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Rosenberg: Fade The Volumeless Rally As "The Market Is Completely Unprepared For 500K Claims And Sub 50 ISM"
Rosie's market commentary from today is quite colorful, taking on both Barton Biggs (why bother) and Richard Russell as inflection point contrarians (we fully expect Barton Biggs who has now generated enough commissions for his broker to kill his entire P&L for the decade, to go bearish in about two weeks in keeping with his latest standing wave oscillation from one extreme to another). Rosie discusses a topic near and dear, namely that bonds continue to not buy the equity rally, and that the market is really not only stupid and inefficient, but wrong and overshooting most of the time. The only question is for how long can it remain wrong. And courtesy of the Fed, the answer is long, long, long. Not surprisingly David ridicules the constant lack of volume to the upside, and concludes that the rally should be faded, and that "this market is completely unprepared for 500k claims and sub-50 ISM." Obviously, he expects both to occur shortly (and just in time for Shiller to say he believe the chance of a double dip is more than 50%).
MARKET COMMENT ... WE'RE ALL CHARTISTS NOW
We’re 142 trading days into the year – 52 days (37%) have seen 1% or greater moves. And the S&P 500 is now flat as a beaver’s tail on the year. I call this the meat-grinder market. Again, a huge rally into yesterday’s close – and now the S&P 500 is sitting right at the 200-day moving average. This is starting to get interesting. Again, the lack of ratification from Mr. Bond as the 10-year note yield came back and closed the day a smidgen below 3%.
Today is a critical day. The interim peaks since the April 23rd peak have been progressively lower but a three-point rally in the S&P 500 today would break that pattern:
April 23rd: 1217.3
May 12th: 1171.7
June 18th: 1117.5
July 26th: 1115.0
We should add that we are at a new post-April high in the Dow and the NYSE (the latter is not yet at the 200-day m.a.). We're not there yet on the S&P 500 or the Nasdaq (13 points off) but we are getting close. While everyone is fixated on the 200-day moving average, we add a note of caution: the S&P 500 breached that technical threshold for a good week back in April and those who dipped their toes into the risk pool got burned pretty badly (at least for the next two months).
Now Bernanke may not be the world's best forecaster – I don't know who is. But he has the deepest rolodex, more than any CEO. And when he deliberately says "unusually uncertain" to describe the economic outlook, I find it irrational to ascribe anything fundamental to this rally. I know where you are coming from but the market gets it wrong as often as it gets it right – it was wrong to forecast a recession in the fall of 1987, again in the summer of 1998 and again in the winter of 2003. It was wrong to forecast sustained growth in the summer of 2000, a recovery in the winter of 2002, an avoidance of recession in the fall of 2007 and the end of the downturn in the spring of 2008. It may be a discounting mechanism, but the stock market has a spotty record – let's remind ourselves of that.
There is no denying that the technical picture has improved. In particular, 1040 has proven to have been major support for the S&P 500. The new high list continues to grow rapidly while the new low list is fading fast. The 200-day moving average, which looked to be faltering two months ago, is back to an up-slope for all the major averages, including the transports and small caps.
At the same time, over the past two months, yield-sensitive stocks have outperformed – which makes sense in an environment of a 3% 10-year note yield and a sub-2% yield on the 5-year note. So from what I can tell, from a sheer stockpicking standpoint, is that it probably makes sense to focus longs on companies whose stock looks well supported technically and has a decent yield (3%-plus).
I think claims above 500k and ISM below 50 will be surprises for consumer cyclicals and industrials in the next few months.
To repeat, the technical picture has improved. The data have really been unimpressive even if not horrendous. And I think we have the potential for a lot of disappointments in earnings to come as the plays on "domestic demand" are in the offing.
Some things to note. First, at the lows, perma bulls like Barton Biggs turned bearish. Now at the highs, perma bears like Richard Russell appears to have turned bullish. To be sure, the market downdraft in June was never confirmed by the transports, but did they confirm the move in the industrials to recovery highs in April.
After closing at or near the daily highs for three days in a row, you know something funky is happening in that last 30 minutes of trade. Volume is still wanting and is necessary to validate the new uptrend. The market is also hugely overbought right now. Strangely, while the breakout in industrial metal prices of late would seem to offer some ratification, the fact that the 10-year T-note refuses to break above 3% suggests that there are still some investors placing bets on a deep slowdown ahead.
It's getting interesting but I'm wondering about the efficacy of maintaining a bullish stance now after a 10% rally that is possibly about to meet resistance and a rally that was devoid of volume, which is any equity market rally's vital backstop, and devoid of validation from the bond market. If this test of the 200-day m.a. fails, and I'd give it a few days since that would be prudent, I would be tempted to get more defensive – this market is completely unprepared for 500k claims and sub-50 ISM.
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But fundamentals do not matter anymore. Charts lie. All the numbers quoted are .gov or mainstream. Plus, there is a significant and massive and pervasive demand contraction ongoing.
Stay out unless you are a machine.
ORI
http://aadivaahan.wordpress.com
But there are good stocks out there. Take Intel. It has a PE of 13. Lots of cash. Pays a 3% dividend and has a blow out quarter.
If the market wants to go up, go with it. If some bad macro news comes out, sell the good ones and short.
Mojo, I don't believe those numbers anymore. What percentage of Intel's sales base is consumer products? Where is that market headed?
It's a price Vs. Value thing.
If you're in, you're gambling, more than before. But that' sjust my view.
Accounting standards? Can you say oxymoron?
Plus, who is going to time the algos?
ORI
http://aadivaahan.wordpress.com
Intel is making money in the corporate and over sea market. And you are getting a 3% dividend. Look at it as a bond which is returning a 3% yield. Would you rather hold this bond than 10 year treasury? It's just an example. There are many stocks like that out there. There are bright spots out there.
On top of that, if you think it's really that bad, then prepare to short it or what ever your target is. You can make money either up or down.
Look at it as a bond which is returning a 3% yield.
Looking at a common stock dividend as though it were a bond coupon is sheer foolishness. The kind that will eventually land you in the poorhouse.
Intel is a particularly BAD example because of the capital-intensive nature of their business. In a cyclical downturn that dividend will disappear faster than you can say "I've lost it all".
remember general electric
Some perspective - Intel is no longer a growth stock - it's been very cyclical since the dot com crash (a predictable ride between 13 and 23 or so).
Intel knows damned well that the only reason people hold their stock is for the dividend. They must return money to shareholders, because they cannot promise the growth and capital appreciation which they delivered in the 90s.
Semiconductor manufacture is enormously capital intensive - however Intel's products are unusually profitable, both in gross margin and consistency, and have been for the last twenty years.
Most of their customers are foreign. Increasingly, so is their manufacturing and R&D. Sensitivity to the US consumer is not high, and will decline further.
Although Intel needs to invest heavily in every generation of manufacturing process tech, it has a very, very large pile of "chips" on the table.
Unlike GE, it has no heavily leveraged finance arm, and has billions in cash.
My bottom line is that it seems like a fine dividend stock as dividend stocks go.
In keeping with this article, It appears INTC is on the right shoulder of a head-and-shoulders topping pattern.
I would say that the dumbest market of them all at this point is bonds. Like Marc Faber said, what is the quality of US bonds when the economy is not capable of paying its taxes ?
The key is to hold until close to maturity and then roll... be happy with the interest paid and never try to get your investment money back or the haircut will be a clean shave. In this regard it may be "better" to get a riskier asset.
Keep holding and rolling, all the while you are missing out on good gold prices.
You mean gold which lost 10% in 1 month [or so] ?
Yeah fan-fucking-tastic trade that is. Say do you work for Falcone or Paulson ?
There will be no apocalypse and gold is nothing but an asset which underperforms during deflation.
But yeah you go long. Take a second mortgage, another HELOC and go long gold ON MARGIN.
Don't be such a day trader. Buy the dips in a real bull market.
Gold is going down today and tomorrow because Andrew Mcguire said so.
Also, anyone that doesn't know that July is seasonally the worst month for gold doesn't do their research. Typical fucking moron sheeple investors....The month that Paulson should be gaining cleints (to get in on good gold share prices) is the month that he is losing the most clients.
Kinross gold, one of Paulsons biggest gold holding hit a 52 week low. TIME TO FUCKING BUY.
Agreed, but the alternative is certain annihilation of the world wide market (coming anyway, but the question is how do we delay the inevitable). Effectively, EVERYONE has a vested interest in ensuring the United States is a going concern. The rush to an alternative reserve fiat currency is not going to happen. If other countries attempt to put together any basket of commodities backing a new proposed reserve currency, we will jump back on the gold standard with our relatively superior position (despite our holdings likely being loaned out or largely fake).
There HAS to be consistent/constant fear in order to keep moving new debt. The reflation trade has been declared dead. We have but one, last flight to quality (and this is it).
You also have the issue of dwindling supply of viable alternatives for entities required to purchase AAA/statutorily mandated instruments. Banks, et al, are buying treasuries like mad... regardless of whether they get to dip their snouts in the discount trough. Where do you think the payoff of credit is going? We have a situation where these institutions are not required to report losses, but at the same time are increasing cash deposits and repayment of loans as America fortifies... the money has to go somewhere and many of them are very limited in what investments they may purchase.
Richard Russell--sell everything in May--and now bullish?
Russell also sent out an Emergency Bulletin in May (I believe) telling people to GET OUT of the markets. He said, "You will not recognize America by the end of 2010".
Who the hell knows anything anymore...
Gerald Celente said the same thing.
is it the end of 2010 yet??
Wasn't the quote from Russell that we wouldn't be able to recognize this country (America) by the end of this year?
ETA: Thanks LoneStarHog. Didn't see your post before I posted. :-)
Russell may have been a little late on that call because I don't believe I recognize America anymore.
Well said.
Age does take a toll on people. He can say whatever he wants at his age. We just don't recognize him anymore.
It doesn't need to be prepared for ANY data...the only stat that counts is that dividend yield hanging just in front the noses of all those (desperate and myopic) major market participants.
As he says, it's all about YIELD. Who cares if the outfit is bankrupt in all but name? Who cares about mass firings, layoffs and company downsizing in the name of 'profit' if the dividend isn't cut? Valuations mean diddly-squat now.
But just wait till some dividends are cut...! Then watch the plunge...
The only stat that matters is the one that they think they can pitch to their clients in order to preserve/plump their AUM.
A high test bar today will make bulls cautious, very cautious and profit taking (if anyone actually did make any profits - other than Skynet), should push this market down and on its path to its real value. Watch the action at 200MA. Some other key risk currencies are similar level as well (Cable and Aussie in particular).
http://www.desihedge.com/
Rosenberg is a joke. This market goes way higher.
You mathletes need to stop looking at useless data. It's logic. We're in a de-levered environment. There is nothing to fear.
Step right up, get your TZA, FAZ while it is cheap.
Thanks for the reminder...I DID! FAZ @ $13.42. Because this rally has faded and I think will continue to fade today till closing.
....just sitting here waiting for the world to collapse. the other day I was muttering the words, "Robert Rubin, Larry Summers, Geitner, " under my breath while I was cooking. my husband, who is supposed to be very intelligent, said to me, "who is Geitner ? " .......... this is what I'm up against. .... i'm running around stockpiling, talking about the end of life as we know it & THEY DON'T CARE ! MY OWN FAMILY IS CLUELESS & IGNORANT ! .......... I can only imagine the rest of this country. .........
Leave him and marry me. LOL
......you don't want me, i'm too old, 60. why do you think i put a photo up of my bird instead of me !!
I'll trade ya. Your hubby can have my wife instead. She does not know who Geithner is -- and doesn't cook. I'm 62 so it'll be a perfect match!
Ya'll are adorable!
Rocky, I had you pegged as a 20 something. See, this just proves my point...Once we reach 24 or so we just stay there. The body ages, but we don't.
Is that 62 in racoon years?
That would be one petrified raccoon!
lynnybee,
I hope you understand the value of your posts. Look at the discussion that resulted from it. There is more to this than charts and graphs.
OMFG you are the female me
I've been haunting ZH for nearly a year now and this appear to be pretty common based upon the comments left. One spouse pretty aware, the other side of the house in darkness.
Thankfully, my wife and kids are on board with enthusiasm. We are prepping like Mormons on meth.
"THEY DON'T CARE ! MY OWN FAMILY IS CLUELESS & IGNORANT !"
Focus on those closest to you and consider it one more way you quietly protect and care for them. There are probably other ways you protect and care that don't get recognized. All in a days work. :-)
Similar situation in my house. My wife just doesn't want to know, doesn't want to hear or understand, really just doesn't care that much. She understood what I was telling her back in 2007/2008 about the housing market bubble and banks leveraging themselves into insolvency. She also understood what I shared with her about peak oil. She even understood the ramifications of quantitative easing and what that means about the future purchasing power of dollars. But, we live in a culture that seems to be timed for weekly television episodes. We can maintain our attention and follow the plot from one week to another but if there isn't enough action and drama in the storyline we quickly lose focus. It becomes yesterday's news not because anything changed but precisely because there has been no (apparent) change.
I completely understand. It has been an uphill battle to get my own family to understand that our republic is morphing into a corporate fascist state. My husband is still in denial, wanting to go on vacation, build an add-on to our little abode and buying things we will not need to survive. The others think I'm a little loco and are wondering what I'm worried about because after all, the government is on top of things, right? It is like reasoning with a brick wall. I have decided to lay off and push for stockpiling for natural emergencies like earthquakes (something the government "approves" of) and let the chips fall where they may.
I roughly had the same experience. My wife was worried "about the pictures" she would have to leave behind if we bugged out.
I'm in the same situation. My wife not only doesn't know what is going on, she assumes (like most people) that everything will work out and return to the same, old growth and "prosperity". She thinks I'm a bit of a loon for reading blogs like ZH. She is a tenured elementary school teacher who wants to leave her job because she wants a new challenge. I keep trying to find a way to tell her "Keep your teaching job. There are no other jobs out there".
I should add she gets the entirety of her news from the MSM, so in some way I can't blame her for thinking everything will work out.
The markets will reverse their meaningless wandering higher and slam down again when it best suits the interests of those ramping it UP right now...and you dont know when or why that will be, so everyone just stop acting like you do know. When the banksters get in trouble, when Wash DC needs a panic, when Bernanke wants to print another few trillion Benniebucks, THEN you see new lows. Until then, Churn on, HTF machines, churn on!
exactly. these "markets" do whatever reaps the banksters the mostest.
how long until Rosie, like me, goes "full bullshit"?
"It's getting interesting but I'm wondering about the efficacy of maintaining a bullish stance now after a 10% rally that is possibly about to meet resistance and a rally that was devoid of volume"
Give me a break. Rosenberg may be a good economist, but he's not a good investor. He's been bearish since SPX 666. At that point his call was SPX 500. And his "bullish" call on gold is also BS; he did not start talking up gold until it reached $1100
When you consider that a cellphone is a consumer product, not a communications product, and a ton of the networking equipment is close to the consumer not the backbone, I would venture that 80% plus of Intel's sales are consumer. Lower profits and higher volatility, ebbing with less or more disposable income......sell.
Rosie is completely unprepared for the GDP report and upcoming employment report. Sub 50 ISM? Let's see how that prediction goes.
Leo, read your bullish argument/article last night. Weekly freight car loadings y/o/y? That's all you got? Would need to see how the manufacturing halt at the auto plants impacted y/o/y numbers.
GDP (first look) is a bunch of manipulated estimates. Has been revised down each look, what 3 quarters in a row? Birth/death model makes NFP a joke.
But, yes, stock market can go up in the face of a declining economy. They can manipulate the numbers. The MSM can spin the results.
Wait until we have a muni default, and/or all those laid off teachers start hitting the jobless claims numbers.
Leo,
How's your forecast for the 2010 US labor markets working out?
Hmmm, monster employment report. Where have I heard that prediction before??
When in doubt, stay out.
The truly irritating thing is that we're going to bail out the big banks again. The ridiculousness of them "making money Q2" by cutting provisions for bad debts, when there is NOTHING to suggest that those debts have improved in ability to repay or redeem, means here we'll go again. But not before they pay their senior management some more faboo bonuses for their excellent meritorious cognitive labor.
The it really hard to believe I am living in this farce. That we let it happen and will do so ag ain.
There's proof right there: Do your own DD -- period. Believe nobody -- period.
Moscoe Rules!
Where did Rosie get 500k claims and a sub-50 ISM from? He seemed like he just pulled those numbers out of hat to get the technical picture to adjust to it.
Two numbers that would be viewed by the market as confirmations of a true softening? Was that your question?
500K claims is not that inconceivable. We've been around 450-470K for months.
The advance number of actual initial claims under state programs, unadjusted, totaled 513,347 in the week ending July 10, an increase of 44,855 from the previous week.
During times of great change the established order falls apart "and all the King's horses and all the King's men can't put Humpty Dumpty back together again".
People have only 3 resources: their time, attention, and physical work. Institutions arise and expand by capturing this attention, time, and work. Then they get arrogant and think that these resources belong to them and are theirs permanently. They start abusing the people.
At some point the people wake up and move their resources out of the established order and lo and behold it collapses. Right now TPTB have kicked a lot of people out of the old order because they decided that they were too expensive. So now we have lots of unemployed people with their resources up for grabs.
The new thing doesn't happen under the eyes of the old King. It happens far from the center in some abandoned place. This suggests to me that since even the stock markets have come under the control of the old order that anything new will not come about in these markets.
So where are the new things happening? We know that the new thing will have to involve people living more simple = affordably. Their time, attention, and energy will have to be focused on creating essentials and with connecting with others in supportive ways. Business will have to be conducted on a more local and small scale basis. Cooperation will be far more important than competition because cooperative effort will have to stand in for easy money at the beginning.
So where ever this kind of thing is starting to happen is where the new economy will start developing, not in the old corporate board rooms. Any money to be made going forward will be from investing in this new activity, not on Wall Street.
So what do you see? Where do you see people shifting their attention? What needs and priorities do you see people focusing on? I would like to hear from others here about what clues and omens you all are noticing.
For myself I am pulling in to live a much smaller life. I have pretty much abandoned my yard this summer and I now recognise that I don't want to own anything. It is time for me to get out of the house and just rent.
I am also offloading "things" that represent wishful thinking: activities that I "wish I could do" or things "I wish I could have". I have allowed myself to admit that I am interested in only a few things now and that it is time to get rid of the books and art supplies that I have accumulated to support my "wish list" I am paring my life down to my current desires which are much much smaller that my old wishes. I am getting real with myself and my life.
I am wanting to focus all my energy and attention on being physically and usefully productive. I have even lost all interest in the market. Attending to it feels like a waste of my time and my money. I do want to invest but in operations that will produce useful things for people.
This means that I am looking for investment opportunities outside the established order and outside Wall Street. All of my life I have operated on the leading edge of the culture. I am not a pioneer who goes where no man has gone before. But I am one of the first adventurers who shows up to do the work of developing the new area. This tells me that my personal shift of attention away from Wall Street is a sign of a larger wave of change coming behind me.
So, I am putting out a request for new information, new signs of growth, changes in the wind. What are you seeing and hearing? What are you wanting to do differently? What are your friends doing differently? Are there any investment ideas in these clues? It might be interesting to have Zero Hedge start investigating new areas rather than just continuing to beat its chest about the problems with the old King. This ship is sinking and it is time for us smart rats to jump ship and create a new life elsewhere.
Good investing. JC Bider
JC, Visit http://www.squareandc.net
If of interest get in touch.
Just launching first product in development phase. I'm looking for a global team to cause organic change with.
All disciplines. Come live and work in India for 5 years. Fully taken care of. Live in absolute comfort, just come with fire in your belly. Be brilliant. A little mad. BE able to show that you have built something. I'll show you things that will surely drive you a little mad.
6 month target to produce an amphibious air-craft capable of a 50% improvement in cost/lb and range over current competitors.
Soon to be declared Design partner for a major new university being developed in India. Greenfield and looking to do extraordinary things with dwellings/transportation/land usage/agriculture.
Again, please visit http://squareandc.net
If you read this and know someone who might resonate, please pass it on. Awesome projects in hand, just need a few crazy aero-modelers, mechanical design geniuses, industrial design savants, box-less thinkers/doers, musicians, world citizens, teachers, linguists, healers.
12 in all.
Anyone? Anyone know anyone? Alternate energy fund managers? Hard Money investors? Rich, satisfied with life old uncle? Aunt? Grandpa? Car Company Honchos? Motorcycle Company folks? Bicycle company owner? Sporting goods Company senior executive? Six degrees.... Please help make it work.
ZH, a finder's fee for whoever comes to finally work here via ZH. Thanks.
We'll change the world, gently. Here is to a graceful, in-dust-real post-carbon world.
ORI
http://aadivaahan.wordpress.com
B R E A T H E
ok
Gliding on Hopium...
All these douchebag end of the world talking heads are going to get to eat a shit sandwich.
Would you like yours on whole wheat or rye?
LOL
Now where's that damn pickle?
Reminds me of the old saying, "Life is like a shit sandwich, the more bread you have the less shit you have to eat."
So if you have a lot of bread you can eat a lot of shit?
I know this time may be different and there are distinctions, but historically the best rallies share a common theme with the present - the market climbs a wall of worry on the back of an accomodative Fed, aided by excess capacity, slack labor markets, and an abundance of cash in cautious corporate coffers. It never "makes sense" in the early stages. Each of those secular rallies has emerged from lower levels (like the present) caused by some form of macro deleveraging, the '29 Crash, the 1987 micro crash (razor thin derivative margins and easy money conditions in Japan), the 2000 tech bubble, etc. The only question is whether the most recent global credit bubble has finally created a systemic wall that cannot be scaled even with the Fed's most ardent assistance, collapsing the entire castle in the process. The Japanese lost decade is a scary omen, but "fading the Fed" (i.e., shorting this rally as opposed to just not participating on the long side) at least historically, has not been a wealth building process.
10 year market return June 30 2000 thru June 30 2010
DOW 1.68%
NASDAQ (-5.50%)
S&P500 (-1.59%)
The past decade "has not been a wealth building process" ...
And you somehow believe the next decade will be better !?
Sorry...I would not (and did not) dare make any predictions for a ten-year period. My comment was only that shorting in the face of a concerted effort by the fed to reflate has generally not been a wealth producing process. http://www.ciovaccocapital.com/sys-tmpl/fedratecutstocks/ As I noted, this time could be different, as John Paulson could confirm (at least until he went long gold).
To show a decade's overall return is a bit misleading, since that decade includes several credit cycles. http://www.the-privateer.com/rates.html
In any case, I am interested in gaining the views of others on the subject. So, if not proprietary, please tell us where you would go (or have gone) short here, where you would place stops (if any) and how much you intend to commit to the process. This will permit us to at least anectdotally quantify real time whether it is indeed a profitable process. Thanks!
Richard Russell's daughter Betsy is gorgeous. Russell has been wrong but few as often as Biggs. He is one lucky stiff.