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Is It Crazy to Buy ‘Em Up Here?

By Rick Ackerman Posted on April 12, 2013, 6:01 am EDT Last Updated April 12, 2013, 6:06 am EDT

The chart below comes from Doug Behnfield, a friend who is also the savviest and most successful financial advisor we know. Doug has been a bear’s bear for years, and to stay on the cutting edge, he talks almost daily with guys who turn up regularly on the network business channels and in interviews with major-league financial publications. He has produced stellar returns for his clients, mainly by keeping them well weighted in Treasuries. That strategy might seem like a no-brainer these days, especially with the long-term bonds in a vertical climb for the last month. But he has held this position through thick and thin, even at times when such savvy bettors as Pimco’s Bill Gross were throwing in the towel.

No doubt, Doug likes to keep most closely in touch with economists and gurus who share his bearish point of view. It’s not a matter of misery loving company, either.  The stock market has indeed vexed bears by climbing a steep wall of worry.  And now, flouting the palpable threat of a downturn in corporate earnings, the Dow Industrials are making new all-time highs regularly.  More than ever, the question tormenting bears is: How could investors be so stupid?  For the permabear, there will always be comfort in talking to guys who can reel off a dozen good reasons why stocks are about to collapse. But that’s not why Doug talks to them.  Rather, he does so because he has the rare ability to reduce a hundred well informed opinions into a compact and logical set of facts that will consistently make his clients money.

A Key Resistance

So what do we make of his chart, which shows price action for the S&P 500 going back 20 years? Doug is laser-focused on just one detail: the intersection this week of manic buying spree and long-term trendline. Will the trendline hold? Regardless, Doug says this is no time to buy stocks, nor to put one’s faith in the “linear” argument that shares cannot possibly go down while the Fed is easing so aggressively. Playing devil’s advocate, we disagreed, observing that if share prices were to double over the next five years, which they conceivably could, the broad topping pattern he discerns could become the extremely bullish left shoulder of a giant head-and-shoulders pattern that by the time it is completed will have taken half a lifetime to construct.

Not that we actually believe this could happen. It’s just a thought. But “believing” has little value in this game, as we’ve learned time and again over the course of nearly 40 years of market-watching.  What matters most to us is what the charts are saying, and right now their message is:  Stand aside if you’re so foolish as to think you know how it will all turn out.  However, being the inveterate bears we are, it was too tempting to pass up an opportunity to get short at these levels. Both the E-Mini futures and the Diamonds are trading within a hair of some key rally targets of ours (click here to find out where they are via a free week of Rick’s Picks), and it would be irresponsible for us to fail to take advantage of them. Odds will always be heavily against nailing the exact top of a rally that is now in its fifth year. However,using tight stops, we can at least attempt it without getting hurt too badly if we are wrong.

  • markus wallett April 15, 2013, 3:43 pm

    It’s about time China took on the power elite criminals in the USA and liquidated some of their treasuries for physical gold. Bring ’em down.

  • Jill April 14, 2013, 10:05 pm

    Yes, they always say that, but it is harder than one might think. You don’t want to just buy today lower than your stock was yesterday. You want to buy today lower than your stock is going to be tomorrow. Easier said than done. From October 2007 to March 2009 e.g., with 20/20 hindsight, anyone can see when the stock market was high and when low. But during those years, it was easy for folks to think that a 15% or 20% decline from the high was an incredible bargain.

  • KevinR April 14, 2013, 2:59 pm

    We’ll was it a back up the truck day for GDXJ? I think it actually came within a fraction of a hair of Rick’s target.

    Buy low, sell high – isn’t that what they say….?

  • gary leibowitz April 13, 2013, 3:27 am

    I thought your SPX should reach 162x for you to declare a reversal? As for Gold, it already broke below 1487. Do you still expect a reversal here? Couldn’t the next downturn level be reached first? I personally would wait for a bottoming affect where the lows are tested. Most reversals from a bottom take time and don’t usually follow thru with a “V” shape pattern. At best the letter “W” might be more appropriate.

    I do hope you are right about equities. This move has been too long and too high for my taste. If it continues much higher I would be on the lookout for a sharp reversal or correction. Too high, too fast. That can spell trouble.

    • gary leibowitz April 13, 2013, 3:39 am

      BTW, regarding flash crashes, this guy is predicting a 7 to 12 percent drop after the high is reached on 4/17.
      His target is around 1607 on the SPX, followed by 2 to 3 week drop. He doesn’t think it is a major turning point however. That would fit into my assumption that we have one more leg up after this one.

      http://timeandcycles.blogspot.com/

  • Cam Fitzgerald April 12, 2013, 11:40 pm

    Silver down a stunning 7% just moments ago. Gold off 5.5% and still dropping as it falls below 1477.00………where the heck is everyone?

    Isn’t anyone stepping up to play the bounce?

    • gary leibowitz April 13, 2013, 3:57 am

      Rick mentioned a while ago that we could see a nasty drop yet most here had dismissed it as a slim possibility. Considering the long run up and huge 5 fold move this is just a small drop. I once played the futures market on Gold. The 2 most volatile commodity bets on a daily basis is Gold and OJ. I sure am glad I left playing that market with my shirt intact.

  • redwilldanaher April 12, 2013, 10:25 pm

    Just remember that TPTB literally bought equities hand over fist in the early and middle stages of this “bull market”. As Rick notes, there are literally thousands of things that can be pointed to that argue against this moving higher and certainly that it is legitimate. I always conclude the same way: They can do with it what they want at any time since they control it and virtually everything else. They can break their own laws and still haul you off to the pokey for breaking the very same law. As was noted in this forum several times, the market averages are part of a PSYOPS campaign just like everything else. This is and has been a centrally planned stock market with pathetic volume and participation rates. They had to buy it back up because the “game” was over simply on the basis of what the large insurers had promised to variable annuity holders. With the DOW at 6600 or below, the losses were well into TENS of Trillions if not more. I thought it could happen but I never thought they’d be so brazen as to do it in 1 straight vertical line. But alas they have…

  • Jill April 12, 2013, 5:26 pm

    Here it is– Rick’s recent article on gold.

    http://www.rickackerman.com/2013/04/gold-close-to-trashing-a-key-support/

    • Cam Fitzgerald April 12, 2013, 7:50 pm

      Actually the original bottom call on metals and miners goes back to this last winter if I remember, Jill. Rick had posted on GDXJ dropping to some preposterously low number (13 bucks and change I think) that looked unbelievable at the time. Maybe it was summer 2013. I just can’t find the link anymore.

  • Jill April 12, 2013, 5:24 pm

    Wonder if today was the washout bottom in gold. If I am remembering correctly, Rick’s target was a bit lower than this, but not by much. Anyone have any thoughts on this?

    &&&&&&

    The precise target was 1487.90, basic the Comex June contract. Today’s low at 1491.40 has effectively fulfilled the target, although strictly speaking it remains valid until hit or exceeded.     RA

    • Cam Fitzgerald April 12, 2013, 7:00 pm

      Jeepers, that was a brutal decline in PM’s. Did it set any records? That drop was a solid kick in the head to all the smart asses who kept advising their readers and customers to hurry up and get long because……well, you know…..gold is just going to explode to the upside.

      Any day now……..whoops, so much for Fundamental analysis.

      But what did we really expect? When virtually every major bank including the likes of Goldman, Scotia-Mocatta, HSBC and Barclays (just to name a very few) have called for subsantially lower metals prices this year why would any of us really have though they were just foolin around?

      Fact is that gold is seen as the enemy by every Central Bank on the planet that is in the midst of devaluing their currency. It must not succeed.

      That list just happens to include everyone of importance…the likes of the US, England. China, Canada, Europe and now Japan. You know, the same group that accounts for pretty much 80% of global activity. These include the four biggest economies on the planet and scores of smaller ones.

      I would hazard to say that when the CB’s of those countries and most of the associated private banks that do all the heavy lifting of buying and selling TB’s, securities, currencies and what-not, tell us that gold is finished we can probably believe they will make it happen if they so choose.

      All that aside….if your number holds, Rick, and gold reverses from here then I am certain you should be in line for some kind of award. Certainly the accolades and praise of your fellow traders.

    • Cam Fitzgerald April 12, 2013, 7:14 pm

      Oh, just a side note….I would say the hedge funds won this battle hands down. They were reportedly holding most of the new short positions. Meanwhile, I was almost convinced by the pundits who proclaimed so convincingly that a massive short squeeze was coming were actually going to be right.

      But no…they were just blowin smoke as usual.

  • John Jay April 12, 2013, 3:40 pm

    I think Ben B is doing more than just enabling the TBTF banks to continue looting the US Treasury.
    By keeping both the stock and bond markets levitating he has been providing a financial windfall to all the underwater State and municipal pension funds as well as all the insurance companies who are paying out on annuities. The whole economic hologram has begun to flicker to the extent that even ZIRP and QEnfinity aren’t enough.

    The planets on the outer edge of the financial “Big Bang” of fiat/debt/fraud are imploding back towards the Singularity whence they came. Witness Greece, Cyprus, Spain, Portugal etc.
    Witness Detroit, Stockton etc. So now TPTB everywhere are trying to stop the implosion with 75% taxes like France, or outright theft of deposits like Cyprus.

    And in States without a Prop 13 such as California, property taxes can triple or more in ten years.
    I submit the following concerning Bridgeport, CT a mini Detroit that was a manufacturing powerhouse back in the day, and now is destitute.

    “Sharon Dominici, a widow and senior citizen, said property taxes on her Black Rock home have increased from $5,200 to $18,000 annually in just over a decade. “I love Black Rock. I love Bridgeport. But I feel I can no longer live here,” Dominici said, before pausing to wipe away tears. “I’m asking you please to keep this budget low, to keep the taxes at least how they are now, and to decrease them as the years go by.”

    Link to ctpost.com: http://tinyurl.com/c6wv3cf

    Sorry Sharon, but municipal COG is always the Prime Directive, so tough luck on your plea for mercy from the Sheriff of Nottingham! Your tears will just bring amused smirks from your Overlords and a tax lien if you don’t pay up. I keep expecting Ben B to break out laughing when he says he” knows” his ZIRP policy is crushing savers. As if he cares at all. ZIRP enables COG and COO.
    That’s all he cares about. That’s all politicians at every level from DC to Bridgeport CT care about.
    It is predictable as Physics.

    ps: Here is a link to some property tax rates in CT. from ctpost.com: http://tinyurl.com/cxrrm4j

    Sharon should have sold her house in Bridgeport and moved to Greenwich. Mill rate is 10 in Greenwich and 41 in Bridgeport. Blackrock is the most expensive area on the LI Sound in Bridgeport so Sharon’s house is likely worth high six figures even in Bridgeport.


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