Five Things for Thursday, May 21
Good news: we're halfway there!; stock market update; gold update and much more
I've been following an analog that a friend passed along several months ago comparing our current market juncture to the 1930s. The chart below shows the stock market from December 5, 2007 to present (in orange) overlaid on the stock market from August 30, 1929 to October, 17, 1933 (in yellow).
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Ok, so what does this mean? From a long-term perspective I believe we remain in a bear market, and should the analog above hold, it would mean we are nearing the concluding stages of this bull rally... close, but not quite there.
There are two upside levels to consider as a target. The first, more modest level, is the 38.2% retracement from the March 6 low, yielding a target of 944.43. The second, more aggressive level, is the 50% retracement level, which yields a target of 1025.07. Read more below, but the quick and dirty take is that we remain within a 4-6 week window for these targets to fulfill as multiple time frames from the quarterly down to the daily come into alignment.
But back to the analog itself, what would lead anyone to believe market prices might behave similarly to price patterns that occurred more than 70 years ago? For the same reason one might believe human beings are governed by unconscious herding impulses that they are neither aware of nor can control. Remember, evolution is a long, long process. And if you want to get a better idea for how long a process it really is, then pull up your shirt, if you're a man, and look at your nipples. Yes, the vestigial nipples.
2) Stock Market Update
Here are my thoughts on the market through the lens of DeMark price exhaustion techniques.
The quarterly chart of the SPX is presently on bar 6 of a potential 9 TD Buy Setup, having qualified a downside break of TDST Support at 960.84. The context longer-term therefore is that this is a cyclical rally within a longer-term bear market that remains active.
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On a monthly basis, the market has recorded a bullish price flip this month, following February's perfected TD Buy Setup. As you will recall, TD Buy and Sell Setups typically produce 1-4 bar reactions. We are presently on bar 3 within this 1-4 bar window.
The weekly chart is now on bar 9 of an IMPERFECTED TD Sell Setup. In order for perfection to occur, the high of either bar 8 or 9 must exceed the high of BOTH bars 6 and 7. The high of bars 6 and 7 is 930.17. So in order for perfection to occur we must exceed that high this week. What happens if we get a 9 without perfection? The market will usually want to resolve that lack of perfection with a high above that level at a later date. For example, the weekly chart recorded a TD Buy Setup 9 in the last week of October 2008 that was imperfected. The market later, during the second week of November, made a low to complete that perfection. Meanwhile, keep in mind that because the definition of a TD Sell Setup is 9 consecutive closes greater than the close four price bars earlier, the SPX will have to close above 866.23 to complete the requirements for a TD Sell Setup, perfected or not. A close below that would erase the potential TD Sell Setup. This would have no immediate implications for the targets listed in number 1) today, but would simply mean alignment of multiple time frames is not an immediate concern.
Bottom line: The quarterly context remains trend negative, with the monthly chart still within a four-week window of resolving its TD Buy Setup, the weekly chart still needing a new high above 930.17 to perfect a sell setup, with a close below 866.23 voiding that potential setup. This is all within the context of the primary trend being negative.
3) Gold Update
The quarterly chart of gold recorded a TD Combo Sell Signal Q1 2008, a TD Sequential Sell Signal Q2 2008, both of which remain active within the 12-bar window (7 and 8 more bars (quarters) respectively).
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The monthly chart is only on bar 6 of a potential 9 TD Sell Setup, and will need higher prices to complete it. The weekly chart is working on a deferred TD Sequential Sell Signal where the close of bar 8 has not exceeded the high of bar 5 at 1006.29, which is something I would like to see happen to indicate true trend exhaustion.
Bottom Line: I will want to see a move above $1000 gold level before being convinced we have a more definitive alignment of trend exhaustion across multiple time frames. In other words, I agree with those calling for $1000 gold before the end of the summer, but within the context described above I would view that move as the necessary requirement for bearish confirmation of trend exhaustion, not the beginning of a new breakout to still further highs.
Keep an eye on the Initial Public Offering of OpenTable (OPEN) today. Although it's a fairly small deal, it's an important test of risk appetites in a market where capital raises are quite difficult to complete.
San Francisco-based OpenTable, an online restaurant reservations booking platform, is the first Silicon Valley Internet start-up to test the IPO waters since... well, since before any of us knew acronyms like ABCP, TALF, TARP, etc.
5) News & (More) Weirdness
U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP - Bloomberg
By contrast, U.S. government debt is a mere ~70% of GDP. Canada's? ~29% of GDP. Germany's? ~58%.
Banks Raised Billions, Geithner Says - NYT
They've raised 56 billion! Sweet! There's just one little problem; they need $75 billion. Dang.
Dept. of So Many Next Shoes to Drop; So Little Time: Seattle FHLB Posts $467 Million Q1 Capital Deficiency - Puget Sound Business Journal
The Federal Home Loan Bank of Seattle serves 380 member banks mostly in western states. It saw a net loss of $16.1 million as a result of its soured investments in mortgage-backed securities, the PSBJ reported.
Dept. of What the...? GM Finance Arm to Get Fresh Bailout - WSJ
Treasury will dump another $7 billion into GMAC. "What began as an emergency batch of loans to GM (GM), Chrysler and GMAC in December -- totaling just over $20 billion -- now looks likely to balloon well beyond $50 billion and could approach $100 billion by the end of the year," the Journal reports.
Fed Officials Unconvinced 'Stabilization' of U.S. Economy Will Persist - Bloomberg
Essentially, the FOMC minutes released yesterday afternoon were little more than an attempt to rationalize stepped up quantitative easing and signal their intention to add to the $300 billion in Treasuries the Fed announced in would purchase back in March.
Birinyi Says Bull Rally Starting, S&P 500 May Soar 88% in Next Three Years - Bloomberg
Keep in mind he predicted on Dec. 8, 2008, that the S&P 500 bottomed the prior month, before the index lost another 23 percent.
Google Drops Idea to Buy Newspaper - ($)Financial Times
Google (GOOG) concluded that potential acquisition targets were too expensive or carried excessive liabilities.
Investing in Jim Cramer's Mad Money: Price and Style Effects - Northeastern University Study (pdf)
"Overall, the results suggest that, while Cramer may be entertaining and mesmerizing to many of his viewers, his aggregate or average stock recommendations are neither extraordinarily good nor unusually bad." Eh, Mediocre Money. Big deal.
Frasier? Seinfeld? = Fail. Those are bull market shows! Bring back Barney Miller or Good Times and maybe we'll sit down and watch.
TV Getting Squeezed Out of the Picture - Washington Post
"Danny Ledonne rarely misses "The Daily Show." He's a frequent viewer of its cable TV cousin, "The Colbert Report," too. And for additional political satire and commentary, he often checks out HBO's "Real Time With Bill Maher." The thing is, Ledonne, 27, doesn't own a television. He hasn't had one since he was in college more than eight years ago. When he walks into a friend's house nowadays and the TV set is on, he says, "It's like a quaint visit to an alien world."
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