Wednesday August 1 2012
Unlike counterparts around Europe, the Bulgarian finance minister hasn't shied from public speculation about a euro collapse. “I think there is a great chance that within six months the euro zone will no longer exist,” Djankov told a Bulgarian TV channel in November 2011.
I spelled out the different stages of social mood during an Elliott Wave Progression a few days back. The reason was to provide a guide as to what to expect between now and Labor Day. The first Wave up erupted beginning last Wednesday Morning. After several hundred points, a pullback thinking is evident in the comment above. Djankov still believes the Euro will cease to exist. As I write this morning the Euro is 123.14. I don't doubt the smaller countries will stick with their own c currencies but strength for the Euro still lies ahead.
Pattern Breaks Out
The 125 162 200 MAs define the upward channel from the important June 1 low. While the guys at stockcharts were proclaiming the market was bearish and headed down the SPX had accumulated 100 points. Now at far right price has broken out of this channel and is headed up. The 25 and 50 MAs are pointing up. And so this becomes a literal depiction of the disbelief that the market is in fact headed higher. In the bottom panel, and yes this is important, the character of RSI changed completely coming out of the June 1 low. Now it remains above thee 50% line.
Public on the Defense
One Market Perspective Reader has asked for more coverage of defensive sectors. I expect what this chart means is that Utilities will top first over the next couple of months. Some money will be drawn to the under performing sectors of commodities.
Refiners are a sort of economic indicator. They do well on the spread between the cost of oil and the wholesale prices of the refined products. Note Valero has already zoomed back to its March high.
Gold exhibits a series of higher lows since the big move up June 1. RSI has substantially improved in the lower panel. It needs a weekly close over 1650 to really get going. Central Bankers hate gold of course as it interferes with printing fiat money. A stronger gold price casts doubt on the value of paper money. But Central Banks are now buying gold. It is getting stronger on the suggestion that there will be a QE 3.
Rush for the Exits out of the Safe Harbor
The hourly chart exhibits a big gap as traders exited the Bond Safe Harbor. A normal bounce back has occurred but that gap will likely be hard to fill. Note the change in RSI in the bottom panel. This is how a change in markets occur, slow at first, lots of doubt, but with higher lows as seen in gold above in the out of favor sectors.
There is little else to add at this point. If we are right that the sentiment shifted from negative to positive a week ago Wednesday, we should see different results. The stock market dropped on the last five employment reports. Why, well all news in a bear market is bearish. And so if we are right that sentiment has shifted, no matter what the report is this Friday, the markets should exhibit some positive reaction.
We are All Maverick Now
Yesterday's WSJ had an article on page one, Regulators Target Day Trading Firm. Swift Trade Inc has aggressively attracted day traders around the world. The article begins in the unlikely neighborhood of Cluj-Napoca, Romania where four young men in t shirts day trade stocks. The article goes on to explains techniques such as layering. The traders buy a stock for say $10. They input a sell order at $10.10. But they also have larger orders progressively higher at say 10.20,10.30,10.40. Once the sell order is filled, the larger orders are cancelled. The purpose of the large orders is to induce other traders to buy in believing there is buying power at higher prices. A former trader indicates there are boxes of keyboards available as traders tend to literally smash then to bits when frustration sets in.
Now, the television series Maverick ran from 1957 to 1962. So it began in Ike's recession of 1958 and ran into the go go 1960s. Here is a summary of dilemmas of the Maverick brothers in the series from Wikipedia.
They would typically find themselves weighing a financial windfall against a moral dilemma. More often than not, their consciences trumped their wallets.
Well gee how far have we come, that is at least a lot more than one can say for Loyd Blankfein or the groups at IMF Global or Peregrine. And today there are over 30 states with lotteries. Revenue in Macau casinos dwarfs the take in Vegas. A small percent of US wealth was in stocks in 1962, today the world has become Maverick.
Here is another description of the show.
The Mavericks were poker players from Texas who traveled all over the American Old West and on Mississippi riverboats, constantly getting into and out of life-threatening trouble of one sort or another, usually involving money, women, or both.
This is a metaphor for Oliver Stone's line, Money Never Sleeps. Exchanges are booming in Hong Kong and Singapore as companies seek escape from USA regulation. Traders are popping up everywhere, even in Romania. Sports betting continues to expand world wide.
Now my point is this. I read that a lot of the blogs and analysts note that the weakening world economy does not support higher stock prices. Bunk. Higher stock prices are driven by those bets all over the world just trying to make money. The underlying fundamentals are of considerably less significance, at least at this point. Mr. Beck at Swift indicates an advantage of doing business in far flung countries is the lack of oversight. No kidding.
Yes eventually fundamentals will matter. But for now those in bonds and the dollar are moving to stocks oil and gold.
Yesterday I attended a seminar on the new regulations of health care, the new tax rates for 2013, and hew HR regulations. All these will matter significantly as fundamentals as we move into 2013 and they take effect. It is no wonder companies are leaving for Dubai, Singapore, and other points east. More on that later.