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Gary Tanashian is proprietor of and Actionable, hype-free technical, macro economic and sentiment analysis is provided in the premium market report 'Notes From the Rabbit Hole' ( Complimentary analysis and commentary is available at the... More
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  • NFTRH 298 Excerpt: US Stock Markets

    The following is an excerpt from NFTRH 298′s 38 pages of hard hitting, no b/s market analysis, which also included extensive work on the precious metals along with commodities, currencies, global markets and market sentiment.

    NFTRH subscriber (7.6.14): "You should publish pages 15 and 16 of this weeks report. I would like to share it. It is a great summary of the current situation." Pages 15 & 16 take it through the Dow chart below. I decided to go with the whole segment on US stocks.

    Stock Markets - US

    Happy Independence Day America! Your markets are bullish… and over bought, over loved and running on increasing momentum.

    (click to enlarge)

    Courtesy of SlopeCharts

    The graph tells a story of the end of the Greenspan era's commercial credit inflation, which was resolved in 2008, and the beginning of the Bernanke era and official credit inflation, which is ongoing.

    1) The bubble in mortgage and high risk commercial products (notice how official monetary base was in essence flat) began to fade in 2006 as corporate profits began to roll over, soon followed by the S&P 500.

    2) The 2008 liquidation of the Greenspan era excesses brought with it all manner of official bailout operations, including QE's 1, 2 & 3. Notice how each QE was instituted after a flattening of money supply.

    3) But ultimately it is corporate profits that conventional market analysts are paid to respect (paying no attention to that man behind the policy curtain) and they have generally been strong.

    4) As we noted last week, profits are rolling just a bit. Meanwhile money supply and the stock market continue upward. But there is a thing called 'QE tapering' in play and that could eventually flatten out the money supply as happened in 2010 and 2011/12.

    5) They are tapering in an effort to gently manage an exit from the latest round of market and economic manipulation AKA official inflationary operations.

    It will end badly because it was created through manipulation, not productivity. The current operation makes Greenspan look like child's play. He had plausible deniability because it was the evil entities on Wall Street that took his policy ball and ran with it, slicing and dicing up all sorts of investment vehicles to sell to an unsuspecting public.

    This time, there is no middle man. The Fed is more honest about its inflation as it expands its own balance sheet for all to see. And yes, the balance sheet is still expanding albeit at a tapered pace. Add in Zero Interest Rate Policy (ZIRP-Infinity?) and the Bernanke Fed has been celebrated as heroic because the majority perceive that they successfully did what they had to do to save the financial system.

    But what the sycophants always seem to forget is that they had to do it because a different flavor of the same inflationary Fed policy fomented bubbles and brought on the big bust to begin with.

    We remain in the age of Inflation onDemand and of boom/bust, which is much different from the pap that the happy idiots pumping today's bullish environment would like to believe. Right now we are on a boom and that should not be denied. But understanding the framework within which the boom exists is important in managing risk.

    What look like stellar technicals right now could continue to an upward blow off because that is how booms usually end. But if we are correct on the boom/bust nature of policy driven markets, the bust is gonna be a doozy. So please keep that on radar as well.

    These are not conventional markets.

    (click to enlarge)

    With that said, the Dow continues to target 17,500.

    (click to enlarge)

    Tranny is in confirmation.

    (click to enlarge)

    S&P 500 is at the top of the channel and in a strong bull trend. The channel top marks it as a candidate for a normal corrective decline. Alternatively, a break upward out of the channel - a channel buster - would be a sign of a possible building bull climax.

    (click to enlarge)

    Nasdaq 100 is very strong on post-corrective momentum.

    (click to enlarge)

    The banks are relatively under performing but are bullish.

    (click to enlarge)

    The Small Caps could either lead a market breakdown from the former channel bottom or gain some serious upside momentum. Watch the Small Caps as they are a momentum key and also because the Russell 2000 has a big picture measurement of 1378.

    Is the current low relative momentum a negative divergence indicating an oncoming stock market correction (perhaps prior to new highs later in the year?) or is this index refueling to lead a big market mania blow off in a nearer term? Again, watch the Russell.

    (click to enlarge)

    The SOX has long since proven its case as a momentum leader. Yet the reason I do not write the SOX off as a bubble index is because I do not write its biggest component (Intel) off as a bubble stock.

    (click to enlarge)

    Monthly SOX has a target of 900.

    (click to enlarge)

    Monthly INTC has a target over 40. The NFTRH+ chart above was created before the break through resistance, now support. I mention this so you will know that I am not simply charting or trend following. I liked Intel for its technical and fundamental potentials. Now a technical potential (long-term resistance break) has become a reality.

    The information I had on Intel was to expect big improvements in their mobile chip initiatives, which have been sorely lagging for this chip giant. Instead what happened was that corporate PC demand increased (driving Intel through our projected breakout point) and the mobile chip market is still out there to be better penetrated, at least if Intel has any kind of fundamental execution coming.

    Functionally what this does for me however, is to tell me to be careful about getting bearish on the SOX if I am bullish on Intel, the highest weighted component (of the iShares SOXX fund).

    By extension it continues to moderate a bearish long-term stance on the stock market just yet, since the SOX has been our leading indication since January of 2013.

    So the discussion on page 15 and 16 is in the realm of the theoretical, where I do not believe that a bullish backdrop is sustainable. But everything since page 16 has been bullish and you do not fight the market for what you may think you know is right with money you don't want to lose, because you probably will lose it.

    SOX leadership vs. SPX remains intact…

    (click to enlarge)

    Talk about rebuilding momentum, check out the Biotechs…

    (click to enlarge)


    (click to enlarge)

    HYG-TLT (a junk vs. 'quality' credit spread) turned up last week and is threatening the breakdown line. This could simply be a breakdown retest (like the 3 red arrows) to suck in a few more bulls prior to a market correction. It could also be a gateway to an upside market blow off.

    (click to enlarge)

    VIX is comatose as market players seem to perceive no volatility problems whatsoever.

    (click to enlarge)

    Palladium vs. Gold continues to indicate that all is well. This goes well with recent ISM and other economic data.

    (click to enlarge)

    As noted last week we are going to include the TED spread going forward as long as it looks like it could bottom. A potentially bottoming TED does not a risk 'OFF' environment make, but if TED turns up building systemic stress would indicated.

    Finally, refer to the Gold-Silver ratio on page 12. It too indicates all is well and players are sleeping soundly as summer vacation season kicks in.

    The question however, is when will the markets hit a point that is 'as good as it gets' in its sleepy bullish state?

    The US stock market is quite vulnerable to a correction, which could be healthy in nature; a pause to refresh that might put the ultimate top out to later in the year. If the market does not pause and grind out some of the over bullishness, a top that comes off of unsustainable momentum and over bullishness would probably be terminal.

    US Stock Market Bottom Line

    Option 1: We stand with the view that a near term correction is probable because sentiment - as you will see below [ed. not included in this excerpt] - is unhealthy, indicators like the VIX and the Gold-Silver ratio are stretched to limits, the market is separating from the fundamentals that even conventional analysts follow and simply because July is a month that usually brings about some disturbances. This is the favored view.

    Option 2: The less favored view is that dumb and increasingly greedy money now sponsoring the market continues to pour in taking US stocks to an eventual 'silver 2011' style flame out.

    Option 1 is potentially much more bullish from a sustainability standpoint.

    Option 2 would get all sorts of dumb money excited before likely terminating the bull.

    The NFTRH service includes 'in-week' market updates (including Key ETF charts) and NFTRH+, a 'chart trade' oriented aspect. Most importantly, it comes with a writer who is always accessible to answer any questions that the analysis may present as customer service is THING #1 at NFTRH. | Notes From the Rabbit Hole | Our Tools | Free eLetter | Twitter

    Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart/trade ideas!

    Disclosure: The author is long INTC.

    Jul 07 10:17 AM | Link | Comment!
  • Churning The Headlines

    Reading MarketWatch makes my head spin sometimes (that's part of the fun of it I guess).

    Paul B Farrell (May 9, 2014):

    10 peaking megabubbles signal impending stock crash (Fed driven rally is about to end badly)

    Paul B Farrell (July 3, 2014):

    Great Obama Bull Market will roar till 2016 (Historic market up 250%, aims for 300% gain by election)

    Ha ha ha…

    Meanwhile, here's a headline for ya (clicking the graphic will yield the full report) from the BLS…


    Hey, if a bearish biased guy (with tools to keep himself straight with the market ;-) ) could have seen this 1.5 years ago why do so many continue to be surprised? A simple progression went Front-end Semiconductor Equipment industry ramp → Semiconductor manufacturer ramp → strong manufacturing → buoyant Jobs data (despite the kicking and screaming of those unwilling to accept it) → ???

    Now, how does this end? Well, I am a bear on the macro big picture. But insofar as the Fed has sat you down in front of your TV set and assumed control, as of 9:01 AM US Eastern on July 3 it is working.


    There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image, make it flutter. We can change the focus to a soft blur or sharpen it to crystal clarity. For the next hour [indefinite period], sit quietly and we will control all that you see and hear. We repeat: there is nothing wrong with your television set. You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to - The Outer Limits.

    Jul 03 9:26 AM | Link | Comment!
  • Who Are Those Guys?

    As the silver CoT report data systematically, almost robotically degraded into the September 2012 top (despite the seemingly bullish coming of QE3) NFTRH used to ask week after week "Who are those guys?" doing its best Butch Cassidy while evaluating the gathering short interest.

    Below is the CoT graph from NFTRH 203 dated September 9, 2012. Week after week 'those guys' were ganging up on silver and we all know what soon happened; a harsh bear market down leg for the precious metals.

    Here is what #203 had to say about it at the time (keep in mind the charts of HUI, GDX, GDXJ, etc. were very bullish looking then off of their respective 'W' bottoms). I believe in letting subscribers bear witness to unpleasant things (rather than playing the happy bull here to take you to the promised land of monetary riches) and trust they will do what is right for them and their situations.

    In 20/20 hindsight, anyone who took the below seriously in September of 2012 avoided the bear market, which is exactly what I did. Although it's all about making money in this racket, I know. But first you've gotta be intact and ready for the opportunities.

    Precious Metals Bottom Line (NFTRH 203 excerpt, 9.12.12)

    Gold… bullish, but over bought short-term.

    Silver… bullish, but over bought short-term.

    Gold stocks… bullish, over bought, liking the economic backdrop that sees a potential for their product (gold) to out perform their cost inputs (oil, materials, humans, etc.) as well as the potential for panicked monetary policy which as of today, mostly remains a "potential"… and yes, that's a caveat. Here is another caveat in the form of the CoT structures for gold and silver.

    (click to enlarge)

    Folks, the goons did not blink last week. What happened was that after Monday's big upward surge in the metals, the speculators got longer and the commercial traders increased their short positions.

    The commercials are considered the smart money - at least they are considered that way by gold bugs when it suits their bias and commercial net shorts are moderate. Any gold bug now touting 'TO DA MOON!' had better not be leaving the CoT out of the analysis after back in early summer touting it.

    If you start to hear the usual boilerplate about massive short covering to drive gold to 3000 and silver to 100, be all the more cautious for short-term turbulence. Dialing out to the general state of the precious metals it is difficult to see a bearish case on the big picture beyond any nearer term reactions. But the CoT structures are now quite bearish unless gold bugs are going to finally get their long awaited massive short-covering moon launch rally. For the sake of mental health, why not assume it is not going to be different this time? Again, CoT is in bearish alignment.

    Current material resumes…

    Today's silver CoT is not nearly so systematic as it lunged, as if to compel Jack Chan, Clive Maund and your friendly blogger here - TA guys all - to make note of it in no uncertain terms.

    (click to enlarge)

    But this time it came out of nowhere as opposed to 2012′s easily readable march toward a bearish state. Back then we took note of it and prepared for its worst case implications, which came about with the short structures against silver being a prime kickoff to the worst of the bear market.

    But what do we make of the jagged, out of nowhere harpooning of the last 2 weeks? Is this a picture of desperation by operators using tools we can only speculate about? Is something broken out there? Is the mother of all inflations about to visit or maybe a deflationary episode? Or maybe it is just business as usual in the world of COMEX, some boyz playing spreads between metals and miners.

    Point is, I just don't know what to make of the macro at the moment (and I just said as much in an NFTRH update). But I do believe gold and silver are right in the thick of it and that what is going on today (during the termination process of QE3) is different from what went on in September of 2012 at the dawn of QE3.

    Very very interesting markets my friends. So interesting that at this precise moment in time I would not even pretend to know fully what is going on. But this CoT is abnormal and with gold very over sold vs. silver there will be macro implications and you can bet I am going to figure it out before too long. | Notes From the Rabbit Hole | Free eLetter | Twitter

    Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart/trade ideas!

    Jul 01 7:00 AM | Link | 1 Comment
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