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Bulls Get Their Wish

David Fry's picture




 

Even with the late rally Thursday, stocks were still short-term oversold per the McClellan Oscillator, making another run higher more likely. The employment report provided the energy bulls needed since the jobs reading came in nearly as expected at 175K vs 167K expected, and prior 166K. The unemployment rate rose a notch to 7.6% vs 7.5% expected, and prior 7.5%. All in all,  it made for a Goldilocks reading, meaning it was weak enough to permit more Fed QE and not so weak as to cause a recession. It would just permit sub-par economic growth with more QE.

Late in the day the Consumer Credit report was issued and signaled expansion at $11 billion, but missed expectations which was $14 billion; prior Consumer Credit was $8.4 billion. The details are that 94% of this credit expansion was on Student and Auto loans with much of the latter in subprime auto loans. For the most part, auto companies are self-financing.

HFT algos don’t look too much under the hood and merely trade the headlines. But from our view, the still low employment participation rate (63.4% of the working population is employed, source BLS) is the only reading allowing the unemployment rate to fall.

6-7-2013 5-56-07 PM BLS

Therefore, as the population grows and participation rated declines the percent of unemployment since 2008 is really over 11.3%. (Hat tip, Zero Hedge)

6-7-2013 5-56-42 PM ZH SMALL

The following chart also from the BLS demonstrates the long term picture of unemployment going back 60 years.

6-7-2013 5-57-16 PM US MEAN

Another uncomfortable fact for the efficacy of QE are the following facts. Since QE3 was launched last September, total bank reserves have grown by $244.1 billion and excess reserves by $239.4 billion – meaning that 99% of the funds remain idle. So no lending or investment is taking place as banks just take Fed liquidly in and simply earn the overnight interest rate. So, doing the same thing over and over again doesn't do the job of curing unemployment and growing the economy—just the illusion of it.

Main Street sees the stock market doing well which should stimulate more confidence if only people don’t look at the details of conditions.

Stocks rallied sharply out of the gate as headline data suggested more QE, which frankly is all markets have going for it beyond stock buybacks and reduced float.

The most oversold sectors experienced a rally and short squeeze while the overbought sectors were sold. Equity sectors leading markets higher included the major indexes which managed to close the volatile week green (These +/- 200 point days for the DJIA are a bit much even for the pros). Other oversold sectors in the rally included financials (XLF), consumer discretionary (XLY), energy (XLE), and tech (XLK). Still doing poorly, or at least not in the bullish flow, was India (EPI), Asia Ex-Japan (AAXJ), Emerging Markets (EEM), Australia (EWA) and China (FXI). Dividend areas were mixed with energy-related (AMLP) ETFs doing well, while Emerging Market dividend ETFs (DEM) were weaker.

The dollar (UUP) rallied slightly while gold (GLD) was hit hard once again as risk-off assets were shunned. Previously rising credit spreads narrowed as Treasury’s (TLT) fell and High Yield (HYG) outperformed. Commodity tracking ETF (DBC) was a little higher given its high energy weighting as crude oil (USO) rallied. Meanwhile, copper (JJC) continues to underperform which is generally taken as a poor sign of economic growth.

We’re still only 25% invested with a couple of dividend plays and now just one short position using FXP (ProShares 2X Short China). 

Volume was above average and breadth per the WSJ was quite positive as short-term oversold conditions evaporate. (See NYMO chart)

6-7-2013 5-58-58 PM DIARY

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NYMO

NYMO

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.

NYSI

NYSI

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.

VIX

VIX

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.

SPY 5 MINUTE

SPY 5 MINUTE

SPY DAILY

SPY DAILY

.SPX WEEKLY

.SPX WEEKLY

 

INDU WEEKLY

INDU WEEKLY

 

RUT WEEKLY

RUT WEEKLY

 

QQQ WEEKLY

QQQ WEEKLY

 

XLF WEEKLY

XLF WEEKLY

 

XLY WEEKLY

XLY WEEKLY

 

XLI WEEKLY

XLI WEEKLY

 

IYT WEEKLY

IYT WEEKLY

 

IYR WEEKLY

IYR WEEKLY

 

ITB WEEKLY

ITB WEEKLY

 

AMLP WEEKLY

AMLP WEEKLY

 

DEM WEEKLY

DEM WEEKLY

 

IEF WEEKLY

IEF WEEKLY

 

HYG WEEKLY

HYG WEEKLY

 

UUP WEEKLY

UUP WEEKLY

 

FXE WEEKLY

FXE WEEKLY

 

FXY WEEKLY

FXY WEEKLY

 

FXA WEEKLY

FXA WEEKLY

 

GLD WEEKLY

GLD WEEKLY

 

GDX WEEKLY

GDX WEEKLY

 

SLV WEEKLY

SLV WEEKLY

 

JJC WEEKLY

JJC WEEKLY

 

DBC WEEKLY

DBC WEEKLY

 

USO WEEKLY

USO WEEKLY

 

XOP WEEKLY

XOP WEEKLY

 

DBA WEEKLY

DBA WEEKLY

 

EFA WEEKLY

EFA WEEKLY

 

EZU WEEKLY

EZU WEEKLY

 

EEM WEEKLY

EEM WEEKLY

 

AAXJ WEEKLY

AAXJ WEEKLY

 

EWA WEEKLY

EWA WEEKLY

 

EWJ WEEKLY

EWJ WEEKLY

 

EPI WEEKLY

EPI WEEKLY

 

EWZ WEEKLY

EWZ WEEKLY

 

FXI WEEKLY

FXI WEEKLY

...

 

This was one helluva week. Nevertheless current markets are still hooked on QE. The dissenting Dallas Fed President Richard Fisher has voiced his concerns about this many times and once again the other day in this speech. Even former Fed Chairman Alan Greenspan, admittedly less respected than previously, suggested the Fed should start tapering nowto slowly wean these addicts off QE. This would then be a slow process rather than something shockingly abrupt. Former Fed Chairman Paul Volcker has expressed the same message in his own way.

The big deal will be what comes out of the next Fed meeting on the 19th as quadwitching nears. The entertainment will continue with Retail Sales the headline economic report next Thursday.

Let’s see what happens.

 

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Sat, 06/08/2013 - 02:09 | 3636597 golfrattt
golfrattt's picture

The H&S on the Spy Daily is a bit of a stretch.. Just another resistance level but a major reversal pattern..?? A couple small doses of Benny Juice will leave that in it's rear view mirror..

Sat, 06/08/2013 - 00:48 | 3636520 disabledvet
disabledvet's picture

As I recall it was called "the Great Moderation" under George W. Bush. Hmmm. The Great Moderation. "everything was contained." http://en.wikipedia.org/wiki/Great_Moderation

Fri, 06/07/2013 - 23:01 | 3636291 StarTedStackin'
StarTedStackin''s picture

BULLShitters get their their wish

Fri, 06/07/2013 - 22:49 | 3636261 orangegeek
orangegeek's picture

The markets have diverged from reality in more forms than one can imagine.

The last pin to drop is the US Dollar.  It fell almost 2% this week.

 

http://bullandbearmash.com/chart/dollar-daily-undergoes-wild-swings-closes/

 

The USD daily shows a possible bullish reversal.  If the USD moves higher next week, US markets will have a tough time holding.

Sat, 06/08/2013 - 10:20 | 3636940 DeadFred
DeadFred's picture

As I look over historical charts I can't see a single case of the market topping then heading straight down. There is always at least one small rally after the top. They kill the premature shorts and in this case reinforce the BTFD mindset so there will be greater fools to sell to all the way down. We have a liitle less than a month until the fireworks IMHO

Fri, 06/07/2013 - 22:46 | 3636254 titty sprinkles
titty sprinkles's picture

Needs more graphs.

Sat, 06/08/2013 - 00:17 | 3636476 Bear
Bear's picture

Maybe more gif's like yours

Fri, 06/07/2013 - 20:17 | 3635831 disabledvet
disabledvet's picture

Amazing. The idea that equities in the USA would open down 1000 on Monday...but for the recovery...is not lost on me. I'm still not ready to throw in the towel entirely on the equity space...but I'm getting very close to Being There as say. The Wall Street Journal comes out in favor of wire tapping? Really? I can understand the need to secure the Internet from cyber criminals (and of course "only the Chinese do that") but wire tapping? As something pro commerce let alone pro finance? HAhahahahaha. How pathetic. Good thing we've got massive well run insurance companies in Connecticut "just in case these people succeed."

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