Market Minds

  Here’s what happened to SLV the last time this M.A. setup took place…….  

I highlighted this morning the importance of China’s CPI figure tonight in light of the possibility of an interest rate hike at some point in China following their attempt to cool inflation pressures and lending growth. With regards to the relentless US equity market rally where the SPX is just 4 pts from its Jan high, one asset class has dramatically lagged and that is commodities as the CRB index is 6% below its Jan high and is back to where it was 3 weeks ago. Due to China’s voracious appetite for commodities as we all know, the relationship of late is not likely a coincidence. Gold in particular is likely being impacted by China’s talk that they aren’t a gold bug at these levels.

In a headline trumpeting the wrong thing, Bloomberg is reporting Unemployment Decreased in Nine U.S. States in January . The unemployment rate decreased in nine U.S. states in January and climbed in 30, signaling the thawing of the labor market is not broad-based. The jobless rate in Michigan showed the biggest drop, falling to 14.3 percent, still the highest in the nation, from 14.5 percent in December, according to figures issued today by the Labor Department in Washington. New York and New Jersey were among eight states where unemployment decreased by a tenth of a point. A national unemployment projected to average 9.8 percent this year signals state budgets will be strained by decreases in tax revenue and rising jobless insurance payments. The loss of 8.4 million jobs since the recession began in December 2007 means the labor market in the world’s largest economy will take years to rebound. “This is a recovery that’s really kind of concentrated,” said Steven Cochrane, director of regional economics at Moody’s Economy.com in West Chester, Pennsylvania. “It still portends weakness in income-tax revenue and sales-tax revenue into fiscal year 2011.” Unemployment in the Detroit area, home to General Motors Co.

~~~ Source: Carmen Reinhart: “Speculators Are Like Vultures,” But Don’t Blame Them for Greek Crisis Aaron Task Yahoo Tech Ticker Mar 09, 2010 http://finance.yahoo.com/tech-ticker/carmen-reinhart-%22speculators-are-like-vultures%22-but-don%27t-blame-them-for-greek-crisis-438798.html

Our kooky precious metals bulls - - not that I don’t love ‘em, some of my best friends are kooks - must be getting really frustrated. Precious metals have had every reason to rally. The storyline is simple enough to follow: (1) precious metals represent the only true store of value; (2) the US has “printed” up trillions upon trillions of dollars of “money” whose only value is the perceived value of a public accustomed to fiat money (3) the US, like so many countries throughout human history, will see inflation take hold and cause the value of real money to soar. That storyline seems to have peaked on December 3rd. In spite of so many assets - like equities and energies - continuing the charge relentlessly higher, precious metals have been pretty much a dud. Take note of the trendline for GLD and notice how it has been getting brain damage conking its head against that failed line.

Matt Trivisonno no stranger to these pages . He has set up a new site to do “ Real-Time Tracking of the US Economy Using Withholding Tax Revenue :” : The Daily Jobs Update . Here’s Matt: “I’m thinking that if payrolls stay flat, the annual growth rate can move up to zero. But to move above zero will require that some new net jobs get created. I hope we get that, but in 2002 we had a massive real-estate building spree going on and creating jobs for every body from copper miners to i-bankers. We don’t have anything like that today. So, I do worry that we won’t be able to run up to +8% as fast as we did last time.” And of course, Matt has some new charts for us: This is the daily plot of the annual growth rate of the raw data. Matt observes we are making the same pattern that we did at the bottom of the last recession in 2002. > Daily Federal Withholding Year over Year Percentage Change > The next chart is also an annual, but plotted every 12 days to smooth the line. Its also adjusted to reflect when the April 2009 withholding tax credit went into effect.

For the past 42 years, Bob Bronson ( BRONSON CAPITAL MARKETS RESEARCH ) has applied a disciplined, analytical approach to understanding and forecasting capital markets and advising investment advisors. Through his rigorous analysis of capital markets and economic data and his background in mathematics and financial economics, he has developed a number of unique investment concepts and refined portfolio-management techniques that improve returns and lower downside-volatility risk.  To learn more, read his BIO . ~~~ The Supercycle mean-reverting nature of the stock market is best revealed through its real total returns (that is, adjusted for price inflation and dividends reinvested), as illustrated in the chart below (See chart below). The stock market’s performance over nine alternating Bronson Asset Allocation Cycle (BAAC) Supercycle Bull and Bear Market Periods (green and red shaded areas, respectively) create a robust high-low volatility channel , with parallel upper and lower boundaries showing growth of 6.6% annualized over the 139-year period. Notice how Supercycle Periods have become increasingly emergent, as especially seen in rolling 16-year returns rather predictably peaking at 15% +/- 1% and troughing at 0% +/- 2%  (see the lower panel of the chart), which further establishes 16  +/- 4 years as the average length of a BAAC Supercycle Period (Bull or Bear). The S&P 500 index is currently at the same level as it was four to five months ago, 15 months ago and 12 years ago – that is, there are 0% gains over each of those periods, the latter of which especially has caused the 16-year Supercycle Oscillator to be approaching its predictable 0% +/- 2% trough. We continue to expect the end of the current Supercycle Period (a Supercycle Winter, or deflationary Supercycle Bear Market Period) will be signaled by the Oscillator declining still further from about  5% at present to probably below 1% during the next several years, a forecast supported by our Supercycle fundamental valuation and other indicators in our forecasting models.

  Tuesday’s chart of the ES was very interesting.  As you can see by the numerous declining volume spikes, the buying surges were running out of steam.  The obvious question was where would a reversal come if it was going to?  The horizontal green bar was an area I flagged as a potential area where we might see a reversal.  The keltner channel set at 1.619 & 39 acts as a decent trade filter. What I’ve noticed for short or long reversals late in the day, is that price will break through, and then back test the channel before making it’s move.  When you see a break and a back test, it always bears evaluating for a potential reversal play.  The risk-reward is pretty good because you don’t need a huge stop because either the channel edge will hold on backtest or it doesn’t.  If it does, then late in the day odds are in favor of this particular setup. In the above example the upward momentum fades causing price to near the channel, then the hanging man doji’s add credence to the shooting star doji.  The volume bled off as the channel edge was back tested, and the clincher was the red candle which gaped down from the channel. Lastly, in this kind of situation I’ve found the SMA (close)(3) Green line, and SMA (H+L+C/3)(5) Red line, work well to keep you in position on the trade.  When those two cross, it’s time to cash out and call it a day.  The volume spikes just prior to the cross are the big clue the selling is about to end, and the cross nails the close.

Jan inventories at the wholesale level unexpectedly fell by .2% vs a forecasted gain of .2% and Dec was revised lower by .2 of % pt to a decline of 1%. Durable good inventories fell across the board, in auto’s, computers and machinery partially offset by a rise in nondurables, led by groceries. Auto wholesale inventories have now fallen for a 3rd month. Machinery inventories fell for a 12 straight month. Because sales rose 1.3%, the inventory to sales ratio fell to an all time record low of 1.10 from 1.12. Bottom line, inventory restocking (which statistically lifts GDP) has still not handed the baton to stocking likely due to the still uncertain outlook with final demand. With this said, inventories are very lean and even the slightest pick up in end demand should lead to the eventual restocking.

This is dead pan brilliance: Maritime Ship Construction and Environmental Concerns Back to work!

Dead pan genius!: ~~~ Reminds me of earlier Bird & Fortune videos: • Banking with Bird & Fortune • Silly Money, Part 1 & 2 • How the markets really work, Subprime Crisis

A countdown to the opening bell, with Arthur Cashin, UBS Financial Services director, floor operations. Airtime: Wed. Mar. 10 2010 | 8:50 AM ET

From Weather Sealed , we get this terrific map of the 8 largest American burger chains: > click for ginormous map > Hat tip Flowing Data

With the Greece fire out for now and earnings season over, the other factor that was a catalyst for the near 10% correction in stocks late Jan into Feb, China, becomes a focus again. With speculation building that China may soon raise interest rates, they report their CPI tonight. Ahead of it, Feb exports rose 45.7% y/o/y, well above expectations of 38.3%. Import growth was also above forecasts. Also, a housing price index rose at the fastest pace since Apr ‘08. Portugal successfully sold 10 yr notes at an avg yield of 4.17%, about 65 bps below an issue sold last month and well below the 6.39% yield where Greece sold 10 yrs.

“People are starving for yield because rates are at zero. They’re taking more risk than they think.” -Paul Tramontano, Constellation Wealth Advisors, > One of the factors that caused the great credit crisis to spread far and wide was the “ reach for yield .” This is one of the most expensive ways a fixed income investor can obtain a higher potential return on their bond investments. Note that I used the term “higher,” not “better,” and the word “potential,” not “actual.”As we have seen, high yielding junk paper often goes bust, making the yield grab an exercise in foolish futility. Thank goodness bond investors learned their lesson in the credit collapse of 2008-09. Only not so much. In 2009, bond buyers poured $7.8 billion into higher-yielding municipal bond funds , more or less ignoring the precarious financial conditions of cities and states. Rather than accept ultra low yields as a consequence of Federal Reserve action in 2001, bond buyers poured into various mortgage backed securities. Even though they were paying 250 to 350 basis points more than Treasuries, they were rated the same: AAA. This time, they are eschewing the fraudulent AAA ratings from Moody’s and S&P, and instead are buying naked junk. The bet is that the cities will be bailed out, and their grab for  higher yield will be safely rewarded

Please consider this once sentence video clip from House Speaker Nancy Pelosi. http://www.youtube.com/watch?v=KoE1R-xH5To “We have to pass the health care bill so that you can find out what is in it.” That unfortunately is the sad state of affairs, not just with healthcare, but with virtually any bill passed by Congress. The only people who know what is in these bills are the lobbyists who write them. Mike “Mish” Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Please consider this once sentence video clip from House Speaker Nancy Pelosi. http://www.youtube.com/watch?v=KoE1R-xH5To “We have to pass the health care bill so that you can find out what is in it.” That unfortunately is the sad state of affairs, not just with healthcare, but with virtually any bill passed by Congress. The only people who know what is in these bills are the lobbyists who write them. Mike “Mish” Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.