After Hours Trading

Hi friend! This is Peter Bain. I can’t tell you the number of mountains I have climbed and tribes I have befriended to bring you this blog post.

I am not going to post like a mad man, and drive you crazy, while jamming your Inbox every other day or week – monthly at the very least. I want to post good quality content that requires a lot of research and my time.

I’m not out to impress you with how much I can write and how fast.  This is not a race.  It’s about bringing you nothing but the best information that will rock your trading.

That said, in between posts, I will periodically bring to your attention news that I think you should be aware of, and I will post that information under the news link on my site.  So, be on the lookout for that.

I read several newspapers a day, and regularly tune into CNBC – so, I am well aware of what’s happening in the markets.  When I see or hear of a real gem, I will let you know for sure. 

In this blog post, I will cover a lot of ground – so grab a coffee, tea or something stronger, and strap in and listen up closely.  Don’t click away too soon, or you’ll miss all the free stuff. 

You obviously don’t have to read the whole post.  Just look for those things that crank your wheel.  Be sure to comment at the end, or ask questions.  You can also do so through the contact link on my site, if you want to keep it private.  But, keep it clean, and let’s just have some fun together.  If you’re in a bad mood, or just having a bad hair day, and just want to vent, this is not the place. 

Happy reading, and happy trades to you my friend!  Put your old trading habits on lockdown.  Strap in, and listen up closely.

At any time, you can check out the Resources section on my site for all kinds of trading know-how.  And, if you happen to be at all curious about me, check me out here.

Coming up (in no particular sequence):

Trading Hack
Stocks to Die For
Terms That Matter
Flash Boys Update
After Hours Trading
Leverage Up to 1:1000
(BTW, that’s not a typo.)
Lots of Skin in This Market
A Real Beaut of an Indicator
What’s UP With the S&P 500?
Where Interest Rates Are Headed
(Surprise!  Not Where You Might Think.)

Coming up in a future post… ‘A Surprisingly Effective Predictive Indicator for Oil Prices.’

After Hours Trading
Not For the Faint of Heart

You may be wondering how does after hours trading work (trading after market close) – or, more specifically, how to participate in after hours trading – that is, how do you trade stocks after hours.  Let me try to explain after hours trading.

Regular hours at the NYSE, Nasdaq and other U.S. exchanges are from 9:30 a.m. to 4 p.m. ET.  Thought you’d like to know, just in case you were wondering how long is after hours trading. 

Who can trade in after hours trading?  Anybody with a properly funded account at an online brokerage like TD Ameritrade Holding Corp., E*Trade Financial Corp., and others.

Trading stocks beyond normal trading hours allows you to take advantage of dramatic price swings – this after companies post quarterly reports.

Corporations post their earnings reports outside normal trading hours every three months.  They do this so as to not influence their stock price movements.

Traders who buy and sell stocks shortly after the release of quarterly reports have a need for speed, and they want to beat Wall Street to the punch.  But, they risk doing so without really knowing what’s moving a particular stock. 

Big moves in after hours trading often flow through into the next day.  For instance, if a company comes out with a surprise quarterly loss during that time, shorting its stock in extended trade, as it plunges, is what these speedster scalpers are looking to do – covering the next day to close out the trade.

Programmed trading partly accounts for wild price swings.  Moments following an earnings report, algorithmically-driven traders pounce on thinly traded markets.

Within seconds of S&P 500 corporations releasing their reports, specialist traders pick out key numbers using software algorithms, executing trades at lightning speed – faster than regular traders can understand the information.  They react to such things as earnings per share or revenue outlooks.

If you are committed to participating in after hours trading, it is probably wise to not trade during the first few minutes of trading, but to do so during the digestion period.

It’s now easier for traders to trade stocks outside of normal hours, thanks to regulatory changes in the past decade and the evolving technology employed by online brokerages like TD Ameritrade Holding Corp., E*Trade Financial Corp., and others.

After hours trading by institutional traders is routed through the Nasdaq and other exchanges, including dark pools, which are cloaked from the broader market.

Those of non-professional traders are often routed through electronic networks by online brokerages, which issue warnings of light liquidity and heavy volatility, as they match orders between customers.

As a measure of protection for their customers, brokerages don’t permit ‘market orders’ to buy and sell stocks for open-ended prices.

Liquidity is often light during after hours trading, given the absence of most mutual funds and many other institutional investors.  As a result, wide gaps between bid and ask prices make it difficult to execute sizeable trades.

The riskiest trading takes place outside of normal trading hours – this due to low liquidity and the absence of price discovery.

Pre- and post-market stock trading contributes less than two per cent to overall stock trading through the Nasdaq exchange.  It’s about the same at the online-brokerage TD Ameritrade.  There, between 2.5 per cent and five per cent of total volume is attributable to extended-market trades.

Flash Boys Update

Talk about high-speed traders… the heroes of Michael Lewis’s ‘Flash Boys’ are on a mission to instil fairness in the U.S. stock market.

Brad Katsuyama’s IEX group has petitioned the U.S. government to convert it into a stock exchange.  This would give it equivalency status with the New York Stock Exchange and Nasdaq Stock Market.

In his 2014 book, Mr. Lewis portrayed the IEX stock trading platform as a safe haven.  He posited that other markets have colluded with banks and the fastest traders to gain an advantage over other traders.  IEX plans to minimize this advantage by utilizing a speed bump – a coil of wire that in effect would slow things down by 350 microseconds.  

I will have more to say about the Flash Boys in future posts, so be sure to come back on a regular basis.

A Place Where There is
No After Hours Trading

There is no such thing as after hours trading in the forex – the largest financial market.  It trades round the clock six days a week, is always liquid, and is not subject to engineering by any one entity.

Most professional traders catch only three-to-four really great trades a week, if that!  Not so with the forex.  There, the timeframe is more like a day.  And, a professional doesn’t have to worry about thousands of stocks, or all those commodities.  With the forex, a trader only has to think about ~50 pairs and pure technical analysis.  The average daily range for the major pairs far surpasses that of any other market.  It also has a much longer ‘length of line’ (intraday swings), which offers more ‘swing-trading’ opportunities.  Lots of action for both novice and professional traders alike.

With the forex, there is no such thing as a specialist firm acting as a market maker.  Being an OTC all-electronic model, there are NO execution costs, and gaps between bids and offers have declined.  And, get this… there are absolutely NO commissions.  That too is not a typo.

The forex does $5.3 trillion per day (up from $1.3 trillion some ~15 years ago, when I first got involved with the forex), which is 30 times the size of all U.S. equity markets combined – 50 times larger than the NYSE alone!  The $30 billion-per-day futures market doesn’t even come close. Ninety-five percent of all currency trading is conducted over the forex.  By comparison, the currency futures market is shrinking, and represents only one percent of the size of the cash market.

The forex (or FX or spot market, as it is sometimes referred to) accounts for 23 per cent of all FX turnover in Canada and about half of U.S. volume. 

Spot transactions determine FX pricing and affect other transactions, including futures contracts and options.  One of the world’s highest-volume trading currency pairs involves the U.S. and Canadian dollars.   

This makes the forex market the quiet giant of finance, dwarfing over all other capital markets in the world.

Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple – I’ll get into that in a future post.  Given that there is no after hours trading per se in the forex, technical analysis just plain works at all times of the day and night.

Don’t get me wrong.  I like the other markets too. But, this is the new high viz biz, and it’s hot.  If you like futures, you’ll LOVE the forex!  It will really get your trading mojo going.  What’s not to like?  ‘EVERYBODY’S TRADING IT’ is reason enough for you to trade it too.

I recently spoke with a long-time stock broker who confided in me that he wished he had discovered the forex a lot sooner.  He just recently saw the light and made the switch.  It’s never too late.

“I’ve recently converted from futures to the FX markets.  Needless to say, that was the right move to consistent profitability.  Your book and e-books were the main reasons for switching.  Many thanks for sharing your insight on this wonderful market.  It’s so much easier to trade than the E-mini contracts.”  (You will find more testimonials here.)

Salad days are here at the forex!  No need to think about after hours trading there, because it doesn’t exist.  The forex is always on, six days a week.

Join me at Tallinex Forex Trading – a forex broker that offers upwards of 1:1000 leverage.  You read that right.  By clicking on that link, you will be able to trade currencies easier, better, and faster on any platform.  And, you will get help from me when you need it. 

Go to Tallinex Forex Trading and enjoy:

  1. Raw ECN spreads
  2. Free signals
  3. Managed accounts
  4. MT4
  5. Mobile and tablet apps.

It just doesn’t get any better that.  Did I hear you say, “Wow!”  Please join me at Tallinex Forex Trading for FX trading at its best.  Forget after hours trading and all of its implications/limitations – you can trade with precision at any time at Tallinex, except late Friday afternoon till late Sunday afternoon, when the forex is not available for trading.  Phew!  Time to take a rest.

Got questions, or need help?  Just drop me a line here.  I would love to hear from you.  I want to rock your trading.

Check out the incredible features available to you at Tallinex Forex Trading below:

Screen shot of the 11 features of the Tallinex broker for trading the forex.

 (Make sure your country of residency allows you to trade with this broker.)

Quotes of the Day

“The markets are never wrong… opinions are.” Jesse Livermore

“Trade what you see – NOT what you expect.”

“The trend is your friend until the end.” Larry R Williams

“Trading is not about who is wrong or right, but how much you make when you are right, and how much you lose when you are wrong.”

“Taking chances almost always makes happy endings.”  Barbara Corcoran

“The secret to getting ahead is getting started.”  (Mark Twain)

Scott Britton:  “Persistence beats resistance.”  “Control the controllable.”

David Rosenberg:  (The Globe and Mail, August 17/15)

“I think I’ve had more wins than losses, but there have been both.  It’s like golf; you only remember your birdies.”

Trading Hack

Lower highs and lows connote a downtrend.  Higher highs and higher lows suggest an uptrend.

Where Interest Rates Are Headed
Not Where You Might Think
(Read on – it’s coming up.)

In my blog on the VIX indicator – check it out here – I indicated the relationship between that indicator and the Fed’s decision to raise rates or not.  As it turned out, the indicator flashed the right signal, and rates remained the same.  Well, there is another rate hike decision coming up just around the corner – October 27-28/15.  So, what’s it going to be this time?  Read on…

What Silver Has to Do With Interest
Rates (Silver (gbx) (comex)

Well, in addition to keeping an eye on what that indicator says once more, there is another tell-tale sign to be on the lookout for – silver, to be exact.  You say, “What’s that?”  I have been a commodities junkie since the earth cooled, or so it seems.  So, I have my nose to that market on a continual basis.

Here goes… As at October 6/15 – silver futures saw the biggest two-day gain in more than six months – this because the demand for silver escalated in response to the notion that the Fed would hold off on raising interest rates this year.  You can see that rise in price in the commodities chart for silver below, courtesy SuperCharts.

So, why would that have anything to do with silver?  Well, in actual fact, lower rates boost the demand for silver, because it doesn’t pay interest or give returns like competing assets, such as bonds and equities.   

The recent jobs report, October 2/15, showed weaker-than-expected job growth in the U.S.  That, in and of itself, could very well spook Janet Yellen into standing pat on rates.

Silver had fallen to its lowest level since 2009 on August 26/15, because it was felt that the Fed would raise rates due to the improving U.S. economy.  As we all know now, rates stayed the same in September.  Industrial demand for the metal had been ebbing amid concerns over the slowing growth in China.

What Dr. Copper Has to Say
About the U.S. Economy

Copper, dubbed Dr. Copper by stock market linguists, is purported to hold predictive capabilities when it comes to the economy.  It is used in just about every manufactured good that is made.  Copper staged a remarkable rebound early in the week of September 7/15 – Tuesday, to be precise.  On that day, futures rose more than five per cent – the biggest one-day gain in years.

China is the world’s largest consumer of commodities, including copper.  A sustained rebound in China’s economy would lift prices.

Let’s not forget that homes and autos in the U.S. are on a tear.  And, copper usage there grew by an estimated 3.8 per cent through May/15.

If you look at the futures chart for copper below, you will notice that, as at Oct. 9/15, copper put in a double bottom, which is a positive sign.

Getting back to after hours trading, you can encounter gaps and slippage, when you trade commodities outside of normal trading hours – one of the many reasons to consider trading the forex, where slippage is minimal, if at all.

Screen shots of copper and silver commodity futures charts.

Stocks to Die For
(As of Oct. 19/15)

Please note that, in this section, I bring you the very best investing/trading opportunities I can find – be they commodities, currencies, stocks or other asset classes.  These are not recommendations, but simply suggestions that you should look at, based on my extensive/intensive research.  In some cases, I have my own skin in the game.  Proceed at your own discretion, and use caution – only investing/trading with money you can afford to lose.

I have gone out of my way to do all the analysis – looking at the technicals,  timeframes, and underlying fundamental metrics.  I am not interested in anything that has a sloppy chart pattern, or an inconsistent growth rate over at least one year – perhaps two.  Please investigate these opportunities further, and be sure to exercise extreme due diligence before making any buying decisions.  If you have any questions, or would like further input from me, by all means contact me through the contact link on the site.  I would love to hear from you.  I am here for you.

Here we go… a bargain stock you won’t find in an index ETF, courtesy John Reese, The Globe and Mail, September 10/15 – WSFS Financial Corp.  (WSFS – Nasdaq):  This firm is based in Delaware, and has offices in all three counties of Delaware, northern Virginia and south-eastern Pennsylvania.  John is a fan of this company because it fits his Peter Lynch-based model.  It has a 38 per cent long-term earnings-per-share growth rate and 10.4 per cent price-to-earnings ratio.

In my last blog post, I brought you FISV Fiserv Inc. (NASDAQ).  It is still worthy of your attention.  Please be sure to read it here, if you haven’t already done so. 

(CHAU- Direxion Daily CSI 300 China A Share Bull 2X Shares (ETF) – Just a reminder… as I posted in my last blog, if you want to participate in the Chinese market inexpensively, keep an idea of this one.) 

Joshua Spencer, a portfolio manager and research analyst in the U.S. Equity Division of T. Rowe Price, has lost his love for Apple (AAPL) – this according to an interview with him on CNBC, October 22/15.

Also, David Rosenberg (Gluskin Sheff & Associates Inc.’s Chief Economist and Strategist), in an interview on CNBC October 26/15, said that short covering is fuelling the current market rally, and he sees this continuing till the end of the year.

More people are going to spend this season since the recession per Kniffen on CNBC, October 27/15.  And, discretionary spending is up 12-14% this year.  Seventy percent of the U.S. is consumption.  Bottom line, consumers are spending.  Accordingly, I am long XLY – Consumer Discretionary Select Sector SPDR ETF (ETF).  I jumped in at 79.46 Friday, October 23/15.

Companies at the heart of this ETF are from the following industries:  automobiles, auto components, apparel and luxury goods, distributors, diversified consumer services, hotels, household durables, leisure equipment and products, media, restaurants and leisure, retail (multiline, Internet and catalog, multiline, and specialty), and textiles.   

Looking at MarketWatch October 29/15, the YTD return on this ETF is 12.78% and the five-year average return is 19.76%, with total net assets of 9.94B.  The 52-week low, as at that date, is $65.00 and the 52-week high $80.61.

October 23/15, I also put a whack of money into the S&P 500 itself, having also done so previously just after the formation of the number one point and the ensuing inside bar shown on the chart later on in this blog post.

In closing, with low interest rates, stocks are better than bonds.  Valuations are reasonable.

If you missed my piece on after hours trading at the beginning of this post, please be sure to give it a read at your leisure.

Small Cap U.S. Stocks

Small stocks have historically outperformed the larger ones.  From 1960 through 2014, small-cap U.S. stocks returned 12.1% annually, compared with 12.0% for mid-caps and 9.9% for large stocks.

Small cap stocks have a higher beta – a measure of a stock’s volatility in relation to the market.

Beta refers to the measurement of risk, representing how a security is expected to respond to market movements in general. 

Alpha measurement, on the other hand, measures how an asset class performs compared to the overall market.

I like small cap stocks because their management is more accessible.  You can call up the CEO of such companies.  I also like small caps because these companies have much more room to grow.

You can track the Small Cap Index using the symbol SML – S&P Small Cap 600 Index (INDEX) – a benchmark for small-sized companies.

The Russell 2000 Index (RUT) measures the performance of the small-cap portion of U.S. equities.

The Russell 3000 Index (RUA) measures the performance of the 3,000 largest U.S. companies, which account for approximately 98% of the investable U.S. equity market.

Mid Cap Stocks

Mid-cap stocks have gained more than large stocks over the long term, and they’re generally able to weather economic shocks better than small firms.  That’s why many investors like to look for bargain stocks with market capitalization between $2-billion and $10-billion.

You can track the Mid Cap Index using the symbol MID – S&P 400 Mid Cap Index (INDEX) – a benchmark for mid-sized companies.

The S&P 500 (SP500), aka Standard & Poor’s 500, is the U.S. stock market index that is based on the market capitalizations of large-cap U.S. equities (500 large companies).  It captures something like 80% coverage of available market capitalization.

If you want to know the implications of trading stocks of any kind in after hours trading, you will find that information at the beginning of this post.

Terms That Matter

It helps in trading circles to know the terms that get bandied about from time-to-time.

According to Wikipedia, ‘Unicorn’ was recently introduced as a term in the investment industry – more specifically the venture capital industry.  It denotes a start-up company with a valuation that has exceeded a somewhat arbitrary figure of $1-billion dollars.  Aileen Lee of Cowboy Ventures has popularized the term.

Again according to Wikipedia, ‘CAPEX’ or ‘capex’ are capital expenditures that alter the future of a business.  Such expenditures occur when a company buys fixed assets, or increases the value of same with a useful life that extends beyond the taxable year.

I never fully understood what happened during the housing meltdown in the U.S.  I figure there are others in the same boat, so I thought I’d attempt to gain an understanding of what went on.  Here, I relied on Wikipedia to learn about this bet against mortgages being paid back.  It sure gave everybody a bad case of heartburn.  I hope this all makes sense to you.  I now consider myself more enlightened on this subject matter.

A Synthetic CDO, aka ‘collateralized debt obligation,’ is a variation of a CDO instrument that usually uses credit default swaps and other derivatives to achieve its investment goals.

It is a complicated derivative financial security that is sometimes characterized as a bet against the performance of other mortgage (or other) products, as opposed to a real mortgage security.

The payment stream and value of a synthetic CDO is not derived from cash assets, as is the case with credit card payments or mortgages read, a regular or ‘cash’ CDO but from premiums paid for credit default swap ‘insurance.’  The bet is in the event that some defined set of ‘reference’ securities that are based on cash assets will default.  The ‘counterparty’ buyers of such insurance may own the ‘reference’ securities, and be managing the risk of their possible default, or they may just be speculators who’ve determined that the securities will eventually default. 

The popularity of synthetics was due to them being cheaper and easier to create than the normal CDOs, which saw their fuel – mortgages – drying up.  Year 2005 saw the corporate bond synthetic CDO market spreading to the mortgage-backed securities market.  There, hedge funds or investment banks were for the most part the counterparties providing the payment stream.  They were essentially betting, or hedging, that certain debt represented by a synthetic CDO – ‘tranches’ of subprime home mortgages would eventually default.  In 2006, synthetic issuance jumped to $61 billion from $15 billion in 2005.  Synthetics thus became the major form of CDOs in the U.S., valued ‘notionally’ at an estimated $5 trillion by the end of the year.

Synthetic CDOs played a big role in the subprime mortgage crisis – enabling large wagers to be made on the value of mortgage-based securities, which may have led to fraud and lower lending standards.

Synthetic CDOs have come under fire for being seen as a way to hide short position of bets against subprime mortgages from triple-A seeking investors, who were kept in the dark.  This amplified the subprime mortgage housing bubble, thereby contributing to the 2007- 2009 financial crisis.  The total ‘notional’ value of synthetics had been reduced to a couple of billion by 2012.

A ‘Golden Cross’ is a bullish technical indicator.  It occurs when the 50-day moving average crosses up through the 200-day moving average, indicating that the price trend is rising.

A ‘Death Cross’ is just the opposite.  It is a bearish technical indicator.  It occurs when the 50-day moving average crosses down through the 200-day moving average, indicating that the price trend is falling.

In both cases, I prefer to use EMAs – ‘Exponential Moving Averages.’  This type of moving average is similar to a simple moving average; however, more weight is given to the latest data. It is also known as ‘Exponentially Weighted Moving Average.’ 

What is meant by ‘after hours trading?’  Well, in case you glossed over the first part of this post, I covered that concept there, so be sure to go back and read up on it, when you get a chance.

Thanks to Wikipedia, West Texas Intermediate (WTI), is also known as Texas light sweet.  This grade of crude oil is used as a benchmark in oil pricing.  The term light refers to its relatively low density – sweet due to its low sulfur content.  WTI is the underlying commodity of the New York Mercantile Exchange’s oil futures contracts.

You will often see the price of WTI in news reports on oil prices, together with the price of Brent crude from the North Sea.  The Dubai Crude, Oman Crude, Urals oil and the OPEC Reference Basket are other important oil markers.  WTI is lighter and sweeter than Brent, Dubai and Oman.

According to Investopedia, a ‘Black Swan’ is an event or occurrence that is extremely difficult to predict.  It differs from what is normally expected in any given situation.  This term was popularized by a finance professor and former Wall Street trader – Nassim Nicholas Taleb.

What Does ‘Mark to Market (MTM)’ Mean?  Referencing The Financial-Dictionary (Free Dictionary by Farlax), MTM entails recording and/or updating the price or value of an account, portfolio, or security to reflect its current market – not its book value.  As to mutual funds, the most current market values are used to determine the net asset value (NAV) of the fund.

In the futures market, Investopedia explains that MTM is often performed to ensure that margin requirements are met.  A trader will incur a margin call if the current market value causes the margin account to fall below its required level.  On a daily basis, mutual funds are marked to market at the market close – this to ensure that investors know a fund’s NAV.

Courtesy MetaStock, On Balance Volume (‘OBV’) is a momentum indicator that ties volume to price change.  Developed by Joe Granville, OBV was originally presented in his book, ‘New Strategy of Daily Stock Market Timing for Maximum Profits.’  OBC represents a running total of volume.

According to Wikipedia and other sources, ‘Front Running’ is the illegal/unethical practice of analysts, brokers and market makers a stockbroker dealing on advance information and executing orders before clients have had a chance to acquire the same knowledge.

The front runner buys for its own account before filling customer buy orders, thereby driving the price up, or sells for its own account before filling customer sell orders, thereby driving the price down.

A Dark Horse stock is one that comes from nowhere – suddenly springing to life for reasons hitherto unforeseen.

Investopedia reports that ‘EBITDA’ is a indication of a company’s operating profitability.  It equates to earnings before interest, tax, depreciation and amortization divided by total revenue. EBITDA margin can provide a clearer view of a company’s core profitability, given that it excludes depreciation and amortization.

Investophedi defines ‘Alpha’ and ‘Beta’ as risk ratio measurements that can be used to calculate, compare and predict returns.  They are usually associated with mutual funds and similar investments, and reference benchmark indexes, such as the S&P 500.  They compare them to the security in question to identify a particular performance tendency.

The other three standard technical risk calculations numbers are R-squared, standard deviation and Sharpe ratio.

Wikipedia addresses ‘Alpha’ in terms of the performance of an investment compared to a particular market index.  An alpha of 1 equates to a return on investment, net of fees, over a selected period of time, – 1% besting the market for the same period, -1 signifying underperformance.

It has usually been the case that most traditional funds have seen negative alphas, leading to a movement of capital to non-traditional hedge funds and index funds.

Investopedia states that ‘Beta’ is sometimes called the ‘Beta Coefficient,’ and that it is designed to interpret the volatility of a specific security, doing so by comparing it over a period of time to the performance of a related benchmark.  Investors/traders want to know how much downside capture they can foresee from a particular investment, and that is why beta is of interest to them. CAPM analysis is also used to calculate beta.  I will address that term in a future post.

Again, according to Investopedia, a security will be less volatile than the market, if its beta is less than one.  On the other hand, the price of a security will be more volatile than the market, if its beta is greater than one.  To give you an example, a stock can be viewed as being theoretically 20% more volatile than the market, if its beta is 1.2.

Before you continue, be sure to check out the main feature of this post – after hours trading – at the beginning, if you missed it.

What’s ‘UP’ With the S&P 500?
(I have lots of skin in this game.)

Referencing my blog post on the CBOE Volatility Index (VIX) – available here – I would like to re-visit where we stand with the S&P 500.  In that blog post, I indicated that we had hit the bottom of the market swoon that took our breath away – a 10 per cent market correction.

That represented a great buying opportunity, in my estimation.  I bought into that market twice after the plunge.  Always buy, when others are fearful, according to Warren Buffett.

Okay, so let’s see where we stand this time around.  As you can see from the chart below, again courtesy SuperCharts, that bottom has held, and I am in the money.  So, where to from here?

I disagree with the pundits that the floor for the S&P 500 is probably ~1850.  We’re way past that now.  But, what is the ceiling?  I’ve heard 2300 by the end of next year (2016).  First, let’s hear what one of Wall Street’s most optimistic equity forecasters, Michael Purves, has to say.  He is the chief global strategist at Weeden & Co.

He has lowered his year-end forecast for the S&P 500 index by 13 per cent to 2,050.  Boo on that.  His old target of 2,350 had been the highest among 21 firms tracked by Bloomberg.

“Subdued growth in corporate earnings and unsettled economies in China and other emerging markets will confine the benchmark gauge to a range of 1,850 to 2,050.”  This he wrote in a note to clients October 5/15.

For the first time since 2011, the S&P 500 plunged 10 per cent in four days in August/15.  As a consequence, 12 of the 21 strategists surveyed by Bloomberg cut their year-end forecasts, the average prediction having dropped 3.9 per cent to 2,147 since August 10.

To reach that level, the S&P 500 would have to rally 10 per cent by the end of this year.

I don’t know about everybody else, but I am a pure market technician.  I go by what the charts tell me.  I believe that all market forces are reflected in price action.  What I see in the futures chart below for the S&P 500 is a 1-2-3 bottom.

You will notice that I have identified the one, two and three points on the chart.  Considering that price has broken through the number two point, technical analysis calls for price to advance North to beyond 2120.  I would count on at least that level on the breakout.

As I indicated previously, I bought after the swoon – after the number one point was put in, followed by an inside bar, and I subsequently entered again on a break of the number two point.

Another way of looking at this is to see what the VIX is telling us – or, more importantly, how the Big Dogs view that indicator.  As can be seen from the COT graph beneath the S&P 500 futures chart below, they are extremely short the VIX (orange line).  That augers well for an advance in the S&P 500.

How long is it going to take for the S&P 500 to reach ~2,120 on the breakout, I don’t know.  I don’t have a crystal ball.  

In terms of going long U.S. corporate risk (bonds and equities) versus similar assets in the rest of the world, it is comforting to know that U.S. companies still tend to have quite a bit of cash on their balance sheets.  This according to Bloomberg News.

According to David Rosenberg (Chief Economist and Strategist at Gluskin Sheff + Associates), the bull market in equities isn’t going to end until there is a recession, and he doesn’t see one in the next two years.

In an article in The Globe and Mail, October 13/15 he was reported to have shown in some analysis that we are about to see the impact of the falling Canadian currency with Canada’s Q3 GDP growth tracking to outperform the U.S.

October is setting up as the best month in four years.

Regarding the recent market turmoil, you would have to ask yourself what Warren Buffett – the master investor – would do.  He once stated that market corrections return companies to their rightful holders – the ones that are savvy enough to buy while those around them are selling.

S&P 500 Weekly Futures Oct. 23/15
Before the Fed Decision Oct. 28/15

Screen shot of the S&P 500 commodity futures chart showing the 1-2-3 bottom.

VIX COT Oct. 23/15 in Advance
of Fed Decision Oct. 28/15

Commitments of Traders (COT) graph of the VIX indicator before the Fed rate decision October 28/15.

Bet you don’t know where interest
rates are going.  I do!

Lady tooting her horn about where interest rates are going.

I read an interesting article recently written by an actuary.  What a boring science that is – mind- numbing stuff.  But, I read it anyway, and I’m glad I did, because he shed some light on what the future holds for interest rates.  It sure opened my eyes, and gave me a leg up on others on this important matter.

Here goes… you have the benefit of me summarizing what I had to wade through to get to the nub of the underlying message in the article.  I read it late one night, and am proud of myself for reading the whole thing from beginning to end without falling asleep.  What a challenge that was, believe me.  Not exactly bedtime reading.  Dry as s#$%!

In a nutshell… as reported by Fred Vettese (an actuary) in the National Post, October 5/15… a return to so-called normal interest rate levels will not happen any time soon… this conclusion reached as a result of a paper by Michael Walker (published by the Fraser Institute in January).

The basic premise is that older people save, while younger people borrow.  When there are less elderly people and more young people, the supply of funds available for borrowing becomes scarce.  Consequently, there is more competition for these scarce funds, and borrowers have to pay higher interest rates.  That was the case in 1990.

Ever since then, the balance has been shifting – more elderly people, less young people, as time progresses – and this will continue to be the case in all developed countries beyond 2030.  Using the Japan experience as an example, this could equate to us being mired in low interest rates and low inflation all that time.

Translation:  We may all be faced with lower investment returns, higher savings rates and later retirement.

Thank you my friend for wading through this blog post.  I hope you enjoyed the opening section on after hours trading, plus all the other topics.  Stay tuned… there will be many, many more posts to come.

In the meantime…

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Here’s To Your Success and Quality of Life,

prbain

Peter R. Bain
PS:  Don’t let them steal your dreams!
PPS:  I will help you achieve your dreams!

About Peter R. Bain

Picture of Peter R. Bain, founder of www.TradingSmarts.com – the go-to site for all things trading.

Peter R. Bain

I am a speaker, trader, writer, aviator, car nut, Harley enthusiast but, above all else, I am here for you at TradingSmarts, which I founded some 15 years ago.

TradingSmarts is your best friend when it comes to finding anything and everything to do with trading.  Through my blog you will always find guides, news, reviews, tutorials, and much, much more.

TradingSmarts is a ‘NO-BS, No-Holds-Barred, Take-No- Prisoners’ site for traders who want the straight-bill-of-goods on how to make a full-time income trading less than part-time. 

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Peter R. Bain

I am a speaker, trader, writer,
aviator, car nut, Harley enthusiast
but, above all else, I am here for you.

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