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Monday, August 25, 2014

Daily update 8/25

SPX hits 2000 intraday.  Check out the daily SPX chart.

The volume was so light you almost have to squint to see it.  Despite a sizable gap up the futures ended the day just 1 tick above their open.  Breadth went from from over 74% positive early in the day to 58% at the close.  That probably indicates there was some minor profit taking after touching 2000.  New highs at 168 were not particularly exciting.  We have had two days over 180 recently, but none over 200.  The prior bounces off the 100 DMA all had a day over 200 before SPX could sustain trading above the prior high.  Today was the perfect opportunity for the bulls to make this market look strong and they failed to do that.  Lets take a peek at the futures chart.

The first hour today had the lightest volume in the first hour of any day in this contract.  There is also a lot of air between here and the 50 SMA.  Price remains extremely stretched.  We ended the day just above the uptrend line.  Do we break that line or bounce off it again?  Here is a look at IWM.

What does today tell us?  Not a lot from what I can see.  IWM gapped above the resistance line this morning, but oscillated around it quite a bit during the day.  It closed merely .02 above it.  Can we say that resistance is conquered?

The breadth has been very good on this rally.  However, the volume and new highs have been seriously lacking.  I think it is going to take some buying pressure to keep price moving higher.  We did not get that today.  The narrow intraday price range (6.5 points today) looks a lot more like a top then anything else.  I guess we will see if this latest break out sticks.  Below the 7/24 high (1991) selling could pick up a bit.

This was an interesting article.  GMO: "There Is No Safe Place To Hide"  If you are not familiar with Jeremy Grantham from GMO  here is a snippet from Wickipedia about him.

Grantham has built much of his investing reputation over his long career by correctly identifying speculative market "bubbles" as they were happening and steering clients' assets clear of impending crashes. Grantham avoided investing in Japanese equities and real estate in the late eighties, as well as technology stocks during the Internet bubble in the late nineties.
Here is an interesting snippet from the article.

We have been writing quite a bit about why asset allocation today is in one of the toughest investing environments we’ve ever encountered. And it’s not just because we think equity markets are overvalued. No, we’ve seen that plenty of times before over the past decade or so. Remember the technology bubble of the late ’90s? That was challenging, sure, but what got lost in the shuffle was that while U.S. large-cap stocks were outrageously overpriced, it turned out that real estate investment trusts, emerging equities, and international small caps were deliciously priced. And it was perfectly clear to us what we had to do: avoid technology and own the cheap stuff, even though it might have looked a bit unconventional. Then we entered the 2007–2008 credit bubble, and while, yes, virtually all equity markets were overpriced, it was perfectly clear to us what we had to do: hide and wait. And that was not a bad proposition because there were plenty of safe places to hide—Treasury Inflation-Protected Securities, U.S. Treasuries, and a strategy we had developed called Alpha Only—and earn a decent, if not spectacular, return.

Today’s environment, however, is quite distinct, as seen in the chart below, where we lay out the GMO seven-year forecasts in a volatility (an imperfect shorthand for risk) versus return format for the traditional asset classes, or betas. This beta desert is so challenging because not only are there no asset classes that we believe are priced to deliver 5% real return (the red line), there is also no safe place to hide and wait (the green circle).

It sounds like Mr. Grantham is saying there are so many bubbles around there is no safe place to park money.  There have been periods of global asset deflation in the past.  Is this a time when that could happen again?


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