Weekend February 2 2013
Tom Frost notes that the sub prime mortgages of 2008 have been replaced with derivatives. And he notes that off exchange traded derivatives are held in ever fewer hands-all $250 trillion of them. 52% of bank assets are now held by just four banks who of course are actively engaged in the derivative trade.
The headline is that the Economy drives the market. But in fact just this past week we learned that the US
Economy was revised to reflect the first contraction since the 2009 recession. The media continually seeks to link market action with public sentiment. As we showed you November 17 did the Mood Change at High Noon Friday the sentiment turned in mid November. Social mood drives markets not downward revisions to zero in ecomnomic growth which is what actually happened.
Socionomics told us the mood changed Nov 17, now more and more are jumping on the stock
market bandwagon as our internal indicators consistently show an overbought condition that becomes more so every day.
We have stated for the last couple of weeks. that the market is approaching overbought conditions.
Please understand however that the market is now approaching a top of five year significance if not 18 year significance. hence the social mood can and will defy traditional overbought cconditions to finally generate a super overbought mania, the kind that is only seen at tops like 2000 and 2007.
We are running headlines like the above as well as articles from sources with similar views like the pprevious post from our friends at EWT. Social mood will likely approach what we saw with the dot.coms in 2000 and real estate in 2007. indeed we have noted how Distinctive Properties in the WSJ has morphed into Friday's Mansions edition; the prices are stunning as are the properties. Party while it lasts...Our various predictions are coming true even if in fractal fashion. For example we stated that money coming from the bond market would power stocks higher.
TLT versus SPX
Stocks bottomed Nov 17, see our link above, bonds topped, see comments on the chart.
TLT recorded a huge outside reversal day Friday. An outside reversal has a range above and below the previous day, then closes to the downside. This is an indication of a trend to the downside. This is also the source of the money that will drive the stock market to new highs.
The US Dollar
The Dollar is not as far along in collapse as TLT but it is getting there. The shorter MAs have all fallen below the 200 day MA and the buck was down on Friday. Notice the French re took Timbuktu Friday. Timbuktu in my lifetime was always used as the moniker literally for the middle of nowhere, so remote no one knew what country it was in much less where it was. As I recall Lowell Thomas identified it for an entire generation.
The Master Market Crude Oil Breaking Out
RSI Price of Crude Oil and MACD have all broken their downtrends. As George Jones might say, the Race is On. This is another clue that over bought indicators will be soaring to new heights. Please note this is a weekly chart. I expect the price of oil to take out the pprevious $110 high.
Weekly High Low Chart Flashes Reversal Signal
Here is the literal picture of social mood sinking to a new low in August 2011 and reaching a new high just this past week. Notice at far right that this indicator gaped up to a new high not seen for the last 2 year. But this week it reversed and came right back down. This is a classic signture of a mood reversal. The last buyers pile into the market and then there is not one else left to buy for the time being, And down it comes. Also note that USHL has come full 180 degrees, from -400 to + 400 and then reversed, how's that for social mood extreme balance?
Summation Index Displays Channel
Social mood swings from the lows along this channel to mood highs which takes the market up. Even with the poor performance of Apple this indicator is up. The previous high low indicator suggests the market needs a pull back here before trying to achieve a new high.
Weekly SPX, Moving Averages Still Headed Higher
SPX peaked in the fall of 2007. The ribbon of MAs turned down right after that. So far the ribbon is still headed higher, teh shortest at 50 weeks in blue turned down first. So far it has not done that yet in 2013.
Mining Stocks
One segment that has not moved are gold and silver mining stocks. Now that bullish percent has fallen from 70 to 20 we may be there. I specuated we had a change in sentiment this past Monday Tuesday. Can you spot the five wave pattern in this chart?
GDXJ
GDXJ upticked this week and MACD exhibits a slightly higher low, we shall see.
World Stock Markets Join Spuds McKenzie at the Superbowl Party
Shanghai, Japan
Shanghai has moved 20% to the upside since December, reversing a long two year slide.
Japan has now put in not just a Lost Decade but two Lost Decades.In the bottom panel it is also rallying.
Bombay and Russia
Bombay has regained most of its losses from 2011. Russia picks itself up off the mat in the lower panel.
Europe Asia Far East in Summary
This summarizes Europe Asia and the Far East stockc exchanges, everyone is coming to the Party! This expression of positive mood ignores all the problems of the Club Med countries, repression across North Africa, Iran's nuclear ambitions, the reluctance of the US to lead internationally, the student loan debt in the US, the WSJ photo of a steet in Harrisburg PA literally imploding into a sinkhole, and the financial shambles of Los Angeles, Philly, NYC, and Chicago, California and Illinois but hey, that is how social mood works. There is no realistic way any Western country or Japan for that matter can repay its national debt. Currency desctruction is the only way out.
Canadian housing prices have begun to fall but as we have noted the US is back on a Mansion kick again, demanding high prices and not having to negotiate to get them. Maserati's new Quattroporte joins a host of $100,000+ offerings from Mercedes, BMW, Audi, and Jaguar. Bently is scheduled to offer its first ever SUV.
Our point here is that we are seeing a world wide convergence moving stock prices higher. Luxury goods are on board as social expression is right back to the show it all off stage of year 2007.
Bright colors are also in evidence as we have detailed in the last couple of weekend updates.
Consider this quote from the Research Director ast Scholastic.
“I pick the brightest colors,” said Heather Carter, director of corporate research. “My dress is influenced by the primary colors at Scholastic.”
There is no dress code at Scholastic. Employees say the office is generally casual, while some executives dress in suits.
Apple
As previously mentioned social mood went supersonic on Apple at 700. It would only be a matter of when the stock hit $1,000 said the talking heads on CNBC. Now investors are throwing the stock overboard. Meanwhile app downloads have hit a staggering 40 billion. The only other number I can relate that to is possibly the number of McDonalds hamburgers sold. And I doubt MCD has sold that many burgers.
A Socionomic Teaching Moment
The better approach rather than the sheer speculation we are hearing is simply to observe where AAPl is in reference to its moving averages. AT 700 it was trading at more than twice its 200 week MA, clearly not a buy. An article on page B 1 of the weekend WSJ reports that one Frank Sansone bought Apple in the first half of last year. We know that extreme expressions of social mood occur near the end of a trend. Notice that Frank bought just at the stock price started going parabolic. Worse, Frank says he meant to sell in September but missed out when he was on vacation. This illustrates the use of Good Till Canceled Limit orders at higher successive levels. He could have placed four orders, he had 40 shares at say 561 581 601 621 with a one cancels the other stop sell at 550, which I suppose was still above his entry level. That way he would have made a profit while on vacation. Apple has not revisited its 200 week MA in over two years; whether it will I don't know. But if one wanted to buy a succession of orders at lower and lower prices would be in order. Frankly this looks like RCA in 1929 or Digital Equipment or Wang in 1972, all previous high fliers. Samsung has dozens of smart phones as well. At the Academic Seminar Friday professors who would know indicated some big break throughs in tablet design over the next six months. It's a crowded field.
But here is the irony. Scan back to the weekly high low graph two charts back or the NASI graph. Recall the headline at the beginning of this post - Economy Drives Market Rally. Investors are doing the exact same thing now in the overall market that they did in Apple at 700-herding on display. Remarkably most of the public dos not see the parallel between Apple at 700 and the Dow at 14,000.
Negative Mood Alert
As we prepare to post on the internet, another sad story comes to our attention. As I have prepeatedly stated here, we have been preparing readers for what will no doubt be a new Wave of Negative Social Mood. It is already on view in Syria where Assad refuses to leave. Just yesterdayChris Kyle was murdered at his own Rough Creek shooting range by an unknown assasin. Kyle authored American Sniper which I have read. It struck me as highly dangerous to brag about killing over 150 enemy thereby turning himself and his family into potential targets on his return to the States. Kyle had begun a successful training facility at Rough Creek backed by a successful hedge fund manager.
Our point is that personal safety has now become a serious concern. In San Antonio just weeks ao a shooter appeared in a movie theater. An off duty policewoman was on guard and shot the perp. We urge you to think about your safety. The period of 1968-1982 was also peppered with violence from the murders of Martin Luther King and Bobby Kennedy to the Kent State incident. Society is repeating the same thing now, reall the Gifford shooting in Arizona.
The Bottom Line
Social mood is now driving prices ever higher. The High Low weekly chart suggest at least a short term reversal. The mania is world wide. This is in keeping with our expectation of a third top since Year 2000 occurring in year 2013. Again this is 40 years from the famous 1973 top which led to a 50% decline in the markets. Strength in Shanghai should eventually pull commodity producers higher. The overall stock market is exhibiting the same extreme internal conditions that we see at past market tops. But given the strength of the mania, well, Spuds may party on.
Thanks for reading The Market Perspective. As always we like to hear from readers. I began the blog to improve my own trading. Readership continues to grow, tell a friend if you enjoy TMP. I have read numerous market letters over the years. TMP is now about where I wanted this to be and frankly is about as good as most of the paid subscription letters. We have avoided major errors, caught most of the highs adnd lows. When we did not, at least we admit it!
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