The Last Canary

14 Feb 2012

2012-02-14T22:24:00.000-05:00

The fighter in the market still seems to be alive despite internal weakness.

I think Daneric was right last week when he said the Dow will likely be drawn to 13K before a top starts forming.

The percent of stocks with the 50 day over the 200 day is slowly creeping higher again. Despite new highs in the indexes, you can see this is still lagging.

The medium term still declined today despite the day end rally.

The short term declined, but not as much as it would have if the market closed mid-day. If this bounces back into overbought territory (it appears it might based upon some more Greek rumors), that will give both bears and bulls a terrific spot to sell. The McClellan also declined today, but can't get much higher either way.

From a seasonal perspective, February is usually the second worst month. I would not be surprised to see a mild pullback that lasts into March. March will likely form a bottom for a rally into May that will be more narrow then this recent rally. Then the summer should be weak again. That is just how I am feeling based upon current levels of indicators and memories. I have no idea if it is right.

Treasuries are still on their plateau. Free money everywhere or is it fear? Or both?

""Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst yourselves, and when you lost, you charged it to the Bank (me: Second Bank of the United States). Beyond question this great and powerful institution has been actively engaged in attempting to influence the elections of the public officers by means of its money..

You tell me that if I take the deposits from the Bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin. Should I let you go on, you will ruin fifty thousand families, and that would be my sin. You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, I will rout you out." "
President Andrew Jackson

13 Feb 2012

2012-02-13T21:35:00.000-05:00

As you can see in the shortest term (top) we reached an oversold status and bounced. Hard to believe isn't it? However, beneath the surface things were weakening for a while before the first red day in a while on Friday. All the rest remain elevated. The 3 over 8 slowed its descent today, but I will highlight that later.

See the black box on the left. that is the first Greek bailout causing a sudden spike in the hold long medium term. As you can see, we had already had weakness before it so a bounce was easier. This time all we got was a slowing of the descent of the HL-MT.

This shows the huge bounce in the short term after the first Greek bailout was passed. I was short up until the Friday before it, covered half, and felt huge pain on the Monday, but it turned out all ok a few days later. This time we just got a slow of the descent, but a possibility of a bounce for a few days as vapors might continue to push this thing up. We will see.

The white line still hasn't crossed the orange (if you zoom in you might be able to see there are two lines) and we had an up day on the index today. TSV and RSI. are both extremely overbought in the longest term. So, even if we don't get the exact direction over the next few days, the path of least resistance has to be down for the longer term.

AAPL has hit the target I pointed out last week on news that they will infect the rest of the Milky Way with their iDevices. I highlighted some sections where TSV got ahead of itself. It always signified a slowing in the shorter term, but obviously has not done much damage to the long term. Who knows where this beast will stop.

What is up the Republicans' sleeve? Trying to get Ron Paul to peak at the right time?

12 Feb 2012

2012-02-12T12:52:00.000-05:00

I know a lot of people think that VIX is rigged along with every thing else so they don't bother to look at VIX. VIX has remained mysteriously higher than previous lows despite this relentless rally.

Yes, it did touch the long-running low yellow line briefly, but for all intents and purposes the majority of the prices stayed above the slightly ascending white line.

But, maybe it shows up better here.

As you can see in 2007/2008, this existed for a long time before prices really caught up. It also helped create a divergence near the March 09 bottom but in the opposite direction. Now, price is substantially higher than the May 2010 peak, but $SPX in terms of $VIX (green line) is down from that point. You can also look closely and see examples of this in shorter time frames. See the May 10, Feb 11, and July 11 tops where price stayed elevated a bit longer than the ratio.

11 Feb 2012

2012-02-11T12:44:00.001-05:00

Silver update: still haven't reached the target from the pennant (I don't know if it will) or the 61.8% retracement line from the 2008 low which sits around 24. You can see the current channel, the current red line resistance and the green line which should also be support.

I was able to program in the buying climax code to auto update. I still have to work on forming a meaningful ratio of how many new highs turn into buying climaxes. Don't let the word percent fool you, those are raw numbers of stocks for the middle two. You can also see the RSI for the McClellan summation index for this long term view is at an overbought level. I wasn't investing in 2006 so I have no idea what it was like then where it stayed up for longer.

10 Feb 2012

2012-02-10T23:43:00.000-05:00

It seems a lot of people are having fun at Zerohedge about the Charles Hugh Smith article. Since I knew exactly where I could find the data because I have been producing the total energy consumption chart for some time, I went to the EIA site and pulled the data myself.

The weekly data does not show the epic collapse in November and is up to date through Feb 3 2012. I do not know the exact differences between these two types of data. The monthly data set ends in Nov 2011.

9 Feb 2012

2012-02-09T22:40:00.000-05:00

I discovered that the Summation Index in my charting software must be computed differently from that on Stockcharts.com. It doesn't make that much of a difference, but the following links show that we are still below or very close to the previous all time high.
NYSI
NASI

As Denninger pointed out today, Apple is doing the heavy lifting for the Nasdaq. I don't do Elliot Wave, but this move up for it looks like a solid fifth wave. It's rate of climb is higher than most other times during this bull market which implies a possible euphoric ending move. Based on the pennant drawn below, we are nearly at its target which looks to be near 500 - a nice round resistance number.

This is one reason I was apprehensive to calling the previous bull completely over, most leaders did not end euphorically at that time - they just stopped and stayed flat. Although, GOOG is back within the triangle I drew months ago.

To show just how weak the rest of the Nasdaq is, see above.

Another long term chart. This time National Bank of Greece at long term resistance. Will it break out now that the n-th bailout is negotiated? Greece is going to default. They are just playing the game for as long as the rest of the Europeans will keep loaning the fiat into existence for them. Once they won't or the measures are "too much," they will just default.

Medium term struggling to keep extending itself.

Short term notable weakness despite indexes levitating. We will have to watch to see how this reacts at its recent low (if it reaches it).

I don't share this indicator a lot because some sites charge good money for it. As you can see, it worked pretty well for spotting the bottom and previous tops. One problem with it is that it is not proportional to the number of highs/lows reached in the previous weak. We are at 240 now, but that looks meaningless until you see the context.

As you can see below, we only had 585 highs last week. This means that half of those were buying climaxes (reached a new 52 week high within the last five days, and then closed below the close from five days prior). The raw number of 300 doesn't say much without knowing that. I am thinking of a way to automate this in my other software package, and will probably do so this weekend.

You shall know the truth, and the truth shall make you mad.
Aldous Huxley

8 Feb 2012

2012-02-08T20:40:00.000-05:00

Update: 9 Feb 2012

Saw the London FTSE resistance line and thought I would post.

This is a two-day view of my favorite chart going back to 1997. You can see the latest reading blows away all other readings - including those while the US was coming out of a recession in 2002/3 and 2009. I thought we were at risk of entering one, but stocks are saying something totally different. Maybe this is how hyperinflation starts and people mistake it for growth at first?

On the flip side, RSI on the two day chart still is not near overbought. In fact, it is showing an incredible divergence from price.

I really don't know any more. However, I do know that I will try to no longer make decisions until indexes turn instead of trying to anticipate the turns based on historically high levels. It is clear that we are dead set on making history in everything lately.

Short and medium term time frames along with a combination of all at the bottom.

A longer term time frame. Percent of stocks with 34 day moving average over 89. A pretty strong historical number but still down from the last few peaks. You can see a smaller version of this in 2006 and 2007.

"Few things are more irritating than when someone who is wrong is also very effective in making his point.”
Mark Twain

7 Feb 2012

2012-02-07T22:00:00.002-05:00

Cannot get a whole lot higher. We should start seeing weakness in individual stocks. Who knows about in the Dow. Although, it and the Nasdaq are still looking ripe for forming the house of a 3 peaks and domed house pattern. http://thepatternsite.com/3peaksdome.html

A small decline the past two days in the short term.

At record highs in pretty much all time frames. A little weakness behind the scenes in the shortest term. VIX still has some room to the downside, unfortunately for the bears.

http://marketletters.blogspot.com.au/2012/02/interesting-graph.html
Check out the above link. Credit is usually right. I just don't know when it will happen. Our treasuries are still staying on their plateau despite a sell off today.

"Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size… If the credit expansion is not stopped in time, the boom turns to crack-up boom: the flight into real values begins, and the whole monetary system founders."
Ludwig von Mises (1949)

6 Feb 2012

2012-02-06T22:28:00.001-05:00

As I said I was going to, I was able to mostly recreate the Shadowstats CPI index using some math - it is not just adding a percentage because you can see the gap increased with time. I had to do it to use it to deflate other values. I will not send the data out of respect to John Williams. It is not perfect though.

This is what I wanted to adjust to Shadowstats numbers. It doesn't give us much as I hoped, but does show elongated times where it was below zero and didn't immediately lead to a recession like the official one did.

This is the raw index that I backed out after I got the real rate of change for the CPI. This is amazing. It is almost pacing credit growth (MZM) perfectly. Shocker! As you can see, the narrowest form of money, monetary base, has left everything in the dust as the Fed tries to prime the economy.

To show how well the MZM and the CPI correlate, I created this. This actually might have some predictive value. The idea here is that when MZM outpaces price increases (positive numbers) the new money actually buys more (anything - gas, Dow, food) and creates the illusion of a growing economy quite well. The opposite is true when the creation of new credit falls behind the increases of prices, each incremental amount of credit purchases less goods. I am still trying to interpret the peaks and the measures of it compared to the stock market.

Check out the second from the top. Truly amazing levitation. Either we have found the Sorceror's stone and are converting everything we own into gold, cured cancer, and the world's energy problems or this will not end well as everyone ends up on the same side of the boat.

The medium term has caught up and has fallen under the same spell.

Sorry if this looks incredible ugly and disjointed. I copied a square from around our current rally and placed it near strong rallies of this index the past four years. White squares outline the copies placed near the beginning of strong rallies in the past. The only one that has substantial length on it was the March 09 rally which the difference is highlighted in yellow.

"The market can stay irrational longer than you can stay solvent." Ain't that true?
John Maynard Keynes

4 Feb 2012 (Comment answer)

2012-02-04T21:34:00.002-05:00

In response to a comment, I'm posting here because I was limited to 4096 characters there.

Great question. Sorry for the long answer. I hope you read it.

In response to the economy being on the mend, I doubt it. ECRI has still not rescinded their US recession call. However, one of the charts I link to on my page still doesn't say "recession"as the CPI adjusted monetary base has been permanently elevated, and the yield curve hasn't inverted. I will try to create a Shadowstats adjusted CPI deflated Monetary Base and post it.
http://www.nowandfutures.com/images/predict_recession2.png

I usually don't try to figure out why because usually the "whys" might get in the way of rational thought. This time the reason why would have definitely helped with my conviction.

For whatever reason - maybe Christmas shopping, I completely missed the LTRO announcement or failed to understand it right away as I was being white washed with all the other alphabet soup acronyms out of the Eurozone that all seemed impotent at the time. The LTRO announcement came within a few weeks of the bottom for gold, silver, oil and stocks. As I understand it, the benefit here is it allowed banks to get fresh liquidity for up to 3 years in exchange for assets rated A or better. This allowed them to get some stuff off their books, use the fresh liquidity to buy sovereign debt, and the ECB to massively expand their balance sheet.
http://www.ecb.int/press/pr/date/2011/html/pr111208_1.en.html

Beyond that fundamental reason, I posted these two posts around that time.

http://thelastcanary.blogspot.com/2011/12/21-dec-2011.html
http://thelastcanary.blogspot.com/2011/12/19-dec-2011.html

They alluded to possible bottoms because we were oversold from a technical standpoint, but not with much conviction unfortunately for readers. I went long around that time most of the leading stocks, and did not get much out of them when I exited in mid January.

I always forget it, but I have a theory that the end of rallies really pick up the steam for weak stocks. You can see this in the 07 / 08 rallies too. As you can see the McClellan index actually bottomed in August, October and December with each low higher than the last.

The best stuff bottomed in August and outperformed since then. However, as those prices went up, the expected rate of return from them goes down, and they look more and more scary as they take out new highs.

Therefore, the "left out" assets become more enticing on a relative basis. Basic sector rotation occurs squeezing the easy performance out of the best, then the middle, and then the worst in the three (there aren't always exactly three) cycles.

As a quick example, see the following IBD favorites
:http://stockcharts.com/h-sc/ui?s=PII&p=D&yr=1&mn=0&dy=0&id=p69326070535
http://stockcharts.com/h-sc/ui?s=BIIB&p=D&yr=1&mn=0&dy=0&id=p56168368637
http://stockcharts.com/h-sc/ui?s=ALXN&p=D&yr=1&mn=0&dy=0&id=p73373376395

All have performed very well (20 - 50% up) since their August bottoms. None of them came back near that low.

Therefore, as the top performers rose they no longer appeared to offer "value" for large investors, while the laggards stayed weak - and relatively, their fast performance the past few weeks still hasn't caught them up with the high fliers in terms of performance since August.

http://stockcharts.com/h-sc/ui?s=ING&p=D&yr=1&mn=0&dy=0&id=p89249629446
ING up 10% or so from August bottom.
http://stockcharts.com/h-sc/ui?s=LYG&p=D&yr=1&mn=0&dy=0&id=p32944887514
LYG pretty much flat from August bottom. Truly pathetic despite its strong "catch-up" rally recently.
http://stockcharts.com/h-sc/ui?s=STD&p=D&yr=1&mn=0&dy=0&id=p06042658944
STD down a bit still. Pathetic.
NBG and IRE are both still below their August lows despite large gains the last few weeks.

These weak players are just enjoying the final phase of the rally that started in August. This is their day in the sun and it will end much like it has every other time. XLF as whole is still completely underperforming since August. They will not catch up. Most of these banks are bankrupt and will continually reverse split as they will continually be worth pennies. Their models (lending money to sovereigns that can't pay or citizens that can't pay doesn't work well) can no longer generate organic growth. Any money they get is just created and therefore does not represent real value or growth.

And vice versa, the same applies, a bear market is not over until it claims the strongest performers. Right now, it has really only gripped the weakest and let them come up for air recently.

http://stockcharts.com/h-sc/ui?s=$USHL5&p=D&yr=3&mn=0&dy=0&id=p07931405274
As you can see, it has slowly been claiming leaders as we still have quite a few less new highs than we did in 2010 and 2009 despite the latest moonshot.

4 Feb 2012

2012-02-04T09:43:00.003-05:00

Drew boxes around previous levitation periods. Those looked to last about a month and then weakened a bit in the second month. We are a little over a month into this one.

All time highs for the index. TSV and RSI both nosebleeds.

Same chart, just a different view. This one the TSV shows the level a bit better.

Still haven't made it back to the new high / new low ratios from 2009 or early 2010.

Despite this skyrocketing Friday, you can see it is still substantially lower than the previous two peak. What is going on here?

Have a good weekend.

2 Feb 2012

2012-02-02T23:25:00.000-05:00

No surprises today, light volume melt-up for many equities. No, I have not yet given in and committed suicide. Although I will admit, moments like this do make me wonder why I even play the stock market instead of just converting all my money into gold and silver.

The latter would probably make me more and give me much more piece of mind and free time. http://thelastcanary.blogspot.com/2011/12/15-dec-2011.html - I can even time the bounces in it pretty well. Despite breaking my downward trendline, I still have not cancelled the 1420 call. I don't know what it will take for me to do that though so it may be irrational for me to maintain it. Its just how I feel.

Treasuries are in an interesting position. Traditionally, they sell off as equities rise and vice versa. See below.
Charts for the day:

It appears this indicator is much more accurate after a retry at the highs.

Short term has declined some time now while the Dow has gone up. This has happened before and usually occurs before a decline, some erasing the move before it, some not.

Summation index still hanging out in the overbought regions.

Intermediate term bonds have stayed strong despite this stock market rally. About to break down or up?

Long term bonds have also stayed strong despite this stock market rally. About to break down or up?

1 Feb 2012

2012-02-01T21:47:00.003-05:00

The broken record is at it again. We are overbought, and I think that is part of the reason for the selling into the close. The Nasdaq looks like it could be forming a 3 peaks domed house pattern, but I imagine the domed house will have to be formed on waning strength of most stocks - especially considering the advance decline for the Nasdaq.

As you can see, the Nasdaq 100 is doing most of the heavy lifting for the Nasdaq considering this is what the overall advance decline picture looks like.

At all time high levels for the McClellan Summation index levels. Who knows, maybe we will just keep going up and make a whole new normal? RSI at 98. MACD bearish descending peaks since the original bottom in August.

8 day moving average of the oscillator about to go underneath the 20 day. As you can see the peaks have decreased in size in both directions since the original bottom.

The second one down shows the increase today failed take out the recent highs.

The Spanish banks failed to appreciably rally (comparatively) out of a fairly bullish tightening pattern that a lot of the European banks formed over the summer, and jumped out of. I wonder if Spain will be the next focus area for the Euro crisis.

Can you say parabolic?

31 Jan 2012

2012-01-31T22:16:00.000-05:00

RSI has nearly peaked out in the longest term I track at 96%. The index itself is within a few percent of all time highs.

Pretty persistent weakness in the shorter term indicators, but it has not yet amounted to anything. The medium term (bottom) is starting to roll over a bit, but if you look at previous times it has been this high, it usually takes some time.

30 Jan 2012

2012-01-30T22:41:00.000-05:00

Nearly up against the wall for both price and the RSI of the summation index. How can things get any better for the stock market while the real world flounders?

In the medium and short term this has not mattered much. Five years from now maybe we will see if this massive divergence between price and moneystream (similar to on balance volume) did matter. Note the divergences between price and it at the peak in 2007 and 2008.

VIX tried to break out of this triangle today and seemingly failed. The next few days should tip their hand to whether this tightens and calms down or if we have truly already broken out. The white support line at the bottom is ascending and the orange is flat with the previous lows. Both are possible supports with the latter being a support with even more confidence due to long term history.

Today made quite a dent in two shorter term time frames I track when compared to previous pullbacks from the past few weeks.

"... a speculator is one who runs risks of which he is aware and an investor is one who runs risks of which he is unaware."
John Maynard Keynes

28 Jan 2012

2012-01-28T19:33:00.000-05:00

The peaks in the WLI in Jan 2000 and April 2007 occurred a few months before a noticeable stock market top. This time, the WLI has not really responded like the stock market nor like it responded during the 2010 rally.

Ratio of SIL, the miner index in terms of SLV (a dubious proxy for silver, but it is the best I have) shows that the miners have recently outperformed the metal.

The same for GDX in terms of GLD, but this time the metal has significantly outperformed the miners. In fact, the ratio is headed back towards all time lows found in 2008. I do not know why.

My composite indicator (shows percentage of stocks with various shorter term moving averages over various longer term moving averages...e.g. 1 over 2... 33 over 55, 55 over 88, etc) has had quite a rally off lows. The yellow line shows its current value is one of the highest in the last 7 years. The red boxes show the moving average crossovers.

The short term indicators are above it, and I am frankly tired of saying they are overbought like a broken record. However, like all things, this too shall pass.

Now the McClellan Summation Index, its RSI and TSV show us the same thing. However, this shows there is some room to the upside still on the RSI, but only about 10 points.

"The Wheels of Justice turn slowly but exceedingly fine."

Sun Tzu

26 Jan 2012

2012-01-26T22:33:00.001-05:00

Showing the extreme levels for my medium term indicator.

Started heading down in the short term, but it tried this a few times the past few weeks and failed.

Another view of the McClellan Summation Index shows its rate of change (orange) failed to reach highs from previous rallies, but still is at a high level as indicated by my straight line. MACD shows negative divergence and the RSI for this time frame is also overbought.

Today was the first day we started strong and got progressively weaker throughout the day for some time.

"Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria."
Sir John Templeton

25 Jan 2012

2012-01-25T21:53:00.001-05:00

As you can see and already probably know, we are hitting extremes from the best of times during the past four years.

TSV still low, but heading to 2nd standard deviation which has apparently worked as peak recently. RSI is high as I continue to point out.

Like I said yesterday, VIX remains in its channel and heading to its long time support of around 16.50. This means we need some serious dry-up of excitement to both sides.

I was very tempted to go long EXK and RIC today as they seem to have broken a triangle to the upside, but considering the overbought indicators above, I decided not to. I may regret it as silver and gold also broke the resistance lines I had drawn for some time now. There is a possibility that they both fail to maintain that break, but long term I remain an extreme bull.

The economic reasons for the fall of Rome: http://ancienthistory.about.com/od/fallromeeconomic/a/econoffall.htm don't miss the chart of debasing the coins chart.

Elizabeth Warren on Jon Stewart.

The Daily Show
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

24 Jan 2012

2012-01-24T22:12:00.002-05:00

Still overbought. Fed minutes are big tomorrow.

VIX has some room to the downside still. It bumped against its upper channel line today.

It is amazing that we are getting back to levels on the summation index that were never seen before 2009. The TSV is also against the upper resistance. Simply incredible. I do not see how this can end well.

"Paper money eventually returns to its intrinsic value - zero."
Voltaire, 1729

23 Jan 2012

2012-01-23T21:46:00.002-05:00

This will be a little shorter tonight due to the length of last night's post.

A commenter requested a chart similar to the one from 1980 to the present but from 1998 to the present. As much as it may seems so, I honestly did not "load" the data sets to present what I wanted to see, MZM data only went back to 1980 so that is what I used. I may see if they have measures before that date when I have the time.

Here it is.

As you can see, gold is outpacing MZM by a ratio of 2 - this was reached by the Dow:MZM around 1996. Also despite MZM going up by a factor of 3, the stock indexes have not gotten off the floor.

These three time frames have continued to levitate.

The VIX continues its downtrend. Still a little room to the downside for price, TSV and RSI. I really don't know how it could get much more complacent.. especially during a Fed minutes week. We will have to watch to see if we break out of the downtrend.

Remember who brought you the July 31st 2011 VIX triangle end point a few months in advance?

"Thermodynamic miracles... events with odds against so astronomical they're effectively impossible, like oxygen spontaneously becoming gold. I long to observe such a thing. And yet, in each human coupling, a thousand million sperm vie for a single egg. Multiply those odds by countless generations, against the odds of your ancestors being alive; meeting; siring this precise son; that exact daughter... Until your mother loves a man she has every reason to hate, and of that union, of the thousand million children competing for fertilization, it was you, only you, that emerged. To distill so specific a form from that chaos of improbability, like turning air to gold... that is the crowning unlikelihood. The thermodynamic miracle."

Dr. Manhattan

22 Jan 2012

2012-01-22T22:40:00.003-05:00

As I talked with a friend over dinner last night, we came up with the idea that we need to see a chart of the Dow against a broad credit measure. I am no expert on all the different ways economists decide to measure credit...m3, m2, m1, monetary base, but I believe I read somewhere that MZM is the most broad the Fed has to offer. Nowandfutures.com and shadowstats.com still has charts of m3 but I don't have their data.

The results are not surprising to any gold bug who has been exclaiming against deafening ears for a decade now that the US economy has not grown in real terms despite the media continually using words like "surprisingly bad considering the recovery" or "don't want to fall into a double-dip" not realizing the first two dips never ended for the broad swath of Americans. What they mistook for growth could be labeled, in many cases, as the Broken Window fallacy, where destruction and rebuilding or building with no purpose somehow makes us richer. Certainly there has been money to be made playing the last two stock market bubbles engendered by unprecedented fiscal and monetary easing, private outsourcing, and replacing people with better processes. I still believe in things like competitive advantage or division of labor to drive consumer good prices down, but sometimes I waiver, especially after reading articles like this: Apple says US not competitive.

I view economic improvement as the increase in free time and real wealth of each individual. These goals have mainly been achieved over the course of history through inventions and the use of fuel to make survival cheaper and easier. I find that these are the only things that actually allow individuals to create new things, ponder new ideas, and maybe make something that make lives better for others. Orville and Wilbur Wright invented the airplane using free time as their bicycle shop provided enough funds to meet basic survival needs and fund experimentation.

Some people view economic success as the percent of the population that spends its time doing busy work. Maybe they are right, for a free people with plenty of time might begin to analyze the world a lot more than they do when they work 75% of their waking hours, and it may become dangerous for those in power. Plus, in a world where everyone can easily get what they want, the rich can no longer feel special as those little things that distinguish wealth like big TVs, cars, eating out are easily available to everyone. Ever wonder why rich people continue to live surrounded by the poor in third world countries even though they could easily migrate to a cosmopolitan city in a better country?

Without further delay, let's look at some charts confirming what worries many people. This is from the Federal Reserve's site directly. It is merely a coincidence that the scale works well for the Dow and MZM. The S&P just stays at the bottom, which is why I created my own chart later.

As you can see at one point the Dow Jones Industrials, what I consider a poor index to track the quality of the stock market because it is only comprised of 30 companies, was outpacing MZM for much of the 90s. It appears that it is no longer easily responding to what seemingly must eventually be exponential growth of debt (or credit if your glass if half full). I think that if the Bernank is targeting any constant rate of inflation, he might want to watch this video to fully realize what that means, or he may already know.

Now, let's check out the S&P and some other prices.

This chart shows that MZM is now outperforming the S&P 500. It also shows that on the scale of bubbles, gold is not quite there. However to be fair, in 1980 gold was still falling from its 70s bubble and quite high. The stock indexes were about to be launched after a decade of nothingness. Nevertheless, it still shows the incredible growth of debt and that a lot of it has made itself appear as prosperity in the stock markets. As of now, not a whole lot has leaked into the gold market.

To make it easier to see, I plotted the stock indices in terms of MZM. As you can see, we have had a lost decade despite more and more desperate attempts to get it going by going further and further into debt. We are actually below .01 on the S&P (right hand axis) meaning it actually requires more debt than we can get in output from it.

The same chart, but this time for gold. Notice we are still substantially where we were in 1980, and the trend looks to be up since 2000. These ratio charts don't do much for setting targets. However, the first chart might. If gold were to be 12 fold of its 1980, the same as the MZM currently is, the price would be $7152.

One thing of humor while putting this together is that the Fed's site does a wonderful job of allowing for many measures to be plotted and downloaded, it doesn't have the price of gold despite having piles of other data showing they clearly are interested in gold's price, like the volatility index for gold miners or total reserves excluding Iran's gold. See below. I had to use gold price data from gold.org

Courtesy of ShadowStats.com
This seems to be showing a hard rollover for Federal Withholding Tax deposits. Considering this is a new data source for me, I don't have anything else to say for it.

Still haven't quite recovered for rail traffic or carloads.

And for my normal day to day charts...

Long term view of the below chart. Is there any reason that this must be permanently glued to the top? Could the opposite occur? I don't know.

This still shows the behind the scenes weakness that is hidden by the Dow at nearly two year highs.

This shows that the percent of stocks over their 40 day moving average cannot get a lot higher considering historical trends.

The RSI (bottom) is finally overbought for my favorite indicator. This does not signal a turn is going to happen tomorrow, but does signal that a turn always happens in this zone.

This is the substitute for my normal excel plots. Note that all timeframes from short to medium term are overbought. This doesn't mean they can't stay overbought, but it does mean it is more risky to buy here than it was to buy at the numerous valleys the past six months. We are still under the peak from 10/26.

There was an ice storm here this past weekend that caused a power outage - I live in a run down apartment to save as much money as possible. I lost the last three weeks of my excel data. So much for that autosave feature. The weirdest thing is that Excel autosaved some other spreadsheets that were mostly completely useless to me. I just put the most recent value and the value from three weeks ago as half the range each so they look like step functions.

I could fix it by using my saved plots, but find it unnecessary. We have recorded enough values to know what is overbought and the chart above is the same - just not as easy to see. Unfortunately, the levitation on my short term chart was amusing.

Best of luck. Make it a good week.

"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."

-- Alan Greenspan (Chairman of the Federal Reserve US Central Bank), appearing before the Senate Banking Committee on February 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.

"Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted."

-- Alan Greenspan, May 20, 1999

19 Jan 2012

2012-01-19T21:43:00.000-05:00

To use my bird analogy again, it appears the last of the birds are finally landing in the new location before the leading birds take off again.

It seems the last of the skeptical bulls are finally being sucked into long positions. It is a shame that they are about three months late - hope takes a much longer time to build than panic. Sector rotation has almost ended as money has left some of the leading stocks in stalled positions while the most hated have rallied.

I check my blog's visitor stats daily. Maybe I am obsessed. I always find that around turning points, my viewership begins to fall off substantially. I was scoffed at on other blogs for saying that we were bottoming in December and AAPL was going to make a new high. Is it because people start to think "this idiot is always wrong, I am just going to buy/sell" as I consistently tell them to look the opposite way that the market is pointing? Likewise, it has fallen off substantially this week, and the end of last. Once we start to fall, viewers will come back again. Would we prefer to be lied to and told to just go with the flow?

TSV (middle) not there yet. RSI overbought as you would expect. Still forming a lower peak than the previous peak.

My composite indicator at the bottom is showing significant strength as almost every time frame is being levitated. We are against 1.5 std bollinger bands. The 2 std are sometimes negative, which I don't consider accurate so I don't use them.

Overbought in medium term. Heading towards previous peak. Only a few peaks higher than that.

Short term still overbought.

VIX still has some room to the downside, but is within a tightening descending triangle pattern that could explode upwards. The Euro is at the upper edge of its descending channel. Gold (using PHYS) doesn't have room in its descending channel, silver (using SLV - don't know what happened to PSLV, maybe reversion) not much, and GDX/GDXJ (at resistance trendline) look fairly weak again.

"The propensity to swindle grows parallel with the propensity to speculate during a boom... the implosion of an asset price bubble always leads to the discovery of frauds and swindles"
Charles P. Kindleberger

18 Jan 2012

2012-01-18T21:55:00.001-05:00

New highs absolutely exploding upwards! I think Zerohedge was right, people are running to the crap and most shorted issues. This usually means the rally is almost over. I discovered this phenomena by accident when I first started trading - my crappiest performers always did well towards the end of bull cycles.

Overbought in medium term. Still negatively divergent from last peak.

Overbought in short term but performing a quite amazing levitation act to finally reach my target - I had no idea it would happen in such a straight shot. Euphoria much? What is so good again? $100 oil? Next to nothing savings rate? Earnings disappointments? ECRI forecasting a recession? Stealth QE? More government control over aspects of our lives?

Yes, I will keep saying stuff is overbought until it is not. It may make me seem like a moron (maybe I am!?) as "the move passes me by" but this is a good way to get on the right side of the moves before they happen.

I'm saddened at how upset people are about SOPA/PIPA and how they (not all) let NDAA get passed without notice. Guess what? Facebook and Wikipedia are pretty worthless if you are indefinitely detained.

Best of luck, friends.

"The more people who believe something, the more apt it is to be wrong. The person who's right often has to stand alone."
Soren Kierkegaard

17 Jan 2012

2012-01-17T22:32:00.000-05:00

As Charles Hugh Smith pointed out on oftwominds.com over the weekend, this melt-up, gap-up action is allowing plenty of sales to happen behind the scenes at good prices. I don't know when it will end because I am always early for predicting tops, but we are closer to the end of this rally than the beginning.

Check this out: 5 Day Total of US New Highs - New Lows despite the SPX melting back up to near 52 week highs, it is quite clear that most stocks are in bear markets since April of 2010. It is only a matter of time before the virus spreads to the indexes again.

Signalling a contraction in the real economy, the Baltic Dry Index has fallen off an absolute cliff.

In the longest term I track, the RSI (bottom) is reaching overbought levels. This index usually turns slowly so it can remain overbought or oversold for some time.

In the medium term, TSV (middle) is reaching for the ceiling. We do have some space left, and we have some space left for the S&P target I set in mid December. Either way, we are closer to a top than a bottom. I won't try to predict how much longer we melt up or for how many more percent because it doesn't really matter in the grand scheme of things.

Medium term flat on the day.

Short term is confused, and for good reason with the endless gap up melt ups leading lambs to the slaughter.

"When God desires to destroy a thing, he entrusts its destruction to the thing itself. Every bad institution of this world ends by suicide."

"All the forces in the world are not so powerful as an idea whose time has come."

Victor Hugo (1802-1885)

16 Jan 2012

2012-01-16T19:54:00.004-05:00