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

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THREE LONG TRADES TO CONSIDER

Why are stocks racing higher? Not because the American or global economy is 'fixed', surely.

Cheap money allows coproations to buy back shares with free money provided by the Fed. Also, margin is near an all-time high. Margin allows investors to buy stocks for only a small percentage of the total cost, and to 'borrow' the rest. DEBT. DEBT AS ALWAYS. We will never get well until we unhook our addiction to DEBT.

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The all-time high in margin came before the market meltdown in 2009. So, be prepared. When the margin calls come -- light volume rallies are especially vulnerable to margin calls -- there is no one there to buy, and stocks collapse fast.

There are some stocks we like to trade long at the moment. We'll show you three.

What's not to like about YCS here? The Japanese government is desperately commited to a currency war that it MUST win. In our earlier post today we showed Japanese exports reported today CONTINUE TO FALL. YCS is an ETF that appreciates when the Japanese Yen loses value. Japan is committed to a lower yen.

This trading system, which I call M2F ALT High Low is a 'buy the dips' system. All the trends are positive, and the momentum dips down after selling, one buys. The momentum indicator in question here is the bottom pane of the chart.

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We also like Starbucks.

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STJ, Saint Jude Medical.

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Best,

Michael J. Clark, CGTS

Hanoi

cgts@mindspring.com

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STOCK SCREENING: THE GOOD, THE BAD, AND THE REALLY UGLY

It is time to run a stock screen. I have been showing charts with one of my favorite indicators lately, a momentum indicator I call the M5Diff%. It is very useful in finding bottoms, tops -- ok, predicting bottoms and tops -- and is also useful as a momentum gauge: what's hot and what is not.

Today's screen shows 32 issues that had the greatest appreciation of the M5Diff% today, and the 32 issues that had the greatest M5Diff% depreciation also.

What catches my eye here? Well, the global economy is not doing very well in terms of stocks. They say: "Watch copper! As copper goes, so goes the economy."

Copper's not doing so well. Two copper stocks in the Bottom 32 -- JJC, Copper ETF, and SCCO, Southern Copper. Lead (LD) is also in the bottom 32; China Aluminum (ACH); US Steel; Coal (KOL) is here also; Steel (MT); Livestock (COW); global banks are here (Chinese and others); Chinese stocks are also in the bottom 32. The Euro is also taking up the bottom; and shorting the Euro is also in the Top 32 list.

The 'Industrial' stocks -- mining, metals, 'hard' economy measures -- are the 'really ugly' charts today. JJC, Copper, has fallen from 48 to 42 and seems to be nowhere near a bottom.

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SCCO, Southern Copper, looks like the same chart.

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KOL, Coal ETF, has dropped from 27 to 23 and is going lower.

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BHP Billiton has fallen from 72 to 61. Is this the kind of action that makes 'experts' positive on the global economy.

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ACH, China Aluminium Corp, is down from almost 14 to 10, and going lower.

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Bank of China is in a free fall; and seems destined to fall more.

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There are two numbers in these tables: the first number is today's M5Diff% reading; the second number compares today's M5Diff% with yesterday's number. Hecla Mining, and at least two Euro pair are down but up today. EuroCHF is at the very bottom of the list; but it bounced up from yesterday's even lower reading.

So, which stocks do we like from the Top 32? Which are the 'Good' stocks?

We like HP but would not buy it here -- too late for much of a rally -- although it looks very strong now. If we felt we were in a legitimate Bull Market we would choose HP here for certain. I think we are in a Bear Market until 2019 -- so stocks, which look fairly attractive now, will be cheaper later.

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XOMA looks strong here as a speculative trade.

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Verizon is attractive as a trade, even here.

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When we looked at stocks that had a very high move from yesterday's M5Diff% indicator, we found some other interesting charts -- that is, using the second number in the table above.

Saint Jude Medical looks ready to rally.

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EDU looks like it want to explode upward, although it has had a good move already and probably will pull back for a time.

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NOG looks like it wants to go higher.

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CDNS has a very negative differential -- and is an interesting short here -- although our indicators are generally still positive. Only M5Diff% is collapsing.

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LuLuLemon seems ready to fall off the chart.

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Still our favorite new shorts are actually longs: shorting the Euro (DRR) and China (FXP).

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Best fortune,

Michael J. Clark, CGTS

Hanoi

cgts@mindspring.com