The following is part of Pivotal Events that was published for our subscribers October 31, 2013.
Signs Of The Times
"Fed officials must do 'whatever it takes' to push for a faster return to full employment while keeping inflation near 2%."
- Bloomberg, October 17
"A single bottle of Screaming Eagle Cabernet sold for $3,936 at a New York sale."
- Bloomberg, October 17
"The cost of insuring junk-bonds fell to the lowest since January 2008."
- Bloomberg, October 20
Well, one thing can lead to another.
And then there are the leeches:
"700 IRS Contract Workers Owe $5.4 Million In Back Taxes"
- AP, October 23
"Global Warming gets nearly twice as much taxpayer money as border security."
- The Daily Caller, October 28
In 2013 some 18 federal agencies are expected to spend $22.2 billion on global climate issues. The article did not mention how much was allocated to actual research.
"37% Say Zombies Would Do A Better Job Than Federal Government"
- Rasmussen Reports, October 31
Our October 10 Pivot noted that the S&P had slipped into the "Springboard" pattern from which a rally would follow. Often this signal prompts a sharp rally. Because of the season we thought it would be brief.
The October 23rd ChartWorks introduced a near-term trading model and, of interest, is that it gave a "buy" that confirmed the "Springboard" registered on October 9th.
This week the "Near-Term" is giving "alerts" that are within the uptrend.
It was likely that Bernanke would announce "no change" yesterday and it seems that "nothing" was fully discounted by more than the stock market.
However, the setback relates to the Near-Term overbought.
Of interest, the S&P and the Broker-Dealers (XBD) accomplished Outside Reversals.
Yesterday's ChartWorks noted that the dollar was oversold and the euro overbought.
The DX declined to 79 on Friday and has recovered to 80.2.
There is support at the 79 level, going back to last February and September 2012. This was after the Euro crisis that climaxed in July. At that point the US dollar had become overbought.
The Canadian became overbought at 98 in mid-September which was noted. The support level would be the 95 level.
The last high was 97.38 set on October 21st and it is now at the 95 level.
The Daily RSI is down to 34 and a little above 30 would be oversold enough to end the decline.
The euro currency has been rallying as euro bond yields are making new lows on the move that began as the crisis ended in July 2012.
For example, in the panic the Spanish Yen-Year soared to 7.5% and yesterday's low was 4.02%. The yield is somewhat oversold at long-term support.
BUND is the German bond fund and it has soared from 93 in July 2012 to 107.35 yesterday. This has driven the Weekly RSI to 70 which ended the rally into January.
This ETF has a very short history, but there is enough to suggest the play is getting overdone.
The rally in the US bond future started at 128.5 at the end of August. Initially, Ross had a target of around 139 and on October 21st refined it to between 134 and 138.
Yesterday's high was 135.7 set early in the morning and the slip to 134.7 caught our eye.
The target level has been accomplished as the action in the bond future, JNK and HYG set Outside Reversals.
Commodities seem to be telling an interesting story.
Cotton has been unraveling over the past two weeks as the price fell from 84 to 78. But there is more to it. It rallied from 81.72 in June to 93.72 in mid-August.
This has been the steepest plunge since the one in early 2012. From 94 in that February it plunged to 71 and rebounded when the European bond panic ended.
Most commodities as represented by the CRB declined with that problem in Europe. The index fell from 326 in February 2012 to 266 in July. This drove the Weekly RSI down to 25.
Of interest, is that going into the Euro-crisis, the CRB led the decline in the S&P by six weeks. The CRB has been declining since late August - almost nine weeks.
Within this, crude oil tends to decline into a European crisis. Seasonally, we have been looking for a decline into late in the year.
The decline from 112 in late August to the 96 level is approaching an oversold condition. Perhaps the low could be set within the next four weeks.
We have enjoyed some good trades in this sector.
Tuesday's ChartWorks "Oversold Dollar And Overbought Euro" noted that the rally in precious metals would be "capped".
The rally did not become overbought, but became vulnerable to a firming dollar and some selling pressures in the "big" stock markets. Perhaps the first setback on an intermediate rally.
Winter of Discontent?
Tocqueville provided an appropriate observation on bitter political struggles:
"Society was cut in two: those who had nothing united in common envy, and those who had anything were united in common terror."
- Alex de Tocqueville in his Recollections, published in 1893
Although Republicans capitulated, those who really pay the taxes are still opposed to Democrat ambition. And the Republicans are the only party they have.
Conflict will continue with the prospect of a "Winter of Discontent". The phrase is from Shakespeare. But it also refers to England's political distress in the winter of 1978 to 1979, when angry left was shutting down government as well as the voluntary sector.
In the face of the coldest winter in 16 years the struggle was brutal and demonstrated the Labour government's inability to prevent strikes and disorder.
It is worth noting the difference between unions and free markets. In the latter, individuals improve their condition by providing goods and services. Unions collectively improve their apparent condition by denying goods and services.
Although the showdowns ended by March, Margaret Thatcher's Conservative Party won a majority government on May 3rd 1979. This became part of the initial phase of the great political reform against intrusive politics that swept the world.
America could face a bitter Winter of Discontent as increasing numbers of taxpayers watch their thermometers and savings drop as Obamacare's Titanic discovers political and operational icebergs.
Today, Rasmussen polling announced that "37% Say That Zombies Would Do Better Job Than Federal Government."
Representative Euro Bond
- From 7.5% in the 2012 Crisis, the yield has plunged to 4.02%.
- This level presents solid support.
- The price chart shows somewhat overbought.
- The European bond market is becoming rather risky.
Link to November 1st Bob Hoye interview on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2013/11/precarious-times-ahead-in-the-markets/