Thursday, 17 May 2012
This posting contains some shorter-term market commentary, followed by economic charts and a classic editorial cartoon at the bottom.
If you look at the hourly S&P 500 chart (chart #003 on page 1 of my public chart pages at http://stockcharts.com/public/1555670), you can see that, since the beginning of May, on most days the market has weakened (gone down) into the close. This is not good if you are bullish.
We have now broken below the initial support at 1340, and it appears that the market is headed to test support at 1300, the level that offered resistance for quite some time when the market was moving upward.
Chart #021 through yesterday is below, and you can click on it to enlarge it. You can see this chart #021 in real time throughout the day on page 3 at http://stockcharts.com/public/1555670/tenpp/3
Chart #021 - A DAILY chart of the S&P 500 through Wednesday, 16 May 2012
No matter how bad the news is, we should expect to see a bounce when the market reaches the 1300-1280 level. If the market quickly falls through this area like a hot knife through butter, something is seriously wrong.
I have advised my clients, “Don’t buy any ‘long’ positions until we’ve talked about your particular situation.” I advise waiting to see what the market wants to tell us about the future.
So far, this pullback from the 1422 high has to be treated as a simple correction in an ongoing bull market. BUT, we are surely seeing a lot of caution and nervousness out there.
Take a look at the daily major index charts on page 1 at http://stockcharts.com/public/1555670 ALL the indices have broken below their respective 100-Day moving average (purple line), and on chart #009, the New York Stock Exchange has even broken and closed below it’s 200-Day moving average (red line). We are getting oversold, and as important support areas are reached I would expect to see some sort of bounce.
It’s what happens after the bounce that will tell us a lot.
Meanwhile, in other areas:
Investors perceive US Treasury Notes and Bonds as safe investments. Thus, yields on the 10-Year Treasury Note are down near historic all-time lows. Chart #035 on page 4 at http://stockcharts.com/public/1555670 is shown below. You can see this chart #035 in real time throughout the day on page 4 at http://stockcharts.com/public/1555670/tenpp/4
Chart #035 - A DAILY chart of the 10-Year Treasury Note Yield through Wednesday, 16 May 2012
The US Dollar appears to be ready to break out to new 18-month highs. Depending upon your view, the dollar is the “port in the storm that everyone is headed toward”, “the cream of the crap amongst the world’s currencies”, or “the least worst option”. The European mess is probably leading the “flight to quality”, but we’ll have to see what happens when our leaders in Washington start discussing budget issues later in the year.
Chart #046, a weekly chart of the US Dollar, on page 5 at http://stockcharts.com/public/1555670/tenpp/5 is shown below.
Chart #046 - A WEEKLY chart of the US Dollar though Wednesday, 16 May 2012
While, at the moment the stock market looks as though it’s on a slippery slope downward, we never know when Bernanke is going to turn on the printing presses again and send free money to the banks in the next quantitative easing (QE3) program. Over the past three years, the market has rallied sharply whenever the Fed has launched a ‘free money’ program for the banks. So, if you’re inclined to short this market (i.e., attempt to make money as the market goes down) … be careful.
That’s about it for today. I’ll close with a few economic charts and a classic editorial cartoon below for you to contemplate. They can all be enlarged by clicking on them. Next week I’ll be publishing some of the interesting articles that I have recently read.
Thanks for your interest.
~ Lyle Latvala
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From the Wall Street Journal - Home price changes in major cities over the past year, 5 years, and 10 years.
Data from the St. Louis Federal Reserve - notice how a smaller percentage of the population has been part of the labor force since the year 2000.
From The Wall Street Journal - "In the past two years, the number of people in the U.S. who are older than 16 (and not in the military or prison) has grown by 5.4 million. The number of people working or looking for work hasn't grown at all."
A chart from Haver Analytics (from the Bureau of Labor Statistics) - notice how earnings are stagnant.
The REAL unemployment rates from shadowstats.com
And, the last cartoon below is a classic. The REAL economy may not be growing much, but the banks are doing well. This editorial cartoon shows what is really happening. Sad. So sad.
But, how can we expect otherwise? The Federal Reserve and the Treasury Department are supposed to supervise the banks. However, the banks make the the major appointments to both organizations. You effectively have the employee trying to tell the boss what to do. I don’t know what your experience has been, but that hasn’t worked very well in organizations with which I am familiar.
