One reason stocks have worked higher – stock buy-backs
Here is just one more reason to believe the stock rally is coming ot an end – stock buy-backs. This is a little-reported theme, but is one that is worthy of note.
US companies have been buying their own stock in an effort to pump up the value of options for their top executives. That is rather cynical, I know. But I do not believe company brass have the best interests of the little shareholder in mind at all times – unless it coincides with their own, of course.
Remember, we are in the Age of Greed, which has even exceeded that in the 1980s when Gordon Gekko famously said: “Greed is good” Today, it is even better.
In any case, with record cash piles on their balance sheets and no inclination to spend much on R&D, they have only one place to go – buy their own shares.
Recently, they have been falling over themselves doing this, so that the pace of buy-backs has been running at twice the average for the past ten years.
If you have a keen sense of history, you will know that chief financial officers have a terrible record at trade timing – they invariably buy when the market is about to turn down. They act like central bankers with gold – they buy high and sell low.
So this is a major signal for me.
Can it be? In all of my trading career, I have come across few really valid Double Tops. In the old pre-computer era (yes, there was such a time), to be a valid DT, the tops had to be separated by at least six weeks. That was one of the first ta rule I was taught.
Now look at this – the first top was put in on the famous 22 May (Fed taper warning day) and the latest high was made on 30 October at the 6800 level. The separation is five months.
So this could qualify! But of course, the latest high needs to hold – and it to iss early to call it definitively. Sadly, in trading, the only thing definitive can be seen only in hindsight. But, this has all the makings, so far.
Is there any other market that can offer more clues?
I have shown the lovely tramlines from the 2009 low with the market having just touched the upper line. Yesterday’s strong rally has carried to almost a new high, but is short of my tramline.
Incidentally, I was short the Dow at 15,760 and I exited yesterday on the rally at break even, thereby dodging that bullet.
The latest leg has a five wave pattern with the market now in the fifth and final wave up.
There is still a small gap to the tramline, which could be filled and not overcome the resistance offered by the line.
The bottom line: We should be in the very latter stages of the entire 2009 – 2013 rally, and I will be looking for another short entry.
USD.JY – My Trade for 2102 (and 2103, and 2014)
This morning, has punched up past the magical 100 level:
By some measures, the market could rally first into the 105 – 106 area, and then on to the 110 – 120 region. There is a lot left in this wonderful market.
I remain long.