Monday pre-market 9-24-2012
Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Quote of the Day
"It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now."
~ John F. Kennedy ~
Different This Time!
RED FLAG ―a MAJOR DIVERGENCE - Ignore at your own risk....
My readers know that I follow sentiment closely and go the opposite way during extremes when it matches up with overboughtness / oversoldness ― but this time ― it looks different... Like maybe in 1932 - it looked horrible then but got much worse...
A Hurricane is building and it's aimed at you - in no particular order
Iran / Israel conflict could ignite any day / hour
Muslim nutcases world-wide are running totally amuck
EuroLand is in a deepening recession
China slowdown accelerating
Japan debt at 220% GDP
China / Japan nose to nose over some Japanese islands (oil there)
A global economic slowing is underway
The risky features of global monetary easing (printing) ECB / Fed / Bank of Japan yet loom
2nd USA Debt Downgrade
The USA is closing in on the Fiscal Cliff
Tax unknowns / Obama Care plus you name it
Unfunded pension's tsunami of $ trillions
Election quandary can go either way - Socialism or Free Markets
Regulatory situation continues to deteriorate
Savings rates close to nothing and the middle class reels
Add in here that the moral / ethical / spiritual compass of the USA is now close to only being but a memory...
And throw in investors abandoning stock markets due to Flash Crashes, Naked shorting etc
So Buy Stocks? Are you kidding me? - Actually, maybe yes - but let's wait until the McClellan gets hyper oversold in the minus 300's
The key phrase will be when 'TSHTF'- Buy things...
On Friday, after an APPLE (OTC:APPL) driven pop Stock Markets sell off, but hold near highs however... NOT SO with the Dow Transports that sold off all day long and closed right off its lows... The Dow Transports fell to 4+ month lows - very near the Stock Market's low in June and are now well below 50 and 200-day moving averages.
Suggesting that if the nation's largest and most powerful companies, as evidenced by the Dow Transports Index, (20 large companies that move goods plus people) that are 'faltering' and 'that index' is going opposite from the Dow Industrials it's at least a heads up ALERT to be very concerned about... The Transports are super economically sensitive. The Transports were off 5.9% last week and off 2.2% for the year while DOW is up 11%.
Shanghai Exchange slams to 3 ½ year lows and is now off about 66% from its highs.More - "Let's pretend" in Europe as the ECB goes further in buying "manipulating" i.e. reducing the yields the bonds of the southern EuroLand PIIGS - little reform has been done - Talks with 'troika' on austerity package were inconclusive
Riots in Spain on Saturday injure 60 - 11 arrests
Sweden will not agree to allow taxpayers to bail out "ill-managed" banks in other European countries
The Winds of War....Muslim / Mideast /
Iranian commander: "Israel-Iran war inevitable"
General Martin Dempsey, chairman of the Joint Chiefs of Staff, dismayed Israeli officials by saying that Washington did not want to be "complicit" in an Israeli attack on Iran.
Tens of thousands protested in Kano, Nigeria, on against the anti-Islamic film that has been causing uproar in the Muslim world
10,000 Bangladeshis took to the streets in Dhaka to protest an anti-Islamic film
"Egan-Jones Ratings Co. downgraded its U.S. sovereign debt rating to AA- from AA on concerns that the Fed's new round of quantitative easing, or QE3, will hurt the U.S. economy.
California unfunded pension liability is $500 billion. Also in California, the Orange County Employees Retirement System is estimated to have a $10 billion unfunded pension liability.
"In short, tax increases appear to have a very large, sustained, and highly significant negative impact on output." Christina D. Romer, President Obama's first Chair of his Council of Economic Advisers. Romer resigned less than two months after publishing the paper. Forbes goes on to say that "In his 2013 budget, President Obama proposes $103 billion in 2013 tax increases, including $83 billion of higher income taxes on those who make more than $250,000 a year, or about 0.65% of GDP. Using the Romer baseline estimate, that would reduce real GDP by 2 percentage points over the next 10 quarters. Based on the general relationship between economic growth and unemployment, such a fall in output implies a loss of more than 800,000 jobs."
Economic freedom in the world is near an all-time high, but in the U.S. it's been on the wane, according to the Fraser Institute. BARRONS
EuroLand Bond Yields fade as the printing presses cranking out Euro's roar.
· Greek 10-year yields 19.26 % down from 24.41% a few weeks ago
· Italy 10-year (gross) bond yield - 5.07% off cycle highs of 7.29% on 11-24.
· Spanish 10-year (generic) bond yield - 5.68%. 6-Weeks ago yields ticked cycle highs of 7.41%.
The S&P 500 (SPX) closed Friday at 1460.15
Key channel / trendline support is at 1396
Short term price support is at (SPX) 1450. Then at 1429
Decent multi-point price support at 1397
50-day moving average support is at 1404
Longer out term price support is at 1325 /1320/1313/ 1309
The 200-day moving average support is at (SPX) 1354
Stronger 'Price' support in the (SPX) is at the June 4th lows of 1266 and will be the battleground zone if the market tests its lows.
Friday's key indicators and metrics:
Cycle highs or lows are in red
· McClellan Oscillator is in Neutral at plus 12
· CBOE Put / Call Volume Ratio - 0.8
· VIX - 13.98
· US Dollar Index - 79.398
· Silver (COMEX) 34.638
· Aussie Dollar - 1.037
· Canadian Dollar - 1.0216
· Euro - 1.3001
· Gold (COMEX) $1778.0
· 3-month $ LIBOR at 0.367
· Copper - 3.7890
· Crude oil (NYMEX) $92.89
· Brent Crude $109.28
· Lumber (NASDAQ:CME) 278.0
· The Treasury 10-year yield 1.73%
· The 30-year Treasury is at 2.92%
· Swiss Franc - 1.0740
· Natural Gas (Globex) 2.885
· Japanese Yen 12806
This week's Bullish Investor Sentiment.
Overall Bullishness is close to or at cycle highs as the market is in major breakout rally.
(High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.)
· The American Association of Individual Investors [AAII] Investor Sentiment Survey of BULLISHNESS rose to 37.5% from 36.5% the prior week. It had ticked cycle lows of 22.2% on 7/23/2012 and that was the lowest percentile since August 2010.
· The Market Vane (Market Letter Survey) was Cycle highs of 69%.
· Consensus Index BULLISH ticked Cycle highs @ 73%
· The AAII Investor Survey of BEARISHNESS added a bit to 33.8 from 33.0% the prior week. 3-months ago it was 25.9. 6-weeks ago it was 46%. On August 4th 2011 it posted cycle highs of 49.9% in Bearishness.
· The Citigroup "Panic / Euphoria" Model held at plus 0.13, that's off from cycle highs of plus 0.33 four - weeks ago. At the end of June it ticked cycle lows of minus 0.31in the Panic mode. It's still registering in the Neutral zone, but near the highest level in over a year.
The BARRON's Confidence Index posted a 66.3 down from 67.2. Cycle lows of 64.7 were 7-weeks ago. One-year ago it was 67.9.
The Confidence Index is the premier measure of how the bond markets trillions (total global is around $91 trillion and USA is 39% of that) are allocated: (The bond market is twice the size of the stock market.)
The Index is the High-grade bond index divided by intermediate-grade index. A decline in latter vs. former - generally indicates rising confidence, pointing to higher stocks.