New Highs for the Market, New Lows From the Technicals

By Lloyd Khaner  JUL 17, 2013 11:00 AM

Earnings season in the US marches on as the world's grudging acceptance and adjustment to China's new-found market and monetary discipline continues.

 


As the Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) creep higher on low volume, the technical crowd is sounding a low volume cry that the end is nigh. We are approaching one of those moments where the equity markets will likely surge ahead and hold... or will surge ahead and not hold. The short-term equity chartists are calling for the latter, and this time they think a full-on 10% market decline is in the cards. They say it’s not fundamental, it’s not QE-related, and it’s not valuation -- it’s just technical. As I said, it’s one of those moments. We’ll see.
 
So far, earnings season hasn’t been a cause for alarm. It’s early days yet, but the misses, hits, and beats have basically been as advertised and possibly priced into stocks already. There are still a few more weeks of the financial fire hose to go, so stick to four- to five-day work weeks until further notice.
 
Last but not least is the world’s grudging acceptance and adjustment to China’s new-found market and monetary discipline. The message: We’re gonna cool the stimulus money while you cool the conspicuous consumption and cool your stock market shenanigans. For the rest of us, this means a cooler global economy -- but hopefully not a cold one.

Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.
 


 

QE: Barring something really bad, the beginning of the end starts just before September 21 or EWF Day to all you 1970s kids. "Do you remember, the twenty-first of September…"

UNEMPLOYMENT: Not ready to give up the worrying ghost just yet as the "underemployment rate" ticks up to 14.3%.

US ECONOMY: 2013 GDP growth now projected to be “back-end loaded.” The use of the most dangerous phrase in the earnings world -- “back-end loaded” -- puts us on edge as it often morphs into “front-end loaded” for the following year.

INVESTOR SENTIMENT: The Great Rotation has begun as people have gone from hating stocks to hating them less due to a dearth of viable investment vehicles.

HOUSING CRISIS: Nearing escape velocity. Jinx!

EUROPEAN ECONOMY: Bottoming... constantly.

VOLATILITY: Emerging markets re-emerging as the volatility champs after a long hiatus in the land of tranquility, now a distant shore in the rearview mirror.

HIGH-FREQUENCY TRADING:
Lloyd: Taking off any time in August?  
HAL: Nope. Gonna use the time to catch up on some work.
Lloyd: What kind of work?
HAL: Think of it this way: If my work is successful, you’ll be back in the office with me.

CHINA: Looks like job creation is now the No. 1 focus of the central planners... which puts them right in line with the central planners in the US, Europe, Japan, Brazil...

GLOBAL ECONOMY: Economist’s growth estimate downgrade season has begun. "How low can you go…"

JAPAN: Still waiting on that blueprint for economic growth. Please don’t take another decade to do it.

DRAGHI: The plan is to leave interest rates at low levels for an "extended period of time" ... or until he leaves his ECB post... whichever comes first.

SEQUESTRATION: Handy political excuse for the sub-2.0% GDP growth in the US.  Less handy for the proletariat in the US looking for work, though.

BONDS: Hey Mr. Bubble, what happens after you pop?

TECHNICALS: Short-term market technicals look dicey. Medium-term and long-term outlook depend on how dicey the short-term is.

CENTRAL BANKS: The Bank of Japan, ECB, and Bank of England are leaning forward while the FOMC and China are leaning back. The experiment continues...

THE NIKKEI: They will write books about this market action some day. Hopefully then we will all understand it.

SHIBOR: Flirting with dropping below 3%. Soon the "it’s too low!" cries will come. Wait for it, wait for it...
 
BRAZIL: To estimate their GDP growth, just take China’s GDP growth, divide it by four, and add a percent or two when the World Cup and the Olympics come to town.

SPAIN: Spin the Crisis Roulette Wheel! Political Crisis, Debt Crisis, Employment Crisis, Housing Crisis, Banking Crisis... Politics, Debt, Employment, Housing, Banking... Politics it is!

COMMODITIES: Oil demand down; oil prices up. Oil supply up; oil prices up. My confusion up and down; oil prices up.

EGYPT: As far as the market is concerned "as long as the routes (through the Suez Canal) are not severed, all is well.”

PORTUGAL: Calls for a snap election by the president. Likely to be followed by a call for a snap economy, a snap debt restructuring, and a final snap, crackle, and pop unless all goes smoothly.

EARNINGS SEASON: So far so good. Jinx again!

 
What Is Lloyd's Wall of Worry?

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
LK/KCLP Ownership Disclosure: SPY, DIA, GLD, TBF, LQD

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