Market gains show signs of strain
While stocks make a nearly vertical ascent, ignoring ongoing economic weakness, blemishes are appearing.
Instead of selling in May and going away, investors are scrambling to buy into a stock market that's gone parabolic.
Shares are blasting higher with no clear catalysts and indirect opposition to weak economic data, extended market technicals, extreme bullish sentiment, and signs we are in the late stage of the corporate profit cycle. And it enabled quick hit profits in picks like AMD (AMD) and Nokia (NOK), which gained 45% and 10% respectively since I recommended them earlier this month.
Wednesday, on confirmation of an ongoing European recession -- now joined by Germany -- and weakening manufacturing activity here at home, there were signs that this is a surge to sell into. Here's why.
First, portfolio protection is being bid here as the CBOE Volatility Index (VIX) rises out of a basing pattern -- forming a positive divergence with the stock market and suggesting that options traders are viewing the latest rush into stocks skeptically. While stocks have been grinding higher over the last two weeks, the VIX has been stabilizing near 13, holding above its March and April lows.
Today, the VIX's is challenging its 50-day moving average in a big way for the first time since April as its Coppock Curve trend indicator rolls over into uptrend territory.
Europe is also becoming unfixed as no amount of cheap Japanese money flowing into the Eurozone sovereign bond market can address a lack of export competitiveness, a broken banking system, and massive unemployment. The euro is dropping out of a bear flag pattern, challenging its March/April lows as it falls away from its 200-day moving average. Ugly.
This has everything to do with the fact that Germany, which was the beating heart keeping the Eurozone alive, has succumbed to the recessions elsewhere in Europe as its economy contracted on a year-over-year basis in the first three months of the year. France, the other major core country in the Eurozone, dropped into a technical recession after suffering its second consecutive quarter of year-over-year GDP contraction.
No surprise then that Spanish bank stocks are rolling over, including Banco Bilbao (BBVA), shown above.
Disclosure: Anthony has recommended NOK, TVIX, EUO, and BBVA short to his clients.
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The stock market is in a typical bubble pattern and all bubbles burst. Just ask yourself - does it make sense for the stock indexes to go up every time the Fed announces more toxic asset buying (QE or monetary stimulus) because our economy is so weak?
Stock buyers beware....
What will Obama do when one of the IRS guys tell the world the White House ordered them to investigate political opponents? Since this seems to have happened in multiple IRS offices in many cities it had to be ordered by someone high up. And since the White House KNEW about this for over two years and did nothing, and even had the IRS management lie under oath, one has to wonder how high up this went.
Such corruption... Fast'n'Furious guns for Mexican drug lords bought and paid for with stimulus funds, then smuggled into Mexico in violation of US and Mexican laws...
The raids on the Free Press for all their documents and sources. Without a warrant on some secret judges subpoena?
His clearly anti-Second Amendment stances that border on high treason.
And then their is Bengazhi... 4 dead, denied rescue missions, denied increases in security, and then the biggest issue of all is the made up LIE to American people about some anti-muslim film clip that they knew was a lie from the beginning...
Even Nixon looks honest compared to this President... The blood of at least 5 people are on Obama's lying hands...
Same old rants out of you.Tax breaks for the rich is a great thing.The GOP response is
"big business creates jobs".Yes, however most of the jobs are for Mexico and China.
No clear catalyst?Ben Berdinky said they can speed up the printing if the market falters. What else
do you need for a catalyst? The market rallys on bad news more than it does on good news. There is no longer a free market and the Fed can not exit until the dollar is toilet paper.
Pretty much when the Fed quits buying things the stock market and bond market and housing market are all going to collapse.
Things are going to get pretty rough out there as the US economy drops below China's and probably India's economy in the coming months.
The US will attack Iran for sure this year -- that is why the government has pulled the string on developing shale oil. Back in 1973 it was known we had more shale oil than all the proven oil in the ground at the time. We could even pump out about 4 times as much oil if we open up the east coast and west coast to oil drilling. The rich in the east and west coast will just have to get use to their pretty land looking like a tar pit for a few decades.
The huge increase in US oil production is the run up to a huge battle in the middle east. This is how they think they will save the US economy by getting rid of the middle east oil in a huge battle and force the rest of the world into buying US oil.
This is all going to be triggered by the collapse of the US dollar as it has lost it's world currency status as China has signed up everyone now except the US to trade in yuan or as it is called the Chinese RMB.
There, I feel better now, have a very good day, I'm go'in fish'n.
This market reminds me of the forest fires in California. Every time there is a small fire, they hurry to turn it off; thus, leaving combusting material in place for next fire. Then, the next fire is a bit more difficult to turn off because there is more combusting material available. Then the big one happened and they asked how the fire was uncontrollable.
This market goes up every time there is bad news because they know that if they were good news the Fed will stop the QE and their toxic monetary stimulus. I wonder if the big one will be uncontrollable.
Why is everyone saying the market is significantly overvalued? Many "quality" stocks have PE ratios < 16, are forecasted to increase earnings during at least the next few years and pay dividends > the yield on 10 year treasuries. These indicators are dramatically better than you would expect before a "major" correction of >= 20%. I am always prepared for a correction of <= 10% (it comes with the territory); however, I would be greatly surprised if we see a > 10% correction from today's close. Meanwhile, I'll enjoy the ride up and collect my dividends which is better than sitting on cash earning < 1% or investing in intermediate-term bonds (which has minimal upside and a downside of 10%).
I encourage you all to stop trying to time the markets (except during the most egregious market valuations - which is not now).
The three recent incidents that have completely ruined my faith in the US government, all of which I believe were corrupt and carried out completely against the will of the American people:
1. The Supreme Court's 2000 election “ruling” for no vote recount in Florida.
2. The “no weapons of mass destruction found” Iraq war.
3. The Wall Street bailouts of 2008 that continue today.
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Investors are anxious to see if hiring can maintain its strong pace in the second half of the year.
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