Weekend August 3 2013
Tom McClellan and the IMF reached similar conclusions this past week. EWI reports on slowing growth world wide. While US markets have hit new highs, the 'troops' around the world are not following.
Fangio's 1954 Mercedes race car brings $29.65 M. Now there's a socionomic way to celebrate new highs in
the US market. Note the lack of a safety roll bar on the car as well as some sort of helmet on Juan.
Still the money the FED keeps pumping into the economy finds its way into the stock market if not the employment market. Stocks head higher.
NYSE Advance Decline Volume
The market has now exceeded the pre-crash levels of 2008. And with a higher high as the saying goes, the old highs become new support.
Various Indexes
Pick one, they are all at new highs.
NASD Summation Index
WE mentioned that the tech sector, XLK among them was breaking out to new highs. NASD summation Index has made a new high as a result.
New High Low Percent Indicator
Art Hil showed this indicator on a daily basis since last November in his update. He concluded things are headed up and in strong fashion. I put this on a weekly basis. Art is correct but the trend is pulling away from the MAs, and looking steeper and steeper.
Fiscal Cliff Surmounted!
Remember all that worry over the Fiscal Cliff last November? This is a demonstration that one cannot trade on events, one has to follow the market. Again various sites have attempted to call a top but so far the Beanstalk keeps climbing. support is
at the last recent high of 1675 or so
1570 before that - 38% level
1485 the 61.8% level
On the WSJ television update this weekend, the Republican last ditch attempt tp de fund Obamacare was discussed. It won't work of course with the Senate and White House in Democrat hands. and may backfire in a malestrom of Republicans are shutting down the government, denying health care to the poor etc. But from an investing standpoint, we can circle October 1 as a repeat of the Fiscal Cliff hysteria of last fall. That took markets down.
Techs on a Tear
In our last post we mentioned that techs are showing lots of strength with the smaller caps leading the way.
RUT and GSB
While Private Manning and Eric Snowden have been big news, while Life Lock advertises for new subscribers, while the NSA and soon the IRS via Obamacare snoop through all your life artifacts it seems the seminal event in information piracy, the one that will get everyone really concerned, has yet to occur. Cisco paid $2.7 B for SourceFire recently so the issue is on the table. At any rate, when the seminal event finally happens, I suspect there will be a rush to acquire such companies. I have a long term position in GSB. GSB has posted earnings and is now on track with the RUT.
The better question by the way is how a couple of nobodies like Manning and Snowden got hold of so much information.
Consumer Discretionary outpace Consumer Staples
Another sign of a strong economy is that discretionary outpace staple items, and in a fairly big way as this ratio chart shows.
TBF Stalls for the Time Being
TBF is a 1x inverse long bond fund. Since bond prices and rates move opposite, TBF correlates to the 30 year yield. As the lower window shows it correlates in near perfect fashion. While TBF has traded in a narrow range the last few weeks, it appears to be ready to move higher.
Thirty Year Yield Target
3.688 took out 3.662 the 200 week MA for the thirty year yield. that is the most significant thing to happen since falling through that measuer in early 2011. 4.2% seems a likely target as that is where the downtrend line would intersect this indicator.
a Dangerous Investing Environment
Every time interest rates fall, investors take on way more risk than they should. This means investing in ultra long range bonds while receiving some of the lowest yields in thirty years. Readers will recall our example of the pent up demand for the Apple $17B bond offering, at all time low rates. We present this graph to make the point.
B TA is a closed end municipal bond fund now yielding 7.1%. That is a high return but remember rates hve just started falling in December. Yields aer likely to go much higher. I thought we might move in and out of this and TBF but the low volume and closed end nature of the fund made that unrealistic.
PPX is a Utility Preferred Stock originally yielding 5.9% at 25, now 6.4% at 23.
TLT is a fund of 20 year Treasuries now yielding 2.87%.
BTA has dropped 19% in principal value just since December. Notice all of these are following the same pattern. As we have mused before this is a lot like 1987 when rates began rising in March and continued to do so until October. Meanwhile the stock market made new highs each day after the bond market closed. Finally bond yields were more favorable and stocks violently fell 20% in one day.
As it dawns on more and more 'investors' what is really happening, they will continue to dump these funds driving prices further down and yields up. As many of these are closed end funds, they will go to substantial discounts to their net asset value.
Dollars, US, Canada, Aussie
While the US dollar has moved sideways, the Canadian in the main panel, and Aussie in the bottom have embarked on serious bear markets. This reflects the lack of demand for commodities which those countries produce. Crude oil seems to be the only commodity bucking the tide. As long as the Aussie and Canadian dollars are down I don't expect much bounce in the gold and silver sectors. Lows are still ahead in October.
Crude Oil and Natural Gas
Has anyone else noticed the negative correlation between natural gas and crude oil, the black line in the main panel. While everyone has assumed they move together. they really don't, note negative correlation at bottom.
West Tx I\ntermediate Crude Oil finally achieved parity with Brent at $108. I suggested at the time that 108 would be a a least an intermediate top.
Bottom Line
I frankly don't see much at this point that is attractive. One might have a position in TBF expecing higher interest rates.
Socionomics
The one sure thing is that a majority are unhappy, on the right or left.
This 32% gap between right and wrong direction has beenin place since 2009. This kind of polarization is not typical of a bull market. The FED injections of money are more likely holding things up.
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