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Quick Pivot

The following is part of Quick Pivot that was published for our subscribers January 27, 2011


"Oil is the New Gold" ~ Financial Post, January 22, 2011

"Global Price Fears Mount, As Food, Raw Materials Soar" ~ Wall Street Journal, January 24, 2011

"U.S. Consumer Confidence at 8-Month High" ~ Fox News, January 25, 2011

On the latter, the number increased from 53.3 in November to 60 in December. This is a big jump that indicates the consumer is caught up in the action that pushed our Momentum Peak Forecaster to a rare warning signal. The previous high for Consumer Confidence was in May.

"Wall Street Partying in Davos as Crisis Angst Fades" ~ Bloomberg, January 25, 2011

As the saying goes, there is nothing like a trading day with the angst taken out of it. To be serious, a hundred years of interventionist economics has turned virtually all the world into a financial casino. All because some ambitious egotists think they can manage the economy. Too many people have always thought that they needed "philosopher kings" and there has always been some who are foolhardy enough to play the role.

Although bankers are partying in Davos, bank stocks are not making new highs. Mother Nature notes that the bank stock index (BKX) set its high at 121 in 1Q2007, the low at 18 in 1Q2009. The rebound high was 58 in April and the latest rally has made it to 54.


Last week we featured headlines about "Food Shortages" that attended the speculation in agricultural products in the 1972 to 1974 mania. The action in commodities became intense enough to trigger our Momentum Peak Forecaster at the end of the year. On data back to 1970, typically raging speculation blows out within a couple of months. Our Forecaster reached 1.23 two months before the commodity move with the 1973 food hysteria climax.

For some participants, recent action in stocks, commodities and corporate bonds is not yet bullish enough. However, our Forecaster is impartial and only works when the action is going straight up. This is what the All-One-Market has been doing, and stocks have been a dynamic part.

Beyond extremely bullish sentiment the S&P is beginning to register some technical signposts. The weekly RSI has reached the highest RSI since April and this is within a building Sequential Sell pattern. Stock markets have been in the "Get Me In!" mode.

Momentum and pattern are doing the opposite, but equivalent to the bottoming process on the dollar, when it was "Get Me Out!".

As usual with topping markets, concerns about high conventional overvaluations are eased by extravagant earnings projections.

We now watch for individual stocks or sectors to roll over.


The action in agricultural and base metal prices continues positive. It is worth adding that S&P earnings trend up and down with the CRB commodities index.


Using the dynamics in the Ten-Year, the ChartWorks got the low price early in January. The combination of Downside Capitulation and a Sequential Buy preceded the brief rally. The long bond popped 3 points and has been consolidating the gain since. A more robust rally may have followed, but the hot action in commodities seems to be a dampener.

If a narrow trading range eases the oversold condition, long-dated treasuries could become vulnerable to further price decline.

Sovereign debt and US municipals suffered an almost magnificent plunge in price, that we take as the start of another post-bubble bond revulsion. Representing "Munis", NPI is the ETF and its high was 14.53 in mid September and the character change in the chart was the failure at 14.30 in early November. Munis went almost no bid. In the 2008 panic the price crashed from 11.33 to 6.22. The rally to over 14 showed a highly reckless reach for yield.

The ETF dropped to 11.93 in mid January and the rebound has made it to 12.74 where there is overhead resistance. In today's ChartWorks Ross notes that this puts the action into the opposite of a "Springboard" pattern.

In which case the next slide could become as deadly as the failure in 2008.

Most municipalities are burdened by the demands of monopolistic unions. Such intransigent forces destroyed General Motors and the City of Detroit, but taxpayers in many cities will be quicker than GM management to resist monopolistic forces. Tax revenues will continue to decline and it will take some time to break the uneconomical union demands.

To look to the brighter side, municipal government can return to serving the taxpayer rather than union leaders.


Link to January 28, 2011 'Bob and Phil Show' on Howestreet.com: http://tdn.howestreet.com/2011/01/stock-shock/


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