Bulls Fail To Claim Records For Month End
Aided by QE and ZIRP, the-powers-that-be tried to end February with some bullish records designed to pump-up Main Street. Theoretically, if new market record highs were achieved this would then suck more money into financial products, as the WS marketing machine would be energized.
There isn’t a lot of positive news to account for any rally except for the obvious—QE and ZIRP. The Fed and Wall Street understand that given $85 billion in monthly liquidity injections (QE) and no decent returns from cash or even bonds (ZIRP), investors have little choice other than stocks. (Most of you are unlikely to buy a farm, an apartment building or major sports franchises imho).
In data, Jobless Claims declined (344K vs 360K exp & prior 362K) while the GDP report (.1% vs .5% exp & prior -.1%) shows the economy in a dead stall.
Today the rise in Chinese equities was the best in one month as stocks soared 2-3% on hopes the economy was improving as property developers and real estate prices increased. If in fact the Chinese economy were growing that would be a positive for global equity markets, especially for emerging markets dependent on exports to the country. From my view, you wouldn’t know there was much economic growth anywhere since copper (JJC) prices just aren’t responding. Their weak prices reflect weak forward demand for industrial growth.
But, that said, the Chinese government seems concerned about property speculation, a bubble and “ghost cities.” When I was last in Macau in 2005, I noted hundreds of apartment complexes with no lights at night. I queried my host and was told this was how mainland Chinese citizens stashed their savings since they couldn’t take savings out of the country. However, one should remember that Macau had special status so it was like parking money outside the mainland.
In Germany, stocks made gains on what was said to be better employment data even as the unemployment rate rose to 6.9% from 6.8%. Most gains in Germany and the eurozone were attributed more to Draghi speak, “we’re all-in to protect the euro and Eurozone,” than anything else.
U.S. stocks were led higher by the mortgage-backed sector (REM) and energy (XLE) but then lost their gains in the last few minutes of trading to finish relatively flat. This was comically attributed to symbolic votes in the senate regarding sequester plans that failed to pass.
To continue the trend this week, the dollar (UUP) was once again higher while gold (GLD) and other risk assets were weak. Commodities (DBC) were also flat with the exception of grains (JJG), which rallied as soybeans led the way higher on weak inventories and stronger exports. Bonds (TLT) were higher as well.
As far as US tech is concerned, AAPL is fast becoming a real drag given its heavy weightings in a handful of Tech ETFs like the QQQs—granted, it’s a door that
swings both ways.
Below is a weekly chart that displays just where we are as measured by DeMark sequential 1-9 counts. For us this weekly view is generally most effective of the series.
Volume was once again light this week and clearly demonstrates that this is more about distribution than buying given heavy volume sell days. Breadth per the WSJ was mixed.
The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
There’s a heavy and important slate of economic data on Friday to start
the month of March: Personal Income & Outlays, PMI Manufacturing Index,
Consumer Sentiment, ISM Mfg Index, and Construction Spending. Let’s not forget
Bernanke will be out campaigning speaking again Friday night.
Let’s see what happens.
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