[3:50 pm ET Sunday] The cover story this week reads: “Most economic news was unexpectedly positive and indicated that the recovery may be gaining momentum.”
But is it real or simply a story the Fed is feeding us today? I fear the latter and, after watching the shills on CNBC tout the party line in recent days, I have no concern that my forecast of much higher prices ahead is already a done deal thanks to the Fed, Friends and Family. The rest of us will be forced to play along.
Is it a bad thing we don’t have free capital markets? Well, if you care a whit about social equity you ought to be distressed. The 1% is rapidly gaining. And when enough of us complain about the slip-ups by the Jamie Dimon’s and the Jon Corzine’s, we are given the usual hearings in Congress that amount to nothing of consequence.
As I have long said, the market is a game that plays people. Sad but true.
A week ago I opened the WIR with these remarks:
Finally, after three weeks of mixed, and increasingly negative, messages from the capital markets when I figured that prices were ready to lift, I believe the path has been set. The first step will likely be a small one in reverse, but that will soon be followed by a major move higher. And this time, equities, commodities and precious metals will move together as the US Dollar and US Bonds begin to fall… Why do I think there were be a pull-back before the launch? The indexes have set new highs, which is not a negative at all – in fact it is part of my reasoning the market is going higher – but the S&P 500 RSI-7 for Monthly-Weekly-Daily is presently 79.6—82.9—75.4 and I have never seen a market lift-off on a high-risk Buy signal that was based on a previous high-risk Buy signal. Too many investors are now caught up in the prospects of additional QE and what implications exist for a lower US Dollar. That enthusiasm has to be moderated somewhat, and a price pull-back will do that.
The S&P 500 RSI-7 for Monthly-Weekly-Daily is presently 80.4—84.6—73.4
The selling started on Friday at the open.
Full stop.
The next buying surge will start three weeks from now.
Full stop.
For those of us who are commiserating over losses in our precious metals positions in the past two years, buy the (soon-to-come) next pull-back and you will soon enjoy the rewards. 2013 will be a great year.
Those 23 well-known gold analysts in the Bull & Bear survey, which picked a high range from 1720 to 2100 will all be wrong. The 2013 will be over +20% above the highest high forecast by the experts.
http://www.goldstocknews.com/GSNpdf/GSN-0213.pdf
That’s my story and I’m sticking to it.
What is a fact is that once proven totally wrong, these analysts will continue pulling down millions in compensation and many of them will later report they called the market correctly.
So, let’s see who is going to be right and who will prove to be the dud.
Now remember – it was only mid-November when leading equity analysts were forecasting a market crash of between 20% to 40%, and four months later the S&P 500 is up +16%. I was a lonely figure at the time who was saying the market was going higher, much higher.
And that was not because I was a believer in the market! In fact I think that what is happening to all of us is that the market is under the control of the Fed, Friends and Family. When Apple (AAPL) was about $550 I said it would go up +$100 or down -$100 from there depending on what these interventionists wanted, and the stories they paid to be published to the gullible marketplace. In fact since last summer I missed, by a lot, the high and the low with that comment. AAPL hit a low of ~$420 a few days ago, and it’s being bad-mouthed all over the media. But within the next six months, AAPL will be +30% higher, I believe.
I don’t like it when I think like this, but the market’s making me do it. It’s a phony market. Reminds me of 1982. In May of that year, as I recall, the Toronto composite started a new Bull, but the Fed wasn’t ready so the S&P 500 hung back. Then in mid-August, as I recall, I remember seeing massive block followed by massive block of trades being executed at higher prices. I remarked to those around me that only the Fed could bang the market like that. We are being set up for the same thing today. I smell it.
These people have no shame.
This week equity market prices lifted a bit before the selling started on Friday. The few stocks that out-performed on the upside this week appear very much to me to be whip-saw set-ups. Instead of buying them, you ought to have been selling.
As Grym and Bull Hunter noticed, there was a lot of selling on Friday in the DJIA, S&P 500 and NASDAQ Composite indexes. Due to quadruple witching, volumes were on steroids.
http://www.investopedia.com/terms/q/quadruplewitching.asp#axzz2NiTuzyHv
Remember, you sell into strength and buy into weakness. That’s a rule the other side – the market interventionists – hate. They are the experts at pump and dump. Regrettably, 70% of you do exactly what they expect you will do. Human emotion tells you to go with the flow – you buy and sell with the crowd. Too many of you listen to the Fed’s Talking Heads and the media clowns.
This week there was a small rise in the prices of bonds. The 20-year Treasury (TLT) popped +0.5% on Friday to give it a gain of +0.9% W/W. The economic report numbers were rolling in all blue sky, enough to help the interventionists sell into strength.
As much as I say I’ll never repeat this, I do: All Fed and White House produced economic data is fudged. Deliberately. Ignore it. Stick to the data and the analysis provided by independent sources, bearing in mind there are biases there to.
But, bias is different than fraud. In fact, we are all biased; few of us are fraudsters and those of us who are will typically end up in prison while people like Dimon and Corzine earn many millions of dollars in compensation annually and live their lives in total comfort, knowing they, as part of a club, will never be prosecuted.
There are no lies big enough these people think are too big. I still cannot get over the one told by Chairman Bernanke – to Congress nonetheless – that he’s just an average Joe with a seven year old car and a car loan to boot. He’s saying that to a Senator who just couldn’t recall – in the heat of a campaign — that he owned seven houses.
But I digress.
There was selling of equities and buying of bonds on Friday. In three weeks, the economic data that the Fed reports (along with their internally generated gossip) will tell a different story, this time one to push people to buy equities and to sell bonds.
Like the arrival of the dubious inflation numbers this week, this stuff just comes in waves.
As to the broad market this week, the S&P 500 moved from 1551.18 to 1560.70, up +0.61% W/W. The Nasdaq Composite, Dow 30 and Russell 2000 Small Cap indexes lifted +0.14%, +0.81% and +1.06% respectively. But all these market indexes were down on Friday.
This week in the US market, seven of ten equity sectors lifted W/W, but on Friday there was not one sector that lifted. Week over week, there were 20 of the 30 Dow stocks that lifted. But on Friday, only ten were higher.
Whenever I come to a conclusion that the market is being controlled, I look to the stocks that are moving. Whether the market is rising or falling at these times, I expect to see the same leaders. You’ve heard me say this before: leadership comes from the same names – GE, Home Depot, Caterpillar, Pfizer… these are the companies closely associated with the BusinessRoundtable, the White House, the NYSE, CNBC, and the rest of the network of money players who control America. This week these four stocks were down an average of almost -2%. On Friday they dropped about -0.7% on average. Next week the rest of the market will follow them.
http://businessroundtable.org/news-center/
I see the news from the Business Roundtable (BRT) this week that another piece of their plan to regionalize currencies and trade networks has fallen into place. Japan will seek to join what is called the Trans-Pacific Partnership (TPP).
http://businessroundtable.org/news-center/business-roundtable-supports-j…
Interesting.
Internationally, 7 of 19 non-North American equity markets I follow were higher, and of the US Dollar denominated Country ETF’s I follow, 11 of 17 were higher. That’s a lot softer than a week ago.
Gold (+0.94% W/W), Silver (-0.52%), Platinum (-0.74%) and Palladium (-1.51%) were mixed. Crude Oil ($WTIC) gained +$1.53/bbl (+1.67% W/W). Copper was unchanged.
Now to the charts that I keep in front of you each WIR.
As you know, I recommend studying certain key ratio charts in capital markets to assess “the weight of the evidence” before you firmly establish a mind-set on Bull or Bear. Most of these indicators have been bullish recently.
For these studies I look at the ratio charts of:
•US Bonds ($USB) vs the US S&P 500 ($SPX)
•Global Dow Index ($GDOW) vs US 20-year Treasury Bonds (TLT)
•MSCI World Equity ex-US ($MSWORLD) vs the US S&P 500 ($SPX)
•US small cap Index ($RUT) vs the US large cap S&P 500 ($SPX)
•Canada (EWC, in USD) vs US S&P 500 (SPY)
•US Industrials (XLI) vs S&P 500 (SPY)
•Consumer Discretionary (XLY) vs Consumer Staples (XLP)
•Euro ($XEU) vs US Dollar ($USD)
•US Treasury Inflation Protected Bonds (TIP) vs US 20-yr Treasury Bonds (TLT)
•Goldminers (GDX) vs Gold Bullion ($GOLD)
•Silver Bullion ($SILVER) vs Gold Bullion ($GOLD)
•Junior Gold Miners (GDXJ) vs Senior Gold Miners (GDX)
•Oil Services Companies ($OSX) vs Integrated Oil companies ($XOI)
•Semi-Conductor Tech Companies (SMH) vs Major Tech Companies (XLK)
With these ratio charts, the good thing is that you are looking at the market speak, not the media. You can see for yourself the unfolding of relationships – i.e., what is actually happening in the market today, and from there you can study the reasons for it, such as the corporate or industry reports, the commodity prices, interest and dividend yields, impact of regulation and government policy, and so forth. Not all charts will give you a bullish or bearish picture, at least most of the time, but you take it all under consideration and go from there. There are different time frames – short, intermediate and long – and you are trying to time your entry or exit with the simultaneous reversal of all three. Also, if the big picture gets too extreme one way or the other, the trend is not likely to last in that direction and you ought to be looking for signs of a reversal.
A ratio chart, which is simply the first data series divided by the second, will show you clearly what is happening in terms of market drivers over the time period I am studying. It could be Daily, Weekly or Monthly data. As there may be a market cycle event on the way, I’ll be changing this week from a Daily to a Weekly data series to get a Big Picture view of where the market stands today.
If the line is rising, the first data series is strengthening. The S&P 500 by itself is in the solid thin orange line in the background. In the case of a Bull phase for equities, which some are calling the ‘risk on trade’, the line should be rising for the particular studies that follow, and the line should be above the 8-month Exponential Moving Average.
The following short-term Weekly data series charts show a definite change to ‘risk on’ in mid-November – a point in time when I noted that the pundits were over-the-top with their negative doom-and-gloom forecasts:
1. Weekly US S&P 500 ($SPX) vs Weekly US Bonds ($USB)—conclusion: A Bullish primary case since min-November persists.
2. Weekly MSCI World Equity ex-US ($MSWORLD) vs US 20-year Treasury Bond (TLT)—conclusion: A Bullish primary case since min-November persists.
3. Weekly MSCI World Equity ex-US ($MSWORLD) vs US S&P 500 ($SPX)—conclusion: The Weekly chart has changed from Bearish to Neutral this week. But the case is far from clear at this point.
4. Weekly US small cap Index ($RUT) vs the US large cap S&P 500 ($SPX)—conclusion: A Bullish primary case since min-November persists.
5. Weekly Canada (EWC, in USD) vs US S&P 500 (SPY) —conclusion: Remains sharply Bearish. But is much oversold, which to me is indicating a possible reversal within one month.
6. Weekly US Industrials (XLI) vs S&P 500 (SPY)—conclusion: A Bullish primary case since min-November persists.
7. Weekly Consumer Discretionary (XLY) vs Consumer Staples (XLP)—conclusion: Bullish again.
8.Weekly Euro ($XEU) vs US Dollar ($USD)—conclusion: Reversal from extreme Bearish still.
9. Weekly US Treasury Inflation Protected Bonds (TIP) vs US 20-yr Treasuries (TLT)—conclusion: Should this primary Bullish condition continue, the market is going higher.
10. Weekly Goldminers (GDX) vs Gold Bullion ($GOLD)—conclusion: Remains sharply Bearish. But is much oversold, which to me is indicating a possible reversal within one month. Needs a weaker Dollar to support a Bull run.
11. Weekly Silver Bullion ($SILVER) vs Gold Bullion ($GOLD)—conclusion: The Weekly data chart has been Bearish for about six months. I am anticipating this chart to soon start out like 2H10 and 1Q2011, i.e., strongly Bullish.
12. Weekly Junior Gold Miners (GDXJ) vs Senior Gold Miners (GDX)—conclusion: From “clearly Bearish, and showing no signs it may be ready to reverse”, this chart is reversing to a Bullish pattern on the Weekly as well as the Daily. A week ago, GDXJ was up +3.14% W/W while GDX was flat. This week GDXJ was up +4.66% W/W while GDX was up +0.62%. The market is setting up for a Bull run in precious metal stocks.
13. Weekly Oil Services Companies ($OSX) vs Integrated Oil companies ($XOI)—conclusion: From Neutral to now Bullish.
14. Weekly Semi-Conductor Tech Companies (SMH) vs Major Tech Companies (XLK)—conclusion: The primary condition has been Bullish since early October, but is threatening to go Bearish. On Friday, SMH dropped -1.72% on the day while XLK was down -0.82%. To stay Bullish, SMH next week must be relatively stronger.
Using the Weekly ratio chart data this week, I sum up the Bull:Bear picture as being 8 Bullish, 3 Bearish and 3 Neutral. I see 1 Bull and 1 Bear tending toward Neutral.
Two weeks ago in the WIR I opined: “Clearly the (Daily) Bull-Bear technical indicators are signaling weakness, which the broad market indexes are not showing. I continue to think the big picture is due to (i) consolidation of the strong Bull run from mid-Nov to early March, and (ii) wariness over currency relationships and how rapid exchange rate changes are causing havoc among international traders in goods and services. Add to that the recent strength in the US Dollar and US Bonds, and it is obviously a market that is fighting an ebb tide… As I opined a week ago: “I don’t think it’s fair to conclude that the global equity market has gone Bearish, but there are clearly weak spots now. Caution is urged.” … We are doing just that as in our Growth portfolios we are over 41% in cash and in the accounts where we balance equities with bonds, we are presently at over 31% in cash and over 17% in bonds.”
A week ago, I reported: “A surge of Bullish optimism is apparent in most international equity markets. Our accounts reflect that as well. We moved from 41% cash to just 2% in the Growth accounts and from 31% cash and 17% bonds a week ago to 11% cash and 9% bonds in the All-Weather accounts. But, this week’s bullishness may have been only a test of the resistance before soon testing support as the market prepares, in my view, to make a solid Bull move this year.”
This week we ended with 11% cash in All-Weather and 14% in Growth. This is prudent because should there be a small ~3% pull-back over the next three weeks (that started this Friday), we want to be in a bigger cash position in the more volatile higher-beta Growth equities. After the turn however, we will be at or close to 100% invested.
Now it’s time to look at what happened this week with the US economic reports, which, this week, were plentiful and the data was quite mixed.
For an objective presentation, here is the US summary and the headlines from the Econoday analysts:
The bottom line: Overall, the economy is showing notable signs of improvement. However, inflation also is up although mainly due to February’s jump in gasoline costs. Core inflation is rising, however. Probably the key points from this past week are that the recovery is gaining traction and that debate is going to pick up within the Fed on the timing of when to unwind easy monetary policy. It is too soon for the Fed to act but not too soon to raise the level of debate. It is, however, too soon to debate anything other than very gradual moves as sequestration will be seen as a drag on the economy.
For this week, the econ headlines were as follows:
>
•Retail sales show unexpected strength in February
•Business inventories recover in January after weak Q4
•Consumer sentiment dips in early March
•Industrial production jumps in February
•Empire State manufacturing remains positive in March
•Consumer price inflation spikes in February on energy costs
•Producer price inflation jumps in February
… Looking Ahead: Week of March 18 through 22 — On Wednesday, Fed Chairman Ben Bernanke conducts his quarterly press conference following the FOMC statement and Fed forecasts. Otherwise, the focus is housing. This sector has shown moderate strengthening. Updates are posted on NAHB, housing starts, FHFA home prices, and existing home sales.
From recent weeks, the econ headlines were as follows:
•February employment surprises on the upside
•Consumer credit in January up on student loans
•International trade deficit widens in January on oil
•ISM non-manufacturing index improves in February
•Fed’s Beige Book indicates a soft Q1
•Fed chairman’s testimony soothes markets
•Q4 GDP growth turns positive but not as much as expected
•Personal income fell on fiscal cliff effects
•Motor vehicle sales in February hold strong
•Consumer confidence and sentiment unexpectedly go up
•New home sales unexpectedly jump in January
•Pending home sales jump in January
•FHFA and Case-Shiller home prices rise further in December
•New durables orders swing back down in January
•Markit and ISM manufacturing readings still positive
•FOMC minutes reflect debate on unwinding
•Housing starts ease in January but permits gain
•Existing home sales slow on limited supply
•Markit flash PMI for Feb. at 55.2 vs 55.8 for the final Jan. reading
•Philly Fed contracts faster in February
•CPI inflation soft at headline but may be temporary
•PPI inflation rebounds in January on food prices
•Leading indicators slow but stay positive in January
Because of the track-record of independence and objectivity, I encourage you to read the Econoday reports on the US economy. If we had more time in a day, we’d also be looking at the econ data for the rest of the world – at least more of it.
As for our studies this week, we’ll first look at the detailed economic data for the week that passed and the one ahead. Then we’ll get into the market prices, and the trends and cycles of Currencies, Bonds, Equities, Commodities and Precious Metals.
One final point before we get into our weekly study of markets, when it comes to trading equities I believe that the term “stock-picking” is inadequate and misleading. Instead, since a company is not a stock – i.e., a stock is just a price — you need to be “company picking” and “market timing”. I cannot stress that more.
While pure traders might disagree, I strongly believe that investor success is a consequence of asset allocation and portfolio management as much or more than simply trading execution.
Global Economics Review
Global Report from Econoday Chief Economist Anne Picker:
Equities were mostly lower in the Asia Pacific region but advanced in Europe and the U.S. even though they declined Friday. Good news was bad news in Australia where equities dropped on a much stronger than expected employment gain. Economic news from the U.S. for the most part was better than anticipated, but not from China leading investors to worry about the country’s growth. EU leaders meeting in Brussels pushed ahead on a bailout package for Cyprus and softened their rhetoric on austerity.
Econoday’s Global Perspective is written by chief economist Anne Picker.