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Tectonic Change?

The following is part of report that was published for our subscribers February 9, 2012.

Technical observations of RossClark@shaw.ca


Overall Perspective

  • At the end of September the prevailing panic atmosphere could no longer drive down stocks, commodities and corporate bonds. Some of our technical work was indicating a large and growing number of individual stocks registering very oversold conditions. The gold/silver ratio which had signaled the pending decline in April resisted going higher.
  • The conclusion was that choppy, but rising action for orthodox investments could run to a good high at around January.
  • For the past few weeks we have been reviewing the question "Are we there yet?"
  • Yes we are - and then some!

Credit Markets

  • Excess is again evident in the credit markets and a couple weeks ago an outstanding performer--municipal bonds (MUB) - registered an Upside Exhaustion. As the reversal comes in, we've thought that it would represent the potential reversal in bullishness for most spread products.
  • This would include corporate and sub-prime mortgage bonds.
  • A few days ago the MUB dropped a couple of points from 113.67 to 112.50. This is the sharpest plunge since the one in October 2010 that led to the "Muni-panic" that ended in January 2011.
  • Monday's Financial Times headline indicated that bullish sentiment is rampant with "Record Global Sales of Junk Bonds".

Stock Markets

Checklist for a Top

  • Is it up when it should be?
    • Yes.

  • Are there signs of enthusiasm?
    • The AAII ratio of bulls and bears has soared to 74 and the Rydex Bull/Bear ratio is almost at a new record high (chart follows). This confirms Ross's work on the VIX reviewed in the ChartWorks "Complacency Abounds Oh-Oh!" of January 24th.

    • Amost a new record in bullishness
      Courtesy of www.SentimenTrader.com

    • Momentum is also very high as the RSI on the S&P reached 75 - the highest since February 2011.

    • The "Sequential Sell" pattern has completed.

    • Ross notes that the number of individual stocks registering Upside Exhaustions is soaring, typical of an important top. The gold/silver ratio has been unable to break below 50.


  • The US dollar is in a pattern that can lead to an outstanding rally. The January 27th ChartWorks "Pulling Back To A Buy Zone" is the latest update.

  • A significant rally in the dollar would likely be associated with increasing concerns in the credit markets. Perhaps the season when "fixes" by desperate policymakers seem to be working is ending.


Link to February 10, 2012 "Bob and Phil Show" on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2012/02/bulls-vs-greeks/


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