it often finds very strong support at.

Soo… gold bugs – this ones for you. I like gold corp. 46.00 seems to be the support level, and based on the trend it looks like there is a minimum potential of rallying back to 48.50 (target 1) or 50.00 (target 2).

The decision on the deal between Greece and its private bond holders comes tomorrow followed by a jobs report on Friday. So expect a fund ride. We stick by our statement that we expect the market to be in a downward oscillating channel which , as we said last night in trading room, means expecting days like this where the market rallies up after good moves down.

We had a hard break in these markets today and it would appear that we reached the point where we are going to find out what these markets are really made of. Although the markets were down sharply today it should be noted that the dow industrials are barely off 2% from their recent high close around the 13,000 mark. We feel this market has a much more significant move coming on the down side over the next few weeks. One looks at various classes of stock, many material stocks such as free port Mac MacMoran on the NYSE and Inmet mining, Teck Resources and First Quantum, on the TSX. These stock are down approximately 15% from their recent highs. We feel that other volatile segments of the market will probably mirror the size of these declines over time.
As we have been saying, the rally from the October 3rd lows has been suspect because of extremely low volume. And we have felt that once the market breaks there will be a vacuum until the market finds support at significantly lower levels. It would seem highly unlikely that the large pools of capital that has been sitting on the side lines will be prepared to move in on this market until we have had a very significant break to the down side.
The factor which weighed most heavily on the market today was the continued uncertainty regarding the resolution of the Greek dept situation. We have no way of knowing how this situation will be resolved or whether it will be shunted off for another few weeks, in any event we believe that the factor that will have the greatest impact on the markets in the coming weeks will be the growing tension that exists between the US, Israel and Iran. As the tension builds in the coming weeks it is likely that at least some sort of military action will be required to resolve this standoff. This type of situation is never good for equities markets.
Tomorrow the ADP numbers for the month of February will be reported before the market opens. We feel if the market rally’s off those numbers it could be an ideal time to put on more potential short positions.

The S&P 500 has started a drop today today which in my mind signals a confirmation that this rally has certainly at the very least taken a pause. My key point of interest I would like to raise tonight however is that while the indexes such as the Dow Jones Transport and Russell 2000 have most certainly show continual weakness since the highs of February ,and in fact sold off 5% or more ,the S&P has remained relatively unscathed.

I made the point in a blog earlier last month that we may quite possibly see the Dow Jones Transport and other indexes undergo a sell off and rally right back up without the S&P seeming to even notice and perhaps this is what we are seeing. When looking at the S&P index itself you will notice on a 12 day Directional Movement indicator that the ADX is dropping off sharply indicating that the amount of trending “in either direction” is dropping. Often this can be a precursor to a period of consolidation or oscillation. This same pattern occurred in August 2011 when the market also went into consolidation (see below).

As i made this observation tonight i also noted the fact that many of the shorts we have been following for the last week or so are already well on their way towards support lines. With these factors combined the argument could certainly be made that we may be in for some more fight in the market yet – perhaps in a sideways consolidating fashion.
A Look at how XLB performs tomorrow would be an interesting example. If you look at XLB (Basic Industries fund) you will see that this has dropped recently after a strong rally up to the 38.00 level forming a loose ascending wedge formation (bearish by most traders accounts) and has been dropping nicely over the last few days. However if you zoom out a little to look at the support levels of June 17 you will see it may be catching those same supports now. (see below) Either way the best case scenario as we see it is that some of these indexes that have been week could be finding support but it is a far stretch from turning bullish. Just keep the caution levels up before getting to heavy into the shorts. Two key areas of weakness I am looking at is the Tech sector , which could be taken advantage of through the Direxion Technology Bear 3X – TYP. One much more speculative stock I am tracking for those day traders out there is DRYS which broke down out of its pennant formation today.

As we go into a new week the battle continues over when this market will finally crack and the arguments are beginning to stack up.
Ben Bernanke himself said last week that clearly the United States government is on a fiscal path that is unsustainable. That is pretty harsh language for the chairman of the federal reserve to use. He also told the banks that they should pay close attention to their bond holdings as if there was a sharp rise in interest rates it could leave them with significant losses. The fact he would say that really surprises us. Particularly seeing as they mentioned they would hold interest rates low till 2014. The fed can manipulate short term rates but it is very difficult to hold long term rates unless they go into the market and monetize all the US debts.

From a technical stance the Russell 2000 broke down Friday cracking its 81.00 support after its 9 and 20 day moving average crossed earlier in the week Wednesday, the Dow Jones transport has also bounced down off it’s 20 day moving average and moving back beneath the 9 day also closing at 5,160 on Friday. A quick look a the price action over the last few weeks shows weakening money flow and breakdowns in broad spread across the market. I have been reading several different well respected blogs throughout the day today and the overall sentiment seems to be that most traders are in agreement that there is a pullback coming. The question is will it be now or will we push through to the optimistic target of 1,450 that we talked about in trading room months ago?

Obviously with technical weakness such as what we have mentioned above the answer would seem that the break could be imminent however the key thing to remember is that it really doesn’t matter. The key is to be patent and wait for trades where the technicals are lined up perfectly. Over the last week there have been great long moves made on stocks such as ALSK that shot up from 3.18(where we picked it up in our scans) to 3.68 (that target we set on it). At the same time there have been great short plays such as ANR which was also very technically sound and profiting for anybody who was short that stock.

Predicting where the S&P 500 will go and when is only one aspect to the market. Just remember it is a market of stocks not a stock market. Trade it that way!

For those involved in our shorting workshop and trading rooms you will know we have been following some very interesting short plays. We have published snap shots of these watch lists publicly over the last few weeks and as we may be on the verge of a breakdown we would like to share the first 10 stocks off of our list of stocks we are covering.

ANR
BRLI
DX
FNGN
GTY
RNWK
RBN
SQM
XLD
STMP
GIM

For the full video report and breakdown please register your interest at www.acornwealthcorp.com/shortingworkshop

Insider traders and top 10% owners continue to jump ship and sell their positions this week as the market climbs higher.
looking back over the last 4 months this market has been driven by stimulus, loose monetary policy ,liquidity and short covering. As a result this entire rally has been suspect,in bear markets you often get rallies like this.

The problem is if this market breaks down, the steam is likely to be let out with a bang and we could possibly go down and test the 1,110 level on the S&P.

Over the last few months this market has undergone constant stimulus. What we mean by that is that the Federal Reserve and the ECB have been pumping money into the economy and banking system by making liquidity available to the banks on very favorable terms. Flooding the market with liquidity has lead to speculation in both the bond markets and the stock markets.

The Insiders are very uncomfortable also. Take a look at the latest top insider trading over at Finviz at “http://finviz.com/insidertrading.ashx?or=-10&tv=100000&tc=7&o=-transactionValue”. With a screen full of selling , the top owners and directors of the major US corporations are bailing out.

When all of the insiders are seemingly selling their shares off, how comfortable are you being the willing customer standing there with their cash out waiting to take their shares? Not me…. The best time to sell is right before it crashes, and we are worried.

There were also dramatic moves in Gold today indicating there are likely a lot of computerized algorithms setting up their sell triggers as the market reaches these high levels.

We still feel very cautious of the market despite the break of 1,370 yesterday and today was a confirmation of that concern.

Stay Frugal my friends!

Happy Trading