So take a good look at my face
You'll see my smile looks out of place
Yeah look a little bit closer and it's easy to trace
The tracks of my tears
The Tracks of My Tears originally recorded by Smokey Robinson
Overview
Corporate insiders began buying again this past week as though it were November, 2008.
TLT has returned to levels associated with prior bottoms. It dropped from that high Friday.
VIX has not confirmed and indeed is now where near previous maximum fear levels.
Investors are showing they do remember recent history. At the first sign of a sell-off they dump stocks and scurry into bonds. This past week they exchanged stocks for a guaranteed return per year of less than one percent for the next five years. If you think that exchange will be rewarded, read no further because TMP is clearly wrong.
The headlines and recommendations on CNBC are uniformly negative.
Depths of Despair Five Year Note Yields - The Tracks of my Tears
Here is what we mean by remembering the last crash. The five year note yield briefly touched 1.25% at the very worst of the sell off, volume wise and internally in November, 2008. The actual low for the stock market occurred the following March 9, 2009 as yields were already climbing.
In October of last year investors ran yields even lower, to near one percent even though the SPX at bottom was much higher in value.
Now yields have hit an all time low of less than one percent, and have stayed there. Investors are resolute in their 'safe harbor' of low yields, fearful of being caught in another 2008 downdraft. Note how much further below the 34 week MA. And note that yields are actually higher now than in October.
In the top panel VIX is actually declining.
TLT
Here is an hourly chart with TLT replacing the five year note yield. Now here is why this is significant as a psychological measure. Investors cannot readily BUY the VIX at top. The VIX is a index of put buying to overall option position. However they can hit a button on their home computer, dump stocks, and buy TLT a fund of govt bonds. That is exactly what they have been doing.
If you believe the market is poised to plunge to whatever SPX number, I am seeing 1020, 950, etc on the blogs and in notes from my students, you believe that TLT is going higher and five years yields are going lower. The history above does not suggest that.
The Dollar
The US Dollar has returned to its position reflecting maximum fear (the Dollar and US Bonds are risk off assets, the flight to safety versus stocks). Yet the overall stock market in the top panel is higher than at the October low. I left one 13 day MA on the main chart. Do you see the pattern? Come on now, look closely that is the repeating cycle?
The market has maintained its direction for about one month since August, then it reverses. The 13 day MA tracks it. The MACD does the same thing at the bottom.
Recent Stock Action
August - Flat
September - Rising
October - Falling
November - Rising, again
Now - The Sky is Falling in Europe, China, and Here
If someone knows of a way to handily retrieve a chronological list of newspapers and or their headlines I would like to be able to re produce the actual headline here. But it would go about like this for stocks.
October 4 - Experts project stocks under 1,000 SPX on Euro worries
October 28 - Experts see SPX 1300 by year end
Nov 25 - Euro contagion spreads world wide, Experts see negative stock returns for the year, SPX 950 on the radar, Bernanke spotted in Tierra del Fuego....
My point is that the US Dollar and Bonds have returned to points previously associated with market lows.
And...by the way what happened last year at this time, glad you asked.
The Dollar Closes out 2010
Check out the credit column in the Friday Nov 26 WSJ. On page C4 Treasuries Liable to Feel the December Blues. It notes that investors sold bonds throughout December, 2010. Yields popped a half a point in one month on the ten year note. In similar fashion, the other risk off asset, the Dollar, was sold from its ending November high.
This is about as clear a picture as I can paint. Look at the Dollar chart, the third one today, again for the recent period. By yanking investors first one way and then the other month after month, the mood changes form positive to negative, at the EXTREMES. At the extremes, investors extrapolate the recent trend into the future, and take defensive action as shown in the Dollar and bonds.
Italian Prime Minister Mario Monti raised the specter of the 'end of the Euro'
Front Page Weekend WSJ
Not Exactly Winston Churchill We Shall Fight them on the Beaches or
FDR, We have nothing to fear but fear itself,
but then that's Italy for you, if that was true one would assume the Euro had fallen to post 2008 lows, has it?
The Euro
Gee that's odd, he Euro just recorded its fourth higher weekly low since the 2008 crash!
Italians are a mercurial, emotional lot, aren't they? Our point is that the headline of despair is not backed up by a collapse in the Euro, not to mention that this is an irresponsible statement by a national leader.
Each retreat by the stock market has resulted in more fear from small investors causing them to exit the market. My guess is that the last of them who would sell, sold this past week. Meanwhile corporate insiders are buying in mass, the opposite action. The new low in five year rates affirms this analysis. THe up down up and now down moves since August have frightened investors out of the market. This is of course a description of how bottoms are formed. The media has blared headlines commensurate with true panics.
Check out Holman Jenkins column in the weekend Journal. It mentions a six page German white paper lying out a solution, ie, the debt holders take a haircut.
I am having computer problems and so am posting this now in case I cannot get back on this weekend.
As the Dollar makes a new high, the Australian Dollar chart exhibits the kind of exhaustion gaps that usually signal a bottom. It is near opposite the Dollar as it was in October. I may be wrong here but
the Dollar and TLT top and lows in the Canadian and Australian Dollar as well as negative sentiment thick as pea soup fog suggest this is another October 2011, not October 2008, at least not yet.
Thanks for reading TMP
Dennislelam@gmail.com
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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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