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Friday
Dec172010

Breadth Remains Weak

As shown in the first chart below, the S&P 500 remains at the very top of its trading range, which is two standard deviations above the index's 50-day moving average.  But even though the market is this overbought, only 78% of the stocks in the index are trading above their 50-day moving averages.  When the index has been at similar elevated levels over the past year, the percentage of stocks above their 50-days has typically been in the high 80s.  The low reading this time around means not all stocks have been participating in the current rally, which is not a good thing.

 

Reader Comments (1)

You relate: The low reading this time around means not all stocks have been participating in the current rally, which is not a good thing.

No it is not a good thing. The stocks that have been rising have been the US Based small cap cap shares. So far this month this includes Financial, RWJ, 7.1%, Energy, XLES, 8.0%, Industrial, XLIS, 9.7%, Discretionary, XLYS, 5.4%, Health Care, XLVS, 9.1%, Information, XLKS, 8.0%

World stocks, VT, peaked out before the European Leaders' Summit, that is on December 14, 2010 at 48.10 and closed the week lower at 47.70

The S&P, SPY, peaked out one day after the European Leaders' Summit that is on December 16, 2010 at 124.82, and closed the week at lower at 124.30.

It was on November 4, 2010 that the bond vigilantes sustained the Interest Rate on the US Government 30 Year Bond above 4.0%. This gave the currency traders the opportunity to sell the worlds major currencies, DBV, and emerging market currencies, CEW, causing the US Dollar, $USD, to rise.

A catastrophe is coming out of rising sovereign debt interest rates, as well out of further global competitive currency devaluations at the hands of the currency traders, resulting in a financial market place implosion, the European Financial Institutions, EUFN, will fall quickly falling in value, taking the entire global financial system down, resulting in Götterdämmerung, an investment flame out, bringing forth a new age. I believe a Seignior, an old English Word meaning top dog banker who takes a cut will arise with power with fiscal sovereignty to control deficit spending, enforce internal country devaluations, provide a common EU Treasury for both taxation and transfer payments, assure mutual guarantees of the EU debt, and as Timothy Geithner called for, implement unified regulation of banking globally. All seigniorage, both credit and fiscal will come and go through the Seignior, who will make decisions on where money is spent. The Seignior will coordinate all aspects of economic policy, includes taxes, wages.

Bernard Condon of the Associated Press reports: The worst performed the best in this bull market Crazy bull, gutsy buyers win big as riskiest stocks soar beyond expectation: “The 10 percent of stocks in the S&P 500 that attracted the most short sales at the start of the year are up 26 percent, according to data provider FactSet. Those with the least short sales rose 17 percent.

Another winner in the stop-and-go economy: stocks of so-called cyclical companies whose profits are bound up tightly with economic cycles. Consumer discretionary companies like toy maker Mattel Inc., for instance, gained 90 percent last year from their lows as investors anticipated that people would spend more on non-essentials. Then prices kept rising, up another 25 percent this year.”

I relate that examples of consumer discretionary companies include: Rent A Center, RCII, Zumiez, ZUMZ, Hansen Natural, HANS, Hasbro, HAS, Knot, KNOT, Liberty Media, LCAPA, Polaris Industries, PII, Royal Caribbean Cruise, RCL, SanDisk, SNDK, Stamps.com, STMP, Stanley Black Decker, SWK, Tempur-Pedic Intl, TPX, Thor Industries, THO, Tootsie Roll, TR, Toro Co, TTC, and International Flavors & Fragrances Incorporated, IFF,

The report continues: “Stocks of small firms are beating stocks of big companies, too. Big companies are thought safer because they sell many products and services in many countries and can tap various sources to finance themselves. Yet the S&P Small Cap 600 index, after returning 85 percent last year from its March low, is up another 24 percent in 2010. That’s more than double the 11 percent gain in the S&P 500, a large-company index. “These things go in cycles,” says USAA stock manager Arnold Espe of the small-stock outperformance. “We think we’re at an inflection point.”

Yes, I agree wih USAA stock manager Arnold Espe, the world is indeed at an inflection point.

Investors recently took flight to US shares, especially the small cap shares found in USAA mutual fund USCAX. This is seen in the MSN Finance chart of the Russell 2000, IWM, the European Financials, EUFN, and the emerging market small Caps, EWX …. IWM, EUFN, and EWX... the Russell 2000 went up, while the emerging market small caps fell lower with the European Financials. The European Financials experced Euro devaluation and the small caps emerging market currence devalution.

Debt deflation, that is currency deflation came to the European banks, as well as the emerging market small cap shares, while moneyness came to the small US based companies. The US Dollar, $USD, has risen as reflected in its 200% ETF, UUP, rising beginning November 5, 2010. And it broke-out December 15, 2010, the very day that the European Leaders met.

The world passed from the age of leveraging and asset value appreciation … and into the age of deleveraging, and debt deflation on November 4, 2010, when the bond traders seized control of both the Interest Rate on The US 30 Year Government Bond, $TYX, and the Interest rate on the 10 Year US Government Note, $TNX

This in response to Ben Bernanke’s announcement of QE2 monetized debt, and as President Obama’s projected deficit spending developed the risk of a failed US Treasury auction.

It was also at this time Mrs Merkel called for a haircut on debt, and called for a sovereign debt default mechanism.

Anticipation of QE2 provided moneyness to bonds; however, on the other hand, announcement of QE2, destroyed the moneyness of bonds, as the 30-10 US Sovereign Debt Yield Curve flattened.

The flattening of the 30 10 US Sovereign Debt Yield Curve yield curve, $TYX:$TNX, came as investors fled the longer out bonds, such as EDV, more than they did the shorter duration bonds, such as IEF.

November 4, 2010 was an economic pivot point, where … the world passed from the age of leveraging, characterised by credit expansion, currency expansion, and increasing consumer discretionary spending, economic growth and inflation in investment value with moneyness …. and into the age of deleveraging, characterised by credit contraction, currency contraction, decreasing consumer discretionary spending, economic contraction, and deflation in investment value with the destruction of moneyness.

I recommend that one be invested in and take possession of physical gold. But for those who have not come to the light yet, I recommend short selling the above small cap shares as well as the Small Cap Revenues, RWJ, and the Leveraged S&P, BXUB.

December 19, 2010 | Unregistered Commentertheyenguy

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