I find this chart both a ‘worry’ and confusing. Something is wrong and I’m not “getting it”.
The main ticker here is the SPY S&P 500 ETF. Notice that at the right edge / end volume is dropping off fast while prices continue to rise. Volatility is quite low as well. Those are nominally indications of a ‘top soon’. Yet “momentum” continues to say ‘be in, we are going up’.
EEM Is the Emerging Markets ETF. It has been “disconnected” from other markets for the last couple of months. The “Emerging Markets” are having some kind of “issues” disjoint from the USA and EU markets. Exactly what? Unclear.
EZU is an ETF that covers the European Monetary Union countries, so a mixed bag of Europe. About a month and a half ago (and about one month after the EEM diverges) it starts to diverge to the flat / downside.
TLT long duration bond fund, is in a slow decline. To be expected when The Fed is raising rates. But The Fed isn’t raising rates. Money is leaving bonds, perhaps because interest rates are so low, and yet it is not going into EU and EEM.
RUT the Russel 2000 small cap ETF, is rising well. Faster than SPY. As it diverges above SPY, that is typically an indication of a market that is a bit ‘toppy’ and likely to have a “correction” soon. Yet up it goes, and up goes SPY, and down goes TLT.
All in all, it just looks like an asset bubble to me. I don’t know exactly why. It just looks like Old Ben Bernanke shoving cash at the world and it has to go somewhere. It is always possible that the volume in SPY is disconnected from the actual volume in the total S&P 500 stocks. There are a great many S&P 500 ‘funds’, so this might simply mean that many “just folks” are leaving bond Mutual Funds and buying S&P 500 or “Small Cap” stock funds; while ‘traders’ who use SPY more are backing away from the table.
Whatever it is, something seems “wrong”, and I can’t quite tease it out. Maybe that’s what it looks like when The Fed is dedicated to keeping things inflated, reality be damned. The way that the rest of world markets are ‘disconnected’ from SPY and RUT says that other economic forces are afoot in the world; but not reflecting in the SPY / RUT movements.
OK, here’s a ‘live chart’ of slightly different things.
Here we see a fairly dramatic disconnect between the Nasdaq 100 (QQQQ) and SPY. Also on this chart is GLD – Gold. It has been trending down for months, but at the end (right side) looks like it is trying to set a floor. Dropping has stopped for a little while.
QQQQ has underperformed SPY during the down cycle from about mid September to mid November, which is normal. Typically small caps and QQQQ swing to the outside of SPY on each direction. But in Mid November when things turn up again, QQQQ lags. Badly. AAPL Apple Computer is a large part of the weighting in QQQQ, so perhaps it is just that Apple has hit some questions about performance ‘going forward’ without Jobs and the Samsung and other folks success in making “good enough” knockoffs of the iPhone. But for whatever reason, we have Yet Another Disconnect.
I added DIA Dow Jones 30 “industrials” (that includes banks and drug companies – go figure). It is looking fairly normal. Typically tracking SPY just a bit off one side or the other.
Then the real ringer, EWJ – Japan. Laying on the floor for years after a major market crash ( from about 44,000 to about 11,000 where it stayed…) it has suddenly started ripping upward now that their central bank has said they are joining the “bugger the currency club”. As this ticker and this chart are in $US, the Yen drop is already adjusted out in the chart. Cash is flooding into Japanese stocks.
Generally saying to be in SPY (though there may be other better choices). RSI is in a ‘rolling from midline to near 80’ pattern that is seen in steady rising tickers. The general rule for then is to buy when RSI touches the midline. Yet we had a ‘near 80’ moment and “lower highs”, if only slightly lower. That classically means weakening and a correction due. So is The Fed Money Flood propping it up?
MACD has ‘blue on top’ and above zero. It, too, says “be in”.
ADX had inflected downward and briefly we had DMI- the red line on top. That happens at a ‘be out’ time, or also at a ‘buy the dip’ time. About 1 : 3 ratios. So this looked like a ‘top’ but Uncle Ben came on TV and announced free money to continue, and the run inflected back up as “shorts” rapidly covered.
Now we have a bunch of nervous shorts and a bunch of easy money propping up a bubbly ticker. So how’s that going to work out? I don’t know.
In Europe, the Big Wigs are meeting again to address their economic troubles and discuss Spain and Greece. News Flow had France as also flatlined on economic growth. Everyone is agreeing they want ‘growth’. Then they do things that stifle growth.
In the news on CNBC today is news that foreclosures are headed back up in the USA.
This is good how?
It looks to me like, mostly, this is all just a mater of “Don’t Fight The Fed”. Not here. Not in Japan. They can inflate very large asset bubbles and keep doing it far longer than ‘reasonable’.
Not on these charts: I looked at industrial metals. They are also looking weak. Not a lot of heavy demand for metals from new manufactures.
So how to interpret all this?
The global economy looks dolorant to me. Just painful. There’s lots of ‘happy talk’ and lots of ‘Things are getting better!’… but the consumer is taped out and limping along. China is growing, but a bit under plan. Japan is desperately tying the “poverty through currency destruction” method of improving “competitiveness” and hoping that does something for the economy. The EU is inspecting navel lint, yet again. “This time for sure!”. I don’t expect much change. The Emerging Markets are just sitting around waiting. And the USA? Hanging it all on Uncle Ben Bernanke to blow enough hot air into asset bubbles that we feel better even while we can no longer afford gasoline and food.
Somehow that just doesn’t look like a good reason for thinking the economy will be getting better. Yet stock prices rise. In the USA and in Japan.