Category Archives: charts

Global stock indexes running on fumes

Posted on
6

When I’m looking at larger trends I like to visit the Bloomberg global stock market pages, rather than stare at the Dow all the time. To that end, here’s a tour of a few indexes from outside the US.

The German DAX always looks like the S&P 500. 5-year view:

Source: Bloomberg, for all charts.

Brazil’s Bovespa, 5-year view. Looks like a huge double-top. Note, the February decline busted the uptrend, and there have been no new highs since January:

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Madrid’s IBEX 35 has been struggling:

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The Athen’s stock exchange is even weaker of course:

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Here’s the Russian Trading System index, possibly stalling out at a typical retracement level for a post-crash bounce:

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The Swedes are feeling frisky, with a recent pattern that looks like the high-flying secondaries in the US:

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Moving east, we see that Chinese stocks topped back in November:

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The Nikkei’s bounce has been pretty weak relative to most others, and its ascent has been shallow and wobbly since last June:

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Nothing looks particularly bullish about the Australian stock market. Its top so far remains back in January, and it’s only barely higher than last October. What will happen when their real estate bubble pops?

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Here’s India’s Nifty Fifty, back near peak bubble levels and asking for another wallop. Not much reward for a whole lot of risk here since October.

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The general impression here is that these markets have simply made giant bear market rallies as part of a de-risking process from the euphoria of 2005-2007. There is no fundamental value in stocks at these prices (the S&P 500 is yielding under 2%, and that’s among the better returns out there), and if I am gauging mood correctly we are not beginning another great bubble but still deflating the last one.

During the winter of 2008-2009 a lot of these indexes formed solid, tradeable bottoms that were tested repeatedly (look at 2500 above in the Nifty for instance) or outright divergences (see the Bovespa). This was a strong clue that we were firming up for a rally to correct the whole decline, despite the US dipping to a deep new low in March. Well, we have pretty strong resistance levels and divergences since fall in many of these indexes, perhaps warning us not to take the highs in the Nasdaq and Russell 2000 too seriously. After all, there is no more speculative market than China, and it’s been very weak for almost six months. Even the crazy Bovespa, though back at nosebleed levels, has not made any headway since December. Greece has already crashed again, and Spain is thinking about it.

A year ago, there was a wonderful technical case for being bullish. That’s now completely gone, and in my opinion we now have nearly as strong a case for being bearish. These markets are more overvalued, more overbought and technically weaker (broken up-trends, waning momentum ) than at any point since late 2007. It is astonishing that they have rebounded as far as they have, but that does not mean that they will continue – given the character of the advances since last summer, these heights only provide more potential energy for the next decline.

A long-term glance at modern bubbles.

Posted on
3

I’m attending a convention from now through Wednesday, so expect a lot less activity here than has been the norm lately.

Regarding the markets, it is still my strong belief that we are in the process of making a top to last for many years, on a weekly as well as yearly and even decadal scale, since the prices of financial assets prices are still stretched far above levels that could be justified by expected returns. History is not kind to buyers of stock markets yielding 2% or real estate yielding a gross of 5%.

Society used to go through these episodes of financial mania briefly and locally. The South Seas bubble in England lasted a couple of years:

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Close-up of 1720:


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The earlier tulip affair in the Netherlands started in the fall and was over by spring:

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In modern times, perhaps due to the ease of access that technology has brought to the markets and the emergence of a large middle class (though actually those explanations sound like feeble professorial BS), or possibly because of longer human lifespans (this I find more probable, as people need to collectively forget past experience in order to repeat it), we have the phenomenon of giant, recurring financial bubbles to accompany the credit/Kondratieff cycle.

One also has to note that the first such modern super-bubble began just a decade after the founding of a highly inflationary central bank, and that there has been no hard money nor hard-nosed policy since soon thereafter. After all, inflation is the expansion of money and credit, which always begets bubbles that are necessarily followed by crashes. These all-encompassing bubbles in everything are not healthy — they misdirect assets, squander wealth and shorten the time preference, which is no small thing. The young and already rotting cities of 20th-century-built North America are tawdry in comparison to those of Europe constructed in an age when real wealth was being accumulated at a blazing pace (yet inflation was non-existent or negative). People looked and planned further ahead, and built for yield and posterity, not to flip.

Here is a 200 year view of stocks priced in gold (DJIA for the last 100 years — approximation prior):

Marketoracle.co.uk

Isn’t that an interesting pattern? Looks like we’ve been in a huge megaphone since about the time of the Great War. The target for this leg is a Dow:Gold ratio of about 0.75. Dow 600, gold $800? Dow 11,000, gold $260 would have seemed pretty crazy in 1980, wouldn’t it?

SPX 1131: Quite a line

Posted on
2

Prophet.net

SPX has now retraced through it’s breakaway area from January. This is a common stopping point for countertrend rallies — basically the area of fastest decline when the crowd had its moment of recognition.

Of course, hourly RSI is still strong, with higher troughs during successive bottoms.

The power of technical analysis. (repost from 3.3.10)

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Reply

(First published 3.3.10, 1:27PM EST)

I’ve noticed lately how well the 60-min RSI (relative strength index — a measure of oomph in price movement) has been doing, so today I decided to quantify it. The result is simply spectacular, even with a mechanical buy/sell decision that always had you in the market either long or short.

Here is a 60-day chart of the Dow, by 60-min bar. The circles are negative RSI crosses (red arrows on the bottom) and the boxes are positive crosses (green arrows). The numbers are the Dow points one might achieve by riding Dow futures from the previous signal using the signals alone, with no stop-losses. Additional signals do not add to the position, and the trade is reversed on the next opposing signal.

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I tried to be conservative with those point totals (not buying or selling top or bottom tick), and some of those moves may have been missed due to opening gaps (where the price has already moved so far by the time of the opening bell), but you get the idea. It comes out to 1425 Dow points, even having been short for the whole 500 point drop in late January, which a stop-loss could have prevented. A single mini-dow futures contract, symbol YM, requires a margin of $6825 and is worth $5 per Dow point.

Now, this is hardly a perfect reflection of actual trading, but just mechanically trading a simple signal is infinitely superior to trying to outguess the crowd based on mumbo-jumbo like the Greek situation, Barney Frank, Obama this or that, oil prices, GDP, consumer data, or any other nonsense.

Now, I don’t have to tell explain any further why I think the market will probably fall by early next week.

Long term Russell and Nasdaq charts

Posted on
2

These two have the furthest to fall, and are really still in the process of making an historic secular bull market top.

The Russell looks like it’s forming a giant head and shoulders:

Prophet.net

See those RSI trends on the bottom? This is a market that’s running out of steam. We know from mutual fund reports that managers are already “all in” again as of January, and as Richard Russell says, it takes buying to put stocks up, but they can fall under their own weight.

And the NASDAQ 100 is back at 1999 or 2007 levels! These indexes, like Chinese and Indian stocks, show that the world still has an astounding appetite for risk in the face of depressionary business conditions. It was one thing to pay 100 times earnings when the credit expansion was still going and almost nobody knew how the story ended, but now that it is plainly over, what are people thinking?

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Russell 2000 yield: 1.2%

Nasdaq 100 yield: 0.49%

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Stocks in the Nasdaq 100 with zero dividends:
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Adobe Systems
Amazon
Amgen
Apollo Group
Apple
Autodesk
Baidu
Bed Bath & Beyond
Biogen Idec
BMC Software
Celgene
Cephalon
Cerner
Check Point Software
Cisco Systems
Citrix Systems
Cognizant Technology
Dell
DirecTV Group
Dish Network
eBay
Electronic Arts
Express Scripts
First Solar
Fiserv
Flextronics International
FLIR Systems
Foster Wheeler
Genzyme
Gilead Sciences
Google
Henry Schein
Hologic
Illumina
Intuit
Intuitive Surgical
Lam Research
Liberty Interactive Series A
Life Technologies
Logitech International
Marvell Technology
Mylan
NetApp
NII Holdings
NVIDIA
O’Reilly Automotive
Patterson Companies
Priceline
Qiagen
Research In Motion
SanDisk
Seagate Technology
Sears Holdings
Starbucks
Stericycle
Symantec
Urban Outfitters
Verisign
Vertex Pharmaceuticals
Warner Chilcott
Yahoo
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After the last year’s action, it should be abundantly clear that fundamentals do not drive stocks, and they only offer resistance and support at the most extreme heights and bottoms. Herding behavior, animal spirits, fear and greed are what make the tickers tick.
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That said, we are now entering a long phase of value restoration. By the end, people will talk about steady cash flow and yield again, as they did in 1982 and 1942. It will take a lot more than the above to lure them in, and since there are no more miracle cures for the numerator in the yield equation, the denominator will have to come down to earth.

Russell 2000

Posted on
1

The Russell 2000 rocketed up this morning, just when it looked like it might roll over:

Prophet.net

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With no confirmation from the Dow and unimpressive short-term internals, plus a stubbornly strong dollar and bid on bonds, I’m not too concerned here.

Earthquake in Chile spooks the copper market

Posted on
6

Reports indicate copper mines and ports are in good shape. The futures market seems to be overreacting.

Copper futures just opened an hour ago with a 6% pop from Friday’s close, up to just under $3.50 per pound. Traders are concerned about a supply pinch, since Chile produces 36% of the world’s copper. Bloomberg reports that four mines representing 16% of the country’s supply have been at least somewhat impaired:

Santiago-based Codelco, the world’s biggest copper producer, is restarting operations at its El Teniente mine after output was halted by the quake, which also closed its Andina mine. The two projects produce about 600,000 tons of copper. London-based Anglo American Plc said Feb. 28 power had been “partially restored” to its Los Bronces and El Soldado mines in Chile, which produce a combined 280,000 tons a year. The two mines stopped output on Feb. 27.

The mines were closed because of power outages, the two companies said. A rockfall also caused damage to a slurry duct at the Andina mine, Codelco said.

Codelco said the quake didn’t cause any significant damage to installations at El Teniente and it may open its Andina mine “in the coming hours.”

Power to the two Anglo American mines was “partially restored,” spokesman Pranill Ramchander said in e-mailed comments that didn’t give further details.

Ports Closed

Chile’s earthquake also severed the country’s main highway and destroyed bridges and apartment buildings.

The central Chilean ports of San Antonio and Valparaiso remain closed after the earthquake, TVN reported, without saying where it got the information.

Expanding copper inventories provide a cushion for supply disruptions, said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.

“The exchange stocks worldwide are still very high and the market was in oversupply before the earthquake,” he said. Prices may still rise $200 a ton as traders switch focus from demand to “supply risks,” he said.

Also see this report from Reuters with much more detailed info on particular ports and mines.

It sounds like the miners have things under control and that the market is probably overreacting. This is Chile — they can handle earthquakes. The market isn’t going to be short of copper. It seems like we’re talking about 5% of world supply being down temporarily.

Demand is slack, and London warehouses are chocked full of the stuff (as are those in China), with the equivalent of almost a year’s worth of Codelco’s production:

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Technically, the market looks weak, and a blip like this is probably not going to jump-start the bull unless the Chilean situation is much worse than it appears:

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I view this as an opportunity, and I have taken a short position tonight.

(UPDATE): Codelco says it will meet its delivery contracts

Smackdown

Posted on
1

This would be a pretty good way for a 3rd wave decline to start:

Prophet.net

See how the 30-min RSI called both the ramp off Monday’s low and the turn down yesterday? We’ve got a nice channel line break, too, and RSI has plenty of room to run today.

The Russell looks about done

Posted on
3

As an index of 2000 stocks, as goes the Russell, so goes the whole market:

Prophet.net

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Allow for a few days of chop up here and slight new highs, but it would be very pretty if the Russell never saw 630 again after this week. If you want a strong sell signal, wait for a twice or thrice tested top to form, for daily RSI to turn down, and for daily MACD to cross the zero line (red arrow).