Sequential Buy on the DX
The following is part of Pivotal Events that was published for our subscribers March 27, 2014.
Signs Of The Times
"Subprime Auto Boom Besieged by Late-Payment Jump"
- Bloomberg, March 5
The article included that the lending boom was essentially to car buyers with "spotty" credit history. This has been running for three years and helped push overall car sales to a six-year high. Repeat six years.
Does this remind of creating bajillions of subprime mortgages for house buyers who could not afford the burden.
The rapidly developing problem is that "late-payment" numbers on car loans have accelerated to the highest levels in three years.
"As credit tightens at home, Chinese sell Hong Kong luxury real estate at discounts of up to 20 pct."
- Reuters, March 19
This shows that suddenly offside players need cash - now!
A couple of weeks ago the Chartworks highlighted the blow-off action in the biotechs (IBB), and the other day this gem was noticed:
"Anyone with a protein under a microscope and a clean suit can go public right now."
- Business Insider, March 24
"There's a huge amount of business, both industrial and financial, in both directions between the West and Russia. The further the sanctions go, the greater the pain."
- Bloomberg, March 18
Quite likely credit deterioration that started in Asia would have visited Russia and the Western Europe without the artifice of sanctions.
It is best to focus upon the dynamics influencing stock markets. In October it was the "Springboard Buy". This technical feature worked and Mother Nature provided a surge of speculation to measurable ebullience seen only at cyclical peaks. Earlier in the year we looked to bull market durations and the examples that ran out of a severe crash ran for 249 months. These peaked in 1937 and in 2007.
Ross also noted the 1987 example that powered on for 262 months. There have been longer bull markets, but anything in the order of five years begins to show conflict. One is that the higher it goes the more brilliant the participants become. Opposing this are the usual strains in the credit markets. As some sort of insurance scheme the Fed was created to prevent financial dislocations that "cause" bear markets and business recessions. In looking at all the bulls, panics and bear markets since 1914, the Fed has not lived up to its billing. Actually in the 1960s it was corrupted to provide unlimited funding to another experiment in unlimited government.
So here we are. The bull has run 263 months to the S&P high of 1884 on March 21st. Peak cyclical enthusiasms have been accomplished and we have had a target of around 1885.
It could go further, but as it does the S&P becomes more precarious. Hot action in Nasdaq stocks has been outstanding, which the ChartWorks has covered. Within this some 46 of the 100 companies in the NDX have declined since the first of the year. Deteriorating internals for the hot senior index is not good.
The main threat to any mature bull market has always been credit problems. This cycle's retreat started in Asia and as of this week a couple of proxies for spreads have broken down. Tuesday's "Special" had the chart linking spreads and the S&P.
As noted last week, the US dollar index has completed a "Sequential Buy" pattern. This was at the support level at 79. The initial bounce made it to 80.5 where there is some resistance.
Rising through the next level at 81.5 will set the uptrend.
Is there a fundamental reason that would argue for a firming dollar?
In order to depreciate, the Feds needs soaring asset prices and speculators to get the money out the door. Falling asset prices have overwhelmed the Fed's ability to print. And no matter how big a door it's been using when the crunch comes margin clerks trump central bankers - every time.
The Canadian dollar has been dismal and the response to the commodity bounce was hopeless. Perhaps the noise about Quebec separation has been a negative, but also it is within weak seasonal period.
On the latter, a week and bit of stability would be followed by a tradable rally. Technically, in February the Weekly RSI became the most oversold since 2008. This week's decline is to only 30 and in rising is providing positive divergence.
Recent rally attempts by the C$ were turned back by the declining 50-Day ma. The low for the move was set at 89.65 last week. It has bounced to 89.81 and looks like it could break above it.
We are calling it a double bottom at the 89 level and through 90.5 would turn the action up. In which case, the 94 level is possible.
Canadian don't need the cheat of a "steenking" dollar to be competitive.
We have enjoyed the commodity rally as well as the correction.
Crude oil rallied from 91 to 105.22 at the first of the month. The decline made it to 97.37 last week. Last week's page noted that was hanging out at the support level of 98.
Seasonal moves for crude have been running a little ahead of usual. Crude could be in a rising mode over the next six weeks.
Over in the agriculturals (GKX), the rally made it to 408 and checked back to 402 yesterday. It has popped to 407 and this has put the Weekly RSI up to 71.
This is slightly higher than accomplished at the end of the extreme drought rally in 2012. What's more, the swing in the RSI from 27 in January to 71 now is huge and fast. A tradable correction is possible.
Base metals (GYX) were early to rally and early to top. Reaching 362 in mid-January it has set a trend of lower-highs and lower-lows. The decline reached 282 last week and there has been some recovery.
Our concerns have been mounting difficulties in Asia and unusual Chinese "investment" positions. This extended copper's long bear market to a low of 2.88. Which drove the Weekly RSI down to 29. This was noted last week and we thought a relief rally was possible.
The GYX could recover and test the 340 level.
Coffee was the big high-flyer with a run from 1.01 to 2.10. The setback has been to 1.66 last week. On JO, the high was 42 and Ross had a target of "around 30". So far the decline has been to 33.44 and it's recovered to 35.60. The overall correction has further to go.
Excesses in global credit markets have been immense and what seems to be a cyclical contraction has started. It is not yet severe, but the threat is there.
This and the probability of a firming dollar are a developing threat to most commodities.
Spanish Bonds: Weekly Capitulation?
- The "Capitulation" model clicks in when declines have become severe enough to end.
- It hopes to avoid positioning "falling knives" too early.
- The Spanish 10-Year is a proxy for the Euro bond market.
- If the yield stays down through Friday, the Weekly Capitulation will register.
- We will take it as the big "Sell" signal.
S&P: Negative Divergence
- Divergences seen at previous peaks are evident.
- The CMF (top panel) indicates money flows.
- The RSI (bottom panel) is a measure of momentum.
Link to March 28 Bob Hoye interview on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2014/03/bonds-losing-their-lustre/