The following is part of Pivotal Events that was published for our subscribers April 19, 2012.

Signs Of The Times

It is always fascinating to watch an important transition in the markets - either to the up or to the down.

We ran four weeks of "Boom Sayers" until last week when "Ooops!" was introduced. Action this week suggests the latter continues.

This Year:

"US states are increasingly being blocked from changing public employees' retirement benefits as the fight over shoring up chronically underfunded public pension systems moves from state legislations to the courts."

~ Financial Times, April 10

"Speculative-grade companies, owned by private-equity firms, got loans to pay dividend payments at the fastest pace in a year."

~ SAY WHAT! - From Bloomberg, April 10

"Canadians Rack Up More Debt"

~ Financial Post, April 13

And now for some good news:

"IMF needs less new funds for the crisis than originally thought."

~ Christine Lagarde, IMF, April 13

Last Year's High:

We have been comparing today's bullish comments with their counterparts at the speculative highs of last April. Last week we mentioned that as markets rolled over last May our note page of enthusiastic quotes diminished, but a very small scribble was just noticed:

"Fund Managers See Goldilocks Scenario"

~ Wall Street Journal, May 17, 2011

There was a moment of revival with the Linkedin IPO that jumped to 122 on the first day of trading - some 90% above issue price. The Financial Post headlined "Linkedin Parties Like It's 1999".

In only four weeks it had plunged to 60.14.

Perspective

A rounded top for the stock market has been possible and this seems to be working out. Cyclicals such as base metal miners (SPTMN) set their high at 1258 on February 23. That was with the best momentum since February 2011 when the high was 1600. The current downtrend was set as the index stair stepped -21% to 992 last week. On the same move oil stocks (XOI) have slipped 11%.

The big stock market as represented by the S&P set its high at 1422 at the end of March, declined to 1357 and at 1385 is testing the high. (Today's action set an outside reversal to the downside.)

That this could fail and turn the S&P down has been suggested by outstanding technical readings for momentum and sentiment accomplished in February. Also found at important tops has been selling by insiders and the most recent negative signal has been action in the VIX.

The following departments are mainly negative for the stock market and the economy.

Currencies

Where stock markets are working on a rolling top, the DX is working on the opposite. Let's call it a "rolling" trough. This is within a larger pattern that is leading to a significant rally.

The corruption of financial and currency markets in the name of policymaking provides exquisite irony - the worst thing that could happen now would be an outbreak of a sounder dollar.

With the return of the good times, the Canadian dollar recovered from the 94 level in October to 101.60 at the end of February. It has been in a declining trading range since. At 100.7 today, declining through the last low at 99.5 would set the downtrend.

The high of 106 with the commodity blow off in April last year seems to be a cyclical high. Technically, the Canadian could decline to support at the 93 level.

Commodities

The CRB continued its decline to 298 earlier today. That's down 9 percent from the high of 326 in late February. This compares to the high of 370 last spring. That was with the speculative surge that was expected to complete around March last year. We considered that was a cyclical peak for commodities and breaking below last fall's 393 would provide technical confirmation.

The CRB is now on a MACD "sell" signal.

Within this, crude oil has not been acting well since 110.5 on February 25. The problem is that the rally set the highest RSI since last spring when the price reached 114.8. Slipping below 102 would set the downtrend and that would confirm that 114.8 was a cyclical peak.

Gasoline prices have been high enough to provoke considerable angst. Some have claimed that this along with high crude prices will cause a recession. The three to four-year business cycle has been evident since the early 1600s and gasoline was not around then. Today's idle minds should do some homework.

So should the editors at news magazines. Maclean's April 23 edition "GAS RAGE" has one of "those" covers. Somewhat late, as gasoline has dropped from 3.43 to 3.10 over the last two weeks.

On the bigger picture (chart follows), the intolerable high in 2008 was 3.63 with the weekly RSI reaching 80. The next high was 3.42 last April, with an RSI close to 80. This season's rush to 3.43 is interesting. While daily momentum reached 90, the weekly only made it to 70. One says "overdone", the other says "negative divergence".

Conclusion: The best for gasoline is in, and it is vulnerable to general commodity weakening. If it goes down significantly would it mean "no recession"? Idle minds would hope so.

Credit Markets

Rounded tops for stock markets are not created by central bankers or corporate management and they are not isolated events. They turn with changing credit conditions. Shorter-dated maturities such as the Ted-spread stopped narrowing in February and the sub-prime mortgage bond stopped going up. The Ted has yet to turn up indicating widening.

However, corporate spread products have been very popular and narrowed into mid- March.

The Baa came in to 180 bps, high-yield to 483 bps and junk to 940 bps. Widening has taken the numbers to 191 bps, 527 bps and 976 bps.

This is concerning and our work expects that it could worsen in May, on the way to a liquidity problem later in the year.

Conclusion: The best for "risk on" has been accomplished.

• In the 1950s gasoline was 25¢ per gallon.
• Politicians are blaming "speculators" for soaring prices.
• Speculators provide necessary liquidity to commodity exchanges.
• Only less than 3% of commodities trades are settled by suppliers and users. More than 90% of trades are done by speculators.
• Politicians do not blame central bankers for depreciating the dollar.

Perspective

Published with permission of Thechartstore.com

Published with permission of Thechartstore.com

• Credit spreads beginning to widen.
• Note the widening that became visible in July 2007 and in July 2011.

Link to April 20 'Bob and Phil Show' on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2012/04/rosy-scenario-and-the-rounding-top