Breakdown of RUT vs QQQQ and weak metals and currencies

RUT 7 Nov 2014 vs QQQQ metals and currencies

RUT 7 Nov 2014 vs QQQQ metals and currencies

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 ;-)

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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15 Responses to Breakdown of RUT vs QQQQ and weak metals and currencies

  1. Sandy McClintock says:

    Interesting chart :) Gold seemed like a good idea at the time!
    A form of saving that, I’m told, is growing in Australia, is 12 to ~24 month Mortgage lending which does NOT involve a bank. Typically the mortgage broker makes a margin of 2% so the borrower might pay 10% interest and the lenders get 8%. The loan to valuation ratio is typically 65% which means the market can drop 35% without the risk of capital loss. If the borrower defaults, then the broker salvages the loan by selling the property. Based on experience (!) the risk of capital loss is far lower than the risk that a company defaulting on repayment of the bonds that it has issued.
    Is this sort of business growing in the USA too?

    e.g. http://www.latrobefinancial.com.au/WealthManagement/InvestmentShoppingList

  2. p.g.sharrow says:

    Well at least it is an EMSmith guess and not a WAG ;-)!
    I just bought 3prs of 501 LEVIs $62 per——-$62.00!! Mexican laborers must have got quite a pay raise. The cases of KERR jars I also bought today have gone up, From $14 to $19 over the last year. The prices on nearly everything We buy has increased quite a bit over the last year, only fuel has decreased. I’ve seen the stagnation of income over the last 6+ years, serious inflation in day to day purchases for the last year. Two weeks ago I purchased 1/2 CDX panels $19 for $13 – 2012 plywood. I am still waiting for the deflation in stuff I buy or at least an increase in income.
    The prices of Silver, copper, gold, oil, etc. received by the producers has definitely dropped, At retail only fuel prices have decreased as of yet.
    Bankers want the prices of their assets to hold or increase, everything else to hold or decrease. AT some time they must trade their bags of money for things of value. At this point only stocks create ROI. One of the founders of Home Depot said things were great for him at present because he could borrow from his bankers at next to zero cost and earn 3% on Wall Street investments. Real risk investments that increased the economy were out of the question because of the burden of regulation. pg

  3. Graeme No.3 says:

    p.g.sharrow — and what is his ROI if the market drops 35% ?

    Copper is sometimes called “the world’s best economist” as it is supposed to tell you how the world’s economy is going. Sliding price means a recession or depression coming.
    Coupled with previous article it looks like trouble with deflation.

  4. E.M.Smith says:

    @P.G:

    Well, I’ve had much of the same effect. What I buy goes up, what I don’t buy (can’t buy?) goes down, what I make stagnant or dropping depending on year.

    $62 for Levi 501s? REALLY? My god, that’s insane. For that much I can make my own from canvas and pop rivets… It’s just cotton sail cloth, sewn and a few copper rivets. (I stopped buying them with they crossed over $30 some many years back. The “knockoffs” were good enough and better value / $$$ even if replaced more often.)

    Noticed that “Asparagus” jars ( wide mouth 1 1/2 pt ) are now sold in flats of 9 instead of the usual 12, but the price is about the same. 1/2 Gallons sold in 1/2 dozens instead of the old dozen box.

    @Sandy:

    When I was a kid, lots of real estate was sold with short term private money. Then the bank mortgages kind of took over. Now? Well, since I don’t know of anyone who is buying houses… I’m sure it is happening somewhere, but no with anyone I know.

    Oh, and per gold looking like a good idea at the time…. I seem to remember taking a LOT of flack from people about calling a top in Gold and especially in Silver some long time back. So I’d have to say “it seemed like a good idea at the time to SOME people”… ;-)

    Watch the charts. They tell you when it is a good idea. (I can review how to read them if folks have forgotten… but I’ve posted it so many times it was getting redundant and I figured maybe kind of boring…)

    @Graham No.3:

    IFF you are rich enough, you hedge. Long the basic asset, with an option (often out of the money by a fair amount) that limits the loss. So he would loose about 4% in a 35% market crash, and at the end of it still own the asset. Hard for “The Little Guy” to do that (mostly due to economic scale and expense of advisers, not lack of ‘product’).

    Yes, Little Orphan Annie and Daddy Warbucks had it right with his call to “Buy Copper! I need more Copper!”. It is one of my ‘go to’ indicators of economic activity. Before the houses can be sold, or the cars, or the machinery to industry, the copper must be mined and refined and sold and made into wire and pipes. Copper moves first, THEN the other industries. That it is dropping right now is not particularly encouraging.

    I’d speculate a short term happy bounce in the stock market based on the notion that The Republicans will fix things; but I think it beyond their control. IFF the bounce fails to exceed prior peaks, and instead falls below the SMA stack, well… So keep watching copper for an early turn; but as of now it is saying global demand is weak.

  5. Larry Ledwick says:

    A couple interesting charts on this link, shows historical inflation adjusted copper prices, and U.S. Interest rate chart for 3 month T bills.

    http://www.aboutinflation.com/copper-vs-inflation

  6. p.g.sharrow says:

    EMSmith says “… So keep watching copper for an early turn; but as of now it is saying global demand is weak.”
    Well the buildout in China is over. Copper is the most heavily used, restricted supply, industrial metal so a good yardstick for economic activity. Restricted enough so a greedy evil bastard can manipulate it for awhile. So where would the next large demand spring from? Most copper, once won from the earth, is recycled and not used up, so the amount available just keeps rising. If anything copper has decreased in real cost over the last 80 years. This reminds me, I will need to buy a bunch more wire and tubing over this winter. pg

  7. p.g.sharrow says:

    @EMSmith; You really think I could get by with imitation jeans? ;-) I don’t punch a computer keyboard for a living. Levis are my armor for the day to day combat of life in the field. I have had them turn a chainsaw from eating my leg!. They last me several times longer the any jeans I have ever tried. Besides you know that a heavy, dark blue denim Wrangler shirt and shrink to fit 501 Levis are Uniform of the Day for me, have been for most of my 68 years. Never owned any other suit except my Navy duds. Lol pg

  8. E.M.Smith says:

    @Larry:

    Interesting chart. Copper, spot today, is about $3 and a few pennies. Less than the end point of the inflation adjusted chart. So still dropping.

    That T-Bill chart is rather dramatic, too. Back when a 10 year was about 14%, Regan had put the brakes on things (via Volker IIRC). I knew where things were headed, so bought a ‘ladder’ of ‘strips’ for the Spouse IRA. My only mistake was making the ladder 5, 10, 15 year instead of 10, 15, 20… or 15, 20, 30… It was about $1k / chunk, maturing to about $5k, $10k,, something like that. At any rate, I got a big win by doing nothing at all for a decade+

    @P.G.:

    I know. I grew up in 501s in farm country. Wasn’t until I was in college that I wore other stuff (and even then kept 501s for the ‘rough stuff’.) But once they hit $25 to $30 / pair, just could not justify it for my needs. (Swapped over to bib overalls ;-)

    Still, at $62 / each, I’d be looking to get some sail cloth and try making my own… ( Mom was a seamstress in WWII making uniforms in the UK. I learned to sew and knit when I was about 5… and helped make some of my shirts in grammar school and high school…) There’s some way tough sail cloth out there… though getting the right blue might be hard ;-)

  9. p.g.sharrow says:

    @EMSmith; the creation of my own pants is not that difficult, just another chore.
    See: “The Return of An Old Friend”
    http://pgtruspace.wordpress.com/2014/01/05/singer-31-20/
    I just created a wizards hat and a heavy full length coat from worn out shirts and pants last winter as well as a covering for my FRP disk this fall from a light canvas painters drop cloth. Over the years, tractor seats and pickup seats have had coverings made on this 1900 Singer tailor’s sewing machine. I too learn to knit and sew at a very young age as well as cooking, cleaning, and changing diapers before I was promoted to field hand. ;-) Farm country kids contributed to the family resources at an early age. Not at all like moderns that play into their mid 20s. We will see how ambitious I am this winter. 8-) pg

  10. E.M.Smith says:

    @P.G.:

    Looks exactly like the one my Mum had (on which I learned to sew and prior to learning, on which I ran a needle through my thumb… just backed it out and removed the stitch and all was well… after a while ;-)

    Had a simlar machine of my own ( a White, IIRC) with an electric motor too. Gave it away when I got rid of a lot of my stuff and moved onto a boat for a couple of years. Among life regrets… ought to have just stored stuff…

  11. p.g.sharrow says:

    @EMSmith; Well, it appears that David Stockman agrees with you. This hour on Varney, Fox Business, said much the same as you, Get clear of the market and into Cash. American cash as it will be buggered least in this rush to the bottom and therefor Deflation of American prices as the rest of the world attempts to reflate their inflation Genii. pg

  12. R. de Haan says:

    Also get to become your own emergency healthcare provider when you live rural: http://www.usatoday.com/longform/news/nation/2014/11/12/rural-hospital-closings-federal-reimbursement-medicaid-aca/18532471/

    Exactly the same thing is going on in Europe.

  13. Larry Ledwick says:

    Interesting tale on high frequency trading and on how the big exchanges were front running trades due to timing delays in trades, and how one trader figured it out and broke their system to return to fair market trading.
    http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.html

  14. E.M.Smith says:

    @P.G.:

    Nice to have some confirmation… I’ve got an interesting set of comparison graphs of USA vs EU vs Japan vs EEM to post some time…. Short form: Japan is dead flat along with emerging markets. EU rolled over when the banks failed the stress test in about last January. Only the USA is still climbing, and that is looking ever more unsupportable to me. We can’t lift the world on 2% GDP growth (most of which or all of which is fictional statistics games anyway…).

    To quote somebody or other: “I’ve got a baaaaadddd feeling about this…”

    I’ll try to get that posting up tonight.

    @Larry:

    R. de Haan had a couple of nice links on another thread too:
    http://www.zerohedge.com/news/2014-11-12/big-banks-busted-massively-manipulating-foreign-exchange-precious-metals-%E2%80%A6-and-every

    I’m seeing less reason to participate at all and more reason to just buy things I can use and sit on them… ( I.e. pay off all debt. House, car, cards, whatever. Exit the game.)

  15. Larry Ledwick says:

    I saw those links — just more of the same.

    Regarding precious metals markets, you know the time to sell if you own precious metals is when every late night TV program or show that touches on finances has wall to wall ads about “now is the time to buy gold!” (or get your new low interest rate mortgage now!) That is a clear sign that the folks who have cornered a good share of the commodity are trying to dump it on average Joe investors. The average Joe investor is almost by definition the last to get in on the action and is invariably the designated sucker to get stuck with the worthless stock or option just before it nose dives. I saw this before in the 1980’s when the Hunts tried to corner the market in silver and everyone was pushing gold.
    I had just happened to have been reading a book about the great depression and one of the major players in the 1920’s stock market who cashed out just prior to the bust, told the story about how he realized the market was about to crater when he heard shoe shine boys talking about hot tips on the market and secretaries trading tips in the elevators. He took that as the sign to get out while he still could and he avoided getting totally wiped out like so many other major players.

    Even ignoring malicious intent, it is only natural for those inside a system to try to tweak things to their advantage. Over time the compounded effect of dozens or thousands of such moves tends to shift the advantage to the insiders. It is like in a casino. You know (or should know) that the one party which is sure to never lose in the long run is the casino and the one party sure to come out on the short end of the stick is the player (on average over long periods of time). Only in a handful of games can the player use good number theory and smart play to beat the house, and he will most assuredly be the exception rather than the rule.

    It is the average recreational player who always gets skinned, it is just the nature of the beast. If that was not the case the market/casino would go out of business in short order. If all the players are winning, the casino is going bankrupt. If everyone is pushing you to buy while you can, you can be sure that someone else is trying to sell while they still can.
    That is why the book “Black Swan” is such an interesting read. People are not good at seeing the logical outcome of current trends. As the saying goes “If it cannot continue for ever it must end!”
    Or “If you can’t figure out who the sucker is at the table, it is you!”

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