Weekend March 22, 2014
Friday Headline for Stockcharts Market Message
THE FAB FIVE HOLD THEIR BREAKOUTS -- BULLISH HIGHLIGHTS OUTWEIGH CONCERNS -- THREE KEY INDUSTRY-GROUP ETFS CONSOLIDATE IN MARCH -- FINANCE SPDR AND BANK ETF SURGE TO NEW HIGHS
Saturday Headline for Stockcharts
GILEAD AND BIOGEN LEAD BIOTECH SELLOFF WHICH PULLS NASDAQ LOWER -- MARKET SUFFERS DOWNSIDE REVERSAL DAY ON FRIDAY -- BIG JUMP IN 2-YEAR YIELD MAY HAVE ALSO UNSETTLED MARKET -- DOLLAR BOUNCE MAY CAP GOLD RALLY -- FOREIGN MARKETS BOUNCE BUT NOT ENOUGH TO REVERSE MARCH DAMAGE
Gee what a difference one day makes! One can subscribe to a tech update from John Murphy, Arthur Hill, and lately another fellow. I was truly amazed at the optimism of the Friday report which was based on Thursday's action. Here I was talking about a potential top in the DOW and ARt Hill sees five different indexes all breaking out like it was a brand new bull market, what is going on I thought. And then , Murphy chimes in, one trading day later, with a totally idfferent picture on Saturday.
This happeend in both gold and stocks this past week. Turn that thought over in your mind, several times.
On Wednesday this week we asked,
Is the DOW Deceptively Topping? We think so at least on an intmediate basis ala January February of this year.
New CIvil War - Socionomics
I don't know if this link works if you do not subscribe to the WSJ but it illustrates my example of The New Civil War. In the article small Town El Dorado Springs, MO votes Republican while Kansas CIty votes Democrat. The two value systems collide on all issues from alcohol to guns to you name it. This was on the front page of the Thursday WSJ.
The Stock Market IBM
We have noticed the drop in significant stocks. Apple Starbucks, IBM, have ben darlings of the investing community. But they are slowly falling from grace. Here we show the last three months to make it clear that IBM is recording an oh just slightly lower low. But notice the volume spike on the way down in January and now in March. In our 1973-74 analog IBM was THE blue chip, and for that matter still is.
Despite all the hype on CNBC, IBM has gone nowhere the last three months. Media outlets will always highlight the 'best performing stock yesterday' as though that represented the entire market.
SBUX had it all at its annual meeting this week. Oprah is kicking off its Tea House Venture, its mobile app accounts for 14% of sales ( you put money in your SBUX account and then spend it at SBUX, SBUX avoids the credit card fee AND has your money the whole time), and finally it goes for addiction, caffeine, tea, and alcohol. The CEO wants to double market cap on its 20,000 locations. So how did that idea play out by Friday at the close.
Recall lthat Richard Arms of the Arms Index or TRIN puts a lot of weight on end of the day market action. Here at the end of the week SBUX investors tripled the normal daily volume to the sell side. One day does not a trend change make and this may just be part of a basket of 'sell programs' given that the market closed down Friday. But again as with gold and the stock indexes cited earlier, this is a failed breakout.
The Latest Investing Fad takes a beather DDD
Hewlett Packard is rumored to be entering the three D printing business. That will likely bring costs down and much wider distribution. Recall that once Bill Gates convinced IBM to adopt his then non existent software, all the manufacturers grouped around what became MSFT DOS. The other manufacturers disappeared over night such as Northstar, TRS 80 and such. The same thing will likely happen here though the software language is not as important. This will be more like laser printers becoming affordable.
Tesla, Speaking of Investing Fads
Now consider the fundamentals.
That's right TSLA has yet to turn a profit. There is no price earnings ratio as there are no earnings. Yet the company is dangling the prospect ofa battery manufacturing plant in front of various cities looking for subsidies. A company that makes no money with little to no experience in batteries is going to make the break through battery. Where is GE if this is possible?
We are back at dot.com mania with such ideas. The $100 K Tesla car is now the badge of Green as the Prius has become a taxi in many cities. The stock looks to be pulling back from its third wave higher. I would not rule out a final fifth wave, Ramki has 290 as a final objective.
QQQ hit by Biotech
John Murphy reports that House Democrats want to know why Gilead's hepatitis drug is so expensive. Is this the start of micro managing the bio tech medical field by politicians? If so no stock is safe. At any rate QQQ is quite a ways ahead of its MAs. As in February we look to be headed for a month end low. The blue box looks to be a distributive top. BBH shown in the top panel is the biotech ETF.
Meanwhile at the FED
After presumably a lifetime of watching Volcker, then Greenspan, then Bernanke speak to Congress, Yellen blew it this past week. I rate Yellen a D - for the performance this week. Which is to say one speaks in generalities, never specifics about FED action. Instead she indicated the FED would raise rates in six months. We are back to All One Market AOM, stocks, bonds, goldd all moving the same way opposite the dollar.
Anyway, the five year note in the main panel dropped in price. It has been consolidating since last June. it looks ready to break to the downside in price. At top, rates jumped to the upper end of that sonsolidation threatenting to break to the upside in the rate consolidation, and out of that rectangle.
Recall our prediction that rates were liable to move up much faster then Ms. Yellen thought, she is a player not the player in this market. Here is a classic example of a fundamental event verifying the technical action already unerway. Price is under the MAs, yield is above its MAs.
By the way, let's highlight the reason a move up in rates from such low levesl poses such an investment danger. The drop from 121 to 119 may not seem like much. It is in fact a drop of 1.6% in principal. Run your gaze back up to the yield chart at top. 1.6% is the five year yield. So just a small drop in price can wipe out a year of earnings from the note. Buyer beware in the bond market.
Brent Crude Oil
The moment of truth is fast approaching. When all the MAs group closer and closer like this a change in direction is often imminent.
As rail and pipeline shipments have increased in the US the price of Brent has fallen from $128 two years ago. While one might think the tensions in the
Ukraine - Germany
Would increase the price of oil,the opposite is probalby true. Faced with a crisis, all the players are far more liable to pump more oil than ever in a desperate attempt to generate cash. After all, what else does Iran or Russia have to sell? And as always the dollar sings the main tune here.
Let's check on the market leader to see if my concerns are born out.
XOM peaked in late December early January (remember out 1973 analogy) and scored big volume on the move down Friday. THis is a pattern of lower highs.
The dollar broke its two month downtrend this week taking gold lower. And by weekend it took stocks and bond prices along with it. Copper along the bottom continues to broadcast weakness in the Chinese economy.
A closer Look
Here the breakdown from the rectangle to the downside is clear. Monday Tuesday will tell us for sure but given the strength of the dollar this looks like we are concluding another failed gold rally. THat would be the rally since January of this year. Was this just another bear market rally in gold, quite possible.
The strength of the dollar raises the potential for a further decline in commodiy prices.
The gold bugs have believed the low as in. Maybe not. Newmont Mining failed at the last resistance line this week.
Newmont Long Term
CCI at bottom rallied a bit giving the gold bugs hope. This could be the harbinger of a deflationary collapse ala 2009. See oil prices above.
Now consider this scenario ( oh come on, Tom Clancy got rich with stuff like this.)
The US does just enough to taunt Putin but not enough to shake his grip on Russian ambitions.
China,sensing US weakness, extends its no flyover policy in the South China Sea.
Page A9 Lawmakers in Tirasopol, Transnistria (sounds like a Mel Brooks invention for a contry name) asked if it could follow Crimean and join the Russian Federation.
Germany and France dither
See Friday WSJ page A 13 Waltzing with Iran in the Nuclear Ballroom Iran came so they get a breather from sanctions while they finish building it, the bomb.
On the same page, America's Incredible Shrinking Navy, now we are counting Hospital ships as war ships. In fact only three of the eleven carriers are on duty areound the world. Putin moved on Crimea right after negotiating the 'hand over' of Syria's chemical weapons with Assad still in power. We only have three carrier groups at sea. This will not go unnoticed.
US oil production now equals oil imports
Connect the dots with more oil than ever being produced in the world, and with the USA and Russia playing childish double dog dare sanction games, desperate for money, OPEC starts its usual rounds of cheating along with Iran and Russia, the world is flooded with oil, it becomes a buyer's market, and the price of oil falls, as it falls desperate nations whose only export is oil, simply produce more spiralling the price down
Is that possible, you tell me.
So in the past week two top analysts, Rambus on gold and Art Hill on stocks were reversed by the markets. I would say that is significant. Both reversals occurred the same week, as the Dollar strengethened. The Euro fell as did the Ruble. The next few weeks should tell us a lot about the Dollar versus the All One Market Theory.
The New Civil War is now world wide.
China versus Japan and Korea
West and East Ukraine as well as the other Soviet Border Republics versus Russian Federation
The Arab Spring has a couple of million Syrians livingin refugee camps. North Africa is unsettled and in the streets.
Brazil has fallen back to its usual country of the next century moniker, not this century. Argentina is its usual financial mess.
Putin has designs on Venezuela, Cuba, Bolivia.
ACA is getting a fix a week.
The Republican leadership is very uncomfortable with the Tea Party.
The UAW loses its vote at the VW plant. The South remains an economic engine compared to the North.
Obama's ratings are the lowest ever.
The bottom line is simply that the political front looks just like 1973-74 with an unpopular President backed only by the stalwarts of his own party. Thngs are falling apart in Asia and Eastern Europe just as things were falling apart in Viet Nam back then. While oil prices were high then they are high now with the potential of falling rather than rising. And there is no apparent American Leader emerging in either party.
Other than that, things are just peachy keen.
Thanks for reading The Market Perspective
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