Monday October 22 2012 8:00 AM CST
In the 1950s the fear of an over the pole attack on the US by the Russians led to the creation of 63 radar stations stretching from Alaska ot Greenland. This was known as the Distant Early Warning Line or DEW. Movie fans like myself recall that a similar image was on the Big Board that General Buck Turgis did not want the Russian Ambassador to see in Dr. Strangelove.
Yes this is a busy graph but for good reason. Late last year MCD outpaced the SPX shown in the sold black line. But it fell harder in the sell off from February. And it rebounded weakly since June. Now it is a bare four bucks higher than the June low. And it has fallen beneath all four moving averages. Note the big drop Friday.
Gee, same picture! CAT outpaced the SPX last year but has fallen way behind this year. When we toured HOLT CAT here in San Antonio earlier this year (the largest dealer in North America) our host was accessing the stock price on his cell phone, I wonder if he is still doing that. And yes CAT has dropped below all its moving averages.
Frankly I have never quite bought into the idea of the Service/Idea economy. On my Professor Elam blog I ran a couple of pieces about the iPad release this week and the upcoming MSFT tablet. But how much does all that really add to an economy. Manufactured elsewhere and recycled nowhere, I just don't see the economic punch in computers that one gets from making CATS or feeding millions of people every day. A CAT anything is expensive so it remains in service for decades being rebuilt, spawning all sorts of after market devices and repair centers. Most computers are gone in a few years, no one rebuilds a Macbook.
Let's step back and take a longer look shall we, after all this blog in The Market Perspective.
CAT double topped across 2011 and then again earlier this year. Now it is falling below the first two moving averages. Note the weakening RSI at top, now well under the 50% line.
Price wise MCD looks a lot better, until we examine the RSI indicator. Here is an early warning of declining strength.
Apple, Google, and IBM which we featured this weekend have been the DEC and Wang of this rally.
As we have noted the market does not top all at once.
Russell 2000 Small Cap Weekly
On the rebound from the summer of 2011 the RUT has shown a lot less Relative Strength RSI at top.
Our conclusion is that CAT and MCD are Nearby Early Warnings of trouble ahead.
The final Presidential Debate is tonight. Markets are up a smidge this morning. Indecision reigns.