Thursday Outlook: Commodities, Emerging Markets

<< Return to page 1 - Bulls Come on Strong











































Tomorrow features initial unemployment claims and if bulls are still hardened to bad data they’ll spin it to suit them. Also we get the entertainment that the start of quadruple witching can provide.

The thing bears need to acknowledge is that selling may have exhausted itself. In that vacuum are anxious buyers hell bent on trying to prop this market higher into the year end. Following is a DeMark weekly sequential chart from our internal views. The “9” indicates potential selling exhaustion. The result can generally mean [although this may seem obvious] a reaction with sideways action or a reversal in trend. While this didn’t catch the current bottom, it was close enough and now reflects basic sideways movement.

click to enlarge


Volume is rather light and money on the sidelines or under mattresses isn’t ready to make an appearance yet judging by negative T-Bill yields. Until investors are willing to take on conventional debt instruments we’re still in a lot of economic trouble. Stocks will only be able to run higher to a limited extent, one would think. They say the market is forward-looking. It seems those in T-Bills see more doom while perhaps stock bulls only see an end of year bonus.

We’re still on the sidelines and waiting patiently to make a move. It doesn’t bother me particularly to be late to new trades, especially with the advent of leveraged ETFs where you can make up ground fast if you’ve judged conditions right.

Gold seems poised to do something but I’ll wait the week out before jumping on board.

Let’s see what happens.

Have a pleasant evening.

Disclaimer: The ETF Digest has no positions.

Comments

[Kingsley An...:]

It looks like no one in the markets wants to commit and bring any of the indexes over their 50 dmas. Right now the 50 dmas seem to be pushing down the price.

2008 Dec 11 06:12 AM

[metalhead:]

Nice job as usual David. The bond market is trying to tell us something now. Since early November, it has completely abandoned the usual inverse relationship with stocks.

Generally I trust the bond market to be wiser than the stock market. A lot of dumb money is going to pile into stocks towards year end, I suspect.

2008 Dec 11 06:50 AM

[investor88:]

Rightly cautious, no hurry.

2008 Dec 11 06:52 AM

[David White:]

Good article. You make a good point about the bears having exhausted themselves. However, you may be underestimating the fear factor. Plus you may be underestimating the seriousness of the negativity in the business arena.

The Senate is apparently going to hold up the automaker bailout. Most businesses are now changing their forecasts to being extremely negative. This is expecially true of retailers, which is indicative of the activity of the consumer spender (2/3 of the GDP). It doesn't look like we are anywhere close to the worst of the recession/depression yet. Plus the Senate is at the very least highlighting the terrible position the automakers are in. It is calling into question whether they can survive or not, even with this bailout and future bailouts. While I believe they can and should, the Senate is not helping this belief. I also believe that if the Congress allows these companies to fail, the fallout will be huge. Apparently the "car czar" concept is already making some people think they may be able to claim their CDS conditions for the car makers have been met. If companies this size are allowed to fail, it will again put a huge stress on the banking/lending/insura... industry. This might again make credit very hard to obtain. Further the small, growing economies of the world have borrowed to finance their growth. They are dependent on their ability to export. This is hampered severely in the recessionary environment. They may very soon start defaulting on their loans. The US is not overly exposed directly. However, Europe is very exposed. Over 40% of te loans are of Western European origin. The US is exposed to Europe with CDS's and many other items. There could be a bloodbath. I don't think it is yet time to write off the bears. At the very least the situation is extremely worrisome.

2008 Dec 11 09:06 AM

[sheople:]

I find it interesting that our economic crisis is frequently described as a credit crisis. "Money needs to be broke loose so more borrowing can be done". Jobs, did I say jobs is what is at the epicenter of this crisis? We don't need more borrowing. We cannot operate an economy that is 70% based on what we spend. Until manufacturing is started up again in this country, people are not going to borrow no matter how open the spigot is. Buy all the stocks you want. As a whole, the market is a loser until the people themselves are strong. Manipulations by the Wall Street crowd and Federal Reserve have got us where we are and we will not get out until the people themselves are strong, not Wall Street CEO's and the Federal reserve. These people should be in jail.

2008 Dec 11 09:42 AM

[Emerald:]

A pre-failure business plan:
1. Running your company to continuously lose market share to foreign auto makers. Count the type of cars in any mall parking lot. Few American makes other than SUV's.

2. Running your company to fund your pension plans, not to survive long term. GM doesn't make sedans like the Honda Accord or Toyota Camry because the profit margin is too thin to fund their obligations. This is a failure of leadership. Face a union strike to force down all-in comp and retiree benefits? No way.

3. Spending enormous funds on lobbying to prevent any improvements in mpg or emissions. You might think they could use these improvements to their marketing advantage. Think again. Short term they could lobby to import the fuel efficient sedans they make in Europe.

4. Onerous state laws that prevent shrinking your drealer network without enormous costs. Put your lobying dollars here? No way.

We will survive as a nation with a smaller GM and a new Ford. Cerebus bought Chrysler for their financial arm and never cared about the auto business. We don't bailout hedge funds. I feel sorry for the retirees and the currnt workers, but this bailout won't protect their jobs more than one or two years.


On Dec 11 09:06 AM David White wrote:

> Good article. You make a good point about the bears having exhausted
> themselves. However, you may be underestimating the fear factor.
> Plus you may be underestimating the seriousness of the negativity
> in the business arena.
>
> The Senate is apparently going to hold up the automaker bailout.
> Most businesses are now changing their forecasts to being extremely
> negative. This is expecially true of retailers, which is indicative
> of the activity of the consumer spender (2/3 of the GDP). It doesn't
> look like we are anywhere close to the worst of the recession/depression
> yet. Plus the Senate is at the very least highlighting the terrible
> position the automakers are in. It is calling into question whether
> they can survive or not, even with this bailout and future bailouts.
> While I believe they can and should, the Senate is not helping this
> belief. I also believe that if the Congress allows these companies
> to fail, the fallout will be huge. Apparently the "car czar" concept
> is already making some people think they may be able to claim their
> CDS conditions for the car makers have been met. If companies this
> size are allowed to fail, it will again put a huge stress on the
> banking/lending/insura... industry. This might again make credit
> very hard to obtain. Further the small, growing economies of the
> world have borrowed to finance their growth. They are dependent on
> their ability to export. This is hampered severely in the recessionary
> environment. They may very soon start defaulting on their loans.
> The US is not overly exposed directly. However, Europe is very exposed.
> Over 40% of te loans are of Western European origin. The US is exposed
> to Europe with CDS's and many other items. There could be a bloodbath.
> I don't think it is yet time to write off the bears. At the very
> least the situation is extremely worrisome.

2008 Dec 11 12:10 PM