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The
Signs Point To Bullishness....I Think |
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 I've
been sitting at my desk for a while now (too long, actually), debating
whether or not to even write today's edition on the topic I had planned.
I've decided to, obviously. However, I'll also add that I felt a lot
better about it Monday afternoon than I did on Tuesday afternoon.
My
dilemma is the need for certainty - not an easy thing for a stock speculator
to handle, though I've learned to.
My
inspiration to go ahead and write it anyway? A trusted friend and fellow
trader, who I think correctly pointed out how there's no such thing as
trading perfection. Our collective challenge as market participants is
just properly weighing the odds for what they really are - not for
how we want to see them.
Plus,
I'd rather be proactive with a plan of action (even if I'm wrong)
rather than reactive without a roadmap, scrambling to figure things out
in a hurry. That's how mistakes happen.
So
with that - and despite Tuesday's rollback - I believe last week's
robust market retreat may have actually set up a major upside opportunity
over the next few weeks...perhaps enough to carry the indices into new
high territory again. Read on and see if you agree with my case.
The
theme here is basically a short-term capitulation. A true long-term capitulation
usually comes at the bottom of a long-term downtrend. But, we experience
mini-capitulations all the time.
And
how does one spot such short-term bottom? I've found the following tools
do a pretty good job.....
 ISE
Sentiment Index -
If anybody has previously followed the CBOE's put/call ratio, I recommend
adding the ISE Sentiment Index to your repertoire. It's basically a call/put
ratio, with a twist.
The
practical use of the ISE Index, for me, is as a sentiment tool.....and
a contrarian indicator. A peak in bullish opinions is actually
bearish, while a peak in bearish opinions is actually bullish. Sounds crazy,
but it works.
What's
the twist? The CBOE's put/call reading has been around for a while, and
it essentially aims to show the same type of broad opinion. The problem
was/is, it measures put and call trade volume, rather than open option
positions (which can make for a misleading ratio). Plus, so many fund managers
and money managers now use options as a hedge, it's difficult to distinguish
true market opinion from just a defensive measure. The ISE Index only incorporates
open positions for retail traders. (For a better explanation of the ISE
Sentiment Index, see this Market
Wise column.)
Anyway,
we saw the fear/bearishness measured by the ISE Index hit an extreme reading
on Thursday - the third lowest reading for the index since October. The
prior two were the readings of 58 on March 8th, and 74 on June 7th. Both
came in front of rebounds - the March one in particular was powerful. We
saw readings that low in June of last year as well, and you don't need
me to tell you about the monster rally we saw start then.
 New
NYSE/NASDAQ Lows - There are always stocks from each exchange hitting
new all-time lows; seeing a few is no big deal. On the other hand,
seeing an enormous amount just shortly after the market hit or challenged
new all-time highs is a big deal.....as it's not likely to be sustainable.
Let's
arbitrarily look at the New York Stock Exchange's stocks hitting new lows
on Thursday - there were more than 800 of them. That was the highest reading
since May of 2004 (845), and a little shy of the 900+ figure we saw in
July of 2002. Even after trading resumed following the September 11th,
2001 tragedy we didn't see the number of new lows swell up that much as
they did Thursday. In both of those cases, and even after 9/11, the markets
rallied very sharply for a few weeks.
The
NASDAQ's new low reading of 369 on Thursday was equally unusual, and potentially
indicative of a bottom.
 CBOE
Volatility Index (VIX)
- The principal here is the same as with the ISE Index or the CBOE
put/call ratio - interpreting extremes in investor opinions as signs of
an impending market reversal. The only difference is simply that the VIX
is based on option prices rather than trade volume.
Historically,
it's worked pretty well. In March, when the VIX shot up from just above
10 to above 20, the market was making a bottom when far too many people
figured there was worse to come. Even the peak in late June spotted a short-term
bullish swing.
It's
effective at spotting bearish scenarios too (though not quite as well lately).
The VIX hit sharp bottoms in late December of 2004, late February of 2005,
and July of 2005. Each instance occurred just a little while before the
market found trouble.
Anyway,
when I saw the VIX hit new multi-year highs last week, I had to
think the sellers were over-reacting. All the prior VIX spikes were short-lived;
I don't know how or why this one would be any different. I see it as another
bullish signal.
Yes,
there are a couple of potential pitfalls in my point of view. The first
one is the calendar - it says we're overdue for weakness. July,
August, and September are typically the most tepid time of the year, and
actually the only negative quarter, on average. Even with last week's pullback
relieving some pressure, the tendency looms.
 In
the same vein, we've yet to get a true, full-blown correction from
the market, save the NASDAQ's dip in mid-2006. Most experts say a 10% decline
is a normal-but-healthy correction. Not having one in months means there's
still a lot of pent-up selling/profit-taking potential that should be burned
off before we can really make a decent move higher.
In
my opinion, both counter-arguments are valid. I do have responses
though. To the first point, yes, the calendar says we should be headed
into a bearish period. Yet, it didn't matter a bit last year...the
summer rally turned into a fall rally without a second thought. Maybe we
can climb the wall of worry again this year.
To
the second counter-argument, yes it's true - we've yet to really make a
nice, healthy selloff that really washed off all the excess and started
a complete rebuild of stock valuations. Maybe we are due, but if
it hasn't been a problem in a couple of years (when interest rates were
on the rise and oil was rallying like crazy), why would now be any different?
I'm
sure you can understand my dilemma. I'm more of a momentum trader than
a bottom-fisher, so buying into the market now is tough for me to embrace.
To help my confidence out, I'm keeping a very tight leash on things by
using the 200 day moving average line as my line in the sand for the Russell
3000 and the S&P 500. If a rebound isn't in the works, we should know
soon enough - when all that support starts to break. See my recent
blog entry for more on that.
For
the record though, I distinctly remember feeling pretty much the same way
in June of last year right before the rally began.....for what it's
worth.
Fortunately,
I have time on my side. The bounces that have occurred in the past following
the signals above rarely took shape in just a day. Tuesday is proof of
that. It might even take a couple of weeks to really get things
going upward again, if they're actually meant to go that way. So, I'm not
going to rush this idea.
I may
update these charts in the blog, though probably not in a newsletter.
However, the discussion isn't over for me; my comments above just scratch
the surface of everything I'm processing right now. For more, check out
the blog over the next few days. I just wanted to give you a 'best of'
glimpse today to let you start thinking about things - whether or not my
tools are right. I believe they are, but we'll see. Stay tuned.
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Got comments, questions or suggestions?
Send 'em on over: Email
the Editor
If you wish to send a written request
or inquiry, please send it to our physical address:
TGR Group, LLC
4653 Carmel Mtn Rd Suite 308 #402
San Diego, CA 92130 |
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| Zupintra
Adds New Clients - Closer To The Goal |
| As
promised in a recent blog entry on Zupintra Corporation (OTCBB:
ZUPC), I'm going to be following the company very closely as their
revenue story unfolds. As it turns out, they recently took another step
in the right direction.
In
short, new clients (long-distance providers) are starting to use Zupintra's
network to terminate phone call (i.e. connect to the call's recipient).
No word on how many clients, calls, or dollars are associated with this
initial small-scale launch. Zupintra has been fairly secretive when it
comes to that kind of proprietary stuff.
More
importantly, the financing capabilities that allowed Zupintra to start
terminating some calls in the Zupintra network were indeed part of the
two-edged insurance & credit requirement.
As
you might recall, the big players don't pay as you go for connection and
termination services - they want to be billed later. The company needed
accounts receivable insurance (which they already had), but also letters
of credit (which they were trying to get). We've now learned that at least
some of the letters of credit they were seeking from Londesborough have
indeed been approved. Initially, the Londesborough line of credit is worth
$5 million. But, with the relationship now forged, it will be much easier
to scale into bigger lines of credit.
I'm
still waiting to see them turn this financial capability into revenue.
Overall though, this is encouraging. |
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| Titan
Global, Take Two |
| Don't
blink - you might miss something. Just a day and a half after announcing
they were buying Appalachian Oil (AOGA.PK)
and creating an energy division from it, Titan Global (OTCBB:
TTGL) already issued their first energy-related news release.
NewGen
Technologies (OTCBB: NWGN)
has been named the exclusive biofuel manufacturer/provider for Appalachian
Oil. The agreement is good for a ten year period.
It
doesn't take a rocket scientist to see this biofuel deal was intrinsically
linked to the Appco acquisition. It looks like a proverbial win-win-win
to me. In fact, NewGen's Chairman is quoted in the press release as saying
they were looking to partner with Appco anyway, in order to take advantage
of their strong distribution capabilities and terminal network in the southeast
United States.
For
more, click here. |
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