The confusion has cleared this week. It is clear that the geopolitical issues we have been discussing for at least a couple of weeks have finally sunk in this last week. Crimea, Arab Gulf states, China-Japan, China-Philippines, Venezuela, and North Africa should have been enough to spook the markets, but the flight to safety seems to have accelerated towards the middle of the week.
Clearly this was a down week for the three indices I track. Yet, what makes this episode different than the consolidation-of-the-month affair, the last of which ended about five weeks ago, is that Gold (NYSEARCA:GLD) is appreciating, even on days that treasury rates are increasing, and treasury rates are falling even on days that the economic release are very bullish. This "break of logic" suggests that something else is at play; i.e. geopolitics!
Just for the record, the last correction was in the summer of 2011, and the last crash was actually the financial crisis whose end has just marked the fifth anniversary. Note also that the three indices notched high marks on the Friday of the week before.
The combination of all the above is quite worrisome to say the least. Will it be a consolidation, correction or a crash? Technical analysis are market following, but clearly Gold and Treasuries are sending a stronger message than what we saw in quite a while.
We shall see what this week brings, but this weekend should be pivotal. It is not clear what type of retaliation the West will attempt to inflict on Russia, but I am already seeing chatter relating to the certainty of both the secession and inevitable "consumption" of Crimea, as well as the sanctions to follow. This makes the first few days of the week pivotal in determining the depth of the financial market events that seem at this point certain to follow.
The economic numbers for the week (just ended) were quite fine, thank you! The only worrying number I saw was the PPI (Producer Price Index) which was unexpectedly deflationary.
For next week, we have a two-day Fed meeting which should include an economic update. It is not clear that this important event , the first to be conducted by Chairman Yellen, will amount for much considering the potential for paradigm-shifting geopolitical events transpiring earlier in the week.
In general, most sectors and issues in my trading set were punished, with the trend being more negative than the oscillator readings.
To conclude, the geopolitical overhang is something worth seriously watching, and possibly for more than just Crimea.
My regular table for the indices follows.
|Index/ETF Symbol and Name||Daily 3-EMA-7||Weekly 3-EMA-7||Perceived Trend|
|SPX||S&P 500 Index||Positive||Positive||Negative|
|DJIA||Dow Jones Industrial Average||Neutral||Positive||Negative|
|COMP||NASDAQ Composite Index||Neutral||Positive||Negative|
|GLD||SPDR Gold Trust ETF||Positive||Positive||Positive|
|VIX||CBOE Volatility Index||Positive||Positive||Positive|
|FVX||CBOE 5 Year Treasury Note Yield Index||Positive||Positive||Neutral|
|TNX||CBOE 10 Year Treasury Note Yield Index||Negative||Neutral||Negative|
|TYX||CBOE 30 Year Treasury Bond Yield Index||Negative||Neutral||Negative|
As usual, the reminder is that the movement of the treasury yields is negatively correlated with the price of the underlying instrument.
As for my trading set, my short term "Perceived Trend Oscillator" stood at a "neutral" of -25%, which was also the low of the week. This compares to a "bought" value of 40% on Friday. In essence, the geopolitical risk seems to have won over the improving economics.
The full trading set table is as follows.
|Symbol and Company Name||Daily 3-EMA-7||Weekly 3-EMA-7||Perceived Trend||Is a Current Holding?|
|JPM||JPMorgan Chase & Co.||Positive||Positive||Negative|
|GS||The Goldman Sachs Group, Inc.||Positive||Neutral||Negative|
|WFC||Wells Fargo & Co.||Positive||Positive||Positive|
|NLY||Annaly Capital Management, Inc.||Positive||Neutral||Positive|
|MO||Altria Group, Inc.||Positive||Negative||Neutral|
|VZ||Verizon Communications Inc.||Negative||Negative||Negative|
|GPS||The Gap, Inc.||Neutral||Positive||Negative|
|ANF||Abercrombie and Fitch Co.||Positive||Neutral||Neutral|
|DIS||The Walt Disney Company||Positive||Positive||Neutral|
|MDLZ||Mondelez International, Inc.||Positive||Positive||Neutral|
|BA||The Boeing Company||Negative||Neutral||Negative|
|LMT||Lockheed Martin Corporation||Positive||Positive||Neutral|
|DE||Deere & Company||Positive||Positive||Neutral|
|EMR||Emerson Electric Co.||Negative||Neutral||Negative|
|DOW||Dow Chemical Co.||Positive||Positive||Neutral|
|ADM||Archer, Daniels, Midland, Co.||Positive||Positive||Positive|
|POT||Potash Corp. of Saskatchewan Inc.||Positive||Neutral||Neutral|
|BMY||Bristol-Myers Squibb Company||Positive||Positive||Neutral|
|CSCO||Cisco Systems, Inc.||Negative||Negative||Negative|
|NGG||National Grid plc||Positive||Positive||Neutral|
|WMB||Williams Companies, Inc.||Neutral||Positive||Negative|
|WM||Waste Management, Inc.||Negative||Negative||Negative|
|NSC||Norfolk Southern Corp.||Positive||Positive||Positive|
Disclosure: It is important that you understand and agree that all information provided in this newsletter rely on publicly available data and tools with no guarantees of quality or suitability for any purpose, and that I can be long or short in any of my trading-set equities, at any time, with or without regard to indicated trends and described analytics, and that I do not give buy or sell or any other financial recommendations, and that any and all actions based on this commentary are solely the responsibility of the reader.