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Trend table status

Trend

SP-500

R2000

COMPX

Primary

?+ 6/30/20

?- 3/31/20

Up 5/29/20

Intermediate

? 6/5/20

? 6/5/20

Up 6/5/20

Sub-Intermediate

? 6/24/20

? 6/24/20

?+ 7/1/20

Short term

? 6/11/20

? 6/11/20

? 6/11/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Thursday, February 28, 2013

Daily update 2/28

On the new bull market high close on the Dow yesterday, there was only one Dow stock that closed at a new 52 week high (HD).  That combined with the low number of new highs in general and the fact it was the only index to make a new closing high makes this look like a textbook bull market ending high.  Today's late date reversal looks pretty convincing to me.  Here is the daily SPX chart.


SPX had a gravestone doji candle today on an increase in volume.  This candle coming after a close back above the 18 SMA yesterday is a bearish combination.  I think tomorrow we will close back below that 18 SMA and the sell off will continue.  Lets zoom in to the SPY 195 minute chart.


The last candle is a bearish engulfing bar on an increase in volume.  Notice the high touched the lower trend line of our trend channel.  That looks like a kiss good bye to me.  The Dow actually got within 20 points of a new all time high today before the sell off into the close.  I believe the sell off was caused by people coming to the recognition the so called sequester is going to happen.  I have heard a lot of traders interviewed over the last week that believed there would be a last minute deal.  I think some people were buying expecting a pop on a deal.  In order to have a deal we would actually have to have people that want to make a deal.  This is clearly not the case.  Both parties only want to blame the other, but neither wants to change anything.  There will be no deal.  Now we just have to see how the market deals with that.  I don't think it is going to be very good, but we will see.

When I see a major trend change coming I get a little antsy.  I wonder on the little jiggles if the end is finally here.  I have a very difficult time trying to trade with the old trend because I know it is ending.  Major tops and bottoms vary in how long they take to form.  The problem is I know the change is coming a good 5-9 months in advance of the actual final high or low.  Each major turning point is just a little bit different.  Tops are always the hardest to recognize.  However, I am starting to realize that if I just wait and be patient it will become obvious.  This is now obvious.  While the majority think nothing bad can happen to the market because of QE, the market has actually made a textbook top.  I suspect most people will be afraid to short here expecting new all time highs first.  I think the odds are very high this bull market has just ended.  I have been expecting the next bear market to start without the Dow making a new all time high to have a non confirmation with the transports. I was getting real nervous on that today, LOL.  Stick a fork in it. May this bull market RIP. 

Bob

Dr.Copper

I am sure most people have heard the old saying that copper has a PHD in economics.  I talked about its recent move lower, but lets look a little more in depth.  I think this is a pretty interesting chart.

Source

The price of copper is forming a triangle pattern and is approaching a test of the lower trend line again.  It already has three points of contact on each line.  It is time to make a decision.  The bottom pane of COT data shows traders were net short at each of the three prior tests of the lows.  The last swing up to the upper trend line had traders the most long since back in 2011.  Despite all the longs, copper did not break out.  As copper is now approaching the lower trend line, traders remain fairly long.  With three touches already and traders still long I think this will break down this time.  I think this is a direct indication the global economy is still not picking up steam.  Here is the copper stocks ETF COPX.


COPX is confirming the weakness in copper itself.  That was quite the move down last week.  While the pundits on TV keep telling me the global economy is improving it would seem somebody forgot to tell copper.  If it breaks down out of that triangle pattern I think it will be noticed.  At this point that looks pretty likely to me.

Bob 

Wednesday, February 27, 2013

Daily update 2/27

Well, well, well.  It is getting interesting now.  Things are coming into focus.  Here is the daily chart of the Dow to start with.


This is the only index that closed above its prior bull market closing high today.  Despite the immense strength in the DJ-20, it did not get there.  One truism in the market is that there is strength in numbers.  The more indexes that make major mile stones together the better it is.  With the Dow hanging out there all alone it looks more like a case of last man standing.  Notice the expanding volatility pattern that has been forming.

Here is the daily SPX chart.


This chart also has an expanding volatility pattern.  Some people call it a megaphone.  It is definitely showing instability and is often a reversal pattern.  Lets zoom in to the SPY 195 minute chart.


SPY was unable to get back up into the trend channel today.  Notice the low volume on both bars today.  The bears are still ahead in the big volume bar tally.

Most indexes made their closing high on 2/19.  We had over 400 new highs that day.  Today with just the Dow making a new high close we had just 156.  Again we have very little conviction in the volume or the new highs.  Every time the Dow has closed above 14000 it has sold off the next day.  Will this time be different?  This expanded volatility pattern shakes out weak shorts and sucks in weak longs.  This is why it is such a high odds reversal pattern.

In 2007 it was the NDX 100 that was the last index standing.  I thought it was very odd at the time for that to be the last index at the highs.  That made me wonder if we were going to test that high again before the bear market really got going.  That turned out not to be the case.  I have been wondering how this would play out.  Are we making the final high?  Will we sell off and come back up for a retest with weaker internals?  With the Dow being the last man standing this may indeed be the final high.

I think this action has used up a lot of the dip buying fuel that was waiting for a pullback.  I think we will roll over again very soon and head for a test of the 200 SMA.  That is currently around 1410 on SPX.

Chart practice has been updated with CMI the stock for today.
http://traderbob58-chart-practice.blogspot.com/

The short term trend is back to neutral tonight.

Bob

EOCI economic indicator

This is an interesting composite economic indicator.  There are a lot of pieces of data that look like we are in a recession, but a few that would seem to indicate we are not.  Here is a pretty broad based composite indicator that shows the prolonged weakness that seems to be present in the economy.  Here is the chart.

Source

Here is a snippet talking about the construction of this index.

This morning's release of the Dallas Fed Manufacturing Survey, which dipped from 5.5 in January to 2.2, and the Chicago Fed National Activity Index, which declined from .02 in December to -.32 in January, further supports the previous discussion as to why the economy currently lacks escape velocity.  However, the problem with viewing these reports on a monthly basis is twofold:  1) we are looking at specific data points rather than the longer term trend of the data; and 2) we are trying to extrapolate disparate data points into the entirety of the domestic economy. 
This conundrum led me, about two years ago, to create a composite index of economic indicators that would provide a much broader view of the domestic economy.  The result was the Economic Output Composite Index (EOCI) which is comprised of the:
  • Chicago Federal Reserve National Activity Index - a broad index comprised of 85 subcomponents of the national economy.
  • Several Federal Reserve Regional Manufacturing Index (Richmond, Dallas, Kansas, etc.)
  • ISM Composite Index - a composite index of the ISM manufacturing and non-manufacturing index.
  • Chicago Purchasing Managers Index
  • NFIB Small Business Survey
  • Leading Economic Indicator index

It has a pretty good mix of different kinds of data.  The chart shows that this index has spent quit a bit of time below a critical threshold.  This kind of pervasive weakness is normally associated with a recession.  While the pundits keep telling me on TV that the economy is getting better, I just can't see it in the data.  There is no consistent strength apparent.  Even though I can't say for 100% sure we are in a recession, we have to be right on the edge.  Anybody that says we are absolutely not in a recession (and there are a lot of them) is cherry picking the data and/or smoking something.  With global weakness, tax hikes, spending cuts, and high gasoline prices it will take a miracle to keep us out of recession this year.  Stock prices may be starting to reflect that reality so be careful.

Bob

Tuesday, February 26, 2013

Daily update 2/26

We got a little bounce back today.  After yesterday's drubbing that is pretty normal.  Here is the SPX daily chart.


SPX stopped right at the red resistance line which was formed over the last few weeks from prior support.  The bounce came off the top of the Keltner channel (dashed purple lines).  Volume was pretty good today.  The question is how stiff is that resistance at the red line.  Lets look at the SPY 195 minute chart.


 The first bar this morning had huge volume.  We started out with a big gap up and tested yesterday's low and bounced.  Price stopped on both bars at the lower Keltner channel.  Lets look at the 30 minute chart.


The biggest volume bar of the day is marked by the red arrow.  This was the bar that started the move down to retest yesterday's low.  The green arrow marks the start of the rally the rest of the day.  That volume dropped off considerably.  A lot of the volume today happened on the way down, not on the way up.  This makes it hard to say if the volume bar on the 195 minute chart is as bullish as it looks. 

Will the bounce continue tomorrow or will the bears show up again?  SPX stopped right at the underside of the price action from the last four weeks.  That could be significant overhead resistance.  New highs dropped down to 54 today.  Drops under 100 are often signs of a correction developing rather then a short term pullback.  We have not had more then two down days in a row so far.  This is keeping over sold pressure from building up.  That makes me think we are on the way to testing the 50 SMA before long.

Bob

The "great rotation" backwards?

I am sure most people have heard mention of the supposed "great rotation" where money is supposed to leave cash and bonds and head into equities.  I called it a good contrarian sign not long ago in this blog.  Check out this daily chart of TLT.


Last summer as SPX was making its low in early June, TLT was busy making a double top.  The high volume down day marked by the red arrows was the kick off to the correction in bonds.  That helped ignite the rally we have seen in stocks since then.  The post election sell off in stocks saw a rally in TLT.  The kick off of that rally is marked by the blue arrow.  Notice the much lighter volume then we saw on the down move.  The sell off continued after the Nov. low in stocks.  TLT has spent the last several weeks in a tight range all coiled up for a big move.  Notice the big move up on high volume today.  Is that a kick off to a prolonged rally?  It sure looks likely to me.  Maybe the "great rotation" story is correct, they just had the direction wrong, LOL.  Just maybe the rotation is from risk assets to cash and bonds.  I guess we will see.

Bob

Monday, February 25, 2013

Daily update 2/25

In Daily update 2/22 I wrote "Today had no conviction in the volume or the number of new highs.  I suspect the bears will show up again next week."

I guess today qualifies as the bears showing up again, LOL.  Here is the daily SPX chart.


That is some bearish engulfing candle.  Those exist on a lot of indexes today.  The Dow actually made a new bull market high this morning before the collapse.  SPX has a blue bar indicating it is below the lower Bollinger band.  Since we were just testing bull market highs this morning it is hard to say price is extended on the down side except in the extremely short term.  The Bollinger bands squeezed together because of the very low volatility the last few weeks.  Usually when the volatility increases after a period like that it persists a while.  Lets look at the SPY daily chart.


The big red volume bars are showing more obvious distribution then the daily SPX chart is showing.  I think this indicates this is not just a 2-3 day pullback here.  Lets zoom in to the SPY 195 minute chart.


This morning SPY opened back up in the price channel, but could not stay there.  Both bars today had higher volume then the FED minutes induced sell off the other day.  This was a run for the exits.

We closed below the low of the last four weeks.  That put all those tiny dip buyers underwater.  The Sept. high was 1474 and the 50 DMA is at 1476.  There could be support in that area.  The question is how ambitious will the dip buyers be.  A lot of them just got their head handed to them today.  I have shown a number of charts in this blog that indicate this is the most crowed long trade I have ever seen.  I don't think they all got out today.  I believe selling rallies is the best strategy for now.  Tomorrow may be a bounce day, but I think the bears will be back again this week.

Chart practice has been updated with CCI the stock today.
http://traderbob58-chart-practice.blogspot.com/

The sub intermediate trend was downgraded to neutral today.

Bob

Misc. stuff

These are a few interesting things I ran across lately.  First up is the Goldman Sachs Global Leading Indicator (GLI).

Source

The GLI seems to be headed to slowdown mode rather suddenly.  This indicator is in sync with the sudden move down in the industrial metals.  Of course it is possible that Goldman's big client's saw this chart and sold the metals down, LOL.  There does seem to be a risk of more slowing again.

This is an interesting chart for buying climaxes.

Source

From the article:
My next concern is we’ve seen a consistent surge in buying climaxes the past several weeks.  You can read what buying climaxes are here, but just be aware that we tend to see clusters of these near major tops.  A buying climax occurs when a stock makes a new 52-week high, then closes lower on the week.  They are said to be smart money selling and I’ve had a nice track record using them.  Here is something I wrote in early October on them, right before a big drop.

We can see in the chart above the number of buying climaxes has exceeded the high number set last spring before the near 10% pullback.  It is way higher then we saw last fall before that smaller pullback.  I do not have a source for the number of buying climaxes, but this is something I first read about in 2000.  It does have a good track record historically for indicating important tops. 

This is a rather ominous statistic for Europe I think.  Check this out.

Banks in the euro area amassed the largest amount of bad loans ever, the economic auditing firm Ernst & Young revealed in a study released on Monday.
It estimated that credits to the tune of 918 billion euros ($1.23 trillion) were currently not being paid back at all or could only partly be paid back, amounting to 7.6 percent of all loans granted in the eurozone.
In Spain, 15.5 percent of loans fall into that category, while it's 10.2 percent in neighboring Italy. Source

Is it just me or is $1.23 trillion a lot of money.  I think the subprime problem was on the order of $250 billion.  It is interesting that I keep hearing people talking about tail risk being diminished this year.  However, none of the problems in existence have actually been solved.  They have only been talked to death, LOL.  This seems like one whale of a tail risk to me just waiting for the right moment to shock everybody. 

Here is a look at junk bond yields.

Source

Junk bond yields are at record lows.  I think this is one source of worry for the FED.  The minutes the other day talked about QE may be encouraging excessive risk taking.  I would say that is what this chart is indicating.  They talk in the media about low default rates.  Well duh.  When people are flooding money into this sector just about any junk company can sell a bond.  No money, no worry.  Just sell another bond.  No need to default.  This will certainly lead to huge numbers of defaults somewhere down the road when the flow of funds dries up and companies have to repay.

I have the feeling the low volatility environment we have been seeing will not last all year.  Many OECD countries are in contraction at the moment.  I think people have a false sense of security that is unjustified.  We are likely in a global recession which leads me to believe the tail risks are higher then any other year since 2008.  I guess we will see.

Bob

Friday, February 22, 2013

Daily update 2/22

Low volume bounce back.  Here is the daily SPX chart.


The drop in volume is quite noticeable.  It is even more obvious in the daily SPY chart.  The price bar is still red.  It did close back above the 18 SMA though.  Will it stay there next week?  Lets zoom in to the SPY 195 minute chart.


SPY climbed back up to the lower trend line of the long trend channel.  Is this a kiss good buy or will it reclaim the channel next week?  The light volume is obvious on this chart.  One more interesting thing is the new highs/lows chart.


This was a pretty good up day, but we only had 110 new highs.  That is less then on the 2/4 big down day.  It is also way less then the 250 or more we had on most big up days. 

Today had no conviction in the volume or the number of new highs.  I suspect the bears will show up again next week.  If SPY closes back inside the trend channel shown on the 195 minute chart it would be hard to argue with the bulls though. 

Chart practice has been updated with EOG the stock for today.
http://traderbob58-chart-practice.blogspot.com/

Have a great weekend all,
Bob

Dollar index

I am constantly reading about how the dollar is going to crash.  I have been reading this for years.  The FED has been busy printing money since late 2008 and yet it hasn't crashed.   Lets look at the monthly chart.


Since the dollar bear market started in the early part of the last decade it has rallied across its 18 SMA four times.  The first three times ended with a cross back below that MA.  However, check out the current action.  DXY has spent several months testing its 18 SMA from above and now appears to be rallying off of it.  It looks like it is different this time to me.  Is the dollar index getting ready to embark on a bull market?  That sure would catch all those dollar bears by surprise, LOL.  That would certainly be negative for the Euro.  As for other markets besides currencies it is more difficult to say.  The dollar index has been correlated and reverse correlated to just about every other asset out there at different times.  A lot of people think gold is so high because the dollar was going down.  Really.  When I look at the chart I can see DXY is slightly higher then its low point in late 2004.  Gold more then tripled from that time.  A rising dollar should be at least a slight negative for all commodity prices.  How much is hard to say though.  It will also hurt exports and corporate revenue some.  Although a slow orderly rise should not be too much of a problem.

I find this situation pretty interesting.  The dollar bottomed and gold topped at the time of the unlimited QE FED announcement.  Both items had made a big move in anticipation of the event so a sell the news reaction was to be expected and I wrote about that in the blog at the time.  However, the moves have continued well past a normal profit taking move.  Its almost like gold is making a major top instead of a correction within a bull market and the dollar is making a major bottom.  Is that possible?  That might explain the extraordinary weakness in the gold mining stocks.  I don't really know.  I sure don't see any clear sign gold is making an important bottom yet though.


Bob

Thursday, February 21, 2013

Daily update 2/21

Downside follow through.  Here is the daily SPX chart.


SPX closed below yesterday's low on an increase in volume.  That adds confirmation to yesterday's big reversal bar.  Lets look at the 195 minute SPY chart.


SPY actually moved down fast enough to get a blue bar indicating price was below the lower Bollinger band and extended.  SPY managed a small bounce on the next bar.  Volume was heavy on both bars today.  SPY has confirmed the break down out of the trend channel.  How about the current breadth chart.


For the first time this year the 10 DMA lines have a negative crossover.  The McClellan oscillator is very negative now.  It has been in and out of negative territory for weeks.

It looks like a pullback has been initiated.  We have poor economic data, 2 quarters of negative earnings growth, corporate insiders selling the most since 2011, and an extremely crowded long trade with high margin debt.  I suspect it is unlikely the long trade has ever been this crowded with such poor fundamentals.  I know that is the case for the last 15 years I have been involved in the market.  I don't think there is any hurry to rush in and buy the dip.  I think there is considerable risk of a deeper pullback then nearly everybody is expecting.  I think it is time to sell rallies.

The short term trend has turned down.

Bob


Global recession?

In Metals heading lower? I wrote about how the industrial metals charts seem to be breaking down.  They did not seem to be confirming the optimism in the stock markets around the world.  I think this chart shows why the metals are tanking.

Source

The number of OECD countries with negative GDP has gotten to the point that it is highly likely we are in a global recession.  This is an interesting chart of how recessions are shared by multiple countries.

Source

Every time France and Germany have had a recession the U.S. has also had a recession.  Even though this graph does not show them in recession yet, the data is pretty convincing that they are.  The U.S. has increased taxes and seems to be about to cut government spending.  On top of that gasoline prices have sky rocketed lately.  We have some data that already signals we may be in a recession as I have shown on this blog many times.  The increased global trade has coupled the world's economies closer together then ever before.  The odds of the U.S. escaping this global weakness are very low I think. 

Bob

Wednesday, February 20, 2013

Daily update 2/20

Interesting, maybe I won't have to be shocked after all.  On Friday I wrote "We also had only an eleven point range from low to high for the entire week.  That is probably the smallest weekly range this entire bull market, but I don't know for sure.  Frankly, I am going to be pretty shocked if this market does not head down next week."  Last night I wrote "Price is very extended and internals are weak.  Once upon a time the market would sell off in a condition like this.  However, the law of gravity has been temporarily suspended for the market, LOL. "

I think gravity is being reestablished.  This looks like a true reversal to me.  Here is the daily SPX chart.




SPX ended the day on the 18 SMA.  This is the first time we have a red bar this year.   Lets zoom in to the SPY 195 minute chart.


That last bar has the biggest volume since the opening bar of the year.  SPY also closed below the lower channel trend line for the first time this year.   The Dow closed back below 14000 and there was another important development.  Check out the chart of the COMPX.


Yesterday the COMPX closed above last year's high.  When I looked at this chart last night I was thinking this is make or break time.  What a perfect top it would make if it would reverse tomorrow.  The volume pattern on this chart looks clearly distributive.  It looks way more bearish then SPX does.  I believe this to be an important part of the major top formation going on.  Clearly the sentiment has come in line with a textbook top now.  I know I am right.  If you have not made your bear market plan, now would be a good time to do so.  You will need it.

There are some market internals that are stronger then normal for a final bull market high.  Normally I would say we would be likely to retest the high before the bear market gets going, but I am not sure that will be the case this time.  It looks like we have two quarters of SPX negative earnings growth.  Here is a snippet of an earnings update from Standard and Poors. 

Standard & Poors says the S&P 500 is on pace to earn only $23.32 for the fourth quarter of 2012, which is 1.7% less than the index earned in the fourth quarter of 2011.
Source

The third quarter earnings were already negative.  We also had a negative print for Q4 2012 GDP.  I know the market ignored all this stuff while it was going up.  However, the market has been known to change its mind rather quickly.  The long trade is crowded and there is a lot of margin debt.  A margin unwind crash is coming.  That will finish the job of ensuring we go into a recession if we are not already there. 

Chart practice has been updated with GME the stock today.
http://traderbob58-chart-practice.blogspot.com/

Bob

Metals heading lower?

The industrial metals took a tumble yesterday while stocks celebrated.  Here are the charts for copper (JJC), the industrial metals (JJM), and steel (SLX).


These important metals charts are all below the early Jan. highs.  Today's break down in JJC would seem to indicate the global economy is not doing very well.  Here is the basic materials ETF IYM.



IYM has a potential head and shoulder top pattern forming.  Judging from the metals charts above I think the odds of a break down in IYM are pretty good.  Lets take a look at the BRIC ETF EEB while we are at it.


The BRIC markets seem to be leading the metals lower.  EEB has already broken below its 50 SMA.  There has been a lot of optimism on the U.S. and global economy in the media this year.  However, there seems to be no confirmation of that so far.  The European economic data has been terrible and the industrial metals charts to be heading lower.  The question is if/when will it matter to the U.S. stock market.

Bob

Tuesday, February 19, 2013

Daily update 2/19

The Dow closed above 14000 for the third time this month.  Will it stay there this time?  The other times it sold off the next day.  Here is daily SPX chart.


SPX has a blue bar on the daily chart indicating it is above its upper Bollinger band and is extended.  This is the first blue bar we have had since the initial surge at the beginning of the year.  Will there be a pullback this time or just keep going?  Lets zoom in to the SPY 195 minute chart.


The SPY chart also has a blue bar so it is extended on intraday basis as well. 

The Transports and the Rusell2000 also have blue bars.  Price is very extended and internals are weak.  Once upon a time the market would sell off in a condition like this.  However, the law of gravity has been temporarily suspended for the market, LOL.

Bob

Retail sector

I think it may be time to take a look at the retail sector.  There are two ETFs to look at here (RTH and XRT).  Here are the monthly charts of both.


Both of these ETFs are way above their 2008 highs.  Retail has clearly been a leading sector in this bull market.  They closed a lot of stores in the last recession and that likely helped their profitability.  Both of these charts are showing some upper tails in the recent months.  It looks like there is some resistance in this area.

Lets look at the daily charts.




RTH has been a little weaker then XRT lately. It already had two large red volume bars before today.  XRT has had a lot of big green volume bars.  Both of them had high volume down days today.  Apparently there was a news story about very poor sales at Walmart to start the month of Feb.  I don't know if the story is valid or if there will be any lasting affects or not.  However, both the monthly charts look like they are ripe for a pullback.  The story might just provide the excuse.  This is a market leading sector so what happens here could be important for more then just retail stocks.

Bob

Friday, February 15, 2013

Daily update 2/15

The dip buyers were sure busy this week buying every tiny little move down in SPX.  However, at the end of the week they only had a gain of less then 2 points for their efforts.  The Dow tested 14000 again today, but failed to hold it.  Here is the daily SPX chart.


We had another hanging man candle today.  SPX tested the high from Wed., but was rejected.  The potential double top is still in play.  We have had somewhat bearish daily candles all week after last weeks bearish hanging man weekly candle.  We also had only an eleven point range from low to high for the entire week.  That is probably the smallest weekly range this entire bull market, but I don't know for sure.  Frankly, I am going to be pretty shocked if this market does not head down next week.  Here is the current breadth chart.


The McClellan oscillator is negative and has been very close to zero for many days now.  I know the market went up last year in late Feb. and March in this condition, but I think that was on the back of AAPL.  SPX never did anything like that before in the last 30 years.  AAPL is not exactly setting the world on fire this year.  This is an extremely weak breadth pattern.  If the market does head down it can do so pretty fast.  Especially with all the dip buyers having already piled in.  They have been really over eager the last few weeks.  I still think the exit will get crowded.


Chart practice has been updated with CRM the stock today.
http://traderbob58-chart-practice.blogspot.com/

Bob

Interest rates

I am constantly bombarded in the media with people telling me that rates are going to go up.  Inflation is right around the corner.  All that liquidity sloshing around just has to create inflation.  Bonds are going to be the short of the century. 

Here is a very long view of longer term interest rates in the U.S.


Long term rates are down to depression era levels.  Notice the circled area from 1940-50 where rates stayed low for a decade.  In A tale of two recoveries I showed how long term rates in Japan have been below 2% for more then a decade.  They call shorting bonds in Japan the widow maker trade.  Long term rates just don't get this low unless the economy is in deep trouble.  When they do get this low, they can stay there for very long periods of time.

Here is an interesting chart with the velocity of money (MZMV) and 10 year rates.


Well look at that.  They seem to trend together very well don't they.  The MZMV just made a new low and has been dropping for quite a while.  It is true that all trends eventually end, but will this one end with a sideways move or a sharp rebound.  A look at history suggests sideways.  That same look at history also suggests we could be in a depression just like Japan is.  Depressions are caused by too much debt despite what Keynesian economists think.  The only way out is to deal with that debt.  Something Japan has failed to do and so their economy continues to suck.  More debt by the government in an attempt to start a self sustaining recovery just plain won't work.  There is nothing complicated about it.  Just about anybody that is not an economist would understand if they spent a little time studying the situation, LOL.  Here is a pretty good article on the problem. http://iaconoresearch.com/2013/01/24/debt-to-gdp-and-misdiagnosing-a-bubble-economys-ills/

It is one thing to make short term shorts in bonds, but it is simply crazy to think that just because rates are historically low that they must make a sustained turn up.  I think we need to be able to see a true trend change in MZMV.  Otherwise, upward moves in interest rates are likely to be short lived.  The interest rates are signaling the economy is in deep trouble.  The message could not be any clearer.  Those expecting a self sustaining recovery any day now are destined to be severely disappointed.

Bob

Thursday, February 14, 2013

Daily update 2/14

SPX has managed to gain 4 points over the last four trading days.  I guess that means the best prediction for tomorrow is that we will close up 1 point.  The Dow remained below 14000 today.  Here is the daily SPX chart.


The volume increased again today and quite a bit.  That seems rather odd given the tiny move up.  The SPY daily volume was actually a bit lower today then yesterday.  Lets zoom in to the SPY 195 minute chart.


We do have a potential double top forming over the last two days.  A break of this morning's low would confirm that pattern. 

The TLT daily chart is kind of interesting tonight.


TLT has spent the last nine trading days inside the range of the 2/1 big down bar.  Yesterday was a high volume doji bar as it tested that earlier low.  Today was a high volume bar to the upside.  This looks like it could be forming a bottom.  This bears watching as it could mean a rotation from stocks back into bonds is about to start. 

We have had several slow creeps north in the stock market over the last few years.  This one point a day is the smallest one yet.  I think this rally has about run its course.

Bob

Which one is the contrarian signal?

Watching Wall Street work is really interesting.  We seem to have opposite theories going on.  The infamous "The Death of the Cult of Equities" and "The Great Rotation".  One says the return on equities will be very low going forward and the other says there will be a big move out of bonds and cash into equities driving stock prices much higher.  I think a few years down the road one of these ideas will clearly be looked at as a contrarian indicator.  However, only one of them could truly be called a contrarian indicator.  Why is that you might ask.  That is because the death of equities piece was nearly universally ridiculed while the great rotation idea is nearly universally accepted.  I think I have made it pretty clear my thoughts on the market making a major top.  I think the "great rotation" is equivalent to the 2000 idea of "we are in a new paradigm".  I am sure most everybody that was involved with the stock market in 2000 remembers that saying.  We know how that idea worked out don't we. 

Here is another sentiment chart.

Source

This chart shows that bullish sentiment is the highest since just before the flash crash in 2010.  That certainly worked out well for the bulls.  This kind of optimism is certainly going to make it hard for stocks to continue up.  In The BRICs and the global economy I noted how the industrial metals and BRIC ETF did not seem to show the strength in the global economy that other stock prices seem to be indicating.  This next chart would seem to back that up.

This chart has the above sentiment overlaid with a global economic surprise index. 

Source

The global economic surprises are happening on the down side.  There is clearly a big disconnect between sentiment and the global economy.  Notice the period in late 2011.  There was extremely bearish sentiment while the surprise index was only marginally negative.  That disparity lead to a huge rally in 2012.  Will the current disparity lead to a sell off?

The U.S. economic data is not good despite how it is being spun.  From Doug Short's look at the retail sales data for this January (Source).

The Advance Retail Sales Report released this morning shows that sales in January came in at 0.1% month-over-month. Today's number is matches the Briefing.com consensus forecast. The current 12-month moving average for retail sales is a monthly 0.4%, and the January number outside of recessions is usually strong. January 2011 and 2012 showed gains of 0.8% and 0.5% respectively. 

That last sentence is very interesting.  Outside of recessions the January number is usually strong.  In
Philly FED data  back in Jan. I wrote.

"This data series goes back to 1968 unlike the Empire survey which is much more recent.  I looked back at all the negative readings in Jan. and it pretty interesting.  The years are 1969, 74, 75, 80, 82, 90, 91, 96, 2001, 08, 09.  If you are familiar with the dates of recessions in the U.S. you will recognize that every one of those years but 1996 was associated with a recession.  Only one time out of eleven was the economy not in a recession or just coming out as in the 1991 case.  In 1996 the Dec. print was 19.5 and the Feb. print was 4.9.  There wasn't any prevailing weakness around the negative Jan. print (-14.7) that year.  That clearly is not the case this time.  We are starting out the year weak and the index was negative most of the latter half of last year.  This is yet another piece of data that looks very recession like."

When it comes to making major tops this is pretty much textbook.  Earnings growth has flattened out and seems to be turning negative.  The global economic data is surprising to the down side.  The U.S. data still indicates we may be in a recession.  Courtesy of Wall Street, we now have a widely accepted theory ("the great rotation") of how stock prices are going to fly up.  That story is clearly an attempt to find bag holders for the coming bear market.  Yep, all the warning signs are there all right.  I guess we will see if it is different this time or not.  Maybe there is a chance that all those people going long on margin are going to get rich.

Bob

Important

The information in this blog is provided for educational purposes only and is not to be construed as investment advice.