Markets fade continues

About a month ago I gave something of a ‘heads up’ that IMHO stock markets were looking a bit thin, and more likely to roll down than rise. That process has continued and the present charts show more of the same. The folks on the financial shows claims this is related to oil prices falling. Generally, lower oil prices are treated as economically stimulative, so that’s a bit of a stretch. On Fast Money, Carter was making a good case that the US markets are up while ROW (Rest Of World) are not, so total global averages being ‘weak growth’ hide the truth that only the US markets were up and when they were removed from Global, the ROW was down significantly. With the ROW in the dumper, the USA can’t fix it…

At any rate, here’s the graph as of Friday:

RUT vs other markets 12 Dec 2014

RUT vs other markets 12 Dec 2014

RUT is the 2000 stocks in the Russel 2000 index. SPY is the S&P 500 core of American industry. EZU is the European Union while EEM is the emerging markets.

So looking at this (rather large if you click on it) chart, we can see that the SPY blue line is starting to merge into the RUT line; joining it in the ‘go flat’. DIA has had a bit of a bump, but only in the context of underperforming most of the time (someone juicing the numbers with some DIA buying?) while only QQQQ is still rising. That’s dominated by AAPL Apple Computer and a few tech companies. So it’s not going to broadly lead America higher…

Looking at the other lines, we find GLD gold dribbling along the bottom with JJC copper drifting down. Not a lot of demand for jewelry or construction / cars / motors / whatever. (Copper is a big indicator of demand for ‘stuff’ since it is in so much of it). Just above copper is EEM as that bright yellow line. It, too, is headed down. The “Emerging Markets” are not doing it… So even Brazil and China are not showing promise.

Now the fun one is that plunge of the dark gray / black line for USO US Oil. It is in a flat out dead fall. That doesn’t happen when economies are picking up and folks have ‘jingle’ in their pockets from commuting to work. (My case is an example. My contract just ended, so I’m now NOT driving about 40 miles / day that had been taking me to work. Once I’m employed again, that demand for oil products returns.) Just stand back from oil until it has the DCB (Dead Cat Bounce…) and at least has a ‘go flat’ if not a return to rise.

Next up is that green line just above oil. The EU. It’s already in a downward trend. The EU is not doing so well… So it’s not lined up to lead things higher. Just above it at the far right is EWJ Japan. Continuing their dead flat “He’s not dead yet!” propped up with 0% rates faux market. “Safe” in a ‘not going to make any money’ kind of way…

That puts us back at the US markets on the top. RUT is flat as is SPY with DIA lagging and a ‘Christmas Rally’ bump on the end of DIA. Only QQQQ is rising, but it is as the top of a cycle, so likely to go down for the next month. It looks a bit like SPY is dropping through RUT that would confirm the roll over, but that is speculative at the moment as the breakdown is not yet shown / clear.

So it looks to me like a time to be in cash or short; or shift to ‘surfing the cycles’ and trade a faster indicator time range. Trading out of the cycle tops and in at the reversals. Once a fall is confirmed, it is risky to even ‘trade long’ and the trade changes to cash at the bottoms, short at the tops. (The trade money management pattern is to be ‘long or cash’ in confirmed rising markets, ‘long or short’ in flat cycling markets or suspected reversals of longer term trend, and ‘cash or short’ in confirmed falling markets. When in doubt, sit in cash.)

For those interested in the “indicators”: DMI on the very bottom is showing a flat RUT. DMI+, DMI-, and ADX all below 20 and dropping. Trendless. MACD shows a ‘be out’ timing (red on top and dropping, but still above that zero line where below zero shows a well developed drop). Divergence (that black histogram in the center around zero) is below zero and has been saying ‘be out’ since the middle of last month. RSI is neutral, so making no claims about the future. The prior bottom was not ‘near 20’ and we need that plus a ‘step higher’ to show a reversal of a fall ‘coming’. Essentially RSI is saying ‘whatever is happening continues’. That is a ‘flat roller’ for about a year, so trade the ranges in RUT. (Other markets will have other indicator readings with some, like EZU, falling and others, like QQQQ, still showing a rising run. So run a chart on whatever trade vehicle you use and act accordingly. But the bias from the context of other markets is neutral / rolling trades or headed down, so watch context carefully.) The SMA stack is in what I call a ‘topping weave’ without clear stack order while PSAR is ‘chopping’. Usually that happens at a longer term top or bottom as things have a fibrillation moment. To me, I’m not seeing a reason to do anything other than short term trades, and that likely not until the new year forms up. Cash is not a bad thing to have on the year end boundary when things go a bit dodgy. At least, that’s what the indicators say to me.

So that’s my view of things, and what I’m likely to do. YMMV and as usual: I can only describe what I’m seeing and thinking and can not give advice to anyone since I’m not a licensed anything… This is only my opinion and you must make up your own mind.

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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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6 Responses to Markets fade continues

  1. oldfossil says:

    In “The Money Game” the writer known as Adam Smith said that you can’t tell which way the train is going by looking at the tracks. As long as QE is the law of the land, there’s no good reason to trade in scrip for cash.

  2. p.g.sharrow says:

    @EMSmith; I would have to agree with you. This is a stand aside with cash IN your pockets time. Copper points to “Nothing going on” as far as wealth creation is concerned. The final fall in oil seems to me to be caused by the hedging hoarders losing their nerve. Production and use is not far that out of whack, but the threat of higher production is huge. Commodities of all kinds will suffer from this change in anticipation of inflation, might be a good place to watch for a bottom. The people that have money to invest are still standing aside and waiting for opportunity to knock but see no joy out on the street, just way too much uncertainty due to regulation nightmares. The major capital markets are stuffed with cash with no place to go so it just runs in a circle. The Banks are stuffed with cash that they can’t loan out into the economy due to reserve requirements. Everyone expects the consumer to bail them out, but he can’t borrow or get a good job.
    The leadership of this administration has NO idea of how an economy really works so I would expect to see them to do more of the same as they expect to see improvement. After all THEY can’t be wrong! They studied this sort of thing in collage Poly-Sci and Sociology classes about how Liberal Progressive Ideals saved the world from the Great Depression. FOOLs. Deregulation in the late 1940s after WWII was the spark and useful investment in infrastructure to improve commerce the engine that liberated the last boom. The pent up demand will build until it is liberated by a new paradigm. I hope that the old one is firmly discredited this time. Elite Management of the affairs of men is not needed. The Elite mindset is the problem. We don’t need them. pg
    The next 2 years will be interesting indeed! pg

  3. R. de Haan says:

    I think we’re in for a storm and I am an optimist by heart..
    To be honest I have my bags packed, ready to go.
    The debt level of banks and governments, not only in Europe but almost all over the place, has reached unbearable levels and the collapse of the oil price is only the beginning:

    Just for the record.

    When the Republic of Weimar after WW1 triggered a crises through unlimited money printing resulting in a period of hyperinflation there was a debt due to the Allied victors for war damages at a sum of 132 billion Reichs Marks which represented three times the German GDP in those days.

    This combination of debt, restoration payments and hyperinflation turned out to be a deadly mix with people starving in the streets, eventually leading up to WW II.

    Today thanks to the banks Germany is on the hook for a sum of money that represents 20 times the German GDP.
    Nobody here has any confidence in the effectiveness of the stress tests performed by the ECB that showed almost 30% of the banks and 48% of the insurers didn’t meet the minimum criteria (Only on balance checks, no off balance evaluation).

    Just one single bank, the German Banks has the potential to wipe out the entire financial markets with 56 trillion euro in liabilities stacked up.

    When this bomb goes off there will be blood in the streets and for some a war with Russia could provide a welcome diversion from the carnage that will follow after the domino’s have started to fall.

  4. Larry Ledwick says:

    The interesting thing I see in oil is that fracking has introduced a significant buffer in the price of oil. In the past we were in a cartel controlled supply market. If the Saudis continue the downward pressure on prices, what will happen is the more costly wells will simply be capped and sit idle until some new situation forces oil prices back up above $80-$90 a bbl again. The all those wells will be uncorked and new supply will put a top on oil prices.

    I expect that for the foreseeable future (short of a major war) oil prices will hold below $80 bbl.
    The Saudis are trying to defend their market share but even they have a bottom to their piggy bank and can only burn off so much financial reserves then even they will have to stop dumping oil.
    I agree the real problem is the ticking debt bomb in the world’s industrialized economies. Sooner or later that bubble has to pop just like tulip speculation eventually folks will wake up.

  5. R. de Haan says:

    Right but when they wake up their bank accounts will be empty just like the shelves in the supermarket, in other words they wake up when it’s too late.

    For me this is a fascinating subject.

    When I was a kid we collected a series of books about WWII that were build from weekly chapters that could be bundled into a volume.

    I was really impressed by a picture of a family fleeing from a war front

    It was evident from the clothes the wore that they had to run for their lives totally unexpected.

    They were dressed as if they just visited a concert or a theater.

    The woman wearing a long dress, high heels, a fur coat, a smart hat and expensive jewelry.

    The man dressed up in a smart black suit wearing a hat and an overcoat.

    Why was it that these people were surprised by the events and caught by the war without the time to pack their suitcases. Not even time to change their shoes?

    It remains a fascinating picture from a long gone era which had a great impact on the life of many of my family members and the question remains until this very day.

    How do people get caught in events, especially when thousand of others have seen them coming?

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