Archive | October 2012

Klein Market Summary-October 29th, 2012

Klein Market Summary

October 29th, 2012

 Current Market Facts:

Technical Status Market in Correction – Beginning Week 4
   
Other Observations The major indices have formed 3 waves down on daily and weekly charts

Liquid leaders have continued to correct

   
Feel of the Market The correction continues as the election nears

Important Levels on Key Indices:

Index Support Last Close Resistance
Nasdaq 2976 2988 3093
Nasdaq 100 2655 2666 2779
S&P 500 1400 1412 1425
 DJIA 13000 13107 13348

Market Interpretation:

As Hurricane Sandy and the election overshadow all other news, the NASDAQ Composite has found support at its 200 Day Moving Average, near 3000.  It has formed 3 waves down, which often can correspond to the end of a correction.  Yet, it is important not to predict where the market will go, but only to anticipate what the market might do.

As the correction persists, we are aware that the 2009 market bottom produced several liquid leading stocks that trended higher for several years: AAPL, BIDU, CMG, LULU, PCLN, NFLX, GMCR, and SBUX.  All of these stocks have either topped, or are forming deep, distributive bases, with the possible exception of AAPL.  While many charts appear to be forming sound bases, most come from cyclical groups, capital goods and services, medical, consumer, or financial groups.  Generally, this leadership would lead us to conclude that we are in a late stage Bull Market.

Joel’s Take:

Patience and discipline are the best mindsets for surviving a correction.  Unless you continue to hold leading stocks with substantial cushion, you should have a defensive posture.  The current market is an ideal time to maintain a state of preparedness for a possible new uptrend.

The election will pass very soon, leaving looming economic issues such as taxes, the debt, the deficit, unemployment, the fiscal cliff, and sequestration.  The relevance of these issues is best evaluated by the action of the major market indices.

In the meantime, the U.S. markets will be closed today and probably tomorrow because of the hurricane.  It is likely that the markets will be open for the end of the month on Wednesday.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.

 

Klein Market Summary-October 22nd, 2012

Klein Market Summary

October 22nd, 2012

Current Market Facts:

Technical Status                 Market in Correction Beginning Week 3
Other Observations Another wave of Distribution punished the weakened NASDAQ

GOOG, AAPL, and AMZN have led most tech stocks lower

Feel of the Market Selling continues to escalate as tech panic rises

 Important Levels on Key Indices:

Index Support Last Close Resistance
Nasdaq 300 3005 3100
Nasdaq 100 2663 2678 2744
S&P 500 1425 1433 1440
 DJIA 13296 13343 13661

Market Interpretation:

The NASDAQ Composite sold off on huge volume on Thursday and Friday to close 5% off recent highs at the important 3000 area.  While Friday’s volume surged 36% above average because of options expiration, Thursday’s was also more than 20% above average.  This was tied to weak action in AAPL, GOOG, and AMZN, which combine to equal 1/6th of the total weighting on the NASDAQ Composite.

With investing in stocks, the most dominant probability of stock success is tied to market direction.  With the weakening of the markets, and especially the NASDAQ indices, the probability of making money has plummeted.  I would also note that while we occasionally make exceptions for high volume that is options driven, we would not make an exception for the price action on Friday.  So that action should be looked at as unequivocal Distribution.

There is an important nuance in the current market.   The S&P 500 has an elevated level of Distribution, but lies only 2% below recent highs.  While the NASDAQ is dominated by large-cap tech stocks, the S&P 500 has been stabilized by large cap bio stocks, like MRK, PFE, AMGN, and BIIB.  It also has been buoyed by construction and retail groups, which are leading the market.  Whether these groups can remain resilient as tech corrects remains to be seen.

Joel’s Take:

Leading institutional investors can afford to be patient ahead of the election, as should we.  This is a market where defense must dominate.  The negative effect of earnings this season has been broad, so far.  With this week bringing many reports from leading stocks, the action should be watched closely.  Also, with the election as a major catlyst, now just 2 weeks away, this correction could be short-lived.  Without trying to predict where the market is going, it is important to anticipate how near-term events could impact the market.

The S&P 500’s resistance highs of 1440 mirrored the high of May of 2008 before the Bear Market began to take hold in earnest.  The  2007 high on the S&P 500 was 1576.  These levels should be watched closely.  If the S&P 500 breaks through 1440 and maintains that level, there could be another 10% of market upside before the next major level is reached.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.

Klein Market Summary-October 15th, 2012

Klein Market Summary

October 15th, 2012

Current Market Facts:

Technical Status Market in Correction Beginning Week 2
   
Other Observations A critical level of Distribution has put the market into a correction

Many liquid leaders have undercut their 10 week MA

   
Feel of the Market Leaders like AAPL and AMZN have signaled the decisions of Intelligent Institutions

Important Levels on Key Indices:

Index Support Last Close Resistance
Nasdaq 3040 3044 3100
Nasdaq 100 2700 2720 2800
S&P 500 1426 1428 1450
 DJIA 13289/13330 13328 13500

Important Levels on Key Indices: 

Market Interpretation:

The NASDAQ Composite has been overtaken by a substantial amount of Distribution in recent weeks.  This included 3 gaps down, and recently 6 consecutive down days with the index closing the week below its 50 Day MA.  The S&P 500 has fared quite a bit better, finding support at its 50 Day on Friday.  Also, NYSE volume has shown slightly less Distribution than NASDAQ.  Regardless of how you parse it, the indices have been under substantial pressure.  Leadership has also signaled weakness.

With many stocks basing, especially liquid ones like AAPL, the Defense must take the field.  Reduction of exposure is a key way to limit risk in correcting markets.  This could also be a rotation out of tech stocks and into retail, medical, housing and basic goods and services.  However, evidence still suggests that stocks are in a correction.

Joel’s Take:

Owning stock in this market is hard to justify.  If you are flat or underwater, stock should be sold.  If you have some stock that is showing a substantial gain, often it should be sold as well.

AAPL remains the most widely owned stock among leading institutions.  As such, it is perhaps the most important leading stock to watch.  However, it is late in its overall move that began in 2004.  Also, with the departure of Steve Jobs, and increasingly difficult comparisons, is AAPL losing its luster?  Its move in the recent minor uptrend was fairly weak.  It rose 13% from a pivot point in 8 weeks before stalling.

It is scheduled to announce a new iPad in 2 weeks, and is rumored to be working on a new approach to its Apple TV.  However, recent news items seem like AAPL is having trouble executing the way it has in prior years. For example, the new maps feature fell short of expectations and promises.  With a quarter of deceleration already on its books, AAPL should be watched closely.

A market correction here could signal a pause ahead of the election, or it could develop into a deeper, more protracted correction.  For now, it is not possible to know.  We must look at this start-and-stop market action as late stage Bull Market action for the uptrend that began in March of 2009.  Late stage markets often produce short uptrends that end in a matter of weeks.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.

Klein Market Summary-October 8th, 2012

Klein Market Summary

October 8th, 2012

Current Market Facts:

Technical Status  Confirmed Rally – Beginning Week 11

Other Observations

Market remains under a moderate level of DistributionLeadership has pulled back

Feel of the Market

Still undetermined: Is this the initial pullback or a longer correction? 

 Important Levels on Key Indices:

Index

Support

Last Close

Resistance

Nasdaq

3100

3136

3200

Nasdaq 100

2749

2812

2900

S&P 500

1426

1461

1474

 DJIA

13338

13610

13653

Welcome:

I would like to welcome you to the Klein Market Forum.  This Forum offers the opportunity to interact, grow, and learn, and in the process, the chance to improve investment performance.  The information in this forum is for informational use, and is not to be construed as investment advice.  Each investor is responsible for his or her own investment decisions and for seeking professional advice, where applicable.

Market Interpretation:

An initial pullback in a market rally is usually caused by an increased level of Distribution.  Many leading stocks touch their 10 Week Moving Average for the first time.  A typical initial pullback is 4-7% deep and lasts 3-4 weeks.  While it is certainly possible that the current pullback could develop into a more substantial correction, there is not yet enough evidence to conclude that the uptrend is over.

In this column, I deliberately focus on market action, and deemphasize economic fundamentals, politics and headlines.  The reason for this is that the market is the best mechanism for evaluating the relevance of such complex data.

Yet, as Jesse Livermore often suggested, the market is ultimately tied to economic conditions.  Current economic conditions have to be interpreted both domestically and globally.  Domestically, the presidential election presents the possibility of vastly different outcomes.  Among these is taxation, unemployment, and economic growth.  Furthermore, the Fed’s inflation policy benefits the stock market, real estate, and commodities.  However, without wage inflation, the middle class is being left behind.

These are also relevant on the global stage, where some European countries are in recession, and there is a slowing trend, as several governments are on the brink of insolvency because they spend more than they have.  Additionally, all growth numbers from the Chinese Government are suspect.

Even with such a slow economy, the reality is that defensive asset classes such as bonds present scant opportunities and the U.S. Stock market is priced modestly.

Joel’s Take:

This uptrend probably merits some level of exposure.  Recently, breakouts have continued, such as MA, some stocks have formed flat bases: LNKD and GPS; and still others have come under pressure, with some, such as AAPL testing its 10 Week MA for the first time.  The amount of progress that your account has made should determine your exposure level.  The cardinal rule is to avoid getting into a position where your account is vulnerable to substantial losses.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.

Klein Market Summary-October 1st, 2012

Klein Market Summary

October 1st, 2012

Current Market Facts:

Technical Status  Confirmed Rally – Beginning Week 10

Other Observations

Distribution pushed indices off highs as the quarter ended

Leadership remains intact

Feel of the Market

Is this the initial pullback or a longer correction?

Important Levels on Key Indices:

Index

Support

Last Close

Resistance

Nasdaq

3100

3116

3200

Nasdaq 100

2749

2799

2900

S&P 500

1426

1441

1474

 DJIA

13338

13437

13653

Market Interpretation:

The market has come under a moderate level of distribution in the past week.  It began with churning action during options expiration on September 21st.  Typically, a strong rally will move higher for several weeks and then pullback for a week or two.  Some of the recent rallies, especially the one at the beginning of 2012 and the September 1st rally of 2010 did not have any significant pullbacks.  The lack of an initial pullback is unusual historically.  It is partially the result of Fed monetary policy that is designed to reinflate real estate, but is causing inflation in other asset classes as well.

Leading stocks continue to be the best view into the market’s strength.  Leaders like AAPL, GOOG, AMZN, PHM, and LEN continue to show strength despite significant profit-taking last week.  It is typical for most stocks, when extended, to pull back to their 10 Week Moving Averages.  We may be seeing that initial pullback to the 10 Week in the next week or two.  Earnings season will begin in coming weeks.

Joel’s Take:

I think that the mandate of anybody who manages an investment account is to balance 2 priorities.  First, never get in a position where the portfolio shows a big loss.  This is done through letting your performance determine the limit of market exposure – not your emotions.  The second, offsetting objective is to buy and hold positions according to rules – sitting with stocks until rules force you to sell.  To execute this approach well requires constant monitoring of exposure, performance, and your stocks.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.