Weekend January 26 2013
Would you like to ride in my beautiful balloon
Would you like to ride in my beautiful balloon
We could float among the stars together, you and I
For we can fly we can fly
Up, up and away
The Fifth Dimension, 1967
This was a wildlypopular tune written by then wildly successful Jimmy Webb in, yes, 1967. Then the markets were celebrating an 18 year high in stocks, but about to tank into the next 18 year period of stagnation from 1966-1982. The lyrices suggest boundless optimism suppoting expansion to the upside in social mood which translates to stock prices going up. And so this is a fitting introduction to a similar period of high prices and apparent positive social mood now.
Up, up and awayLazlo Birinyi issues forecast for a new high in the S & P.
Barry Ritholtz spots a NY times cover story on the public embracing stocks now. Thanks to an alert TMP reader for this one.
TMP Observation - Before we can have a 50% 1973-74 bear market we first need to pull all the public back in. We have detailed that is beginning to happen with fund flows this year, well after the lows of mid November.
S & P has longest winning streak since 2004. Again this is the kind of headline that lures the public in near tops.
Lagarde seeks more women at IMF. Women have larger roles during bear markets, another socionomic event. A record number of women are now US Senators.
We have noted it is a bit late to be buying stocks, a sentiment echoed by Ritholtz above. But that is the reality of what is happening. Look at this daily chart extending back to last October.
Money is pouting into stocks shown by the Money Flow indicator at bottom. SPX is reaching for its upper channel trend line in the main panel. It has been more than 100 points over its 200 day MA before making a top last April.
On the very long term monthly chart a clear megaphone (widening) pattern is in evidence. Another reader offered this observation that an extension across the 2000 and 2007 highs takes the market to the 1600+ area. CMF was added to stock charts back in 1998 so the spike is probably due to its initiation then. But a higher high this year suggests the possibility of a lower low in years to come.
Perhaps we have been too cautious here. But the risk reward frontier is late in the game.Note the parabolic nature of the run ups in 2000 and 2007. The SPX moved from 900 to 1500+ in its last 18 month run up to the March 2000 high. Next we look at the final run ups in the NASD 100 prior to the last two big market tops of this era of stagnation. Extremes of social mood occur near the end of a trend.
NASD 100 1998-2000
The majority of the overall move in the NASD 100 OEX actually occurred the last 18 months of the entire 18 year run up from 1982. Indeed it doubled just from Sept 1998 to March 2000, and the collapsed.
NASD 100 from 2006-2008
Once again a big run up at the end, from 1800 to 2800 in a couple of years. The recent collapse of Apple has no doubt causesd the lower right shoulder. At bottom MACD telegraphs weakness. And of course price is way above the 200 week MA.
Internal Indicators, NYSE Summation Index
The weekly NYSI has broken above its September high and has its sights set on last April. Looks like it only needs a monthor two, if that, to get there. Note the gap up this week indeicating the increase in money flow.
If readers care to particpate in the final run up for stocks we suggest you do so with tight stops.
Bonds Break Down on the Daily Chart
TLT has broken below all its MAs on the daily chart. On the weekly it has broken below the 50 week MA. Money will move from risk off bonds, actually pretty risky at nose bleed prices and low yields, to risk on stocks, now moving near all time highs in some indexes.
Currencies The US Dollar versus the Euro
The Dollar in red black bars like TLT has broken below its MAs. The Euro despite all the negative news from Europe moves higher. This again supports money moving into stocks.
I suggested several weeks ago that basis the daily chart gold was headed for 1650, and that happened. Now where is the low? This triangle has the price and 50 and 87 week MAs coming together. This usually precedes a big move. This reflects an 18 month correction in an ongoing multi year bull market.
We had to go back another year to capture that $15 low in silver. But again we have a triangle with some higher lows working. Here three MAs and price have come together. The 61.8% level is 28.74.
The miners are simply getting clobbered. During my years in West Texas I met a few of the rare handful of oil field veterans who knew when to buy and sell oil field equipment. The time to buy was about when someone was torn between cutting their equipment up for scrap (think 1986 oil is $12) or just selling it for scrap value as is. The shrewd players bought then, storing the equipment for the move back up. Silver and gold strike me that way now. The public bought on the run up to $50 just like the NASD run ups in 1999 and 2007 shown above. Now the publich shuns the miners. Every day there is another negative news article, support gives way, lower prices ahead, yet the articles never mention that the best buys are at, yes, lower prices.
Socionomics Real Estate is Back, Distinctive Properties Morphs into Mansions
Barry Ritholtz mentions the cover story indicator in one of our first links. The point is that when news not covered in main stream media becomes front page, ie stocks in the NY Times, a market top is approaching. Now recall that the premier financial publication in the US, the WSJ, began featuring what it called Distinctive Properties in its last section of the Friday WSJ. This section grew to many pages as the real estate mania grew full force into 2007-2008. By late 2008 housing prices collapsed and the home builders were toast.
Now the WSJ has resurrected that section as Mansions. And again it runs many, many pages. It would be interesting if we could display a graph over time of the number of pages or column inches of such ads in the Friday editon. I suspect it would be an excellent social mood indicator. This week individuals holding out for a high price and getting it are featured. One realtor only sold three properties last year but did so in the millions of dollars. Again this is all a socionomic sign of a bold, confident market that springs from positive social mood.
Thanks for reading The Market Perspective. As always we like to hear from readers.
The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned. Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or charts.