The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

I have mentioned Ron Griess and The Chart Store countless times, but I have to give them mad props again. The depth of their chart collection, combined with the weekly updates/blog are invariably interesting, informative and insightful.

These four charts below are just the sort of Big Picture, long cycle perspective that so many investors overlook or simply have no knowledge about. These charts are not about making predictions, but rather, are about putting market action into some broader historical context. What has happened in the past? What is typical? Aberrational?

His service is $239 a year, and its a bargain. (This is an unpaid, unsolicited endorsement).

>

Nominal, Inflation Adjusted, Gold Adjusted and Silver Adjusted
Compared to the All-time High of Each Series

Click to enlarge:

˜˜˜

Read the rest of this entry »

>

Interesting note from Merril Lynch’s Technical Analyst Mary Ann Bartels about NYSE volume. Ms. Bartels observes that the market’s Volume, anemic though it appears, is actually not all that bad when compared to similar periods in recent years (See chart above). She observes that the primary trend is upwards, and with volume and breadth confirming, she is constructive on US Equities, especially the Megacaps.

But it was her take on volume that was so noteworthy:

“There has been concern that volume is not supportive and we disagree with this view. Average daily NYSE consolidated tape volume year-today in 1Q12 is down 14% vs. 1Q11 and down 38% from peak financial crisis average daily volume in 1Q09. Since 1Q09 peak volume was associated with extreme bearish sentiment during the financial crisis, 1Q12 volume should not be compared to 1Q09 levels.

Average daily volume in 1Q12 is 36% higher than it was in 1Q07, which was prior to the financial crisis and also a period when the US equity market was rallying to new recovery highs. Taking this into consideration suggests that volume may not be as low as it seems. Additionally, our Volume Intensity Model (VIM) still has accumulation stronger than distribution which is a bullish reading for the market.”

While our earlier comments about margin were cautious, volume is not. If you are looking for an excuse to exit equities, this is not it.
>

hat tip John Melloy, CNBC

>

Source:
S&P 500 holds breakout, trend remains up
Mary Ann Bartels
Market Analysis | United States
BofA Merrill Lynch 26 March 2012

>

Helene Meisler discusses the role of margin debt in markets hitting a top:

“Margin Debt tends to rise as markets rise. While there is no magic number that rings a bell at the top, you can see from the chart below that in the last decade once Margin Debt gets over $300 billion we would have to consider we are no longer ‘early’ in a rally. It tends to put to bed the notion that folks are underinvested in the market.

We won’t have the March figures out for a few more weeks but February showed a rise so we should expect March’s reading might very well get over $300 billion. In 2000 we did not quite get to $300 billion as we topped out at $278 million. However you can see it corresponded with the peak in that market as well.

For now I would note that we are not yet close to the level of investment we saw in the spring of 2011 but we are likely rapidly approaching it.”

I know Helaine from my Street.com days, she has a very insightful approach to viewing markets.

~~~

UPDATE: I corrected Millions for Billions; My apology for the error.

~~~

Helene Meisler writes a daily technical analysis column and TheStreet Top Stocks. Meisler began her career as a market technician at Goldman Sachs and Cowen & Co. For more information, click here.

The consolidation in equity markets is continuing. Yesterday, we noted that the US equity markets were in the process of digesting the rapid gains made since the beginning of the year (Look Out Below, Thursday Edition).

Since we are “Miserably Long,” I spend lots of time thinking about what could go wrong. Yesterday, we  discussed how mom and pop are still not buying equity mutual funds. The day before, we trotted out SocGen’s chart showing markets are not cheap, by way of Earnings Yield (Why Using P/E Ratios Can Be Misleading). GMO’s James Montier peak profit comments were widely circulated — he discussed how earnings are more likely to mean revert downwards than keep exploding upwards — and that 9eventually) has to mean lower equity prices (I’ll post his chart later).

Despite all this, the comment that seemed to resonate from yesterday’s morning missive was “And yet curiously, the market cannot even muster a triple digit down day. Odd.”

We had every opportunity to see that major whackage yesterday — bad European economic news, weak German PMI data, more slowing in China, European markets down substantially, sell offs in Copper and Crude.

And? We could not even muster a down 1% day.

Contemporaneous to the rally has been a surge of Bearish commentary. It is intellectually appealing, and I am empathetic to their arguments — but they have been on the wrong side of the trend for a long time. Even this week, those arguments have been money losers. At the same time, the Bull camp seems to be in a mad competition as to who can make the most absurdly foolish statement possible. The winner of the silliest bull commentary so far is Goldman Sachs, but there are many other contenders. And despite the intellectual vapidity of much of the Bull arguments these days, the Market has been on their side — at least so far.

The lesson appears to be Momentum + Fed liquidity trumps intellectual appeal + abstract theory.

As to my own positioning: The hot start to the year and my aforementioned Miserably Long posture has me looking for an excuse to lighten up, take some risk off the table, cash in some profits. But I need more than a gut instinct or a guess — I need to see some solid deterioration in market internals or in economic data as opposed to a guess or a gut feel.

The bottom line: The strength of this market — or at least, the Fed’s liquidity beneath it — deserves the benefit of the doubt. Until we see proof that something more untoward is a foot, I consider the current softness little more than back and filling, digesting excess gains from the start of the new year. The recent breakout points across major indices remain key levels to watch.

~~~

Previously:
Predicting Market Tops vs Observing Conditions (March 19, 2012).

Why Using P/E Ratios Can Be Misleading (March 21st, 2012)

The Public Is Still Not Buying Equity Mutual Funds (March 22nd, 2012)

Source:
Chart via WSJ

click for updated futures

>

The year started out at a blistering pace. The Dow up over 6%, the S&P500 up 10%, and the Nasdaq up 15% — all before Q1 even ended. Apple up 40% Bank America up almost 100%.

This pace is obviously unsustainable — it must cool down, and it will do so by either correcting in price, or going sideways and consolidating.

So far, there has been no major correction — despite repeated opportunities for one.  Futures have been under pressure the past few days, Europe has been negative 4 days in a row, the news from China has been disappointing, with Chinese manufacturing contracting.

And yet curiously, the market cannot even muster a triple digit down day.  Odd.

Across the pond, European services and manufacturing output is slowing. German PMI for March manufacturing came in at 48.1 (below expansionary expectations of 51.8). Crude is off -1%, copper down -1.3% and gold and the euro are slightly changed.

~~~

For now, a consolidation to digest the recent gains is the higher probability outcome. Note that volume is not expanding on the pullback, often an early warning sign. When we see increasing volume during a sell off, or extreme breadth, as in 90/90 days, something more dangerous will be afoot. But until we see substantial internal weakness, we should not hold our breathe waiting for a sharper move lower.

Until then, the breakout points across major indices are your stop losses. Look for some back and filling as we digest the excess gains from the start of the new year.

FusionIQ (Trader) had a market overview that went out to institutional clients and subscribers last week. What follows is an excerpt of that note. If you were on our TBP/IQ conference call last week some of this might appear familiar.

~~~

The following was written by Kevin Lane, creator of the FusionIQ algorithms:

Equity market pullbacks have remained shallow and defensive havens such as Gold and Bonds are starting to correct as fund flows revert back into equities. This reallocation of asset class exposures will likely push stocks up more in the coming weeks and months. Seasonality trends for stocks still remain positive for the next few months, which is another plus. While nominal corrections can occur along the way we don’t see any major hiccups yet especially with; the economy gaining traction, liquidity for equities increasing (from bond and gold liquidations, in addition to sideline monies) and performance anxiety setting in as many managers fall deeper behind their benchmarks.

As seen in the chart below the TBT, an ETF that has 200 % inverse performance to the 20-year treasury, appears to have finally broken its bear trend with a high volume, bullish gap out of a base and above resistance (red lines). While the broad US equity markets may have some modest volatility/back and fill trading action in the coming days and weeks, we believe markets should generally move higher as investors move into risk assets in a, “I don’t want to miss the equity bus trade.” While this is not a comforting sentiment (ie investor chasing stocks), it will provide the necessary liquidty as asset flows shift into stocks. This liquidity will be the fuel that can move stocks higher, that is until it exhausts itself. Stayed tuned for updates on the latter thesis.

Click to enlarge:

˜˜˜

˜˜˜

˜˜˜

˜˜˜

˜˜˜

˜˜˜

Source: Kevin Lane, FusionIQ

We posted yesterday that the S&P500 was set up for a pullback after carving out an outside day (higher high and lower low than previous day) at strong resistance and looked for follow through selling today.   Didn’t happen.

In fact, the S&P500 followed yesterday’s outside day with an inside day with today’s high/low lower/higher than yesterday’s.  This reflects a lack of sellers and nervous buyers.

An inside day following an outside day is a relatively rare three-day pattern and has initially happened on six times since the current bull market began on March 6, 2009.    In every case, the post 5-day return on the S&P500 was positive, averaging 2.08 percent.

Today’s pattern and run up looks very similar to the one made on January 31, 2011.   The S&P500 rallied 22 percent in 108 trading days from the August 26, 2010 low into the inside/outside three-day pattern.  It added another 4.4 percent in the next 14 trading days before correcting.

As of today’s close, the S&P500 is up 25 percent in the 1o3 trading days since the October 4th low.    The market does feel like it lacks sellers and needs a real catalyst to knock it down, in our opinion.   Interestingly, there are 13 trading days to the March 20th Greek bond maturity, which could suffer complications and provide the catalyst for a global equity correction.

Like many — maybe too many – we remain cautious and do look for a pullback after such a big move but do respect the trend and history.

Good luck out there!

>

Good interview this morning with Ken and Tom talking to technician Louise Yamada.

click for audio

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

>

Click to enlarge:

Source: Pension Partners LLC

>

Although markets have already rallied strongly in 2012, the move is still early if current price ratio trends behave similarly to recent history.  The chart shows the price ratio of the SPDR S&P Dividend Index ETF (SDY) relative to the S&P 500 (SPY).  A rising price ratio means dividend-oriented stocks are outperforming (risk-off), while a downtrend suggests the opposite (risk-on).  Much like a pendulum that swings from fear to hope, investor sentiment goes through cycles in terms of what type of returns are preferred at any moment in time.

Apple’s recent 5% drop from an intraday high was hailed as a key reversal day for the market leader. But a history of one-day swings shows Apple typically has rebounded a week or month later, MarketWatch columnist Mark Hulbert says. Laura Mandaro reports.

MarketWatch 2/21/2012 6:19:16 PM