Sunday July 24. 2011
Summary
It appears that this summer will, as we originally thought, end up looking a lot like last summer. Internal Indicators appear to have topped out, along with the Debt Ceiling Discussions. Remember there really is no debt ceiling,it always gets raised therefore it does not exist. Barrack and Harry Reid criticized Bush for a Leadership Failure when he wanted it raised. Now they insist it be raised. And so it goes. The real danger is in falling commodity markets and continued narrower stock participation as the indices remain in elevated territory.
The latest budget impasse is the news event but the other trends we have discussed also remain unchanged. This include emerging bear markets in emerging markets themselves, a non confirmation between energy and energy services, and multiple roll overs in the commodity markets.
Summation Index
Yes we show the NYSI frequently but it debunks the idea that the US is still in a bull market. The internals continue to deteriorate with fewer and fewer new highs on each rally. Television talking heads pick the last low and then calculate how much every one must have made since then. This handily assumes everyone picked the most recent bottom going from cash to stocks which of course never happens.
China
Lately there have been articles suggesting that the pullback in Chinese equities is a 'buying opportunity'. In fact the Shanghai Party is over as this weekly chart clearly shows.
The 50 week MA failed to cross to the upside over a year ago in early 2010.
Now the pink uptrend line has ben broken.
Note that price has fallen below the 50 week MA.
Note that the very long 200 week MA is bending over to the downside.
To top RSI is rolling over under the 50% mark.
Now think about what this means. The entire Asian Pacific Rim is leaning up against the manufacturing behemoth that was China. Australia has been a sort of General Commodity Store for china. It commodity prices, currency, and home values are all inflated. This chart tells us the Aussies are on borrowed time. The Ghost Cities and apparent growth from empty apartments and buildings in China will eventually be front page news.
And, this probably will mean a collapse in the boom in African Investing. China has been the big investor in Africa and it too is 'leaning' against China.
Energy
Patterson PTEN is again within a dollar or two of its 2008 high. As we mentioned over the last week, the move up in energy services, here the XES, is not being confirmed by corresponding new highs in crude oil.
At the top in 1981, the number of operating drilling rigs in the US continued to climb while the oil price started to fall off-the same sort of non-confirmation. Oil has modestly recovered to $100 but needs to do a good deal better than this. It still can but this is another are that is not confirming the general enthusiasm for commodity investing.
Historical Note
One can imagine an ornate dining room overlooking the Boston Harbor in 1845. Some of the wealthiest men in Boston have invested in Whaling Ships. Their investment in Whaling Ships, the energy resource for whale oil, of that era was on display in the Harbor. No one seemed to notice the voyages took longer and longer to fill the hold with barrels of oil. Two events in the next few years changed all that and collapsed the market for Whale Oil forever. First the discovery of Gold in California drove many seamen to flee the gold fields. More important, the discovery of oil at 77 feet in PA in 1858 created a new market for an alternative energy supply-crude oil from the ground rather than whales. The investments in Whaling Ships would collapse.
We now have a much cheaper and more available alternative to crude in natural gas. Do not dismiss the idea that it could, in a short period of time, displace some demand now for crude oil (gasoline, diesel) just as crude displaced Whale Oil.
Coffee
Has anyone noticed that coffee has lost 20$ of its value in the last ninety days? We now have overhead resistance at 70, crossovers of the MAs, or it looks like the long term China chart.
The message from Shanghai and the South American Coffee Market (remember the bear market in the Bovespa?) is warning that deflation not inflation is the worry, Lumber is also down. Bernanke is desperately trying to beat the dollar down but we think he will fail.
The media, the mutual fund industry, and just the passage of time against near zero bank CD returns continue to pull investors in to the stock market. This is when they should be in safe assets but that is rarely the case at market tops. TLT is not showing the kind of concern that the White House is claiming will and is happening in the markets. The danger is not the US Debt Ceiling but world wide bets on real estate and commodity prices, neither of which will be paying off.
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