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CGTS DAILY FOR MONDAY, 16 AUGUST: BLOOD ON THE STREETS? MARKETS LOOK TO GET UGLY AGAIN 26 comments
FOR: 16 AUGUST 2010 - MONDAY
A. MARKET MOMENTUM
CGTS VIEW: Two weeks ago we proclaimed the 'end of the rally'. It was a bit early. We are repeating our call now. We are seeing so many short-selling opportunities in the market now that we can't help but call this a market top. We are providing charts below to illustrate this view. Also see a long list of potential shortsales that showed up on the screen we ran using parameters outlined in this article.
Is this a crash that is coming? It's possible. Most of the global markets we look at bear a striking resemblance. All are topping; all are having tops confirmed. The dollar is rallying. The anti-dollar indexes and commodities are getting ready to go under again.
From our numbers below, clearly momentum has broken down.
Our key short-term momentum indicator -- numbers hitting +1 (positive) or -1 (negative) is now only 9% bullish. 189 issues are hitting -1 (bearish); only 19 are hitting +1 (bullish).
The key intermediate-term Momentum Trend (those in the positive zone of 1-0 versus those in the negative zone of 0-negative 1) continues to lose ground, now only 62% bullish, down from nearly 90% last week.
The Advance-Decline Line (most recent moves up or down) is at a very low 18% bullish, up from 10% bullish two days ago.
Only 14 issues meet our criteria for a long trade (+1 M4 Sum Plus and Intermediate trend positive), while 74 meet our criteria for a short trade (-1 M4 Sum Plus and IT Trend negative). This is only 16% bullish
The intermediate-term trend of most issues are still positive (204, from 232 on Wednesday), but this is a lagging indicator.
The short-term momentum indicator (M2F Alt, Pane 3 from above, brown line) is oversold, so, short-term, we will be approaching an an attempted bottoming
M5 3 Momentum (second pane from top, brown line) This key indicator has broken support and is suggesting we are at a major top and will have a substantial decline. The difference between my call two weeks ago for the end to this rally and today is that two weeks ago M5 3 was not in a freefall. Today it seems to be entering a freefall. Time will tell. It is breaking support, which usually means selling is coming.
T11, Intermediate-Term Trend (second pane from the top, red line): negative. It is hard to sustain a rally in the opposite direction of this trend line.
Watch the top pane, the black line, M5 3 Test Average. This is a long-term overbought/oversold momentum indicator, moving between (about) +100 and -100 ranges. Positive 50 is overbought; Negative 50 is oversold. When this indicator is topping and is overbought, it is proclaiming a top. Look below to the second pane from the top, at the black line, M4 Sum Plus: when this indicator is -1 for two days in a row (ignore spikes up or down), this confirms the sell signal. The bottom pane has two other indicators that measure intermediate-term momentum. The DJIA is giving a short-sell signal now. We expect more selling. The black line (top pane), to reach a bottom, must cross the corresponding brown line (M5 3 Avg Differential) AND M4 Sum Plus (Pane 2) must confirm the bottom with two days at +1.
FCHI, French CAC Index (below): similar picture. Top, prices heading lower.
OEX, S&P 100 Index, also appears to be topping.
FXE, Euro VS US Dollar ETF. A stronger US Dollar now seems to be the bane of stocks -- and the weak stock rally over the last month has been 'fueled' (perhaps too strong a word, since the fuel was rather watered down) by a Dollar correction. The Euro seems to be topping; and the Dollar seems to be bottoming.
Felix Salmon wrote yesterday about an exchange between CNBC’s Rick Santelli unloaded today on Steve Ricchiuto of Mizuho. I quote from Felix Salmon's article:
"The cause of the rant was a quote from Pimco’s Bill Gross, saying that he would only buy mortgages sans a government guarantee if first-time homebuyers were forced to make 30% down payments.
"The immediate cause of the rant, however, was Ricchiuto, who was proposing that the government solve the problem that people can’t refinance their homes. “They’ve got to go out and change the ability to refinance,” he said, prompting Santelli to ask why. When Ricchiuto responds that it’s “because the banks won’t do it”, Santelli’s rant arrives:
"Richhiuto is game enough to respond, saying that government intervention is “the only way to get the housing market going.”
"Santelli, however, is having none of it:
Santelli is right. We don't 'need to get the housing market moving again.
We need housing devaluation to continue, even more dramatically. The housing bubble pushed housing prices in to the stratosphere. We need them to come back to consumers' salary levels so they can become affordable again WITHOUT liar loans, cheater-loans, and guaranteed-to-default loans (0 down, unsecured loans). Our banks lost their integrity because the housing price appreciation moved housing purchases far out of the affordable range of most Americans -- the banks, to profit off this phenomenon, were 'saved' by Wall Street banks who created a mechanism for packaging guaranteed-to-default loans with other, more traditionally-packaged loans (ie, with borrowers who actually met the banks' qualification requirements) that would neutralize the cancerous loans....unless we bring housing prices back down to the level of American salaries, without the trick loans, the easy-default loans, there will be no stabilization of housing in America. Housing historically appreciates 2% or so a year, in life with American salary increases. In 2001-2007, housing in some areas appreciated 250%. We have to eliminate all that air in the cost of housing in America if we really want to stabilize the housing picture.
Stocks have topped short-term. We'll see if the buy-the-dips philosphy continues to work. I believe stocks will seek a much lower bottom, based on an economy that can't be fixed, and a Fed Chair who has run out of ideas and ammunition.
Some pictures tell a thousand stories -- this picture tells us two. (1) Ben Bernnanke is running on empty. And (2) he is running out of time.
C. TRADING SIGNALS
We have a LOT of shortselling ideas today -- and one long position.
The SAP chart below shows the system pretty clearly. The black line in Pane One is the key indicator. When it is overbought (positive) and declining, one has to pay attention. Confirmation is made in Pane 2 by the black line M4 Sum Plus -- 2 days at -1 is bearish; 2 days at +1 is bulish. How do we recognize a bottom using this system? We want M5 3 Average (black line) in the top pane to be below zero and turning up. It needs to go through its companion indicator, brown line, top pane AND it needs to be confirmed as a bottom by M4 Sum Plus in Pane 2. The bottom pane have two other momentum indicators that also can be useful -- but they are secondary.
How to read SAP. Top in late July, significant decline but not near a bottom yet. First sign of a bottom will be black line cutting through brown line (top pane); that hasn't happened yet. SAP is right at support (44 roughly). My prediction is that support will not hold. I expect it to test May support at 40.95.
VZ, Verizon Communications. Appears to be making a top, BUT this has not yet been confirmed below. However, juding from the three earlier tops, this confirmation is only a matter of time. But, we're waiting.
One of our readers wants to know if it's too early to buy more SYNA. Yes, too early. We can't guarantee it will go alot lower; our inclination is that it will go down to support -- which means a loss of at least 3 more points. It may have small rallies in between now and its actual bottom (see earlier part of chart) -- but, for us to have an interest in SYNA long, the M5 3 average has to bottom in oversold territory and turn up and be confirmed below.
BP, British Petroleum. The BP top has not been confirmed by M4 Sum Plus below -- it HAS been confirmed by the 'cheater' M5/M5 Average Diff Asp indicator in the bottom pane, which usually gives readings earlier but is not always reliable. It looks like a top and smells like a top and feels like a top -- but we need our confirmation.
AXP, American Express: looks to be topping.
AIG: looks to be making a top and should test 34.52 support.
ORCL, Oracle, has already given up quite a bit of ground. It has more ground to give up.
KO, Coal ETF. More selling coming; in fact, most of the commodity ETFs linked with an economic recovery (steel, industrial metals and materials, aluminum, copper) look bad.
A lot of people LOVE Caterpiller. Looks like it's time to take some profits.
CGW, Global Water ETF: topping. Should test 17.07 support; if that fails, then 16.48 support.
CAAS, Chinese Auto Daily: This is actually a Bear Market chart picture: lower lows and lower highs. If it takes out support at 15.88 and then at 14.75, the Bear Market picture is confirmed.
The stock I, personally, love to hate, Goldman Sachs, is breaking down again. It is, at the moment, not confirmed by M4 Sum Plus, but it is confirmed by the 'cheater' confirmation in the bottom pane. Another day of M4 Sum Plus at -1 and this top will be confirmed.
JO, Coffee ETF. For those who say I am a perma-bear (I'm clearly NOT a perma-bear, or I would not have buy-signal parameters with this system), this issue looks like a buy and seems ready to take off.
Ameritrade does not look so good, coming off a very weak rally. Looks like it's going to be testing old lows.
ERTS, Electronic Arts, one of my favorite whipping boys over the last two years: get out the whip again. The rally was weak; and the rally has ended. It's going lower.
The oil-aggregate ETFs all look weak, including DBO. More selling looks pretty much guaranteed in Heating Oil below.
XRT, Retailers ETF. Hold your hats. This one looks to be coming down. The economic news is just going to get worse and worse.
AA, Aluminum Company of America, had a weak rally off May lows and now appears to be going down again. This chart is a very bearish picture -- and becomes worse if the coming sell-off breaks below 10.
SCREEN OF POTENTIAL SHORTSALES MEETING ABOVE PARAMETERS.
More information on the CGTS systems can be found at:
http://home.mindspring.com/~mclark7/CGTS09.htm
MICHAEL J CLARK
Clark's Gate Timing System
Hanoi, Vietnam
84 4 221 92210
Disclosure: No positions to disclose.
Disclosure: No positions.
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This post has 26 comments:
en.wikipedia.org/wiki/...
How CAN the dollar rally? It's a paradox, isn't it. Because the European contagion is going to rise up again. Because Japan knows that it has to buy dollars and sell yen or they can't compete in terms of exports.
Take a look at the recent action in UUP, US Dollar Bullish ETF, and tell me it's not beginning a rally.
finance.yahoo.com/echa...;range=3m;indicator=vo...
All the currencies of the world are flawed -- but some are more flawed than others. And the Euro seems to be the most flawed at the moment, with such an ill-considered union pasted together with a naive approach to 'national/federal' interest rate policy.
Jobs naturally come later. Companies need money and an incentive to hire. Companies have a lot of cash. So the jobs should follow sooner or later.
I do not believe that the market has priced in all the bad news yet as we are still wringing out the economy and the hits seem to keep coming. Volume remains low and the individual investor seems to have run out of cash. Even China's economy seems to be wanting a breather. Just my perspective.
It seems that all our leaders can do now is to try to blow bubbles, inside of which they tell us we can store our illusions about the world being a safe place, with growth and development of civilization guaranteed to expand for ever.
Now Gentle Ben can't stop (Gentle Ben was a bear if I remember correctly). He's kind of a modern hood robbing the poor to give to the rich -- claiming that he's saving civilization for us. The rich have robbed the poor for ever -- and they have also claimed for ever that they were doing it to foster civilization.
Humans don't change much. Corrupt white collar criminals don't change much either. The difference between bankers and mafiosos is that the mafioso is the banker at the BEGINNING of his career....
Housing Bubble formed 2001-2007. Greenspan-Bernanke.
Greenspan then went to work for John Paulson who made billions shorting the American Housing Bubble. Talk about rewarding the man who made you a billionaire.
Commodities Bubble 2007-8. Bernanke.
Failed Stock, Commodities and Housing Bubble, 2008-2010. Bernanke.
Ask yourself these two questions and chew on them for a while.
1) Can you name a dozen people who have lost their jobs since 2008?
2) How many people do you know who have made a significant upward move in their career since 2008?
My answers:
1) Took less than half a minute for me to hit 15 people. I am betting most people can come up with a dozen easy. If you can't you need to get to know more people.
2) One, maybe two people.
But Alan's move triggered a housing bubble that brought down the global economy. The 2001-2007 'expansion' was a debt-expansion, and now it all has to be paid back, through traditional repayment or through default and/or bankruptcy. There is no free lunch, not even on Wall Street -- as Wall Street will discover this also over the next decade.
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