HERE COMES THAT PROTECTIONISM MONSTER WE HAVE BEEN WARNED ABOUT. IT LOOKS LIKE WAR, BUT IT SMELLS LIKE BUSINESS TO ME.
I had dinner with my wife and her Vietnamese friend, a woman of about thirty. The night was hot; but there was a cooling breeze blowing in from West Lake. I asked her about the Vietnamese fury during demonstrations against the Chinese (really foreign managers, from Taiwan, Korea and Hong Kong) that killed 30 or so and did millions of dollars of damage to foreign factories and other businesses.
My wife's friend said she heard that the violent demonstrators had been paid by China to attack foreign business owners and managers -- she says China planned this so they could launch a war against Vietnam. Her take on the evacuation of 3,000 Chinese today was that this was preparatory to war.
My own take on the riots had been that it was a combination of very real anger at Chinese belligerence off the coast of Vietnam and years of Vietnamese workers' mistreatment at the hands of Taiwanese, Korean, and Hong Kong business managers who ran sweat shops in Vietnam with vengeful, unforgiving discipline.
Which is true? Either way, it seems like a sign of creeping protectionism to me.
Tonight I read that China is massing troops and tanks on the Vietnamese border.
Of course, war in Asia (China, Vietnam, etc.) and war in Eastern Europe (Russia, Ukraine, etc.) would be decidedly negative for markets. Some people warn us that the 'beggar thy neighbor' or the so-called Protectionism impulse is a threat to market stability. I say this is a necessary STAGE of deflation, not a potential cause of deflation. Deflation causes protectionism. Deflation is a season in the four-part wave that causes everything in the world to happen in what appears to be a causal relationship but which, in fact, is sequential rather than causal.
And the war blues in north Asia and in Southeast Asia are signs of the gathering impulse of political protectionism.
When all the 'good ideas', like QE for instance, don't work, no matter how many times they are tried with no good result, then war becomes the next and the last 'good idea' -- and then we are really heading into the Black Forest of Deflation.
It is almost impossible to be negative on these 'controlled' asset markets, given the institutional support of the 'fixers of the interest rates' and the 'sustainers of QE' -- which, QE, has become a kind of financial heroin for businesses and speculators.
Businesses don't even have to make money selling their products to the world any longer. The Fed has made it possible for businesses to make profits off the carry trade, and to grow share-value simply through stock buy-backs, and through refinancing their own debt at lower and lower interest rates.
We do want to demonstrate tonight how short-term technical indicators can to clarify long-term holdings and positions.
We have been short INFY, Infosystems, for several weeks now. I want to update this position to emphasize how our trading system works.
We short a stock when 1) the Intermediate-Term Trend (T11 Sunmarry, top pane, blue line) is negative; 2) the Momentum Indicator (M2F ALT, deep brown line, top pane) is overbought.
We monitor each position with the Short-Term Trend (T5, second pane down, brown line) which shows us Overhead Resistance and Underhead Support. Look on the Chart for the Letter "A". This is the point where INFY failed to take out Overhead Resistance. A stock is in a bull move by definition when it is making higher highs (taking out Overhead Resistance) and higher lows (when Underhead Support holds up) -- when descending prices stop above the last support level. The letter "B" on the chart indicates points in which Support did not hold.
So, INFY is making lower highs and lower lows in terms of the T5 Short-Term Trend. This is the definition of a Bear Move.
In addition, INFY recently broke support of 52.75, declining to 51.3, where it attempted to rally. That T5 (up-line or rally line) is now breaking down. It is attempting to flop back down with an even stronger emphasis of broken support.
M2F ALT (top pane, dark brown line) is now, today, oversold. But the bottom pane is a longer version of the same indicator. And it looks like this M2F + Indicator is topping after a feeble rally.
(click to enlarge)Click to enlargeThe chart shows next support at the far left edge of the chart (second pane down, light brown line), which at 45.615. We think it is likely that INFY will test this level also.
This shows how one can use short-term trend and momentum indicators to monitor long-term positions (both short and long).
Bonus Chart: IBM Short
(click to enlarge)
The breakdown of the RUT, Russell 2000 Index, is NOT catastrophic yet.
*** *** *** ***
Good fortune to all the Vietnamese who seem to be pawns in the game of giants of world finance and political madness. I love Vietnam. An invasion of Vietnam by China would be an act of evil by a bully kicking sand in the face of a peaceful neighbor from whom they are clearly stealing without consequence.
Michael J. Clark, CGTS
19 May 2014