This is an interesting chart. It is a 2 year chart, so keep that in mind. Why 2 years? I think it shows an interesting progression of things weakening and falling behind.
Remember that these charts start all the lines as equal at the ‘cherry picked’ first cell. Then show change relative to each other in percentages from that starting point. What is that lowest, weakest line? The gold colored one? It is gold. The gray one that it is ‘dancing’ with is FXY the Japanese Yen. Remember that these ETFs (Exchange Traded Funds) are NOT the ‘stuff’ themselves, but often hold ‘wasting assets’ like futures and options contracts. For that reason, most of them will show long term decay even if the basic asset is stable. That is why they are trade vehicles only and NOT investment…
So, OK, we have the Yen and Gold running down roughly together. That does somewhat reflect reality in that Japan is weak and Japan is really pushing the Keynesian Money Stimulus (with no gain…) and Gold has dropped in price. Now these two are both inflation hedges, so this is saying the Big Money is not so worried about inflation hedging and more worried about getting some return (and 0% or near-zero US bank deposits don’t cut it.)
Next up is that orange Copper ETF JJC. It, too, is drifting down. After the ‘any inflation hedge will do’ died, the industrially demanded copper fell out of bed. Not a big global building boom going on and not a lot of demand for electrical appliances. Hmmmm…
The egg yolk yellow line just above them is a net-about-zero but with big (tradable) volatility. Clearly, though, the Emerging Market hasn’t emerged much. (That EEM includes some Brazil and China… the two prior golden child markets).
Next up is that green FXF line. The Swiss Franc. My “go to” currency for store of value. Net zero like EEM, but far less volatile. Relative to the $US, it has been stable. Even as an ETF with some long term ‘slippage’. Nice to know, but not very valuable. (Unless you were in Yen or € maybe).
We’ve also all heard about fracking and enhanced recovery putting some pressure on oil. It has also been volatile, and had a nice run up to about last June at +20%, but has been crashing in the last 4 months. That plunge at the end is particularly strong. No Joy in Saudi or Iran tonight… As productivity dropped off, and copper demand reflected it, eventually the demand for fuels followed so those prices drooped. That’s how I’d read this. (Might be nice to get some global consumption numbers, but they lag on release date…)
Which leaves us with the top three lines. Here the main ticker symbol is RUT – the Russell 2000. These are the smaller stocks. Tend to lead, up or down. Overbid in strong markets, harder to dump in weak ones. The Blue line is my standard of value, SPY, the S&P 500. Very hard to beat it long term. The red line is QQQQ the Nasdaq 100 (that is dominated by just a few tech companies such as Apple AAPL). Tends to ‘hang high’ longer in runs up as folks “buy the story” longer. An interesting thing about this set is that back in about June to August you can see that RUT had a “Failure to Advance” while QQQQ recovered from the “dip” and kept on going. SPY caught up to RUT, but then merged with it. Both sideways…
Now the way I usually read charts, I’d look at those three thin SMA Simple Moving Average lines on RUT and call it a “topping weave”. During up times, price bounces off the top side (see the first 1/2 of the chart). At the top, all 4 merge and weave. Rather like now. Then when the bear market starts, prices drop below the SMA stack and bounce down from the underside. To me, that last peak in Sept looks a lot like the start of that. We have 4 peaks in a row, each a little lower. SPY in comparison is only on the first “failure to advance” double top of 2 peaks.
QQQQ has not yet joined the dead zone party, but ought to shortly.
Now there is one really big HOWEVER attached to this. Markets do “odd things” at major elections and “odd things” at the end of a calendar year. The first as “who wins” often determines who will win the Lobby Lottery in D.C. and the second due to “tax issues” and holiday risk avoidance.
So is this a Holiday Anomaly? An Election Anomaly? A Market top, to be followed by “Dive Dive Dive!!”? That is where chart reading turns into crystal ball gazing…
IMHO, it will depend in the short term on how folks evaluate the mixed Republican Congress with Obama Obstinance will shake out. Long term IMHO it depends on how the Super Keynesian Global Meth Binge settles out.
It looks, to me, like the US stock markets have been on a stimulus driven run up. The Fed has announced the imminent end of asset buying. In theory, that ought to roll over the top of the market. While not yet confirmed (prices have to return to and bounce off the SMA stack from below to confirm it) this configuration looks to me like “last call” to exit stocks for a while. As soon as the first Fed rate hike hits, it’s pretty much guaranteed.
What would I do? Shift to very much faster charts and swing trade those (clear) cyclical swings of prices. One to 2 month runs. Since metals and ‘other currencies’ (other than the Swiss Franc) are pretty much a No Joy too, just ‘going to cash’ looks as good as anything. So “Long, Short, or Cash” in fast swing trades. As soon as a clear bottom is in commodities, they would be a good ‘dead cat bounce’ and then ‘recovery’ trade. For now, they are not very interesting. Worth watching grains / meats commodities, though, if the winter is truely brutal. Plenty of time for that, though, since spring is still a ways off (and for now JJG too is dropping with GLD).
In the context of potential Deflation events shapping up for the EU Zone and Japan, cash has its merits.
That’s my guess, anyway… and worth all you paid for it ;-)