Monday, May 4, 2009

Technical Update 16.09

The major averages pushed higher in a continuation of their correction off the March 6th lows. We are now in week 8 of the rally and some negative divergences are beginning to take shape. The Nasdaq has advanced in all 8 of those weeks. It has proven to be the market leader as I expected it to be in a March 3rd article.

The reason for the Nasdaq's outperformance is simple: debt. The major components of this index have less of it. So investors have been targeting these companies because they know their common equity will not be eroded to zero in an effort to refinance or liquidate their debt. Contrast that with the flailing financial sector who are now negotiating the results of the stress tests with the government (you can't make this stuff up, folks).

Among those major components to the Nasdaq are names like Google, which appears to be challenging an important resistance level between 390 and 425. I will be watching these major Nasdaq components for evidence of exhaustion. Once the market leaders start to fail, we will know the rally is reaching its conclusion.

Crude oil has been holding at support around $47. It appears ready to target its higher time frame moving averages. The 200day, 200week, 100week and 50week Exponential Moving Averages all reside in the $65-75 range. I expect a visit in conjunction with a higher push in equities.

I also wanted to briefly touch on this swine flu "outbreak" that seems to be grabbing much of the media's attention. To me, it appears to be way overhyped for what it actually is. The Flu regularly kills 30,000 Americans per year - 100's of thousands of others die around the world. Often, one strain will kill thousands by itself before mutating itself into something far more benign. So why is this such a big deal? When something as normal as the flu is advertised by the media as the "Greatest threat to humanity," alarms start going off in my head. My internal BS meter redlines.

As is usual in any fear campaign, governments are using this latest episode to their advantage and making power grabs all over the place. And de facto branches of government (the major corporations - in this case the drug companies) are going into overdrive to lobby government for favourable grants or contracts to save us all. "Mandatory vaccinations" they scream.

I don't believe any of it. It all looks like a coordinated fear campaign manufactured to scare us into giving up more of our personal liberties and to enrich a few special interests. I'm not a doctor or a microbiologist, but when one smells BS there is often BS in the area. This wreaks.

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stevie c MD said...

US are pissed off at Mexico so they shut tourism down there for awhile. Remember SARS-- US were pissed at Jean Chrettien for his stance on Iraq so they shut Toronto down. Economic warfare plain and simple.

mannfm11 said...

This is communism at its best, create a crisis and come with the cure.

I don't believe the oil markets are going up unless the US dollar is about to collapse, which it might if Obama gets his way. $55 is a fibonacci and you can about mark oil with fibonaccis. You might check the closing high on oil, which I believe was short of the interday $147 published. $144 was the next fib after it broke up from the $90 range. You might note that oil bounced off $90, went to $125 and collapsed in September, a perfect Fib retracement.

I have followed oil for more than 30 years. We are in a classic glut situation and the only thing that recent action in oil shows is the level of speculation that exists in the world today. We have seen existing home sales bottom in the 4.4 million range. They had never exceeded 4 million prior to the bubble that started in the mid 1990's. We have the bust in housing ahead of us, not behind us. Most likely gold and the metals bust as well.

Your read on the Nasdaq is interesting. I kind of believe that speculators go to markets where speculation is more successful, which is the Nasdaq. Also, this is a marketmakers rally, not a buyers rally. The market is being manipulated against any reason they can say the market is up, all of which is nonsense. What is important is the interday high on the Dow, a price index as opposed to a cap index, is some 700 points north of where we have been so far. There is a huge divergence here and Citi and BAC comprised all of $18 in value when this move down started on 1/6. That is 144 points on the Dow, so their decline can hardly be held responsible for the lag. It is like we are missing an entire IBM from the rally.

I think May 6 is going to be an interesting day. The interday high in the SPX was January 6 and the interday low was March 6, 2 month. The rally is being exaggerated. I believe we could go a lot higher though, not because the economy is recovering, but merely because this is a higher degree correction than the prior ones. You might note that bottom to top, the Dow made close to 2000 points between 10/10 and early 10/14, so this isn't exactly the most spectacular move in history as it is being made out to be. Labor day would be a nice time to have a good top to sell. In the meantime, I may put my money back in my account and sell the open tomorrow.

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