(Weekend ingerletter.com excerpt; with
technical analysis solely via videos.)
Gene Inger's Daily Briefing . . . for Monday August 23,
2010:
Good weekend!
Macro economics remain dire . . . irrespective of the market’s
partial late comeback on a nominal Expiration Friday churn. That the
‘battle lines’ technically increasingly to us are drawn; there is little
doubt that ‘bottom fishers’ (read desperate institutions and of course
they are tied indirectly to the governmental efforts to provide some
recovery illusions via the delusion of comparatively stable stocks, which
nevertheless erode by a considerable degree when you look back to our
‘conditional warning’ back in April), as they try to sustain the market
just shy of what could be a more crucial breakdown. Most believe this is a
reflection of underlying ‘strength’; we see it as (for members).
This may be a good place to recall the observations about a
‘prize-fight’, where bulls are bounced off-the-ropes a few times (last and
lower supports before potential free-falls or something nearly like that)
just as the bears were successful in denying bulls a breakout over the
1100 resistance area just days ago. As and if (and we expect it as the
days and weeks proceed) the S&P 1150 area comes out (perhaps a bounce from
that area before it’s sliced-through), that will be a TKO for the bears;
in essence a ‘technical knockout’. Even some well-known bears are trying
to become a bit more optimistic; but I see that as a premature
interpretation given (factors we’ve outlined).
(Some discussion is provided about the expected inaction over Iran; the
nevertheless not negated risk of regional conflict over there, fostered by
4 Arab armies plus Iran’s on the alert for inexplicable reasons
superficially. Then there’s looming tax changes.)
None of this negates the overriding domestic and global economic
issues; just realize that with this market almost entirely dominated by
High Frequency Traders, there is a tiny segment that will respond
emotionally, and that’s why you have some hesitancies to capitulate, even
when the market gets to levels where that seems logical based on a series
of fundamentals (or technicals) that we’ve previously outlined.
Nevertheless the market remains ‘heavy’ or tends to fade late in most
days; itself a negative omen going forward, as is the so-called
‘Hindenberg Omen’, again said to be re-confirmed. (And we don’t pin
analysis on any system or ‘omen’; but have expected downside in a series
of reluctant phases with alternating rallies, really ever since April’s
warning. Since then; most financial, oil and technology stocks are selling
at ever-lower prices.)
Daily action . . . will be addressed in the two videos (the
second provided primarily in that it reviews different time parameters as
provided irrespective of daily outlooks for movements to initially
estimated levels below current prices after this ‘firefight’ ends).
A summary of the week’s highlights (a good if alternating trading
week); then tonight 2 ‘technical corner’ videos which provide an overview
of continuing ‘at-risk’ markets:
Logical resolutions . . . to what many thought were mere summer
doldrum churning has essentially resolved several points we’ve made: 1)
that the overall decline was in a continuation mode, briefly obscured by
(factors noted to members); 2) that levels at or near S&P 1100
would be visited first; but then the so-called ‘support’ at S&P 1050 would
loom in the not-too-distant future; and that 3) it was and remains
ludicrous to debate (overriding factors), as this is all part of what we
have outlined (unfortunately wish it were otherwise) as an ‘epic
debacle’ for over the past 3 years. This is not merely a
‘new normal’ (though that applies for lifestyles for a large segment of
the population); but actually weaker: a ‘controlled Depression’ as
I’ve termed it all along. (The significance is that others see it only
now; we warned not to be suckered-in at any point of the ‘epic’, aside
periodic rebounds within the context of an overall bear.)
There are a few vibrant areas in the economy; but insufficient to
justify multiples from a general basis (summarized for weekend brevity);
and manufacturing’s a disaster as long evident. That, not so-called
‘bargains across the Board’, is at least a good part of why I believe that
this is not (yet) a great ‘buy and hold’ sort of opportunity, and that we
would first probe resistance, and then subsequently challenge all support
points recently seen (both seen this week just past). It’s irrelevant
whether you’ll see a bulk of stocks at higher levels in 5-10 years (agree
you probably will; maybe considerably so); but at the same time as for the
next upward phase, we’ve warned that we’re not primed for that as of yet.
(Members know when we roughly anticipate that starting.)
It coincides that the ‘bond bubble’ isn’t necessarily primed to break
either; at least not lots; though the story of China diversifying into
South Korean (you read right; not their so-called pals in the North)
paper, is indeed an interesting insight into their policies as well as
strategies (not just implied, but gradually being implemented) contrasted
to of course just blindly buying an ever-higher proportion of U.S.
Treasuries. That is a risk to governments here; and ties-into the risk of
the Fed being behind the curve relative to where rates really are. Also
the Greek situation is deteriorating anew. Funny how it seems the
financial media has skipped both of these important stories last week; no?
Many professionals (and we understand their need to support their
‘book’ and clients) are arguing that the disinterest on the part of
investors makes the market a buy. That is too cynical and too normal, for
the times that we are in. Perhaps the investors have it right, and instead
of being too negative, what’s happening is even more negative. If one
wants to consider contrary thinking, it might be that traders aren’t
bearish enough at this point (we define this a bit for our members). Sure
some companies (noted NY co.) may be in a comparative sweet spot, but even
firms with growing earnings can decline while the Indexes they are in
drop) are doing swell, but not because they employ Americans in a time
when there are limited opportunities to exploit at home and certainly no
broad recovery supported by wrongheaded governmental policies.
I think that those who think the markets can be ‘saved’ from further
correction, by just eliminating the Federal tax hikes are delusionary too
(though there would be ‘a’ rally), and that’s because that does nothing
(even if it occurs) to the (noted) budgets that are so strained as to
cause assessed valuations on property to not result in lower taxes in many
cases (as we expanded upon in Thursday’s commentary on the issue).
As to liquidity; sentiment (so far) isn’t valid, as the reticence to
commit capital makes a lot of sense. Thus it’s a bit snooty for anyone in
the industry to presume that merely because there is sidelined
cash-a-plenty, that’s somehow immediately translatable to a bullish
outlook. Au contraire; the institutions dominate this market; and are in
awful shape to put fresh money to work. Thus, an absence of bids allows
further erosion.
Our thinking was that the S&P would revisit the upside then start to
meander to the downside (ie: 1100 then 1050 eventually, and ultimately
lower as is known to be our view). This needn’t all implode at once, but
the risk of an ‘event’ (for members only).
If I were to explain that further, I’d simply say if we had broken out
to the upside (not projections here aside the occasional pop-and-flop
patterns previously seen) it would have in our view been unsuccessful and
a sucker rally. If and as we break down from here it will not be a sucker
decline. We thought Aug.’s preceding rallies were decent opportunities to
position for ensuing new declines in late August and (further outline), or
early phases, have already occurred, with a potential main-event still
approaching.
(Bond and muni comment). With respect to equities; yes, we concur with
those who see less risk in some sectors as contrasted to bonds at this
point; however, we are not going to embrace ideas of venturing in further,
until we see what extend of further risk crystallizes in terms of a
decline, during this dangerous period that following the initiation of new
‘crash condition’ risks back in May (forewarned of in April); and of
course rebounds of an oscillating style (equivalent to bouncing off the
ropes noted; and particularly downside potential if certain criteria are
realized, are outlined).
When pondering new stimulus and home ownership plans that are
subsidized entirely on the backs of the population or future generations,
consider this prescient quotable:
"The American Republic will endure, until politicians
realize they can bribe the people with their own money."
-- Alexis de Tocqueville (1800’s French historican)
Resiliency . . . in the face of a few fairly favorable data
points and yield-chasing, has not offset the prospects of a compression in
equity valuations; in the bigger picture. It remains a slow growth
environment (GDP annualized at 2% growth at best; likely 1% as they revise
Q2 soon from the reported 2.7% gain); and this conjures-up thoughts it
seems of ‘market neutrality’ (trading range) predominance for the next
couple months or so. Do we believe that’s probable? Absolutely not, and
you know the key reasons.
Most are concerned that sentiment is overly negative; where we ponder
whether it’s a bit the opposite; perhaps insufficiently primed for
meaningful further decline. This isn’t merely a question of headwinds
ahead of 2011 and 2012; though that’s an issue; and it’s not because of a
lack of an escape velocity for jobs (enough of a recovery to allow that to
break free and climb); though that’s part of it. And it’s not because
elections may unseat a number of congressional stalwarts (as got
bamboozled in many cases into supporting the absurd structuring of the
stimulus packages); though it’s part of it.
Rather the ‘fiscal wall’ ahead is what simply requires a
re-pricing not only of risk; but of multiples to conform a little better
to the growth-rate prospects of the era we’re in, and are likely to remain
in for (time frame and discussion of tax cuts/hike follows).
Bottom line: omens or no omens; the market remains in a
churning series of thrusts down and up, that likely results in a potential
decline that could become vicious over the weeks ahead. Even in a couple
of summers where markets eventually dropped a lot; there were preceding
rallies that took the edge off the oversold markets; relieving things
temporarily on the surface, but in reality preparing the market for the
next drop.
Conclusion: stabilization efforts notwithstanding; overall
recovery and deleveraging conditions will prevail (not may prevail)
through this year, and probably into next year as well. Intervening market
rallies do occur (some fairly wild), but of limited duration, at this
point. If other developments unfold that could change prospects we’ll
evaluate.
Bottom line: continuing characteristics;
include (
consolidated a
bit) the following bullet points:
A bankrupt overly-leveraged world infested with stale credit has
remained a global debacle.
Balance of bullet points; near-term and further-out prospects; are
consolidated at ingerletter.com daily.
MarketCast (intraday analysis & embedded Daily Briefing
audio-video). . . remarks forecast substantive failures by markets;
particularly as 2010 evolves (whether just as a correction of a worse case
remains to be assessed). Remember back in early 2007 we denied the
'liquidity' momentum as a canard; believing housing only the first asset
bubble to deflate. We then outlined structured investment vehicle
failures; banking issues, the confluence of asset deflations, and more;
continuing with interruptions per projecting long ago: 'a perfect storm'.
New sets of storm clouds quietly are gathered.
As the debt bubbles continue to deflate, alternating tradable moves
continue from a trading perspective. Against that backdrop retaining a
macro (adjusted) Sept. S&P
1600 +/- short irrespective of interim oscillations.
Technical analysis via video
follows.
Daily Briefing Technical-Corner MarketCast Videos
Over 3 years ago I commenced projecting an 'accident waiting to
happen'; affirmed historically after long-duration periods of free money (Gilded
Age mentality). Now a market finished struggling with over-extended
rebounds as our economy restructures.
Though enormous efforts have avoided systemic disaster on the banking
front; there is no equivalent rescue of the overall economy besides
perception; nor restoration of engines for sustainable growth. People are
adjusting to lower expectations; which will never be a favored approach to
American life. Actually we don’t see it as permanently alternating the
future; but we still have major adjustments to work-through. That’s the
reason I warned about chasing rallies; not to mention major ‘commercial’
adjustments as are ongoing. And as I’ve said; fairly visible new storm
clouds were clustering.
Enjoy the weekend;