Saturday November 19, 2011
Overall
The Positives
The market hit two extremes of negative sentiment and over sold condition Aug 8 and Oct 3.
The seasonal trend the last three years argues for a low prior to Thanksgiving and then a rally.
VIX and TLT remain quite high reflecting a high state of fear and defensive position.
The Negatives
Various indices are breaking down.
The weekly summation index has run into resistance.
The stock market topped in Fall 2007. Overseas markets topped at this same time November 2010 as we have reported.
Did we overstay our welcome at the party?
One more thing. The markets are alive with various Exchange Traded Funds. These funds allow sector investment throughout the day in just about anything you can imagine from precious metals to oil to financial institutions. Many of these ETFs use futures and or options to set up a 'synthetic' trade. In the update Friday afternoon we posted a comment from an introducing firm that had shut its doors.
BCM ceases operations
Note the author is quite upset with the Obama Administration. A counter party failure is what occurred with MF Global, and what caused Greenspan to be fearful of Long Term Capital Management in 1998. If the other side cannot fulfill its obligation, we have a failure. Here clients cannot access their money, and the administration is doing nothing about it. This is serious. In answer to an e mail yes we would put all ETFs at 'in danger' for counter party risk. That was the cause of the 2008n meltdown. The geniuses at Lehman borrowed short term via commercial paper to leverage long term in sub prime mortgages. When the mortgages did not pay, they failed to pay on the commercial paper and the whole system locked up.
NYSE Advance Decline Line 2007

The NYSE A/D line peaked i the summer of 2007. We used the SPX at top since most are more familiar with the numbers for it than the NYSE. The SPX double topped. Its fall was slower as it is volume weighted and the A/D line is not.
NYSE A/D line now

Regular readers recall that this indicator has had a steady uptrend since the March 2009 lows. We have long held that a change in direction here would be telling and probably result in a market turn. This time the A/D line double topped. The index at top has made a lower high. To be fair the moving averages have not turned down. We have had sideways action since June.
Daily NYSE Summation Index

The weekly summation index NYSI which we often cite has not turned down. The daily however clearly as and we how it above. This means we have seen the best of the recovery rally for now.
Hourly Dow

I suspect the hourly chart generated a low here that was a re test of the resistance at 11,600-11,700. We should see the expected rally this next week. Note the low position of MACD at far right.
The sensitive semiconductor SOX index dropped this week as well weakening the NASD 100 and its trading partner the QQQ.
The Dashboard VIX TLT SPX

VIX a measure of put buying a defensive activity is up in the middle panel.
At bottom TLT the bond fund is up, another defensive measure.
At top the SPX is down, the usual result of the first two actions. But you are always backstopped by, as they say on the tv ads, diversifying into gold and silver right, not quite.
Gold and Silver

Gold is the red gold line and silver is the black line. One can see the correlation.
One can also see the high in late summer, a lower high in November and now both are lower again, as the saying goes, its all one market AOM. So what is oil doing?
OIl and Patterson Energy Service PTEN

Until the October low, PTEN closely tracked the price of oil. I noticed on the rebound though that PTEN was substantially underperforming the oil price. What did the market know about PTEN? Well something notice that PTEN rolled over at a lower high this week than its September peak. At bottom the MACD has peaked on oil.
So
the NYSE Advance Decline line double topped
the Daily Summation Index rolled over
the DOW, NASD 100, Russell 2000 are all rolling over, the smaller stocks look worse than the big caps
Gold and Silver are in decline
Oil prices are not confirmed by the Energy Service Sector
The financial XLF and Broker XBD have fallen under both their 50 and 200 day moving averages.
On the other hand the weekly charts as we have noted are in contrast to the over bought nature of the daily charts. Weekly charts appear to be bottoming.
Our conclusion is that we will continue to expect the same sort of rally we had the last three years. It is unlikely the market will fall apart with VIX and TLT at elevated levels. But the overall look is that of late 2007. The internals are getting weaker. The banks and brokers are weakest of all, here is our last chart, even White House Insiders are having a terrible year. Buffet's options on GS are now below his strike price.
GS

Socionomics
1960 was a banner year for the US. Jack Kennedy would be elected President, the recession of 1958 was behind us, and yes GE had introduced color television. Sunday Night was the big night for television. The Wonderful World of Disney led off the evening. This promoted Disney Everything and featured entertainment for the whole family. Tinkerbelle, Davy Crockett, Jiminy Crickett warns Pinnochio of danger, you get the idea.
Since GE owned NBC and since they really wanted everyone to buy a color tv, GE had NBC produce a show just to showcase what color tv could do for your entertainment level. Younger readers cannot appreciate just how poor the color was what with vacuum tubes and all but...
Bonanza played from 1959 to 1973. An alternate title might have been How the West Never Was. Filmed near Lake Tahoe, it was and is a beautiful setting. Think Father Knows Best or better yet, My Three
Sons on Horseback And though everything was green on the Ponderosa, it never rained, the characters never had spot of mud on their immaculate outfits.
This is what happens in a positive cycle of social mood. That was the case form 1948 to 1966 and those Sunday evenings were the epitome of positive social mood, look at the expressions on Hoss, Ben, and Little Joe at right.
Fast forward to our present 18 year cycle of negative mood. I actually rejected the photos of blood and gore to find this one to contrast with the family portrait of the Cartwrights above.
Now on Suncday evening AMC features, the best line up they can come up with, and is it ever in tune withe the mood. Notice the difference in the photos? Yep meet The Walking Dead. I honestly have not watched the series but in the interest of socionomics will do so.
After this hour of family fun and frolic, AMC follows with We're Not Bonanza otherwise known as Hell on Wheels. The hero's wife was raped and murdered and he's out for revenge, when not pontificating over all the violence. Did I mention he owned slaves? Interestingly the lead freed slave Bohanon bonds with has my last name as his first name, Elam.
Our point here is to contrast the mood of the two eras. If you're wondering why the Super Committee cannot agree on an outcome....well compare the photos above, the mood has changed.
Thanks for reading TMP
Dennislelam@gmail.com
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.
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