Michael Clark's  Instablog

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AMERICAN STOCKS RACE HIGHER; GLOBAL INDUSTRIAL STOCKS CONTINUE TO LANGUISH

Pretty hard to be bearish. Stocks are flying up -- American stocks at least -- as if the economy is recovering, there are no risks in the global arena (fistfights in the Macedonian and Ukrainian Parliaments; a Russian Mafia/Government attempt to take over Cyprus; and Italian national without a government and with a populist comedian about to take over as the leader of the country; a new German party to the right of Merkel that wants out of the Euro and perhaps also out of the EU, that polls suggest already has 25% of the popular vote; the spectre of a bank run in European second tier countries: Portugal, Spain, Italy, France...).

Are Americans not paying attention? We know the love of money is a strong drug. And the lure to optimism is infective. What is the alternative? Either you look back at the glory days of 2006, when everyone was becoming a millionaire, or you look forward to 2017, when everyone is destitute.

I run a report every day to see which stocks are the strongest in my database, and which are weakest. Again, American stocks at the top, along with the US Dollar. I am 80% long in my portfolio. I am also playing the long side of this rally. But I am skeptical. I see that we are heading into trouble (capital T). I have been 'picking on' China stocks lately -- in face all 'hard' economy, commodity stocks, mining, steel, copper, iron ore..

Zero Hedge published this chart today, showing HSBC PMI, China PMI (which is lower than HSBC's) and then the anomaly: a large decrease in electricity being used, down 13% Year-over-Year. Combine this with the fact that Chinese stocks are tanking, and heavy industry and metals stocks are tanking -- one must wonder what this says about China's so-called recovery.

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The charts below show exports rising but employment stagnant and output charges (exports) and input prices (imports) seeming to be topping.

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At the same time, Japanese exports continued their collapse.

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Then, if all this wasn't enough, FEDEX earnings crashed, sending the stock tumbling. Global earnings disintegrated.

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Note that John Deere moved into our weakest stock list today also.

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This is not a good picture for global economic growth. Add this picture of Caterpillar earnings (show here with global GDP growth) momentum, and you should get the Big Picture (the hoarding in America is NOT the big picture). Don't worry, be happ? Apparently Bernanke does not believe the global economy is fixed. The American economy either. Full speed ahead with QE and ZIRP. Of course, the man is terrified of the thought of having to unwind $4 trillion in debt no one else would buy, just as European banking is being forced up against the wall, with the threat of panics and bank-runs.

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Look at the picture of World GDP growth in this chart and tell me that there is 'light at the end of the tunnel'. We seem to be going down again for the count -- and this time there will be no more 'free money' to gry to force down the throat of the Black Hole Beast, Deflation.

One of our biggest momentum losers yesterday with XIN, Xinyuan Real Estate, China. XIN's momentum number fell 172 points today. But the stock gained a fraction. Why would this happen? M5Diff% is a 'predictive' indicator. It is configured in such a way that it warns an investor what is coming. If we look back at the same stock in 2011, we see almost the same type of M5Diff% collapse. The stock price did not move lower for some time. Then it finally began to feel the magnetic pull of M5Diff%, falling from 2.65 to 1.7 over the next few months.

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Remember, hoarding is a sign of a top, not a bottom.

Michael J. Clark, CGTS

Hanoi,

cgts@mindspring.com

HERE'S OUR UPDATED TABLE OF MOMENTUM STOCKS