Tuesday, March 11, 2014

Triple Witching and Market Direction...L&C

After the first two months of the new trading year, no one has a clue as to what will unfold for the remainder. The January Barometer sings the song, "so goes January, so goes the S&P." It sang a deep blues. Down January's are harbingers of trouble ahead, notably reflected in one or more sections.
Exogenous events to the economic, political or military arenas have usually happened after a negative first month. It is especially forceful when the January low falls below the previous December low. This too happened.
Nevertheless, the market rebounded in February, so everything is back to zero. If you listened to the media and their pundits, all is well. They are saying the same things that they always say,"...stocks are going higher..." It is their mantra.
Deja Vu
It was the same meme after the Santa Claus Rally. However, when that failed, it was excuse after excuse. The weather being the most favorite theme. They then, go into their spiel that the Dow is up, along with consumer confidence, inflation is low and unemployment is falling. They never relate this message or criteria to past performance like in 2007. In that year we had full employment, inflation was low, consumer confidence was off the charts and the Dow kept breaking records with new highs on a daily basis. I'd like to add that our national deficit was half of what it is today.
Guess what? In 2008 we had the worst crash since 1929. By the way 1929 was a year where the Dow was breaking records on a daily basis.
These people are selling not educating. The host never argues or offers a rebuttal comment. The Internet seems to be the last form of media that offers a different insight.
Decision Time
If you are considering to enter this market, I would read what I am about to write. Before you put your cash on the line, know the trend of the market.
The market is either bullish, bearish or sideways. You can drop the last direction as the length is generally short as the market decides on a course, either up or down.
If the market has been down for an extended period, steadies and then begins to climb, this could signal a new bull market. The first test will be to rise above previous lows from the down ladder, forming a rising ladder like the time back in 1982. The bull lasted until 2000. This is an example of a secular bull market. This does not mean that stocks go straight up. There could be a cyclical bear within it.
Secular and Cyclical
Secular trends are long-term, usually lasting 8 to 20 years. Cyclical trends are shorter-term, lasting from a few months to several years.
Dear reader, we entered a secular bear market in 2000. We still have a few more years to go. At the moment we are in a cyclical bull move just like 2007. With that said, I call your attention to Triple Witching in March. This occurs on the third Friday of the month. It is the expiration of options and futures contracts. One important aspect of it is increased volume in the market. This is directed by institutions and hedge funds. Volume moves the market. It is a tell as to where the money is leaning.
Just as the moon affects the tide, the expiration of options and futures pulls the stock market into a cycle of volatility. Money is either flowing into or out of the market. Look at it this way: if people are waiting outside of your restaurant maybe you can raise your prices. If no one enters maybe you should look to get into another business.
One other aspect about the importance of March's Triple Witching is the point that it is so close to the end of the month which happens to be the end of the first quarter. I believe whatever the direction the market takes because of the results on Friday, it will be a "tell" of the market. By the way the Monday of that week should give trader's a heads up as volume is generally higher in this week on Monday.
If you are keeping score, January was down and February was up. This is the "rubber game"in the series. The verdict of Triple Witching, I believe will be the market's direction for the remainder of 2014.
Liars and Crooks: Goes to President Obama who called his critics of his Affordable Care Act, unfounded. He said, "you can keep your policy, if you like your coverage." Well, lo and behold! You cannot keep your old policy and now, the president has given anyone who had an old policy, a two year extension. When the dust settles by the sign-up date of 31 March 2014, everyone will be accounted for even if the category is under exemption.