This is an interesting chart:
There are several things of interest on this graph. First up, is the Green line for the Ireland ETF (Exchange Traded Fund). Rising nicely, then keels over at the March / April point. Notice that other lines have a notch then. Something happened. A bit of digging shows this more or less lines up with the banks of Europe failing their “stress test”.
Now look at the egg yolk yellow line. That’s EWO the Austria ETF. It goes flat then, then keels over later. Austria has a lot of banks too…
For a moment, skip down to the EEM and EWZ lines (Emerging Markets ETF that is a mix of Brazil, China, and some others) and the Brazil ETF. Not much happening in the Emerging markets, and Brazil is moribund.
Now back up to the middle for the USA and the rest of the EU. Usually I use blue for SPY, but this time I have gold as the SPY (S&P 500) and the Dow Jones Industrial Average is blue. Just a bit easier to pick them out that way.
At about that same time, the Dow (DIA) goes mostly flat. Yeah, it rises some, but not a whole lot. SPY is rising better, but it can not rise for long without the other markets validating it. We saw earlier that RUT (Russel 2000 small caps) has gone flat to a small down trend. The USA markets are now split, with RUT / DIA down to weak, SPY flattening in a rise, and only QQQQ rising nicely. That can’t hold up forever, especially in the context of a weak global market.
So back to the rest of the EU and Japan. Japan is EWJ. Just announced massive stimulus (again…) and not much to show for it. EWJ is that oxblood color line that starts in the green at the left and ends about flat at the right dancing with EZU. Just dead money, at best.
Now the main ticker is the EMU basket. There is also a part of it shown. EWG is Germany. They track fairly closely. Plotting EWQ France and EWI Italy and others is left for an exercise. They don’t diverge much at all from the average. Europe has rolled over in July / August. The bank rich and weaker countries went first, but even the Big Boys are not making it now.
Given all this global rollover / flat; I don’t see how the USA can hold up (especially with 1/2 of our markets already showing weakness and commodities in the dumper as seen in the prior posting). I’ve run many other charts, with a lot of other tickers. Not quite exhaustive, but at least a dozen or two major markets and some minor. It looks like “end game of stimulus” to me. That The Fed has also announced reduction of purchases, I’m not seeing the driver for this market.
The USA has about 2% growth, and IMHO that is mostly definition games with changes metrics. In real / historical terms, I think we are in mild recession with about 5% inflation (just SWAGs at present – I’m too lazy to look up shadow stats right now).
Finally, a look at the indicators shows MACD below zero and DMI red on top. RSI is bouncing from midline to bottom. Until RSI has a ‘higher low’, it is saying stay out. Also note that the EZU ticker has broken through the 200 day SMA (orange thin line) and is now clearly in a bear market relationship. The EU is just not looking good.
So what’s the point?
The only positive news is that the Republicans might be able to fix things some in the USA. Frankly, I think Obama will be an absolute roadblock to any Republican success just to try to make them look bad. ALL he cares about in the political machine and servicing it, not the people nor the country. That means “no cookies” for Republicans. That means 2 years of “go nowhere and blame Republicans” while they do “blame Obama” and our economy stagnates in the context of a global cesspool. And that’s the positive news…
IF (and it is a big if) Japan continues to shrink, China continues to be mercantilist, and the EU continues to do the slow implosion: with the USA paralyzed politically, we can’t pull things back out. At best it MIGHT get a fix in 2 more years…
So what’s a body to do?
First off, I need to do a full series of market compares and see if ANYTHING is going up. A quick look shows pretty much all commodities diving, bonds at near zero interest so dead money (or a big loss if interest rates start to rise as the near zero interest bonds get discounted) and with banks paying less than inflation on money in the bank.
So my “move”? While searching for some play (on the long side, clearly ‘shorts’ work in a down market, but most folks don’t or won’t do them and stay on the long side) I’m just going to take cash and pay off any debts possible with it. Lighten risk (move to cash with $US being the best of a bad set of choices – even the Swiss Frank is tracking the Euro lately, so if the Euro has issues, the Swissy might track it for a modest time. The Japanese Yen is weak too.)
I think it is time to cut risk, raise liquidity, and take a new look at “investments”. I’m not seeing the reason to buy “paper assets” at this point, and think some “things I can use” might be the best “investment”. At least for ‘new money’ for ‘a while’. (I’m still keeping my Berkshire Hathaway share, though; just because if I sell it, I can likely never buy it back ;-)