Friday Outlook: Commodities, Global Markets

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When markets are much overbought as they’ve been, it doesn’t take much to put sellers in motion. Today it was housing data and tomorrow there’s Durable Goods Orders, Consumer Sentiment, more Home Sales data, and earnings as always.

It seems in after hours trading RIMM earnings weren’t well received with the stock down 10%--such is the mood.

For gold bugs you might wait until the “buy gold” TV commercials end, maybe then it will be safe to buy.

Former Fed Chairman Paul Volcker gave his congressional testimony today (link to PDF) advocating, among other things, a reinstatement of the Glass-Steagall Act, something we’ve proposed for more years than I can remember. The repeal of this Depression Era act was completed in 1999 allowing brokers (fox) to merge with banks (henhouse). Separating these would make regulatory issues easier and reduce conflicts of interest. It will get little attention from the Wall Street owned Congress.

The major entertainment of the week has been of course from the UN. It must be embarrassing to citizens of Libya, Iran and Venezuela to know these guys are their leaders. Kadafi was a riot and seemed in some altered state. It all served to remind us what a useless organization the UN is.

We’re primarily in cash and have been in this position for the past two weeks. What few positions we have are in our long-term portfolio which is as close as we come to “buy and hold”.

I’ll be back tomorrow with a brand new show but you can follow us on twitter here in the meantime.

Disclaimer: Among other issues the ETF Digest maintains positions in: VTI, XLB, IYR, IEF, TLT, LQD, UDN, GLD, DBC, EFA, EEM, EWZ and EWC.

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

[aarc:]

This anemic rally since March 9 is what is preventing retail investors to come and join the party.

There is too much skepticism in the air. Many do not believe this rally at all.

The bulls spent 29 weeks going from SnP 667 bottom (if you can call that a bottom) to 1080 high. While the bears spent less than 22 weeks to go from 1080 of Sept 2008 to 667 or March 2009.

Scoreboard is lopsided in favor of the bears; the monthly chart is still bearish and there is 65% we can still go into 3 to 5 months of capitulation selloff.

There is too much complacency among government leaders even if they acknowledge that the stock markets will need to be "propped" up in order to prevent the onset of the Great Depression II.

The daily chart is now trending for the second time since March 9; but the weekly chart is still anemic and can still support either a rally or a selloff.

What happens if we go thru another 3 to 5 months of selloff? Dissolusioned investors might shove off everything they've got and we definitely will be in Great Depression II by next year or early 2011.

What is needed is a concerted effort by the stock market leaders such as GS, JPM, MS, and the mutual funds, and perhaps even the hedge funds to support the stock markets in order to prevent the onset of GD-II.

There is a potential expanding flat that has developed on the 60 minute chart. It was not expected but it formed anyway. The volume went up during the last 2 days of selloff; but what do you expect of a C wave of an expanding flat? I have not seen any C wave without an accompanying volume spike.

The bulls can use that corrective patttern in order to support a rally toward the 1130/40 area, and possibly up to 1210. The daily chart can support a rally toward 1284 without going over-heated or over-extended. Of course, the daily chart will need a major correction after 1284 in order to be able to support further rallies.

A vertical rally above 1294 will enable the weekly chart to generate a new trend to the upside without going over-heated or over-extended (over-extended run is a vertical rally above 1558 that can result in catastropic selloff much like what happened to oil and the chinese markets last year, they over-heated and so have to pay the price with a vertical meltdown worst than what the US and European markets had suffered).

A vertical rally above 1294 will definitely reverse the bearish monthly chart and ensures at least 90% chance of additional rallies with only 10% or less chance of a major selloff or meltdown thus preventing GD-II.

The weekly chart can have a normal rally toward 1394 before it will require a major correction that can last 8 to 18 months.

A major correction of that duration can create a mini-bear market or a mini-recession by late next year or early 2011. A welcome sign for most seasoned traders and investors indicating that the stock markets and perhaps the economy had already returned to normal and the usual rallies and garden-variety recessions will again be the staple stuff for several years or decades ahead.

We will see in the next week or two whether this anemic "bear" rally will continue and thus risk a 65% probability of a potential capitulation selloff that can usher GD-II.

Or we go into a vertical rally toward at least 1294 to 1394 without the weekly chart going over-extended and thus prevent GD-II by more than 90% probability.

Sep 25 06:50 AM

[Essence:]

AARC's comment above summarizes everything exactly wrong with this market. If I understand him correctly, it is up to the stock market to rally in order to avoid sinking into a great depression.

And I was so naive to assume that the market was supposed to reflect the reality of the economic conditions, not be the cause of its success or failure. Well, I guess it's good then, that we got a "concerted effort by GS, JPM etc. to support the stock market" over the last 29 weeks and create a false confidence with consumers around the world.

'Cause nothing can go wrong when companies and consumers get over confident and start spending money that they don't have.

Sep 25 08:08 AM

[enigmaman:]

Main street doesn't see what Wall Street wants main street to see, so main street isn't buying what Wall Street is selling, its that simple, main street remembers the financial carnage of 2000, 2008 and March 09 and Wall Street has amnesia and to make matters worse you have DC making matters worse. Without DC, Wall Street and Main Street moving in the same direction you will have chaos. Point to one time in history where our economy and markets did well when this wasn't the case, just one time! There is no chart to correlate these, there should be

Sep 25 08:19 AM

[JGL:]

do you publish your "buy and hold" portfolio somehwere?

Sep 25 08:36 AM

[djc:]

I think (and see) that while alot of main street might be hurting, they have no /clue/ of the absolute peril we are in -- and dont wanna hear about it.

Any attempt to explain it and you get that 'you must be one of those kooks' syndrome.

Reap it.

Sep 25 08:52 AM

[Pauly B:]

I agree with Dennis Gartman who was on Bloomberg and said that this market sell off was a dollar squeeze as far to many were short the dollar and it had to give somewhere. I suspect we will still see more dollar destruction as the printing presses continue to run and this was just a relief valve going off.

Sep 25 09:30 AM

[Bill L.:]

You make all your money in a bear market... you just don't know it at the time.


On Sep 25 08:08 AM Essence wrote:
And I was so naive to assume that the market was supposed to reflect the reality of the economic conditions...

Sep 25 10:49 AM

[AndrewBaker:]

Oil down and natural gas up: the differential in price on energy per unit should be somewhere between six and eight times oil to gas, yet it has been in the thirties recently. Whatever else one bases one's valuations on, one can't get away from this. At the same time, oil demand is not so great right now, and winter is coming whatever happens, so ... more reasons to be long natural gas; and the plentiful supply on our doorstep is a plus not a minus.

Sep 25 12:20 PM

[Alex Biggs:]

Mr. Fry has a conservative growth portfolio (which I follow) that he publishes for his subscribers on his website.


On Sep 25 08:36 AM JGL wrote:

> do you publish your "buy and hold" portfolio somehwere?

Sep 25 03:56 PM

[ManAboutDallas:]

The rally has one more upside target, using the Dow as proxy. That target is DJIA 10,344 which is the 50% Fibo retracement of the Oct 2007 top to the Mar 2009 bottom.

A nice two-week, 700-point Dow rally into mid-October will get the Chumps nice and buttered for the Toasting-to-Three-Thou...

Last year was just the warm-up act, boys and girls.

Sep 26 04:21 PM