Archive for September, 2009

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Extreme Peril In The Stock Market

Thursday, September 17th, 2009

Please note – some might find this post disturbing

In this post I will summarize my thoughts on the markets, particularly the stock market.  As has been the case since the Economic Crisis began, any stock market weakness will most likely be mirrored in a variety of other markets as well, such as commodities, credit, etc.

As seen in the previous five posts, from a Technical Analysis perspective I believe there is cause for considerable concern.  As those who are familiar with Technical Analysis know, rising prices aren’t necessarily strongly indicative of market health.  That is where we are now – strongly rising stock prices but deteriorating underlying technical conditions.  There are many more charts that I could post along those lines.  I will likely post more charts on an intermittent basis.

As I believe there is extreme peril in the stock market, the logical question would be how such a condition would be resolved.   I believe that a future stock market crash is certain, for a variety of reasons – one being that the fundamental value of the stock market is considerably less than that indicated by the price of the S&P500.    Another is that there are many technical indicators that seem to indicate a future crash. 

Timing of a crash is always difficult to gauge; however, for a variety of reasons I believe that a stock market crash is likely now through October. 

Severe economic weakness is often preceded by a stock market crash, and as I stated on my September 1 blog post, found here:

http://www.economicgreenfield.com/2009/09/01/are-we-going-into-a-depression/

“I do believe we are heading into what will inarguably be classified as a Depression.”  One should note that is a condition that I certainly do not want to happen; however, that is the conclusion drawn from my analysis of our economic situation.   Hopefully I am wrong; however, my analysis is well-grounded.  It should be noted that no one that I am aware of has even mentioned the possibility of a stock market crash. 

 

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SPX at 1071.63 as this post is written

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Peril In The Markets? Part V

Wednesday, September 16th, 2009

For this last post of this blog series, I will comment on the VIX.

As seen below, if one looks casually at the VIX daily chart, there doesn’t seem to be much to be concerned about:

VIX daily 1-year chart

VIX daily 1-year chart

Chart Courtesy of StockCharts.com

 

However, I would like to make a couple of observations.  First, as one can see, the rate of decline appears to be slowing.  Second, as one can see on the 10-year chart below, the level of 20 (as seen by the blue horizontal line) on the VIX seems to be a good demarcation of stress.  Not only is the VIX still above 20, but it has been above that level continuously since early September of last year.  I think this is signficant:

VIX 10-year daily chart

VIX 10-year daily chart

Chart Courtesy of StockCharts.com

 

Tommorrow I will summarize my thoughts on this series of blog posts, and indicate where I believe we are heading in the markets.  As I stated in the first post of this blog series, I believe we are at a very critical juncture here in the markets.

 

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SPX at 1055.65 as this post is written

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Peril In The Markets? Part IV

Tuesday, September 15th, 2009

The price action in the S&P500 since the March low at ~666 has struck me as being very “impulsive.”  This is certainly a cause for concern.  Also, there certainly has not been any significant “wall of worry” that one would expect given the fundamentals.

The charts seen in this post are from Maurice Walker, http://thechartpatterntrader.com.  First, a daily chart of the S&P500.  As seen in this chart, the 1050 area is certainly one of great significance from a chart pattern perspective.  Don’t ask where the large rising wedge would project to on the downside, if it indeed proves a legitimate bearish pattern.  Also,  the large broadening pattern is notable, as is the smaller one, as seen by the dotted line.  Also, of immediate concern is the potential bear flag pattern of the last few days:   

S&P500 1-Year Daily Chart

S&P500 1-Year Daily Chart

chart provided by http://thechartpatterntrader.com

Chart Courtesy of StockCharts.com

 

Also, here is the Weekly chart.  I don’t have much to comment on with regard to this chart, other than to say it gives a good longer-term perspective:

S&P500 Weekly Chart

S&P500 Weekly Chart

chart provided by http://thechartpatterntrader.com

Chart Courtesy of StockCharts.com

 

Lastly, here is a weekly chart of the QQQQ.  Again, the same rising wedge pattern seen in the SPX…additionally, the price is right at the downtrend line from the all-time highs, so this is a very important juncture:

QQQQ Weekly

QQQQ Weekly

chart provided by http://thechartpatterntrader.com

Chart Courtesy of StockCharts.com

 

Now onto Part V…

 

SPX at 1049.34 as this post is written

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Peril In The Markets? Part III

Monday, September 14th, 2009

Moving on to the stock market…  The first chart is the NYSE Summation Index.  I have put in the S&P500 as an overlay in green, with the NYSE Summation Index’s MACD at the bottom of the chart.  What I find interesting here is the negative MACD divergence as indicated on the chart, in blue:

NYSE Summation Index

NYSE Summation Index

Chart Courtesy of StockCharts.com

 

Next, a view of the S&P500 daily chart.  I have included the 50 and 200 day moving averages, in blue and red respectively.  Also, on the bottom of the chart I have included the MACD.  If one looks at this chart casually, as presented there doesn’t seem to be any problems, with the possible exception of the MACD.  Otherwise, it seems to be a strong, steady rally…one that seems to “fit” with the economic recovery scenario that almost all economists and other forecasters are predicting (these forecasts are extensively documented on this blog, and can be found under the “Economic Forecasts” Category listed on the right side of the home page).

However, as I will explain in the next post, upon closer examination, the S&P500′s price action may be far more troubling than it casually appears…

S&P500 Daily 1-Year Chart

S&P500 Daily 1-Year Chart

Chart Courtesy of StockCharts.com

 

Now on to Part IV…

 

SPX at 1042.73 as this post is written…

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Peril In The Markets? Part II

Monday, September 14th, 2009

I have included two charts of the Ten-Year Treasury yields below – one daily and one monthly.  The monthly is provided for a longer-term perspective.

I would like to address the daily chart.  It seems odd that in an environment in which

  1. inflation is (purportedly) a growing concern
  2. the economy is supposedly recovering faster than anticipated
  3. Treasury debt auctions have been materially increasing in size

that since roughly early June, the Ten-Year Treasury yield has been decreasing:

EconomicGreenfield TNX Daily 9-14-09

Ten-Year Treasury Yield Daily 1-Year Chart

Chart Courtesy of StockCharts.com

EconomicGreenfield TNX Monthly 9-14-09

Ten-Year Treasury Yield Monthly Chart

Chart Courtesy of StockCharts.com

Additionally, is it not odd, on an “all things considered” basis, that the Japanese Yen is rising at what appears to be an increasing rate?  This rise commenced in mid-2007, as seen below:

Yen Daily

Yen Daily

Chart Courtesy of StockCharts.com

Now on to Part III…

SPX at 1042.73 as this post is written

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Peril In The Markets? Part I

Sunday, September 13th, 2009

The next few posts will contain some of my thoughts on the markets from a Technical Analysis perspective.   Typically I don’t comment about my observations from a technical perspective.  However, I believe we are at a very critical juncture here in the markets.   I am not aware of anyone discussing imminent peril in the markets right now, which is interesting in context of what I am seeing both from a Technical Analysis perspective, as well as a fundamental one. 

I would like to make a couple of disclaimers before beginning.  First,  an extensive overview of all of my Technical Analysis observations would be very lengthy, and it would also infringe upon some facets I consider to be proprietary.  As such, I will limit my observations, but I think most people will still get a clear overview of my thoughts.  Second, I am aware that many people don’t believe in Technical Analysis – which is fine with me.  Even though I use Technical Analysis extensively, I will readily admit it is not infallible.

I would like to begin by posting some 9-11-09 commentary from www.sentimenTrader.com that I found interesting.  In and among itself, I don’t find this 5-day Up Issues Ratio to be conclusive, but I do find it notable when viewed in conjunction with the other charts I will post.  Below is the commentary:

_____

Most notable is the 5-day average of the Up Issues Ratio, which moved to an astounding figure of 76%.  This means that over the past week, on average 3 out of every 4 issues on the NYSE closed in positive territory.  That’s the 2nd-highest reading in 22 years (the highest during that time was on January 6th of this year, the red dot on the chart below).

 

Click chart for larger view

 

To put this into perspective, out of more than 17,000 trading days since 1940, fewer than 16 of them recorded a reading this extreme.

 

What’s even more unusual is that this has occurred so long after the market bottomed.  It’s not at all unusual to see huge breadth thrusts coming out of a major oversold condition (something we discussed extensively this spring), but it’s terribly unusual to see it six months after a low.

 

________

 

Now on to Part II…

 

 

SPX at 1042.73 as this post is written

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Political Ideologies And Economics

Friday, September 11th, 2009

I’ve found it interesting that economic analysis is being categorized as coming from different political sources.  For instance, it is often said that Ben Bernanke was appointed by a Republican, Paul Krugman is a “liberal economist,” etc.

This type of classification was also seen in President Obama’s speech on Wednesday, when he said “…an idea which has the support of Democratic and Republican experts.”

The examples are many.  What I find disconcerting about them is that they seem to imply that there are multiple sets of economic realities, determined by the differing political ideologies.  In a way, kind of like different “flavors” among which one can choose.

It is important to realize that there is only one correct economic interpretation of a given situation. 

SPX at 1046.86 as this post is written 

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An Interesting Chart On Job Losses, Revisited

Thursday, September 10th, 2009

Here is an updated chart from chartoftheday.com that I have shown and discussed previously, in my July 7 post:

Chart of the Day Nonfarm Payrolls 9-4-09

http://www.chartoftheday.com/20090904.htm?T

There are other charts similar to this, from other sources…however, I find this chart particularly interesting as it incorporates the long-term averages of two other periods. 

As I wrote in my July 7 post:

“As one can see, the current degree of job losses is rather atypical.

I would also like to highlight another issue as well. From a historical perspective, this (purported) recession, that the NBER has classified as having started in December 2007, is getting “long in the tooth” from a historical perspective. The following blog post does a good job of summarizing how long recessions typically last:

http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html

As one can see, from a historical standpoint the severity of the job losses, as well as the length of this (purported) recession are atypical. Both have persevered in the face of very large amounts of intervention, including stimulus efforts.

As I have written about previously, the above is yet more evidence that we may well be in a “new (economic) environment” – with the associated implications…”

SPX at 1031.85 as this post is written

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Homeless Children

Wednesday, September 9th, 2009

I ran across this story about homeless children in the New York Times:

http://www.nytimes.com/2009/09/06/education/06homeless.html

As I discussed in my September 3 post, I think it is important to have stories and statistics concerning poverty and misfortune published on a more frequent basis.  While they are certainly disheartening, it is far better to have awareness of the trends and circumstances regarding poverty and related issues than to be ignorant of them, and pretend they don’t exist.

It is important to be aware of (and effectively act upon) the societal impact of this period of economic weakness, and homeless children is but one example. 

SPX at 1029.35 as this post is written  
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Is Deflation A Benefit?

Tuesday, September 8th, 2009

Lately I have seen a few articles that have openly stated that deflation would be a “positive” for individuals.  There are various reasons given for this conclusion.

One of the reasons that has been given is that deflation would lower the price of goods, and thereby increase purchasing power.

My thought on the matter is that the overall topic of deflation and its effects is a complex one.  Adding to the complexity is the definition of deflation.  Most people define deflation in terms of CPI, but of course there are many different ways of defining the concept.

As to whether the purported “benefits” of deflation would happen, especially the increase in purchasing power, is difficult to answer as it relies on many different factors.  However, I do think that given today’s economic environment, it would be difficult to draw the conclusion that deflation would be a net positive.  Sure, if deflation (as defined in terms of CPI) were to occur, there would be some benefits, such as the aforementioned (theoretical) increase in purchasing power.  However, there would likely be significant other negative factors that could, and probably would, overwhelm whatever benefit the increase in purchasing power would have.

SPX at 1016.4 as this post is written

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