We're getting mixed messages from the markets. A clear two-day rally driven by what exactly? By promises from European leadership that they will do anything to save the Euro? Like they haven't been promising this for years? Buying sovereign bonds of Spain and Italy and France and Portugal and Belgium (it will come to that) will help keep interest rates lower -- but the basis of the problem in Europe is too much debt, a currency that only works for half of the EU, and a lack of economic competitiveness in European economies. Bond-buying won't cure those three major problems. Also, half of the EU needs a weaker Euro; a stronger Euro hurts, again, those 'weak sisters' needing a weaker Euro.
Spending more money, taking on more debt, to buy sovereign bonds the market is say are worthless (or at least too risky to buy without higher interest rates) simply means putting EU citizens on the hook for overpriced bonds. This adds to the debt problem; it does not subtract from the debt problem. Too much debt is too much debt.
So, we got a rally. I'm suspecting a lot of Fed buying of index futures as well. Anyone want to bet? Earnings are coming in weaker than expected. MacDonalds, Starbucks, and Apple Computer all reported earnings that fell short of expectations. Joshus Freed writes in his article "Corporate Earnings: A Return to the Bad Old Days":
Based on the 291 companies in the Standard & Poor's 500 that have reported earnings so far - along with estimates for the rest - S&P Capital IQ expects overall profits to decline by half a percent from the same period a year ago. That would be the first time that profits have shrunk since the third quarter of 2009, just after the Great Recession. Analysts are predicting that earnings will shrink 0.3 percent for the third quarter, too.
Revenue for those 291 companies has increased just 2.3 percent, compared with a 10-year average of 7.1 percent, according to S&P Capital IQ.
Worse, companies are getting more pessimistic about the rest of the year.
No mixed message on the economies of the world: the economies are heading down. The Richmond Fed Report showed revenues for both manufacturing and services falling to the lowest level since the 2008 meltdown. This comes after central banks spending sprees of trillions of dollars intending to jump start the global economy.
The UK economy shrank more than the Spanish economy in the last quarter.
There is no rational explanation for this last stock rally -- unless expectations of continued salvation by the Central Banks can be considered rational. I was always told that hope was not a rational response to reality -- although, as Pandora taught us, hope is all that is left after reason exhausts its tricks and has to admit that nothing it has done has alleviated the debt depression we are in.
The ONLY thing that 'fixes' a debt depression is the elimination of debt, through repayment, default, bankruptcy.
Those interested in this issue can look at a recent instablog I wrote on the coming Greatest Depression in Australia, drive by Debt Congestion:
Also, another recent instablog I wrote on why we have been only denying reality from 2001-2012 -- treading water -- and why a major decline in stocks is required before a new bull market can begin:
Remember when we were told that China (and the Emerging Markets, Chindia) was going to save the world economy? For an enlightening view of China's growth projection read Dee Woo's recent offering:
Three charts from Dee Woo's instablog suggest where China is today, on the edge of the precipice or worse.
What do our own internal indicators suggest? Two of our three indicators turned up with the stock rally of the last two days. Our favored of the three (most-long-term) did not turn up. It is shown below. We recalculated our indicators to show bearish dominance as a negative number, bullish dominance as a positive number.
|Date||SPX||CM ASP||T11D Sum||M4 21 Sm|
Looking at just the SPX (GSPC) itself, we had the following 'momentum' readings. Note the 0 (zero) readings under M2F ALT below that began on July 24 with the SPX at 1338.31. Note also the reading of 100 above this on July 19 with the SPX at 1376.51. Clearly the SPX was oversold on July 24.
Markets are a beast that 'breathes'. Rallies are out-breathing; declines are in-breathing.
The current reading at 73.921 suggests another day or two of rally. 'Suggests' being the key word. Momentum indicators are not totally trustworthy, because markets and individual issues can stay overbought or oversold for a long time.
One of our most active short-term trading systems uses the M2F Alt indicator in conjunction with our trend indicators to trade relatively short-term movements in the markets. See below: we are getting another slough of SHORTSELL SIGNALS today using this indicator, as issues have rallied to overbought levels but have not rallied enough to change trends to positive readings.
|Momentum||M2F ALT||Mom Max||SPX|
*M2F ALT: 90+ overbought; 10- oversold.
**Mom Max: 70+ overbought; 30- oversold.
NEW TRADING SIGNALS
Here is a list of our new trading signals for the last two days. Since we have 'mixed feelings' about this rally we'll show charts of two issues we like as BUYS (NTAP and EZCH) and as SHORTSELLS (INTC and RAVN, this latter one a short-term M2F ALT trade, meant to capture a short-term move.).
|TRADING SYSTEM T11D Sunmarry 10/Zero|
|(Intermediate-Term)||Trades for||Trades for|
|CTIC||0.52||Enter Short||Cell Therapeutics|
|EZCH *||37.46||Enter Long||EZChip Semiconductor|
|GES||30.79||Enter Long||Guess? Inc|
|GSS||1.16||Enter Long||Golden Star Resource Gold|
|NSM||21.9||Enter Short||Nationstar Mortgage|
|NTAP *||32.91||Enter Long||NetApp Inc|
|PEIX||0.327||Enter Long||PACIFIC ETHANOL|
|RAVN *||34.38||Enter Short||Raven Industries|
|TER||14.97||Enter Long||Teradyne INC|
|WPRT||38.52||Enter Long||Westport Innovations|
|* See chart|
|TRADING SYSTEM M2F ALT|
|Trades for||Trades for|
|^BVSP||56,553.12||Enter Short||Sao Paolo Brazilian Index|
|^FCHI||3,280.19||Enter Short||CAC French Index|
|^SMSI||668.8||Enter Short||Madrid General Index Daily|
|ADBE||31.895||Enter Short||Adobe Daily|
|AMAT||10.895||Exit Long||Applied Materials|
|AXP||58.53||Exit Long||American Express|
|BK||21.39||Exit Long||Bank of NY Mellon|
|BZF||18.7||Enter Short||Brazilian Real long currency|
|DSX||6.77||Enter Short||Diana Shipping|
|EEV||28.03||Enter Long||Short MSCI Emerging Markets ETF Daily|
|EL||54.7||Enter Short||Estee Lauder|
|ENZN||6.88||Exit Long||Enzon Pharmaceutical|
|EPP||42.78||Enter Short||Asia (No Japan) ETF|
|EUFN||15.12||Enter Short||European Financial Index|
|EWC||26.53||Enter Short||Canada ETF|
|EWG||20.34||Enter Short||Germany ETF|
|EWP||22.91||Enter Short||Spain Index|
|EWQ||19.78||Enter Short||France ETF|
|EWZ||53.56||Enter Short||Brazil ETF|
|FLR||50.58||Enter Short||Fluor Corp|
|FXI||34.12||Enter Short||FTSE/XINHUA China 25 Index ETF|
|GDXJ||19.65||Enter Short||Gold Junior Minors ETF Daily|
|HAP||34.3||Enter Short||Hard Asset Producers ETF|
|HON||59.01||Enter Short||Honeywell Daily|
|ICN||20.37||Enter Short||Indian Rupee ETF|
|IES.DE||0.988||Enter Short||Intesa San Paolo SA|
|ILMN||42.3||Exit Short||Illumina Corp|
|INTC *||26.02||Enter Short||Intel Daily|
|IYJ||68.65||Enter Short||Dow Jones Industrial ETF|
|JPYRUB=X||0.408||Exit Long||Japanese Yen/Russian Ruble|
|MAKO||13.3||Enter Short||Mako Surgical Corp|
|MT||15.77||Enter Short||Arcelor-Mittal Steel|
|MTL||6.1||Enter Short||Mechel Open Joint Stock Company|
|MYY||27.72||Enter Long||Short Midcap Index Short|
|NKE||97.03||Enter Short||Nike Daily|
|PBTH||5.03||Exit Short||PROLOR Biotech|
|PDLI||6.81||Exit Long||Protein Design Labs|
|PPA||19.09||Enter Short||Aerospace and Defense ETF|
|RHT||55.81||Enter Short||Red Hat|
|SGG||84.66||Enter Long||Sugar ETF|
|SINA||48.45||Enter Short||SINA CORP|
|SYK||52.41||Exit Long||Stryker Corp|
|SZK||17.11||Enter Long||Short Consumer Goods|
|THD||68.91||Enter Short||Thailand ETF|
|THLD||7.18||Enter Short||Threshold Pharma|
|VXX||12.99||Enter Long||VIX ETF|
|* See chart|
|TRADING SYSTEM ChartMeter|
|Trades for||Trades for|
|^SMSI||668.8||Exit Short||Madrid General Index Daily|
|BBVA||6.51||Exit Short||Banco Bilbao Argent SA|
|CEW||20.29||Exit Short||Emerging Currency ETF|
|COW||28.91||Exit Short||Livestock ETF|
|FNMA||0.24||Exit Short||Fannie Mae Daily|
|FST||6.53||Enter Short||FOREST OIL|
|HAP||34.3||Exit Short||Hard Asset Producers ETF|
|ICN||20.37||Exit Short||Indian Rupee ETF|
|IDI||1.3||Exit Short||Search Media Carry-Trade ETF|
|IGOI||0.51||Exit Long||I Go INC|
|IMAX||22.76||Exit Long||Imax Corp|
|IRE||5.72||Enter Long||Bank of Ireland|
|KGJI||1.53||Exit Long||Kinggold Jewelry|
|LD||46.58||Exit Short||Lead ETF|
|QRM||1.35||Exit Short||Quest Rare Metals|
|SAN||5.93||Exit Short||Banco Santander|
|SNP||89.31||Exit Short||China Petrol & Chemical Co|
|URS||34.94||Exit Short||URS Corp|
|USDTHB=X||31.52||Enter Short||USDollar-Thai Baht|
|YNDX||20.22||Exit Short||Yandex NV|
Michael J. Clark, Hanoi, Vietnam