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|Includes: KB Home (KBH), PDLI

Clark's Gate Timing System ©
Friday 10 July 2009

In our weekend edition we like to look at world indices to get a sense of where we are headed this week.  Shall we look at China first?  The Shanghai Index refuses to go down.  ALL the world indices look pretty much the same, EXCEPT the SSEC, which seems to have some magic source of support (the Chinese government?).  I'm sure the hedge fund masters all appreciate the Chinese willingness (eagerness) to pump up another stock market bubble (and real estate bubble too apparently). Imagine our government dolling out almost-free money to investors to throw into the stock and real estate markets -- oh, I guess our government did, except they gave our money to the banks and wall street to invest (for us) hoping to convince us, through the bubble-creation, that everything was ok.

Well, the first real test of that policy is coming, it seems.  Every index EXCEPT the Chinese Government Index (SSEC, with its friends Mobius, Rogers, et al) is topping and losing momentum pretty dramatically.  The KOSPI, the South Korean index, also looks positive.  And the Taiwan Index (TWII) is a question mark.  Short-term, almost all these indices are oversold, so I expect an attempt at a rally the first part of this week.



Two 'adversaries' of the recent Bear Market Rally -- the U.S. Dollar and the VIX, the CRB Volatility Index -- both seem to be bottoming and getting ready to rally.  The U.S. Dollar, of course, is the bane of commodity, basic materials, and metals markets -- so Mr. Rogers talking down of the dollar, along with his 'internationalist' friends from Switzerland and Canada and China can't be pleased to be seeing this.  I'm sure Jim Rogers is rich enough to have equanimity in the short-term however.


How are other 'world' markets looking?  Pretty much identical, all short-term oversold, long-term overbought with declining momentum.


A couple of special indices: with some bank earnings scheduled for this week, we look at the BKX, Bank Index, to see if we might be a hint of the news that's coming.  Not much positive in the chart: declining momentum being the key here also.  The Housing Index, HGX, is a hideous mess.  It turned a short-term oversold rally (second pane, M2F alt+) into nothing as buyers did not come forward.  Expect more selling here.

Bank IndexHousing Index

In sum, the only strength is in Asia (Shanghai, South Korea, Taiwan?).  The Nikkei is looking overbought and ready to fall.   The 'Green Shoots Rally' (see no evil, hear no evil, speak no evil) is just about toast, unless all the governments of the world decide that a reinflation of the stock market bubble must be pursued at ALL costs.  If that is the case, then almost anything is possible.

Hoping a form of rationality returns to the markets -- and a willingness to let our unsustainable debt level unwind over time.  We can't 'fix the mess' in a day by simply spending more money.  The only way we can 'fix this mess' is to become responsible again in terms of foresaking 'instant gratification' -- i.e., debt -- and remembering that hard work, saving, and sober living is what make America a strong country and economy.  This 'new philosphy' will take time to re-establish -- and new leadership (I don't see it in either the democrats or the republicans, in fact).  The democrats want to buy off the devil so they won't have to face the apocalypse; the republicans want to put the devil back as captain of the boat.  Deleverage, re-build, put America first. 


Long PDLI, Protein Design Labs @ 7.79.  M5 10 trading system

Short KBH, KB Homes, @ 12.35.  Momentum trading system


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Disclosure: author owns none of the issues mentioned in this newsletter.

MJ Clark
Clark's Gate Timing System
Hanoi, Vietnam
84 4 221 92210

Disclosure: author owns no securities mentioned in this article