It’s Hip to be Square

For those that don’t know, Square (SQ) allows merchants to accept mobile credit card payments via a dongle that can be inserted into the port of a phone. When they entered into the payments space, square had the potential to be a disruptor type of business, supplanting Visa and MC as the go to platform for mobile payments. They continue to be a leader and a reason to own the stock.

I like this company and the current leadership position it holds. As such, it is worthy of investment capital, but at the right price and place. As you can see in the chart below, after peaking in September of last year, its price has bounced around and really done nothing other than consolidate sideways awaiting institutional buyers (or sellers) to take the reins and determine its next move. If you have been waiting for an opportunity to enter this stock, yesterday everything you want to see as a buyer (or share owner) happened. Price broke out of a short term (3-month) base making a new, higher high. It did this on significant volume (more than 4x normal) letting us know some bigger players are stepping forth. The fact it is breaking out from a symmetrical, well formed reversal pattern seals the deal.

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The upside target for the inverse head and shoulders reversal pattern is up at T1, some ~25% above its breakout point. If the market cooperates and continues to push higher for the balance of the year, it would not surprise me this goes well beyond T1 and on to make new, all-time highs. Like all investments, it comes with risk and having an exit strategy is critical. Clearly, a break back down below the blue horizontal neckline and down to the pattern’s right shoulder would invalidate the pattern and let me know my analysis was wrong (and time to exit).

While its hip to be square, it’s even hipper to be healthy. Get well Huey! May we have the chance to hear you sing again

In Case You Missed Out

In case investors missed out on the compelling [sic] recent Swiss government bond issue, I am here to lay calm to your FOMO (fear of missing out). It’s baaack. As pointed out by Charlie Bilello … $10,000 invested today for 30 years in the new Swiss government bonds will “grow” to $9,856 at maturity 2049. (note: assumes interest rates reinvested at @ current 30-yr rate of -0.05%).

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This path (negative interest rates) most of Europe has embarked upon will eventually end very badly and why i continue to avoid that region of the world with client investment capital.

Record Equity Outflows - Caution Flag?

On the surface it seems the headline should be negative for stock prices when the amount of money flowing out of equity mutual funds and ETFs has reached a record. But, as you can see below, when outflows have reached these levels in the past (bottom pane), it has been followed by a strong upward, sustainable trend in US stock prices (top pane) soon thereafter.

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While there are no guarantees equity outflows won’t continue, it looks as if we may be setting up for a further push higher for US stocks.

A Tighter Leash?

The latest market statistics posted by Sentimenttrader in his “The Everything Rally” were very revealing and encouraging if you are a stock market bull. Here are some of the highlights from his post

Total return stock and bond indexes are hitting all-time highs at the same time. They cover an array of stocks and bonds, suggesting extreme breadth of buying interest, as noted by Bloomberg.

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When they’ve all hit records together, it has been an especially good longer-term sign for stocks. They rallied almost universally after these signals and over the next 2-6 months, there was only one date that showed a loss of more than 1%. For bonds, it wasn’t quite as consistently positive, but all of them showed gains most of the time across all time frames, with returns mostly above random.

Quick cycle

Yet again, stocks showed a tendency to cycle quickly from a selloff to new highs. For the S&P 500, it went from a 50-day low multi-year high in less than three weeks, nearly a record going back to 1928.

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The median cycle from low to high has taken 34 days, so this was nearly three times faster than usual. Over the next month, it seems like sellers had a strong tendency to give up. From 1-4 weeks later, there was only a single loss, and the risk/reward was impressively skewed to the upside.

Dollar downtrend

The U.S. dollar’s 200-day average has been rising for a year, but the late-week selling has pushed the buck to a multi-month low and below its average. This has led to a rebound in the dollar in the past, but half of them didn’t last.

It’s important to temper any giddiness just because you are investing with the higher probability outcome. It does not always turn out in your favor as we so aptly learned during last December’s market double bottom expectation. There are never any guarantees when it comes to investing but it appears as the higher probability resolution of the current consolidation and test of prior highs should end with stocks continuing to push on to further new highs and remain in its long-term uptrend.

The dollar statistics are anything but compelling or confidence building so any investment you own that is strongly correlated to the dollar’s movement (commodities, interest rates, FX currency trades) should be viewed as suspect (guilty until proven otherwise) and as such, managed with a tighter leash.