Harmless Compulsion

By: Bob Hoye | Fri, Nov 15, 2013
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The following is part of Pivotal Events that was published for our subscribers November 7, 2013.

Signs Of The Times

"Regional banks in the US have sharply increased their corporate lending at the expense of underwriting standards and loan pricing."

- Financial Times, October 30

"Home prices in 20 U.S. Cities rose in August from a year ago by the most since 2006."

- Bloomberg, October 30

"Speculative-grade companies in the U.S. are replacing junk bonds with leveraged loans at the fastest pace ever."

- Bloomberg, October 30.

Companies are obtaining funds at a lower rate.

"Long-term yields are bound to rise at some point, but we can curb it when it happens."

- Governor of the Bank of Japan, Financial Times, October 30

"Citi: Rich Families Are Hoarding Cash"

- CNBC, November 3


Perspective

When it comes to markets, it is helpful to have an activity where one can do stupid things without suffering too much harm. Sort of an outlet for impulsive urges. This writer has a problem with garlic presses, or any device used to prepare garlic.

And when it comes to such tools, P.T. Barnum was right. The trouble is that when it comes to garlic, there are any number of schemers out there trying to swap their visions for your money.

There are many kinds of presses in the drawer, of course each one better than the last one.

Definitely, otherwise they would not be there. But, even when the "stinking rose" is peeled it always leaves a husk that is difficult to remove from the press.

Then, there is the thing that looks like a pepper-grinder, but you put any number of peeled cloves in and then they are shredded as needed. Early in the summer, opportunity presented itself - again. This was a stainless steel rocking device with chopper-holes in it.


Fergedaboutit!

But the other day, in a very interesting shop there was the "winner". This is made out of clear plastic the size of a small jar. With intermeshing teeth inside, all one needs to do is put the peeled garlic in and give the top and bottom a few good twists.

The instructions claim that it leaves none of the nasty husk that is the problem with every press. To get first person, "I know it is going to work".

Just like the guys at the Fed. In January, the doors will have been open for one hundred years and they know that at some time deliberate currency depreciation will achieve a constant rate of growth and a forever expanding tax base.

It is time for policymakers to find a harmless compulsion.

There is a variety of old safety razors out there and collecting these could be a fascinating alternative. French Impressionists are over-priced.


Stock Markets

The latest near-term move in the S&P was prompted by the decline into the "Springboard" pattern, noted in the October 10th Pivot. A brief rally would follow. We were concerned that it could become vulnerable to adversity often discovered in the fall.

Stock markets took off such that this page and the street concluded that the potential October problems could be by-passed. The attitude amongst institutions became "Whew - markets could be good into year-end."

Sentiment numbers have become "lofty". Chart follows.

Furthermore, the action has been in the "All-One-Market" mode, driven by rising bond prices and the falling dollar.

Ross is working on a major study. The senior NY indexes as well as European and Global Stock exchanges are generating rare Upside patterns. More rare, is that the pattern is simultaneous. This was sent out earlier today.

The bond rally helped a lot, but the future reached the ChartWorks target of around 136.

Beyond this, our October 18th edition noted the lower-grade bonds, such as the EMB had reached momentum excesses. The high was 111.55 set on October 23. JNK set its high at 40.59 on October 29th.

Bond markets seem to be stalling out, as commodities (CRB) are becoming significantly oversold.

It is a "heads-up" week.


Bigger Picture

As financial markets are becoming somewhat vulnerable on the near-term, it is time to review the bigger picture. There is pattern and there is timing.

Over at www.thechartstore.com, Ron Griess has been noting the Three Drives To A Top pattern. Chart follows.

Earlier in the year, Ross reviewed four-year bull markets and the timing is now becoming very interesting. The charts have been updated and follow.

In the Great Bubble, the S&P ran for 239 weeks to the peak in October 2007.

In the Great Rebound out of the 1929 Crash the S&P ran for 243 weeks.

In the Great Rebound out of the 2008 Crash the S&P has run for 244 weeks.

Of course, it is uncertain how long it will take for this to work out, but the match up and timing is very interesting and as the markets close, rather timely.


Commodities

Last week, we noted that the action in crude oil was approaching an oversold condition.

On Tuesday, the RSI reached 26, which was enough to prompt yesterday's jump.

The low price was 93 and there is support at the 92 level. After some basing, a rally out to the high 90s seems possible.

In checking out the rest of the market, coffee has plunged to the most oversold since mid-2012. JO is the ETF and it has been swirling down the drain.

Cotton has plunged to only 17 on the Daily RSI. This is the most oversold since the key low in May 2012. It also registers a Downside Capitulation and BAL is the ETF.

Grains (GKX) have slumped to an RSI of 24, which is close the the last oversold level.

The index is at support and a rally is possible.

Base metal prices (GYX) have declined to support, but at neutral momentum.

Weak commodities have dominated, driving the CRB down to 273, which is a bit below support at 275 and above greater support at the low of 267 set in June 2012.

The latest decline in the CRB has been from the high of 296 in August to 273 on Tuesday. This drove the Daily RSI of 23, which is the most oversold since May of last year.

A tradable rally for the CRB and the weaker commodities within the index seems possible. It may not depend upon a weakening dollar and could happen even with a firming DX. The weak DX since summer did not help weakening commodities and precious metals.

As the markets close, we would add that a bottom in the CRB could take a few weeks.



Currencies

It is nice when policymakers get in line with our work on currencies. The DX became overbought and the October 29th ChartWorks was titled "Oversold US Dollar and Overbought Euro".

Today's drop in the ECB rate from 0.50% to 0.25% was associated with a pop in the DX from 80.5 to 81.4. This is the right direction, but rather fast, and will soon be seen as another futile gesture.

Bureaucratic ritual.

The momentous announcement reminds of an old saying. When an economist changes his forecast on GDP from, say, 3.00% to 3.25% it is done just to show that economists have a sense of humour.

Technically, the support level discussed last week has held, and while sudden, the DX strength is appropriate and could become an intermediate move. Of course, the "sudden" needs to be corrected.


Credit Markets

With today's ECB announcement the Spanish note yield increased a little. But the move started last Friday from a low of 3.98%. We noted that this was oversold at support. It is trading at 4.16% today.

On this side of the "pond", bonds have rallied on the news.

The future had declined to support at the 50-day moving average. The high at 135 two weeks ago met out target.

On that rally, lower-grade, such as the EMB, got overbought and we have been looking for an intermediate setback in most bond prices.

Link to November 8, 2013 Bob Hoye interview on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2013/11/markets-could-go-sideways-in-a-hurry


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Bob Hoye

Author: Bob Hoye

Bob Hoye
Institutional Advisors

Bob Hoye

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