Saturday July 30, 2011
From the WSJ Weekend Edition
Shock absorbers that cushioned blows in the past are no longer working.
More than anything else the economy is being hobbled by weak demand.
It is that nobody loves Obama (Peggy Noonan).
It will end when our political class admits its nostrums have failed (don't look for that much before 2018!)
Stocks posted the biggest weekly fall in a year.
Various News Reports
Protest Movement in Spain is Spreading.
A new picture of an economy far weaker than analysts had expected ....
None of these headlines are news to readers of this blog. We have shown that the internals of the stock market peaked way back in early 2010, with lower highs in the Summation Index ever since. Obama is suffering the same fate of LBJ, Nixon, Ford, Carter in that 18 year era of stagnation. And of course with more unemployment and less income, people spend less on everything, hence growth has slow to a trickle. The negative social mood has also brought 1970s style oppressive regualtion on all fronts. Jamie Dimon is moving J P Morgan out of Dodd Frank regulated NYC as fast as he can, Soros closed investment in his Quantum Fund to avoid Dodd Frank regulation ( which he no doubt helped write).
Stock Market Internals
MYSE High Low Net
The single charts for New Highs and New Lows are even more dramatic but these two blue rectangles make the case. The spike high was July 7 with a 12,719 Dow close. Remember how excited the gang was on CNBC, well that didn't last long. It was a typical bear market rally though of course Jim Cramer never noticed that. This past week stocks had the biggest weekly fall in a year.
But, all this has the look of last summer when QE II came to the rescue. Bonds assume a solution is at hand with their high close Friday, despite all the news to the contrary. So,
Are stocks set to rally from an over sold condition
or
Will stocks sink if the dollar Rallies as Europe and Asia sink in their own financial muck? Well neither I nor anyone else knows so it bears even close watching.August is typically an up month for stocks. So seasonals argue for a stock rally.
NYSE A/D Line
We return to the best single overall indicator I have found. Now compare the recent action at far right with the slow collapse from April to July of 2007. We have a lower NYSE in the top panel. Notice that the indicator, the NYAD has now nicked the first moving average twice! This is only the second time this has happened since 2009! The tide is turning! But turning super tankers and aircraft carriers is a slow process. Notice it took about 8-9 months for the indicator to break all three MAs from 207 to 2008.
The SLOPE indicator at bottom is falling towards the zero or horizontal in the bottom panel. The three EMAs have not turned yet but we are getting closer to that event.
SPX VIX
The best argument for a potential rally on some resolution of the debt ceiling brouha is that the VIX is beginning to reach the point where extreme bottoms have been recorded.
The green VIX which represents put buying ( a fear extreme) peaks when the SPX bottoms. As one can see in the bottom panel, the VIX is headed up again.
One can also clearly see a large H & S pattern developing. THe neckline looks to be about 1260. We might see a bounce up from 1260, a fail to move higher, and then a collapse into the fall. That's probably the best guess at this point.
International Markets
This is not merely a matter of the US slowing down over a debt ceiling debate. The world is slowing down. The US exhibits a head and shoulders pattern. London, above, and Canada, below, have both experienced the 50 day MA crossing the 200 day to the downside.
As the headlines say, can Kate and Will save England?
Emerging Markets
The 50 day MA has crossed to the downside of the 200 day MA for Brazil, Bombay India, and Shanghai daily charts. With B, I and C sunk, let's look at R in BRIC. I looked at VIPER and Russian Trading System and they are similar, including East Europe is probably a better picture given the trading that goes on. While B, I, C peaked last November Russia has peaked this May. This joins the terrible semiconductor SOX chart in the States as another piece of the bear market puzzle falling into place.
Casinos
The best measure of positive social mood is the inclination to engage in a game where players know the odds are stacked against them, but do it anyway. This would be the casino industry. Recall TMP has noted that all the big casinos have doubled down in Macau with new facilities. That of course is a bet on the idea that China cannot slow down, taking the Pacific Rim / Oceania with it. But the Shanghai Exchange has been declining since last November!
Wynns
We have the utmost respect for Steve Wynn as a businessman. He has also been outspoken lately about the failure of leadership in Washington. Having said that, Steve is still subject to the markets. Look closely at the top (blue arrow) in 2007 as well as the formation at far right. They both look a lot alike to me, do they to you? The EMAs also have that last lunge up look to them.
Las Vegas Sands
The daily charts of LVS above, Boyd, and MGM Mirage are all in downtrends, the pink channel I drew above says it all. It appears that money invested in casinos has fled to the sole casino in an uptrend resulting in the sharp move up in WYNN. My guess is that the last train pulled out of the casino station this week. We need more confirmation by the MAs in the upcoming weeks for WYNN but it bears watching. This would be a tremendous short opportunity if that is the case. MGM China is still holding up on the Hong Kong Excahnge, yes I checked!
GDX Does not Confirm New High in Gold
The solid black line is GDX Market Vectors Gold shares. It fell at the end of the week while gold hit a new high. We noted last Monday that some Russian academics called the high in silver May 1 and were calling for a high in gold this week. MACD is way up in the bottom panel. It could be that once the debt deal is done, the fragility of the Euro will be on display resulting in a dollar rally.
Bonds
Our recommendation has consistently been TLT a fund of long term US Govt Bonds. Note the big move up at far right on Friday, despite all the malarky about the debt ceiling on television. How can all these people warn of danger on new highs in bond prices? OH, right, Washington takes that as an endorsement they will do the right thing.......
Summary
The markets are quite oversold, check out this chart for perspective versus last summer.
A debt resolution will either lead to a pop in stocks, or more likely, a rally in the Dollar finally begins.
More markets have joined the bear market move as hot money moves fewer and fewer stocks up.
HIgh fliers are joining the bear move in rapid fashion.
Stock High Friday Close
OPEN 115 70
NFLX 300 265
HON 62 52
World markets are also turning down with London and Canada joining the BRIC group.
But the most ominous sell signal flashed in the monthly PAR SAR for crude oil and unleaded gasoline this past week.Friday was a down day flashing a daily PAR SAR in both. This is precisely how the 2008 crash began. OF course you will not hear that on the news, but remember you read it on TM.
Socionomics
Then Senator Barack Obama voted against raising the Debt Ceiling in March of 2006. At that time the ceiling was $8.2 Trillion. Now of course as President he wants it raised well over its parabolic rise to $14+ T. This would not have happened without the Tea Party. My point being that the US is moving to more of a European multi party system. The sharp disagreements (resulting from negative social mood) over such outrageous spending set the stage for what a calamity it will be wen the bear market swings into full blown deflationary force over the next two years. Indeed the silliest thing about the debt ceiling debate is the continual worry about inflation, we should be so lucky in the short term.
The debt ceiling mania has ignored coverage of protests in Spain
as well as protests in Italy.
The negative mood of the Arab Spring (but who can blame them for being unhappy, would anyone want to live in Libya) has spread to the north side of the Med, the east end with israel and Palestine was already on fire. Negative mood is on display all weekend in Washington while Wisconsin hosts recalls for elected officials. But expect that mood to ramp even higher as housing prices continue to fall world wide.
just click on my name to send an e mail. Thanks for reading The Market Perspective.
Dennis Elam
The Market Perspective
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 and 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.
Comments