Update: Week Ending March 15, 2014

by: Nasser Khraishi

The confusion has cleared this week. It is clear that the geopolitical issues we have been discussing for at least a couple of weeks have finally sunk in this last week. Crimea, Arab Gulf states, China-Japan, China-Philippines, Venezuela, and North Africa should have been enough to spook the markets, but the flight to safety seems to have accelerated towards the middle of the week.

Clearly this was a down week for the three indices I track. Yet, what makes this episode different than the consolidation-of-the-month affair, the last of which ended about five weeks ago, is that Gold (NYSEARCA:GLD) is appreciating, even on days that treasury rates are increasing, and treasury rates are falling even on days that the economic release are very bullish. This "break of logic" suggests that something else is at play; i.e. geopolitics!

Just for the record, the last correction was in the summer of 2011, and the last crash was actually the financial crisis whose end has just marked the fifth anniversary. Note also that the three indices notched high marks on the Friday of the week before.

The combination of all the above is quite worrisome to say the least. Will it be a consolidation, correction or a crash? Technical analysis are market following, but clearly Gold and Treasuries are sending a stronger message than what we saw in quite a while.

We shall see what this week brings, but this weekend should be pivotal. It is not clear what type of retaliation the West will attempt to inflict on Russia, but I am already seeing chatter relating to the certainty of both the secession and inevitable "consumption" of Crimea, as well as the sanctions to follow. This makes the first few days of the week pivotal in determining the depth of the financial market events that seem at this point certain to follow.

The economic numbers for the week (just ended) were quite fine, thank you! The only worrying number I saw was the PPI (Producer Price Index) which was unexpectedly deflationary.

For next week, we have a two-day Fed meeting which should include an economic update. It is not clear that this important event , the first to be conducted by Chairman Yellen, will amount for much considering the potential for paradigm-shifting geopolitical events transpiring earlier in the week.

In general, most sectors and issues in my trading set were punished, with the trend being more negative than the oscillator readings.

To conclude, the geopolitical overhang is something worth seriously watching, and possibly for more than just Crimea.

My regular table for the indices follows.

Index/ETF Symbol and Name Daily 3-EMA-7 Weekly 3-EMA-7 Perceived Trend
SPX S&P 500 Index Positive Positive Negative
DJIA Dow Jones Industrial Average Neutral Positive Negative
COMP NASDAQ Composite Index Neutral Positive Negative
GLD SPDR Gold Trust ETF Positive Positive Positive
VIX CBOE Volatility Index Positive Positive Positive
FVX CBOE 5 Year Treasury Note Yield Index Positive Positive Neutral
TNX CBOE 10 Year Treasury Note Yield Index Negative Neutral Negative
TYX CBOE 30 Year Treasury Bond Yield Index Negative Neutral Negative

As usual, the reminder is that the movement of the treasury yields is negatively correlated with the price of the underlying instrument.

As for my trading set, my short term "Perceived Trend Oscillator" stood at a "neutral" of -25%, which was also the low of the week. This compares to a "bought" value of 40% on Friday. In essence, the geopolitical risk seems to have won over the improving economics.

The full trading set table is as follows.

Symbol and Company Name Daily 3-EMA-7 Weekly 3-EMA-7 Perceived Trend Is a Current Holding?
GERN Geron Corporation Negative Neutral Negative Yes
JPM JPMorgan Chase & Co. Positive Positive Negative
GS The Goldman Sachs Group, Inc. Positive Neutral Negative
WFC Wells Fargo & Co. Positive Positive Positive
NLY Annaly Capital Management, Inc. Positive Neutral Positive
MO Altria Group, Inc. Positive Negative Neutral
T AT&T Inc. Negative Negative Neutral
VZ Verizon Communications Inc. Negative Negative Negative
GPS The Gap, Inc. Neutral Positive Negative
ANF Abercrombie and Fitch Co. Positive Neutral Neutral
JWN Nordstrom, Inc. Positive Positive Neutral
TGT Target Corporation Positive Negative Neutral
DIS The Walt Disney Company Positive Positive Neutral
MCD McDonald's Corp. Positive Neutral Positive
MDLZ Mondelez International, Inc. Positive Positive Neutral
BA The Boeing Company Negative Neutral Negative
LMT Lockheed Martin Corporation Positive Positive Neutral
CAT Caterpillar Inc. Neutral Positive Negative
DE Deere & Company Positive Positive Neutral
EMR Emerson Electric Co. Negative Neutral Negative
DOW Dow Chemical Co. Positive Positive Neutral
ADM Archer, Daniels, Midland, Co. Positive Positive Positive
MON Monsanto, Co. Positive Positive Positive
POT Potash Corp. of Saskatchewan Inc. Positive Neutral Neutral
PFE Pfizer Inc. Neutral Positive Negative
BMY Bristol-Myers Squibb Company Positive Positive Neutral
ABC AmerisourceBergen Corporation Neutral Positive Negative
AAPL Apple, Inc. Positive Neutral Negative
INTC Intel Corporation Negative Positive Negative
CSCO Cisco Systems, Inc. Negative Negative Negative
HPQ Hewlett-Packard Company Neutral Positive Negative
CVX Chevron Corporation Neutral Negative Negative
BP BP plc Negative Positive Negative
NGG National Grid plc Positive Positive Neutral
NI NiSource, Inc. Positive Positive Positive
WMB Williams Companies, Inc. Neutral Positive Negative
WM Waste Management, Inc. Negative Negative Negative
CNW Con-way Inc. Positive Negative Positive
CSX CSX Corp. Positive Positive Neutral
NSC Norfolk Southern Corp. Positive Positive Positive

Disclosure: It is important that you understand and agree that all information provided in this newsletter rely on publicly available data and tools with no guarantees of quality or suitability for any purpose, and that I can be long or short in any of my trading-set equities, at any time, with or without regard to indicated trends and described analytics, and that I do not give buy or sell or any other financial recommendations, and that any and all actions based on this commentary are solely the responsibility of the reader.