Friday April 6, 2012
The Road Ahead
Stocks look like they are beginning a Wave 4 pullback. That should be followed by a final Wave 5 move to new highs. Bonds are therefore gathering strength. This pullback should be a buying opportunity for a succession of lower orders in Central Fund CEF. Overseas markets continue weak recoveries.
Daily High Lows
Regular readers will recall our exit in early February. And almost anyone will recall that Mr. Market continued his march upward via the green line. Meanwhile internals, as we have documented, steadily deteriorated, whether shown by the McClellan Oscillator, Summation index, or here the Daily Highs and Lows. All the internal indicators peaked in early February. So where are we now?
Note that USHL, daily highs and lows, is already back to December levels when the market was much lower, 1225, about 200 points lower! I suspect enough has happened to suggest a possible wave count as follows. Indeed headlines abound that last week was the worst of the year so far for the indexes, but only about .7-1% down.
SPX
I am not suggesting any price targets for Wave 4 but a possible pattern. It looks to me like the market declined enough this past week to make the case that some sort of pullback has begun. Wave 2 was steep so this may be more of a sideways affair under the Rule of Alternation. RSI at bottom suggests the Wave 3 has run out of steam.
Bombay, Bovespa Brazil and Shanghai indexes also look weak.
An A B C progression over the next few weeks would complete a Wave 4 down. That would set up a final push to higher levels to finish a Wave 5. My guess, as I have said, is that will coincide with the FB
Facebook IPO now announced via NASD for May. The Facebook IPO should mark the top of Wave 5, the most positive social mood possible. The excitement of course could last into early summer.
Junk Bonds, a proxy for stocks, would seem to confirm this analysis, note how much JNK looks lke SPX.
And the drop under 50 on RSI for JNK would seem to confirm that some sort of correction has begun.
Bonds
If stocks are weakening, are bonds showing signs of life?
The performance charts graphs IEF, 7-10 year, TLH, 10-20, and TLT, 20 year bonds.
At far right all three picked up at during this week's trading.
Crude Oil Then and Now
Then - 2007 - 2008
Then crude broke out at 100 and ran to 112.5
Crude Oil Now 2011 - 2012
Now crude oil broke out around 100 and ran to 110! The moving averages were much steeper in 2008.That shows a much stronger uptrend than we have now.
Gasoline demand is down from a year ago. But the refinery business is unprofitable, there are too many grades of gasoline, and the government continues to send all the wrong signals to establish energy independence. And little is being done to exploit the independence of our own natural gas fields as an energy source. Finally throw in Iran and Israel and well prices are up.
Jesse's Cafe explains how High Frequency Trading fakes out the locals. A huge number of sell orders appear, the locals sell, the huge number of sell orders are then withdrawn, prices fall, the HFT then buy at lower prices having shorted from higher prices.
Central Fund and the US Dollar in Green
The inverse nature of the Dollar and CEF is clear in this chart. The Dollar looks to be higher near term which fits with the idea that the stock market is pulling back. So I would expect lower prices for CEF as the stock market traces out its Wave 4 correction.
The Euro
This is a four year weekly chart of the Euro. Lower highs and lower lows suggest a long term bear market. I am wondering if, yes you heard it here first
the Dollar goes to 100 form its present 79
the Euro comes back down to parity with the Dollar, from 132 back to 100
Here is the long term picture for the Euro
It makes sense. Europe continues to make itself less competitive. Singapore, Hong Kong,et al are where the world is moving, Jim Rogers got that one right. Recall he moved to Singapore.
IN the nine year chart above the MAs have all turned down. Only Germany appears to really be having substantial growth. Yes things may be great in Estonia but I don't think that will save Greece and Portugal.
Social Mood - Abraham Lincoln, Vampire Hunter Premiering in June
In three years, Seth Grahame Smith has gone from writing The Big Book of Porn to the million best seller in 27 languages no less, Pride, Prejudice, and Zombies. This spawned a genre of weird spoofs of famous works resulting in Android Karenina and Wuthering Bites. (So what am I doing writing an investment blog....)
Now he is in demand, his production company has 15 movie and tv projects in the works
Well America is the land of opportunity and this fellow saw an opportunity.
Here is the operative social mood explanation, though I doubt the writer has grasped it (that's our job here at TMP)
His irreverent literary reboot landed at precisely the right cultural moment. In recent years, digital remixing and sampling—once viewed as derivative at best and illegal at worst—has grown widespread in music, film, television and fine art. Mash-ups are no longer just kitschy parodies. Literary writers like Colson Whitehead and Michael Chabon have experimented with horror and science-fiction themes. A zombie-infused Regency romance doesn't sound so ludicrous in today's mash-up rich environment.
In an 18 year period of stagnation, emotions move violently from fear to joy, witness the stock market rise form last October to now. Texas Chainsaw Massacre debuted at the bottom of the market in 1974. Yet Rocky, an upbeat film, followed in 195-76. Yes this is the right cultural moment amid fascination with zombies and vampires. The national election has undecided in the lead, no wonder reader seek new genres. The trick of course is to catch the weird idea that connects with the fickle mood of the moment. Even Historian Doris Kearns, a Lincoln expert, is an admirer of Mr. Smith's work. If the markets peak this summer and tumble the next two years as we expect, Mr. Smith will have hit the cultural moment dead center, so to speak.
Peace and Love, back from the 60s
The Peace Movement was big during the 1966-84 period of stagnation. Now it's back wtih
Natural Frequency Watches. . They are said to contain an element that is in tune with the frequency of the earth's movements. And so a person wearing the watch sleeps better. Hmm, Remember the negative hell Earth Shoe also popular in the late 1960s, it was supposed to make one feel better as well. Wave theory and social mood, it's all around us, we report, you decide.
Thanks for reading The Market Perspective
Dennislelam@gmail.com
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