Where do we stand in this market correction? Is it even a market correction?
We are keeping a close watch on our 39 inverse ETFS, which should all begin to turn positive (in the short position) if this is really a correction.
For weeks only 2 of these inverse ETFs were in the short position, YCS, Short the Japanese Yen, and JGBS, Short Japanese Government Bonds. Then about two weeks ago, we began to get more action. First the VIX turned positive. Then other Inverse ETFs began to go positive. (The VIX is not, in fact, an inverse ETF. But I look at it as a proxy for shorting stocks.)
The VIX today has turned back down. But the VIX is VERY volatile. In the VIX chart below we want to look at the blue line in the top pane, which is the intermediate-term trend indicator we use to measure the breadth of buying and selling in this report, the indicator we are measuring every day to judge selling strength: "M2F Plus Trend ASP Look Back Minus Plus Combo". (Sorry for the name given this indicator. We need to give it a nickname soon.)
It has turned negative for the VIX again. But note the trend of the rown line in the second pane down, the CGTS Old #1. It is in a positive trend.
There are now 11 inverse issues that have turned positive -- are in the short position. 11 of 39. Not much yet, but one more than last week. Small caps and midcaps; Japanese Yen; Brazil; Oil; Utilities; Europe; Japanese Government Bonds; and two new issues: SDOW, Short the Dow; and SSG, Short Semiconductor stocks.
|SDD||Short Small Cap Index ETF Daily|
|TWM||Short Russell 2000 Index ETF Daily|
|MZZ||Short Midcap Index ETF Daily|
|YCS||Short Japanese Yen|
|SDOW||Short Dow ETF|
|SSG||Short Semiconductors ETF Daily|
|BZQ||Short Brazil Shares ETF|
|DTO||Short (Double Short) Oil|
|SDP||Short utilities ETF Daily|
|EPV||Short MSCI Europe ETF|
|JGBS||Short Japanese Govt Bonds|
We want to look at these two new issues turning negative.
These two issues, unlike the VIX, are not really very volatile. In the one year shown on these charts each has flipped from negative to positive (long to short) only two times, prior to this time, both of which were short in duration and insignificant in terms of movement.
I am not convinced in these bearish moves, however, primarily because of the shape of the short-term trend in each of the charts (see red line in the third pane down from the top). Each T5 Simple trend has recently turned up, suggesting a rally in the short-position. But this is not a healthy short pattern. A healthy short pattern would show T5 Simple making higher highs and higher lows. It is not in either of these charts.
The only issue here that is a legitimate short is DTO, Double Short Oil. Note how the red line in the third pane down, T5 Simple, is making higher highs and higher lows. This is an exciting short.
EPV, Short Europe, is half-way there. The T5 Trend has broken through topside resistance. It still has not put in a successful support zone however. But it appears that it will do so. But we won't jump the gun. European stocks are on our watch list.
We have written elsewhere that we do not expect the central banks to admit they have no idea what they are doing. They will continue to give away money to the rich in hopes of starting a fire. Sadly, the more money they give away, the more they raise the floodwater on the earth. Only higher interest rates will dry out the earth. But they have built a scenario based on low interest rates for ever. Their system will not work unless interest rates stay low for the rest of human existence.
TYX (30 Year Treasury Yield) and TNX (10-Year CBOE Interest Rate) are going lower. Of course, one reason for this is that the global economy is buckling again, with Italy, and Europe more generally, apparently going back into recession. China is a huge mess, with the government fixing growth numbers, and proposing some kind of QE to cover-up the massive corruption growing out of its commodity-loan-based fiasco, in which the same iron ore block was apparently used many times over as collateral for different loans -- and has since entirely disappeared -- meaning that all loans based on that collateral are not backed by any collateral at all. Not much different than what US and other Western banks have been doing for years apparently.
Corruption is rampant. And the sword is coming to the earth because of it.
Russia has announced that the US Petro Dollar hurts the Russian economy; so the Russians will attempt to set up energy trading everywhere in local currency, cutting the US Dollar cartel out of the picture. This means the US is moving one step closer to war with Russia. Russia has banned western food products from Russia, and is stepping up trade with China. But Chinese products are toxic and fake products. Russia will find out sooner or later that quality is not a Chinese concept, at least not yet. Perhaps things can change.
May we live in uninteresting times.
Michael J. Clark, CGTS
Hanoi 14 August 2014