Financial Market Report For February 8, 2010
Gold, GLD, rose 1.1% today as the bond vigilantes continued to call the Interest Rates higher across the board on US Sovereign Debt, enabling short sellers to successfully sell the 30 Year US Government Bond, EDV, -0.75%, and the 10 Year US Government Note, TLT, -0.92%. Bonds, BND, fell 0.32% as the US Federal Reserve's continued Quantitative Easing constitutes monetization of debt. The printing of money by Ben Bernanke destroys the value of the US Dollar, $USD, which has fallen from 81 to 78, since December 6, 2010. And has enabled the Euro, FXE, to rise from 130 to 136 since that time. The currency traders have instituted a global currency war of competitive currency devaluation against the central bankers, and have targeted the US Dollar for now; along with the Emerging Market Currencies, CEW; and the South African Rand, SZR, with the recent turmoil in Africa, and the recent falling price of gold, being reasons for their assault on that currency.
The currency vigilantes seized control of the Interest Rate 30 Year US Government Bond, $TYX, on November 3, 2010, and the Interest Rate on the 10 Year US Government Note, $TNX, on December 11, 2010, and as result, finally forced Bonds, BND, into an Elliott Wave 3 of 3 Down on January 31, 2010 .
Ben Bernanke's policies have resulted in the destruction of bonds, while inflating stocks, VT, as well as Junk Bonds, JNK, to a new high yesterday; the latter closed lower today at 40.59. A top is likely being achieved in junk bonds, as they turned lower with bonds today.
The Fed Chairman's QE2 has provided seigniorage to both stocks, and junk bonds. And more recently, six days ago, that is February, 1, 2010 to gold. GLD, as it started to rally once again, as rising yield curves are creating an investment demand for the hard metal asset. This will be all the more the case, once stocks start to fall lower.
One could start to sell stocks short, as stocks, VT, rose 0.50% parabolically higher today, and thus will be turning down soon -- that which goes up parabolically must eventually fall lower. For example, the 3.78% rise in Amazon, AMZN, presents a short selling opportunity, as in a bear market one sells into rises, just like in a bull market one buys into dips. Another opportuntiy was the 4.2% rise in Sandisk, SNDK, These stocks are rising up into an Elliott Wave 2 Crest, and will be falling lower into an Elliott Wave 3 of 3 Down, which is the most aggressive part of the downward wave, that results in practically all of the investment value, being wiped out.
The Morgan Stanley Cyclical Index Building Supply component, Masco, MAS, rose parabolically 2.7% higher, manifesting three white soldiers, indicating that a trend reversal is at hand as it completes an Elliott Wave 5 High. There was a similar rise in The Morgan Stanley Cyclical Index Automobile component, Johnson Controls, JCI, but it is rising up into an Elliott Wave 2 Crest. The strong rise in these and other Morgan Stanley Cyclical Index, $CYC, stocks, such as Eaton, ETN, and International Paper, IP, drew the Index, to a new rally high of 1107 today.
The Russell 2000, IWM, rose 0.71% parabolically higher on the Financial Sector, XLF, 0.71% rise. Sunrise Senior Living, SRZ, is known to be a volatile Russell 2000 stock; it rose 5.3% today.
Interntional Business Machines, IBM, was one of the many Dow stocks that rose parabolically higher, gaining 1.1%
The ongoing, now seven day almost vertical rally in NTAP, has caused a rebound in the networking stocks, IGN. Like networking stocks, the upward thrust has been so strong in consumer stocks, IYC, that they too have burst up past their previous high. The same is true of Internet Retail, HHH. This dramatic action is quite common at the end of stock market rally as traders “gun it” for all they can.
Rising strength manifested in Retail, XRT, Small Cap Consumer Discretionary, XLYS, and Homebuilders, ITB, taking them up in Elliott Wave 2 cresting strength.
I find it interesting to compare the consumer stocks, IYC, with the Small Cap Consumer Discretionary, XLYS. The latter will be falling faster then the former, when the down turn comes.
Rent A Center, RCII, is a consumer discretionary stock that investors brought back to the land of the living. There is a similar story in Reliance Steel, RS, which helped steel, SLX, rise back up in an ascending wedge; stocks usually fall lower from such structures when resistance is encountered. This makes the Steel ETF, SLX a sell. The same ascending wedge structure is seen in metal manufacturing, XME. And even more so, in Nasdaq Internet, PNQI.
MGM Resorts, MGM, manifested an evening star, rising 5.0%.
The Too Big To Fail Banks, RWW, rose but manifested that rise in a megaphone, that is a broadening top pattern. It is as Street Authority relates, when you see the broadening top, the market will eventually drop. Yes, indeed, a drop is coming to Bank of America, BAC, Wells Fargo, WFC, and Citigroup, C.
Mike Mish Shedlock sums up recent stock market action quite well ….Fed succeeds in fostering massive speculation in junk bonds and equities
China, YAO, Chinese Small Caps, HAO, and China Real Estate, TAO, traded lower on bank and credit tightening. India, INP, traded lower as well.
Oil, USO, traded unchanged. Commodities, DJP, rose, but I think that overall, with perhaps the exception of Food, FUD, and perhaps some other commodities, there is likely to be some fall in value. I expect timber, CUT, to fall in value fairly aggressively; as I perceive its moneyness, like Jun Bonds, JNK, to be speculative.
A major issue in short selling is that one still has a Dollar denominated portfolio, which will be subject to rising and falling values. Furthermore, in times of economic stress one may not have access to one's brokerage account; therefore, I recommend that one invest in and take possession of gold.