Turnaround Tuesday -- Terrible Chinese Data Trumped by Barron's Cover

Stocks could rally 10% by the end of the year!  

That's the proclamation on the cover of Barron's (owned by Murdoch) this week as they excitedly proclaim that DESPITE market turbulence, Wall Street's "TOP" strategists see 2,150 as their S&P target for the end of the year - 10% up from Friday's 1,921.22 close.  

It doesn't matter that China's imports fell 13.8% in August (the 10th consecutive down month) while imports (mostly commodities used to make the exports) fell 5.5% as well.  While that's much worse than the -8.2% predicted by "top strategists" only weeks ago, it may be SO BAD that China has no choice but to add more stimulus.  In other words, the news is so bad - it's good!  

Chinese officials lowered their 2014 growth estimates to 7.3%, which is 20% higher than the 6% track they are currently on so that's another reason to get stimulus fever because only a MASSIVE boost of some kind (or some very creative accounting) is going to get them anywhere near that number.  Last year, China's GDP hit their target of $10,000,000,000,000.00 to the penny - so it doesn't pay to bet against their "predictions."  

Speaking of predictions, here's a few from the Barron's article:

I don't want to pick on any one individual (in fact I started to and it came out mean so I deleted it) but if you simply google the names of these analysts, you'll see that they've been bullish all year and that a lot of their predictions would have been a disaster had you followed them and essentially they are dying for the market to recover so they don't look like total idiots (not that anyone is ever held accountable in this business).  

These are, without a doubt, powerful people and their recommendations send millions of sheeple stampeding into equity positions because they represent firms with tens or hundreds of Billions of Dollars under management.  As you probably know, we went to mainly cash last week and, this weekend, we discussed our CAUTIOUS strategy for buying back in - but we didn't mean TODAY!  

More than anything else, what scares me in this market environment is whatever scares THEM so much that they are TERRIFIED to allow the markets to make even a normal(ish) 10% correction without immediately trying to prop things back up.  Healthy markets need to let off steam every once in a while - it's how we build a healthy base that we can move higher from.  Without that - every floor is fragile and every ceiling is just another looming rejection.  

Even the enthusiastic 2,150 target by the Barron's Booster Club is only back at the year's high.  Of course your brokers (who employ those analysts) and the Billionaire owner of Barron's want you to keep your money in the market.  That's how they make their money - by scraping the fees off of yours!  If you take your money out - who are they going to rob tomorrow?

Keep 'em churning and burning is what a brokerage manager tells his sales people (known to you as your financial adviser).  That's churning your account by constantly moving in and out of positions and burning fees where "burning" refers to what's happening to your account balance as the fees drain it dry.   

Sometimes it's a perfectly valid to simply opt not to play (advice given by the great WOPR) yet so many investors fear it.  Cash happens to be a valid asset class, only it doesn't feel that way - and certainly not when inflation is rising at 3-4 times the rate the Government reports and stock market gains make your cash pile seem smaller every day.  

The markets are now back to where we made our cash call last week and we're certainly not going to be all impressed by these gyrations - especially as they are driven by thin pre-market trading in the US and more empty promises of stimulus and more QE - all the things that got us to this precipice in the first place.  

What we will be watching is our Big Chart and our Bounce lines which, taking into account this morning's pre-market pump job, look like this:

  • Dow 16,200 (weak) and 16,650 (strong) 
  • S&P 1,900 (weak) and 1,950 (strong) 
  • Nasdaq 4,550 (weak) and 4,700 (strong)
  • NYSE 10,050 (weak) and 10,300 (strong)
  • Russell 1,130 (weak) and 1,160 (strong).

These are the same bounce lines we've been looking for since the big drop on 8/24 and the S&P already popped to 1,988 and we took that as a sign to cash out - not to go long so, with all due respect to Barron's "Top Analysts", we'll sit this one out, thank you, and wait to see how the week unfolds - especially with the Fed indecision coming on the 17th, where they will announce that hikes will come in October (28th), as long as the economy behaves itself.  

Wednesday night (9:30 pm, EST) we get China's CPI and PPI reports and the BOE has it's rate decision Thursday morning (7am) and our own PPI is out Friday, so plenty of data to chew on this week and, as noted in our weekend posts - PLENTY of stocks to buy at a lovely discount - so no reason to hurry.