Insight on Technical Analysis

Good insight:

The Bulls Run for Cover Today

The initial ramp at the open has turned to a rout. The S&P touched the previous day's close, and then began a sell-off in earnest. Strangely enough, as I type this, with the S&P 500 down by 10 points, the Dow is still barely in the positive, with just 15 minutes left in the day and week. Since Monday is a holiday, this may be an exposition of market sentiment going into a long weekend.

More Weakness Following Mixed Data

Industrial capacity utilization rose last month from 79.1% to 79.2%. While that may seem only marginal, analysts had expected it to decline instead. Ironically, this news is often a precursor to recession. So who knows?

But just after we learned that mortgage foreclosures had declined sharply last year, this just out:
Housing starts declined 9.8%, and permits for new construction declined the most in 7 months. Not pretty!

UPS, the delivery carrier, announced disappointing earnings, but isn't blaming slack Holiday sales. They are blaming the weather instead. Weather seems to be the "go to" excuse for many disappointments on Wall St. By blaming the weather, they can dismiss the bad news as a one-time event that won't recur. (As if weather doesn't recur -- ever!) In other words, "please ignore our disappointing earnings, because we'll do better next time -- we hope!"

No Oats Either

The price of oats is near record highs also. Perhaps we had all better just settle on the Starvation Diet instead.

Milk Futures Near Two-Year Highs

Wanna Eat? Become a Vegetarian!

This is the price of cattle futures for the past two months. And I thought meat was already expensive!

Fools and Their Money

Stocks hit a new all-time record high again today.

The Bubble Lives!

Stocks shrug off yesterday's losses, and in typical bubble manifestation, rebound immediately, as investors once again reflexively buy the slightest dip.

Stocks are no longer even pulling back to the 8-period exponential moving average any more. This represents the most advanced staged of a bubble.

Stocks Slide Nearly 200 Points

Goldman "Underweight" Casts a Pall On Earnings Season

U.S. equity markets fell Monday after Goldman cut American stocks to 'underweight' compared to other markets and traders awaited a slew of earnings this week.

Earnings season is here. It will be interesting!

Hussman: On the Edge of Steep Losses

I just love this guy! His Wile E. Coyote analogy is as insightful as it is hilarious!  He says we stand on the edge of an anvil-fueled cliff!

"In July 2011, just before the market lost nearly 20% (but also the last time it corrected materially), I observed “Like Wile E. Coyote holding an anvil just past the edge of a cliff, here we are, looking down below as if there is much question about what happens next.” In my view, the stock market is hovering in what has a good chance of being seen in hindsight as the complacent lull before a period of steep losses. Meanwhile, we would require a certain amount of deterioration in stock prices, credit spreads, and employment growth to amplify our economic concerns, but even here we can say that there is little evidence of economic acceleration. Broad economic activity continues to hover at levels that have historically delineated the border of expansions and recessions" John Hussman, PhD (January 13, 2014)

Here is the full analysis. 

Baltic Dry Index Plunges Sharply

"At 1,395, the the Baltic Dry index, which reflects the daily charter rate for vessels carrying cargoes such as iron ore, coal and grain, is now down 18% in the last 2 days alone (biggest drop in 6 years), back at 4-month lows. The shipping index has utterly collapsed over 40% in the last 2 weeks."

Lockhart Speech Sparks Sell-Off

What a twisted world! Fed Gov. Lockhart gave an optimistic speech that has resulted in a sell-off! His views were confident, even buoyant. Why, then, would that spark a sell-off of 115 points (so far)? Shouldn't good news result in buying? Not in a Fed-distorted world!

Fed Policy May Be Causing Deflation

By Christopher Whalen at Breitbart.com:

Last week’s job numbers suggest very strongly that the Obama Depression may be accelerating.
Economists of all stripes are trying to pretend that the numbers were not as ugly as they well and truly are, but some of the realists are pointing out the obvious, namely that the US economy continues to shed jobs and workers. David Zervos of Jeffries & Co puts the situation in plain terms:

The December payroll report does NOT suggest that labor market momentum is increasing. The modest 78k increase in payrolls, plus the 34k in positive revisions barely gets us half of what was expected. But the most concerning part of the report comes from the household survey where we saw another 347,000 people leave the labor force. And it was not just more retirees, or more youngsters going to college. The largest acceleration downward in the participation rate came from the 45-54 year old cohort – that rate fell 0.5 percent, from 79.6 to 79.1. In the early part of the crisis, the most important driver of a lower participation rate came from the younger cohorts. But these 16-19 and 20-24 year old groups have been stable in recent quarters, albeit at much lower levels. The "trouble" now is manifesting itself with the seasoned veterans!

The continued attrition of 45-54-year-olds in the workforce is cause for concern by itself, but with the other deflationary factors at work in the US economy, alarm bells ought to be ringing in Washington DC.
First, the velocity of money – the amount of times a dollar changes hands in a given year – continues to fall. Second, the banking and non-bank sectors continue to de-leverage, meaning that we are taking credit capacity out of the economy. Without more turnover in money and net growth in terms of credit, the outlook for growing jobs is small to none.
Sadly, the policies being followed at the Fed and White House are stifling job creation even as they encourage moral hazard and the growth of new bubbles in the financial sector. The slew of new regulations put in place in Washington since 2008 makes it virtually impossible for more than half of all adult Americans to qualify for a home mortgage. The fact of a weak jobs market and a net exodus of adults from the workforce also implies a smaller market for homes – even with the continued growth in the overall population. 
Yet newly installed Fed Chairman Janet Yellen tells Time magazine that the housing market recovery will continue. Does anyone on the Fed staff bother to read the press releases from CoreLogic which reveal that 18 of 20 cities in the Case-Shiller 20-city index were down in October? The demand-siders on the Federal Open Market Committee (FOMC) believe that ultralow interest rates help the US economy. Again writes Zervos:

The FOMC has told us they see slack, not slackers. Its why the SEP forecast for the end of 2016 has a 3 percent growth rate, a 2 percent PCE inflation rate, a 5.5 percent unemployment rate and 1.75 funds rate. They believe that very low risk free real rates will be appropriate even with "equilibrium" growth, "equilibrium" inflation and unemployment at or near the NAIRU. Why do they believe this? Because they think that by running policy "hot", even at equilibrium, they can bring these disaffected workers back into the labor market. That is the plan!!

The trouble is, however, that “hot” policy like what the FOMC thinks it is pursuing is actually encouraging deflation in the US economy by robbing savers of badly needed income – this to the tune of about $100 billion per quarter just in terms of the return on US bank deposits. While low rates were helpful and entirely necessary early in the post-crisis response, today low rates are arguably a net negative for the US economy.
The great editor of The Economist Walter Bagehot warned that keeping interest rates too low for too long would scare money out of the markets, causing deflation. My friend David Kotok of Cumberland Advisors discussed this issue in a wide ranging interview posted on Zero Hedge before the holiday:
Antoine Martin of the Federal Reserve Bank of New York, in his important 2005 paper “Reconciling Bagehot with the Fed’s Response to September 11,” argues that Bagehot had in mind a commodity money regime in which the amount of reserves available was limited. Thus, keeping rates high was a way to draw liquidity, that is gold, back into the markets. Bagehot also understood that low interest rates fuel bad asset allocation decisions – what we call “moral hazard.” In the age of fiat money, however, economists have taken the opposite view, namely that an unlimited supply of reserves obviates the need to attract money back into the financial markets.
The neo-Keynesian, demand-side mindset of Chairman Yellen and the rest of the FOMC does not allow them to see or accept that low rates are actually hurting employment, credit, and capital formation. Investors must be paid to take risk. The declining leverage within the US banking system, which was discussed in a Zero Hedge post about Q4 2013 bank earnings (“Are Large Cap Banks Ready to 'Break Out?'”), is a red flag that Congress ought to be discussing with Chairman Yellen on a weekly basis. Meanwhile moral hazard grows under QE, and Fed-induced bubbles proliferate in the equity and debt markets.