Thursday Outlook: Commodities, Global Markets

<< Return to page 1 - Much Overbought, from Many Perspectives

Words fail me in describing this action so I must turn to something more lyrical from the Eagles. The bottom line is markets are much overbought from many perspectives as quad-witching looms. Some would argue correctly that overbought conditions are a sign of strength rather than an opportunity to exit. We have taken some profits and may be forced to reenter at some point, a la “you can never leave.”

Oracle (ORCL) disappointed after the close and how markets react to this will prove interesting. The spin might well be to shrug it off and focus on rosier scenarios like more “better than expected” news on Jobless Claims, Housing Starts and the Philly Fed Survey being released tomorrow.

I just remain your reporter from my humble perch. Let’s see what happens and you can follow us on twitter here.

Disclaimer: Among other issues the ETF Digest maintains positions in: VTI, RSP, XLB, XLI, IYR, XLE, UDN, GLD, DBC, EFA, EEM, EWJ, VNM, TUR, EWW, EWZ and RSX.

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. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Comments

[manya05:]

There may be trying to squeeze shorts alright, but some of those inverse funds are looking attractive, SRS under $10 with CRE hanging by its fingernails in this economy? I will continue to stay out, but it is truly out of Fantasyland. Unless we can see robust growth in activity and trade, and earnings show a huge surprise on the upside, this October will be something to see...from a distance.

Sep 17 02:38 AM

[SeeTheLight:]

Against my true feelings, I put some weight back into equities not because I believe in this market but I fear it. I read a comment somewhere we are in a barbell market, where on one side we have many people playing the deflation trade and on the other many are playing the hyperinflation (but really stagflation) trade.
It certainly does feel like we are walking a high wire here with a barbell as our balancing pole and no net below.

Anyways, the recommendation was you weigh your portfolio equally for each outcome so thus I have still a lot of cash (for deflation) but have put the rest into assets that will win in a stagflation environment - precious metals, commodities, equities tied to those markets as well as beaten down equities.

Yesterday I timed it well making my moves at 10 o'clock dip, dropping my UUP hedge (betting against this market is foolhardy so I removed my hedge) and buying back some older positions that remarkably had dropped in the past 3 weeks. Obviously trailing stops are critical.

As I mentioned above I fear this market more than I believe it in, but I fear a parabolic ramp here. I suspect this market will go parabolic before it crashes and I feel I have to position myself to take advantage of that possibility using a portion of my portfolio.

Dave you nailed it, we are in Hotel California, where do I sign up for an ARM to buy a McMansion before they take away my leg? All hail Bernanke and his broken dreams of stagflation for everyone.

Good Luck all.

Sep 17 03:26 AM

[Anon.:]

Dave, what about an Indonesia ETF?
See this in Bloomberg today:
>>>>On September 16, 2009, Moody's upgraded Indonesia's local and foreign-currency rating to ‘Ba2' from ‘Ba3' with a positive outlook (which was revised from stable in June 2009). Ratings upgrade was due to the resilience of the Indonesian economy to the global recession, political stability and credible government policies. The re-election of President Yodhoyono will "ensure policy continuity and possibly lead to a deepening of policy and structural reforms." (Bloomberg)<<<...
Thank you.

Sep 17 06:06 AM

[Dr. O:]

One of the greatest declines in history followed by one the greatest rallies in history. World wide. In unison.This reminds me of the late 1990s except now there's no revenue or earnings growth. The mid-cap index is up 28% since July! MDY 100 to 128. Gold at 1020. Bond yields low. Weird. Lots of money earning 0% looking for a home. In short, a rapidly expanding bubble.

Sep 17 07:08 AM

[ko1:]

Momentum trading (buying of outperformers out of proportion to buying of underperformers - common practice for retail investors and short squeezed funds) has predominated over the last 5 trading days. And Wednesday's "momentum index" was the highest yet. Such momentum cannot persist; otherwise the stronger stocks will run to infinity and the weaker stocks will fall to zero. While it is impossible to predict whether the overall market will rise or fall over the short term, momentum must give way to contrarian behavior - recently weaker names can be predicted to outperform recently stronger names. For pair traders and others whose strategies depend on reversion to the mean, the next several trading days should be excellent.

Sep 17 07:26 AM

[Thad F:]

I usually get a few chuckles from your analysis but the Hotel California lyrics just cracked me up. I'm long because you can't fight it but I wouldn't be if I wasn't sitting at my computer waiting for the turnaround.

Sep 17 10:34 AM

[Ted Kavadas:]

I agree that this market is much overbought.

Further, I see much danger in it from a technical analysis perspective. For those interested, I recently wrote a five-part blog series on this subject and it can be found here:

www.economicgreenfield.../

Sep 17 11:26 AM

[TLassen:]

Dr. O
with respect, let me point out that the markets move in anticipation of the revenue or earnings growth. Market is forward looking. Waiting for confirmation always leaves the investor behind. Now....granted, should those earnings not materialize as expected...then we all panic.

"One of the greatest declines in history followed by one the greatest rallies in history. World wide" and this is worrisome because?..........

On Sep 17 07:08 AM Dr. O wrote:

> One of the greatest declines in history followed by one the greatest
> rallies in history. World wide. In unison.This reminds me of the
> late 1990s except now there's no revenue or earnings growth. The
> mid-cap index is up 28% since July! MDY 100 to 128. Gold at 1020.
> Bond yields low. Weird. Lots of money earning 0% looking for a home.
> In short, a rapidly expanding bubble.

Sep 17 11:56 AM

[fjd10595:]

IT is the wrong time to deploy money, the fundamentals are not there and if that is not enough, we zoomed 50% in a few months. This, after the greatest financial stress since the depression? If you think it has reversed in one year, you are wrong.


On Sep 17 03:26 AM SeeTheLight wrote:

> Against my true feelings, I put some weight back into equities not
> because I believe in this market but I fear it. I read a comment
> somewhere we are in a barbell market, where on one side we have many
> people playing the deflation trade and on the other many are playing
> the hyperinflation (but really stagflation) trade.
> It certainly does feel like we are walking a high wire here with
> a barbell as our balancing pole and no net below.
>
> Anyways, the recommendation was you weigh your portfolio equally
> for each outcome so thus I have still a lot of cash (for deflation)
> but have put the rest into assets that will win in a stagflation
> environment - precious metals, commodities, equities tied to those
> markets as well as beaten down equities.
>
> Yesterday I timed it well making my moves at 10 o'clock dip, dropping
> my UUP hedge (betting against this market is foolhardy so I removed
> my hedge) and buying back some older positions that remarkably had
> dropped in the past 3 weeks. Obviously trailing stops are critical.
>
>
> As I mentioned above I fear this market more than I believe it in,
> but I fear a parabolic ramp here. I suspect this market will go parabolic
> before it crashes and I feel I have to position myself to take advantage
> of that possibility using a portion of my portfolio.
>
> Dave you nailed it, we are in Hotel California, where do I sign up
> for an ARM to buy a McMansion before they take away my leg? All hail
> Bernanke and his broken dreams of stagflation for everyone.
>
> Good Luck all.

Sep 17 01:10 PM

[fjd10595:]

We understand that markets move in anticipation of earnings. But let me ask, do you expect that the higher earnings shown recently will be sustainable? On what basis? Continued cost and job cuts for the next few years? Increased consumer demand? But consumer credit has collapsed, as have home prices. People are being put out of work. The stock market is wrong at these levels, like it was wrong prior to last year's fall. I would look to the smarter bond investor for a truer reading of the economy.


On Sep 17 11:56 AM TLassen wrote:

> Dr. O
> with respect, let me point out that the markets move in anticipation
> of the revenue or earnings growth. Market is forward looking. Waiting
> for confirmation always leaves the investor behind. Now....granted,
> should those earnings not materialize as expected...then we all panic.
>
>
> "One of the greatest declines in history followed by one the greatest
> rallies in history. World wide" and this is worrisome because?..........
>
>
> On Sep 17 07:08 AM Dr. O wrote:

Sep 17 01:14 PM

[carey_jim:]

You're the "chart man" around here, so I'm carrying coals to Newcastle, so to speak, but if you look at the Dow Jones average from October, 1929 to somewhere in the middle of 1937, you see a drop from a high of 383 to a low of 43 within about three years, accompanied by many bear rallies, and then a climb from the low of 43 to about 187 from 1932 to 1937, again accompanied by many "bull market" corrections.

I don't know who predicted all (or even most) of those moves but whoever they were, they retired very rich a long time ago.

Hegel said about philosophical wisdom, "The owl of Minerva (wisdom) flies at night" by which he meant that we only understand the empire we live in after the sun has set over it.

Sep 17 01:32 PM

[David Fry:]

Please ignore Ivy League, the spammer with many different names. Why people bother doing these things is hard to understand other than severe mental illness.

Sep 17 01:37 PM

[Karl Liesman:]

Nat Gas is going to be fun to watch from here, but I would be cautious getting into UNG until a lot of questions are answered about the fund.

Sep 17 02:28 PM

[SeeTheLight:]

Trust me, I'm painfully aware that the fundamentals are not there. They are simply awful, but they always are in a bubble (I mean did you think buying a house back in early 2007 was a good idea fundamentally?) This most definitely has all the appearances of a bubble. I truly believe that the crash after this bubble will be even worse than the one we just experienced but at the same time I think it is silly to not take advantage of the bubble. I am being very cautious, putting in stops that I am comfortable with and only investing a portion of my portfolio.

Until the government stops or at least slows quantitative easing, we are staring another bubble in the face and if you want to wait it and the subsequent crash on the sidelines, that's fine, part of me applauds you but the trader side of me sees an opportunity here and I can not ignore that.

Good Luck all


On Sep 17 01:10 PM fjd10595 wrote:

> IT is the wrong time to deploy money, the fundamentals are not there
> and if that is not enough, we zoomed 50% in a few months. This,
> after the greatest financial stress since the depression? If you
> think it has reversed in one year, you are wrong.

Sep 17 02:30 PM

[LKofEnglish:]

of course one is a fool to follow "market trends." that's why we call it "investing." the question therefore is why does a stock like navistar which has made pretty much the same truck engine as everyone else for the past 30 years go from 42 to 6 and then back to 42? How can anyone say THAT is rational? Obviously it is NOT. The question to me, therefore, is "who prices the armageddon in better." everyone on this site keeps screaming IMPLICITLY "its the bond market, stupid." YOU ARE WRONG. It's not necessarily something I like or even agree with as being "good" but the idea of railroad stocks simply climbing higher in here is PERFECTLY rational in this marketplace to me. In other words In other words the trade on this site is "too much stuff chasing too little money." Yet leaving aside the fact that the government is spending, printing and even going so far as to LIE about monetizing debt the bottom line is as oil continues its inexorable rise it's become very DEAR to ship anything. And that's why railroad stocks STILL pushing higher is PERFECTLY RATIONAL. In other words bulk commodities and the only (AND MOST CAPITAL INTENSIVE obivously) method of moving goods IS THE ONLY THING MOVING GOODS PROFITABLY. In other words the goods are starting to SIT AROUND. The only ingredient for a hyper-inflation in the good old USA that isn't in place right now is LOSING THE WAR. We have the high unemployment and completely incompetent and corrupt public policy. Once we throw "good soldiers after bad" in Afghanistan (40,000 on the way there folks) not only will this stock market REALLY move higher but so will the prices of the fewer and fewer things that still remain on your grocery shelf. Weclome to "bailout-nation" and "plunge protection team" economics. Sound like a Sovietski to ya'? It should because that's exactly what "it" wants to be.

Sep 17 02:45 PM

[TLassen:]

No I am definitely not convinced that future earnings can be sustained. I like to invest with the trend however, and increased my equity allocation in April.

Personally I evaluate analysts’ estimates 1 quarter at a time, any break down in future estimated earnings qtr on qtr is a red-flag. Example Operating earnings estimate for 4th qtr 09 is @ 15.66 (putting fair value of the S&P at around 1134) if the analysts forecast 1 st quarter 10 lower than this 15,66 it is time to sell on stops. Second red-flag of course is if the actual earnings are substantially lower than forecast earnings.

Markets tend to move down faster than the analysts can lower their estimates



On Sep 17 01:14 PM fjd10595 wrote:

> We understand that markets move in anticipation of earnings. But
> let me ask, do you expect that the higher earnings shown recently
> will be sustainable? On what basis? Continued cost and job cuts for
> the next few years? Increased consumer demand? But consumer credit
> has collapsed, as have home prices. People are being put out of work.
> The stock market is wrong at these levels, like it was wrong prior
> to last year's fall. I would look to the smarter bond investor for
> a truer reading of the economy.

Sep 17 04:01 PM

[JD of OZ:]

Riding the bubble up with tight stops is great until that inevitable morning when after watching Asia and Europe tank 10% in one day you anxiously wait for the "big gap down".

Sep 17 04:37 PM

[contango:]

....actually markets move in anticipation of market moves....what you think the other guys are thinking

....unless of course the markets are being unfairly manipulated then the markets moves whichever way the market movers want to go


On Sep 17 11:56 AM TLassen wrote:

> Dr. O
> with respect, let me point out that the markets move in anticipation
> of the revenue or earnings growth. Market is forward looking. Waiting
> for confirmation always leaves the investor behind. Now....granted,
> should those earnings not materialize as expected...then we all panic.
>
>
> "One of the greatest declines in history followed by one the greatest
> rallies in history. World wide" and this is worrisome because?..........
>
>
> On Sep 17 07:08 AM Dr. O wrote:

Sep 17 04:50 PM