Friday Outlook: Commodities, Global Markets

<< Return to page 1 - Headline Numbers Mask Internal Deterioration

























































That’s a wrap. Folks who just read the headlines will note markets closed higher today. The DJIA, the window dressing for tourists, is what they’ll pay most attention to. Beneath the surface things aren’t as good as they might seem. Until we get better participation the market’s push higher will be limited.

The impending so-called bank stress tests may have some impact one way or another. Given the desire by authorities to make everything look great, you’d be right not to trust rosy reports.

Let’s see what happens.

Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, MDY, IWM, QQQQ, XLF, XLB, XLI, XLY, IYR, DBC, USL, XLE, DBB, DBA, MOO, EFA, EEM, EWJ, EWA, EWY, EWM, EWZ, IFN and FXI.

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward.

Comments

[fatcat:]

Welcome to the GSSE...(Goldman Sachs Stock Exchange)

Apr 24 05:37 AM

[Moon Kil Woong:]

Essentially AAPL alone held up the QQQQs yesterday.

Apr 24 06:20 AM

[MKW:]

About the stick save at the end. Are you implying it wasn't because Individual Investors Everywhere find the market is offering such compelling value, especially in financials?


LOL!!!!!!!

Apr 24 07:03 AM

[Daniel Herkes:]

Oh I think Mr. Fry tells us plenty with his charts. We, the readers, have to make our own choices. He just gives us food for thought. I'm new to the technical analysis, I admit it. But to wade through the morass of data is not as helpful to me as the neat summary and annotation on these charts. I like his writing style, and think he is wise to let me read between the lines.


On Apr 24 05:47 AM Nonsense wrote:

> Use your keyboard more. Communicate better what it is you are trying
> to tell us.
>
> Any stiff can copy/paste a collage of charts in a blog.

Apr 24 07:07 AM

[Cliff Wachtel:]

A good summary that would have been better if just a little more commentary to help those less adept chart readers understand your message. Most SA readers are not financial pros and appreciate things a bit more spelled out.

Better still if a bit of specific advice as to what to do.

Nonetheless, a fine job. There is a reason Mr. Fry tops the SA rankings consistently. Kudos from your fan, Cliff

Apr 24 07:20 AM

[Cliff Wachtel:]

In the first part you say:

"Let’s remember the monthly DeMark charts. I put up a few times this year. The sequential 9 count is generally impressive from monthly views and often marks an end or pause to any trend. Below you can see these counts clearly on SPX in 2007 and again just recently. They’re not perfect but generally should be respected. Finally, these counts appeared on most major indexes in the same manner."

Please elaborate on this. What are DeMark charts, and what is the significance of the 9-count?

thanks again for great work, Cliff

Apr 24 07:24 AM

[Speedspirit:]

Reading between the lines is ok when people are awake to the problem of who is behind the curtain. But I feel the message isnt common knowledge yet and Tyler Darden shouldnt be the only one reporting it. So the stick save chart was a Goldman move. And since I am on this site to learn from you Pros it wouldnt be a bad thing to here someone prophesies what could be there next move. Or is that what you are referring to with DeMark charts. Thanks for the info as always.

Apr 24 07:37 AM

[asaf123:]

UPS is an important bellweather. Remember, we are in the Just in Time economy, and UPS (along with other transport companies such as FEDEX, Ryder, etc.) are indivative of the volume and velocity of goods and services (legal documents, contracts, etc.) moving between corporations. A shortfall in earnings and a grim outlook indicates that although the decline in economic activity may be bottoming, UPS is not expecting commercial activity to rebound in any meaningful way.

Could this be the confirmation of the proverbial L shaped recovery?

Apr 24 08:39 AM

[Macbth:]

Charts Charts Charts - too many

Apr 24 08:40 AM

[Seeking Advice:]

Keep those charts and analysis coming, Dave. So, we appear to be in agreement that the markets are manipulated by... some combination of gov't and GS and maybe other large traders/funds? We also seem to agree that the "green shoots" being touted by some are mostly intended to cheer up the market. And some data shows a slowing down of the deterioration, but that's a far cry from anything resembling an upturn. Granted, you need to slow down prior to stopping and reversing direction but there are no real elements of the economy to actually draw strength from:
Unemployment numbers still rising (few finding work)
Unemployment new claims (fairly steady at a very elevated number)
Corporate earnings poor (unless you count beating horrendous expectations as "good").
Real Estate still slumping and prices still dropping y-o-y
Other world economies experiencing their own crises

Yet the market has been climbing. How is one to intelligently invest when there seems to be such divergence between economic fundamentals and the markets actions? Just thinking out loud, I guess.

Apr 24 09:59 AM

[JGL:]

Gold is moving up as China stopped byuing copper and is increasing its gold rserves. Difficult then for us to mae a decision.-
Once again I do not udnerstand the message on Malaysia.
I appreciate al lthe efforts in publishing these charts and am very thankful. However I join my little voice to one reader above and would love a bit more detailed copmment, at kleast once a week or ...once a month??
Thanks in any case and good health!

Apr 24 10:01 AM

[AndrewBaker:]

I remember the original Superman too! Seriously, Dr. Copper is starting to feel a bit ill right now, as he's had so much attention from China recently, along with his base metal friends, but now they may be getting a little full of him. Given that the emerging and BRIC countries need a help from us before they get motoring again, I think we all had better look forward to a market drop soon, certainly in May.

All of the above can be gleaned from the charts, if you pay attention.

Apr 24 10:06 AM

[AndrewBaker:]

Yes David, I agree completely that FAS and FAZ, and any other 3x leveraged ETF, should be day traded; and sometimes even that is too long.

Apr 24 10:07 AM

[Larrysyr:]

David, You do a great job. Assembling all this info daily is a quite a task and a real service to the rest of us. I appreciate all your summaries. There's a huge amount of information boiled into a digestible summary.

To the people calling for more explanation, analysis, and predictions, this column is not about in-depth analysis and the disclaimer at the end makes it crystal clear that no predictions are intended. Other authors at SA and around the web provide plenty of those. For an idea of what the technical terms mean, I would recommend investopedia.com, or just googling them.

Apr 24 10:25 AM

[maximummarket:]

JPM at 58 PE...Where am I?...(twighlight music)doodoodoodoodood...

Apr 24 11:49 AM

[User18358:]

Thank you Dave for posting these charts. I visited SeekingAlpha accidently from Yahoo Finance! a year back and read your blog per chance and have been hooked everyday morning since. Glad to see you are one of the top 10 posters here.

All I can say to new readers who don't get Dave's pithy comments and DeMark charts is read his blog often and you will start following.

Apr 24 12:04 PM

[bthomas:]

Nonsense,
Turn off the PlayStation and read a book. Learn a little more about charts before commenting. I am certain it is nonsense to the ignorant. David Fry is one of the best informed, most straight talking authors on the SA sight. Get a clue!


On Apr 24 05:47 AM Nonsense wrote:

> Use your keyboard more. Communicate better what it is you are trying
> to tell us.
>
> Any stiff can copy/paste a collage of charts in a blog.

Apr 24 12:21 PM

[mtndew:]

Mr. Fry is quite the character but it is basically the same message every day. Kind of like CNN reporting a breaking story and repeating the same details for two hours but for some reason we are glued to the TV.

For those asking for more direction, no one can predict that in the short term.

Apr 24 01:31 PM

[Jeopardy:]

that's just a snapshot at the moment of your chosen, look at the same stat now.

Issues NYSE Nasdaq Alternext
Advances 2,289 1,811 311
Declines 703 828 157
Unchanged 110 121 61
Issues at
New Highs 10 13 5
New Lows 1 7 0
Share Volume
Total 999,425,954 1,728,210,877 11,362,282
Advancing 753,526,074 1,401,875,889 6,630,172
Declining 196,462,310 317,084,614 3,283,300

Apr 24 02:45 PM

[Mad Hedge F...:]

Take a look at soybeans. Highlighting my bullish positions on the soft commodities is soybean’s 20 cent push yesterday to $10.65/bushel, a six month high. Massive Chinese buying was again the culprit, with the Middle Kingdom lifting 404,000 tonnes from the US in the latest report. There is a real risk that American stockpiles will drop below 100,000 bushels by the summer, creating domestic shortages and bringing a return of the food inflation we saw last year. Better buy that tofu dinner now! Poor weather is expected to shrink the domestic Chinese grain crop this year by 8 million tonnes to 220 million tonnes, and there is little option for them, but to accelerate imports. In the meantime, the Buenos Aires Cereal Exchange has cut its forecast of that country’s production by 19.9% to 37 million tonnes YOY. More demand and shrinking supplies can only mean one thing for prices, and the charts look very positive. Several big hedge funds have jumped in with long positions, boosting the open interest in the futures market. Never bet against a big trader that can eat their long positions. Pray for rain, my Argentina.

Apr 24 04:56 PM

[RiskReturnO...:]

For long term investors, you may want to watch DBA and FXI correlation (FXI leads DBA by 3-6 months).

Not being an economist, I'll explain it as follows:

1. FXI = function of China growth, forwarding looking up to 1 year; China growth rate drives marginal demand (incremental on top of other countries) for agricultural products.

2. DBA = tracks agriculture prices based on current and near term supply/demand, forwarding looking 3-6 months.

So, FXI's rise in April 09 suggests strong economic growth through Q1 2010. DBA will likely move up (break through current range) starting Q3 09 to anticipate the increased marginal demand.

I know there is weather and other considerations the full time traders watch, but I've been able to maintain conservative allocation to DBA based on taking a "sneak preview" of China demand (through the power of economic forecasting provided by FXI).

Based on the historical patterns, safe to increase DBA exposure until Oct 09. Monitor FXI to see when it's time to lighten up.

I'm sure the technical analysts / statistical guys will complain about the lack of vigor to this analyst ... welcome anyone's more academic explanation to explain this phenomena.

Apr 24 07:06 PM

[cma:]

David, you sometimes post the Demark chart, which is great, since no one else does, but we need the interpretation, please!

Apr 24 07:33 PM

[pchris:]

cma2,

Membership has its privileges.

Apr 24 09:02 PM

[bthomas:]

Demark indicators are used to anticipate trend reversals.


On Apr 24 07:33 PM cma cma wrote:

> David, you sometimes post the Demark chart, which is great, since
> no one else does, but we need the interpretation, please!

Apr 25 12:03 AM

[Marion Cont...:]

Info on DeMark indicators [charts]:
www.google.com/#hl=en&...


On Apr 24 07:24 AM Cliff Wachtel wrote:

> In the first part you say:
>
> "Let’s remember the monthly DeMark charts. I put up a few times this
> year. The sequential 9 count is generally impressive from monthly
> views and often marks an end or pause to any trend. Below you can
> see these counts clearly on SPX in 2007 and again just recently.
> They’re not perfect but generally should be respected. Finally, these
> counts appeared on most major indexes in the same manner."
>
> Please elaborate on this. What are DeMark charts, and what is the
> significance of the 9-count?
>
> thanks again for great work, Cliff
>
>

Apr 25 03:46 AM

[aarc:]

Gold is in the hope mode. Hope it does'nt go down. Hope it goes up further. One way to improve analysis of the potential continuation inverted Head and Shoulders on the weekly chart is to count the number of bars on the left and right shoulders. They are basically equal in price targets but not in time consolidation. Target for gold if the C-invHnS pattern succeeds is $128 with 80% probability of $106 and progressively lower probability as it approaches the nominal target of $128 (forgot how low, 20-30% probability range perhaps). That is, if the continuation invHnS works. They have much lower chance than that of a normal invHnS that tends to form at the bottom of a sell-off. One of the more riskier patterns. I'll bet on the invHnS at the bottom of an extended sell-off anytime rather than that of a C-invHnS that sometimes forms at the top of a rally.

Copper has more than 90% probability of making higher high on the weekly chart. The weekly chart has already produced enough momentum to sustain another rally but after an extended period of consolidation that should last more than 7 weeks but no more than 21 weeks. The daily may or may not provide another minor rally before the weekly consolidation starts kicking in. The rally from midFeb to midApr is already extended so there is no need to chase the rally on the daily chart, consolidation on the weekly chart may kick in at any time if not already doing so.

Most emerging markets are sporting flat patterns (or bear flags as most pattern traders call them) on the weekly charts and are expected to go into sell-off mode sooner rather than later to lower lows.

China's Shanghai and Shenzhen indeces are at the last stages of their 6-month rally thus a prolonged correction is expected to happen sooner rather than later. It can be a shallow or a deep pullback or in-between with no definitive percentage of probability on whichever type of pullback is more likely to happen - until after the first run-down has already happened.

Unfortunately, there is no ETF that tracks China's indeces but rather FXI, PGJ and HAO are tracking the Hongkong (China) index rather than the Peoples Republic of China or Mainland China since they cannot invest directly into Mainland China. Shanghai and Shenzhen indeces are the current buys of the decade if not of the century once they commence with 6 to 12 months of corrective process or pullback. FXI, PGJ, and HAO (and EWH of Hongkong) are more likely to produce lower lows as Mainland China corrects to higher low with more than 65% probability. I would'nt bet on Shanghai and Szensen going lower low at this stage. More likely they are going to end up with an L or hockey-type bottom we call a terminal triangle since they are mostly trapped between the bullish Mainland China and the bearish US. Terminal triangle bottom is the usual result of massive indecision among market participants.

Taiwan (EWT) may be the exemption to the developing countries ETFs. The rally of $TWI (the index itself) from Mar to Apr is already extended thus having more than 90% chance of making another rally after 5 to 10 weeks of consolidation. It is going to be a hard fight since all the other indeces are high probability to go down to lower lows including Europe and the United States (US is the most unpredictable of the bunch with patterns on the weekly and monthly charts of Dow Jones and SnP very hard to decipher - so be very careful). How Taiwan is going to accomplish that is beyond me. Perhaps pare down the 90+% probability to much lower percentage. Still I would not bet Taiwan going down lower. They are mostly anti-China and less likely to be affected when Shanghai and Szensen indeces start correcting in the months ahead.

The time will come for the US's Dow Jones, SnP, and Compq, but no definitive analysis at this stage. Same with Europe's DAX and CAC. Hopefully by the end of the year when the final bottom is expected to happen in the Western World (By that time Shanghai and Shenzhen should be reaching the bottom of their pullbacks to higher low). Then evaluate the ensuing rally and buy some more on a shallow pullback in late 2010 if the rally proved to be impulsive rather than corrective. Technically, a shallow pullback with the expanding flat Dow Jones is finalizing has the highest probability. Psychologically, Shanghai and Shenzhen should be running more than 100% and possibly 200% price appreciation from their Oct. 2008 low by the late 2010. US and Europe will have lots of catching up to do in the years ahead to that of China's.

My 2cents worth, if you will.

And good luck to all. We all need a little luck after 18 months of sustained sell-off in the US and Europe.

Apr 25 11:44 AM

[dcb:]

I have written to Mr. Fry to ask him to increase the amount of wording. In Summary he provides a free primer to his fee service. Although, I do think that if he added a bit more every now and then one would have a better idea if his fee service was worth the fee. I think you would drum up more business in the long run by giving a bit more.

Apr 26 10:40 AM

[theobannion:]

If a small investor (account value less than $25,000.00) who had been labelled a "pattern day trader" had bought FAZ at 9:30 AM, liking the first half-hour's action, and wanted to cut his losses that afternoon when the price went to a new daily low, he would have been prohibited from doing so and would have had to wait until the next morning.

Isn't it great how Cox's SEC looked out for the little guy? So far, Schapiro has done nothing about the rule prohibiting the little guy from day-trading.

Most traders don't even know the rule exists.

Best,
SOB.

Apr 26 11:12 AM