Next 72 Hours Are Key For Stock Market - Mike Swanson(02/04/2015)
Yesterday the DOW rallied 300 points and oil went up 4%. Oil has fallen over 50% in the past six months, but this 4% up move has caused a lot of people to buy in hopes that it is the bottom.
Oil stocks have been the top bought sector among individual traders according to Ameritrade.
Most people are bullish on the stock market and think that dips are buying opportunities.
So they see oil stocks drop and hope to buy and get the yield.
But oil stocks just started a bear market a few months ago and commercials inside the oil futures market are still net short oil in a big way after having built a record shot position weeks before market started to fall.
It will take well over a year before there is real sustainable rally in oil in my opinion.
Oil stocks are in the same position gold stocks were in back at the end of 2012. It has taken them three years to turn around.
But more importantly yesterday's rally has stock market bulls now convinced that the market is going to go to the moon.
Here is manic-depressive Cramer giving people picks in a manic manner:
Cramer is a bozo who spits nonstop picks at people.
The market had an up day so he got euphoric.
This video was posted on Yahoo Finance and almost everyone replying to it was bullish on the market and oil.
But some were even angry that Cramer was not bullish enough!
One guy said:
"Does it really matter if oil has bottomed, or it goes back down before it recovers? Buy some now, buy some later...and you are guaranteed to make money. Buy those with good dividends, and reap the income while waiting for the recovery. The hold for the ongoing divs, or sell for the nice cap gain...but remember to keep more than a year to classify as LT cap gains. Does anyone need to listen to Cramer to get on this train?"
Oil stocks are going to end up cutting their dividends before the year is over and are still overvalued in regards to P/B and P/S and PEG ratios.
Oil stocks are not a train going to wonderland, but a train wreck that is going nowhere.
I am not getting on the oil train until the engineer comes and fixes it.
When the commercials are NET LONG oil instead of net short then we will know that the train isn't only fixed, but full of coal.
If you want to make money in commodities then look for ones that are coming out of a bear market and not ones that just started one a few months ago.
I bought a commodity that is not gold or silver last week and it was up 3% yesterday and is in a position to go up for years.
The commercials are NET LONG this commodity while the little guys are net short at near record levels. I did a full report about it for my inner group of Power Investor members (It's closed to new members).
That is what big real new bull rallies are made of.
But to find things like that takes research and a willingness to think outside of the box.
Now what about the US stock market action?
Well, the move up has stock market bulls more optimistic now than I have seen in months.
Here is Jeff Macke:
Macke is a cool guy, but this is the most excited I have seen Macke in a video since November.
Macke said, "as I talked about in Midday Movers the bulls and bears alike were all watching that 2000 level on the S&P 500 (^GSPC). At one point we got down to 1980, well below support and nearly down to the lows of last December. Then, as tends to happen when things look their worst, the market went violently in the other direction."
Going into this week I wrote a report saying that I thought this was going to be a big down month for the markets due to the internal deterioration taking place inside the market that typically precedes market drops.
However, I also thought we would get some sort of rally this week that would give people a chance to sell or short if they wanted to before the real drop begins.
The reason why is because a lot of people were looking at this 2000 level on the S&P 500 as Macke mentions.
It wasn't just him, but people EVERYWHERE were talking about it.
Also the market fell hard Friday and the VIX jumped up a lot so I thought a short-term move up was likely.
So now it has come and EVERYONE is bullish again.
The thing is people who were worried about what would happen if the S&P 500 were to go below 2000 and are now relieved and excited.
But I think they are too early to be relieved.
I think the next three trading days are now key.
If the bulls are right then the market will continue to surge here to its highs nonstop.
If however, the market turns back down again then I think it will have a drop that this time will take it through support and into a big correction.
One of the things that make me think that the next few days are key is the fact that the daily Bollinger Bands are coming together.
They measure volatility and tend to contract when the market goes sideways and expand when the market makes a big move.
They do not say in which direction a big move is going to come though, but the way they are positioned suggests to me that a big move OUTSIDE of the range of 2000-2060 on the S&P 500 is going to start next week.
So how the market acts for the rest of this week is going to be key.
If you are a bull DO NOT GET EXCITED YET!
AND DO NOT CHASE OIL STOCKS THINKING THEY ARE IN A GREAT BUY AND HOLD POINT FOR INVESTORS.
Maybe you are hedge fund trading robot - whatever then. I have a longer than 2 second time frame and unless you are a robot I would not buy them now for dividends or thinking you are being a smart investor.
If you are considering investing in them do you have any idea what valuation you are paying for oil earnings or what will happen to them if oil just stays below $80 a barrel the rest of this year?
If you cannot answer that question than you do not know what you are doing and need to recognize that.
There is nothing wrong with that. When the market has a big point day no matter what direction there are people who come out and try to hype you up or scare you. People are trying to suck people into oil stocks.
There are many hedge funds and institutional traders who are looking to dump and they are taking advantage of the little people that watch CNBC and buy when Cramer tells them to buy.
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