Noise is Noise and Price Pays

THE MOST IMPORTANT FED MEETING EVER!!!! I'm just trying to sound as enthusiastic and dramatic as the financial media. The "Taper" was a done deal, many "pros" were holding the most cash they ever have, $10-15 Billion reduction...that's consensus.

BOOM! NO TAPER! Oops, did Big Ben catch you guys off guard? Sorry about that one, better luck next time! On to your next Top call....

Needless to say the Federal Reserve and Ben Bernanke did not reduce their QE3 bond purchases at the September meeting. They chose to "await more data" before easing off the printing press. Wait, I think I know a few people who saw this coming. But what did they/we see that EVERYONE on Wall Street failed to? Frankly I don't know what Wall Street was thinking, apparently they weren't. At the same time though, I absolutely don't care what Wall Street or CNBC or economists think about stocks at these levels or about the next "debacle" that will send the US economy spiraling into recession. All of this hype, all of this noise, none of it is for the purpose of making you (the viewer) money. It is for some schmuck to put on a suit and stand in front of a camera and give you his/her wildest guess as to which way the market is headed next. Let me tell ya, nobody has a crystal ball. Not me, not you, not Warren Buffett and certainly not some hot "news" anchor on business television. I really don't understand how these "professional" analysts can all be so horribly wrong about the same events over and over and over. Within the last year there have been already 3 such "disasters" just on the horizon. First it was the presidential election. Then it was the FISCAL CLIFF AAHHHH!!! And recently its been THE TAPER. This is not intended to be an exhausted list. You will see this next year and the year after that, we will see this forever.

Ignore Noise and follow Price. That's what we do here folks. We take the only real quantifiable data available (what the share price is currently worth on the open market) and we watch and map its behavior over time. We follow simple, rigid rules and we do not discriminate a signal based on our biases. Signals are signals and price is price. We cannot know the future, nor do we need to. We have simple guidelines we must observe and they, over time will lead to positive results.

That being said:
We have a new breakout! This week's Fed inspired news was just what the market was hoping for and it blasted through the upper resistance level to new all-time highs. Friday was an options expiration day, so the day's trading has a bit of a "take it with a grain of salt" feel to it. With the new breakout and subsequent retest of that breakout, we now have to adjust our current stop positions on our holdings to reflect the new confirmed "higher low". Remember once we have a higher high, the prior swing low is now the next stop level in the trend. That is the level we obey without question.

Using the S&P Daily view of the last 6-months, its easy to see the reason we have maintained our Bullish positioning with stocks. Quite simply we have continued to see a steady upward direction to the market. And a prior confirmed low has not been violated. All the analysis in the world can't beat this simple approach for risk adjusted returns. Stick with the prevailing trend and only start to worry when the trend actually turns.
1,629 is the confirmed "higher low".

We will be watching this narrowing range closely from this point forward:

  Here's the view of the Weekly chart. There is clearly a wedging of price occurring; connecting the two significant peaks following the 2009 market bottom, we have an upper resistance line and an inclining uptrend support tracking the entire 2013 market rally. This formation is described as a rising wedge and is often a Bearish pattern. It will be very important for the market to continue to hold the uptrend support and break through the upper channel resistance. Nothing here is confirmed in either direction yet, all we can do is stick with the prevailing uptrend as long as we continue to see higher highs and most importantly, higher lows.

As for our positions, we need to adjust our stop levels if we can, due to new highs being made.

DDD

Since breaking out from a 6 month trading range, DDD has been able to hold well above that prior support level. With this new strength we will be using the upper support range and rising 20 WMA as our stop going forward...Just about $48.

PPG

PPG set a new all-time high and weekly closing high. Although the week's trading range was wide and closed well off the highs, we are still seeing steady higher highs and higher lows. Our stop will be moved up to the new swing low at $155-$156.

HAIN

I have been pleasantly surprised how well HAIN has held up since the Icahn liquidation over the past few weeks; it was reported recently that Carl Icahn has sold his remaining shares now as well. In the last 3 weeks Icahn has sold roughly 7 million shares and those have hit the market and been more or less digested impressively. We are still using the $74-$72 range as our stop. A break of the swing low at $72 will see our exit.

AAPL

While AAPL provided a nice scare early in the week, challenging our stop level, it has since rallied back after holding the 20 WMA. As we go forward we will be focused on a failure of the breakout level and rising 20 WMA, $450.

CMI

Cummins saw follow through after its big breakout last week. However, short term this has become extended based on my research. I have found through backtesting certain situations that a move that carries price more than 13% above its rising 20 WMA becomes an unsustainable advance and is likely to correct. This reversion trade often carries price back to a prior support level and allows the 20 WMA to catch up. For long term accounts I take no action based on this signal and hold positions, but for shorter term accounts I do reduce position size by 50% on such an occurrence. This has proven to be a valuable reference point for me in the past. I also must note that the 13% level only applies to stocks with a beta of less than 1.60. We have discussed beta previously in our studies and this is another example of why you need to know how volatile your stock trades. For stocks that have a beta higher than 1.60 the level is more in the 25% region before unsustainable levels are met. Stocks do not often extend to the 13% level above the 20 WMA, when they do it typically signals a fierce move that will need time to digest before continuing higher. These digestions need to occur so we can have a new, lower risk base to trade off of.

Our stop on CMI is still the $122 low from the breakout retest.

F

Ford has entered into the "neckline zone" of the 12-year Inverse Head/Shoulder bottom and it will be very interesting to see how it handles this range between $17.25 and $19. Due to the sheer size and length of the pattern under formation I want to give this position plenty of room to evolve so we can catch this massive opportunity should price breakout above $19. I will be content with using the uptrend support from the August 2012 lows as my stop, which right now sits at approximately at $14.50.

But I sure couldn't fault you if you wanted to protect gains and use the swing low at $15.70 as a tighter stop. I just happen to really like this long term setup and am willing to give the American automaker a little more cushion than that.

WFC

This is a very simple read...Stop on a break of the swing low, trendline support, and 20 WMA at about $41.

PBW

PBW continues to make new 52-week highs and is still targeting the $6.35 level as the reversal pattern target. This level also coincides with a key prior support/resistance level from back in mid-late 2011. Not only that but it is also the 38.2% Fibonacci Retracement from the 2001 peaks. It should be clear at this point that the $6.40ish area is going to be of significant importance going forward.


Weekly Performance

DDD       +5.5%
PBW       +2.7%
PPG        +2.4%  
WFC      +1.4%
SP500     +1.3%
CMI        +.05%
AAPL      +.02%
F              +.02%
HAIN       -1.7%


Next week we will take a long look at the Sector Groups. Some new leaders seem to be emerging, but some of the key Defensive Groups may be starting to show stabilization also. We will watch them this week and do a full rundown next weekend.