Long Wash Cycle (TLT,SLV,XLB,XLK)

Long Wash Cycle (TLT,SLV,XLB,XLK) Intermarket analysis is a helpful tool for the technical trader attempting to anticipate the next big move in the investment universe. What is it, exactly? Well, over time, certain cycles are evidenced in the movement of stocks, bonds, commodities and the dollar, with associated relationships also seen between Emerging Market debt and equity, as well as in the play between large and small cap stocks. In general, however, the main body of evidence points to 1) rising commodities (and a falling dollar) preceding 2) a turn lower in the bond market, followed by 3) a retreat in stocks. That is, when inflation is driving the cost of raw materials higher, interest rates are eventually forced upward, pushing investors out of their fixed income holdings and ultimately equities. It should be noted that the process is anything but clean, meaning it takes place over the long term, and is accompanied by rolls and rises in each asset class, such that it can best be seen only with a wide angle lens and often only after a significant time span has elapsed. Attempting to time one’s investment shift decisively out of one asset class and into another with…

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Equity Happy; Treasury Crappy (TLT,DIA,FCX,UUP,IYT)

Equity Happy; Treasury Crappy (TLT,DIA,FCX,UUP,IYT) We’ve been talking in more emphatic terms about the bond market lately, though not because we have anything new to say on the matter. The message has been consistent for several years – that a grand selloff in Treasuries would funnel tremendous flows of cash into the equity market, precisely at the moment that U.S. stocks were perceived as the greatest possible investment holding of the last three centuries. In other words, there’s a bullish equity bubble in the making that will eventually tear the buttocks from Ginger May Gorilla, while sending the bond market lower for potentially many years to come. So CRASS! Our latest rantings, however, come at a time when the yield on the three year Treasury has come up even-steven with the yield on the S&P 500 (see below), an inflection point that could have a significant impact on the direction of both asset classes. Here’s the way it looks graphically – The last time the two met, the vectors were reversed, with a breakdown in Treasury yields creating an advantage for equities (red rectangle). That took place, of course, while the stock market was melting down, and nary a lad…

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The Nutella Market (XLB,XLK,TLT)

The Nutella Market (XLB,XLK,TLT) There’s very little in this world that can compete with thickly spread Nutella on a crispy rip of focaccia. Hell, just dip that sucker into your oversize jar and give her an uncaring hack-snort swallow… And let the goop fall where it may. Is that life, or is that life? I’ll say… Unless, of course, you keep it up for too long, and it sends you to the oncology ward with a prep for chemo. Don’t Do It! The market has begun to act as if all is sweet and simple again, as if a dollop of the Ferrero hazelnut-cocoa genius was already stuck to its palate, blood-glucose levels were frenzied and a titanic insulin shock was fast approaching. When you see the biggest names on the street hitting new highs, or coming to within a whisker of their records, you know that it’s only a matter of days before the next spasm of buying is upon us and the indexes, too, begin logging all-time bests. This is the phase when rational discourse is abandoned, trust in the past and all it has brought becomes a religious tenet, and money is thrown fastball style at the…

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“Bond. Lamest Bond” (TLT,QQQ,USO)

“Bond. Lamest Bond” (TLT,QQQ,USO) We’ve been talking about the end of the nearly 40 year bull market in bonds for some time now. Indeed, we’ve been early on a couple of occasions explaining the case for its demise, even errantly putting our money where our mouth was. We admit now we were early, eager and foolhardy. It happens, sometimes. Part of the business. Yet today, with all signs again militating in favor of just such a rollover, viz. a rising rate regime, a Fed that projects its intentions to continue tightening, a bond market that appears to be accepting the threat, and both the inflationary and corporate earnings backdrop to support it, we see there are still some who are unable to swallow the case for a coming bear market for bonds. Case in point: Morgan Stanley, no newcomer to the world of Treasury investing, turned bullish on the long bond less than a month ago. In a move that’s astonishingly contrarian, the bankers at that esteemed outfit claimed that “trade tensions, declining equity markets and subdued inflation” are forcing it to recommend clients bulk up on the ten year note. We would be all in favor of Morgan Stanley’s…

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Neither Here Nor There (QQQ,TLT,FB,IEF,SPY)

bs’d Neither Here Nor There (QQQ,TLT,FB,IEF,SPY) It happens all the time. The Mrs. goes out to buy some fish for Friday, and the boys and I are left lunchless, waiting all afternoon for the car to pull into the driveway. Sheesh. Not that we object to her having a few hours with Meave down at the Brutus Café on Plympton St. And I can certainly whip up a round of tomato, mayo and cheese sandwiches that the lads are downright fond of… But in the meanwhile, we still get to worrying. Oh, she’s never delayed too long – and certainly the habit is so common now that we should have faith that all’s well, and her need for a break and a wee chat is just fine. It’s just not knowing that’s the hard part. Kinda like today’s market direction. Where the Hellarwee!? It appears that any confusion you’re currently experiencing regarding the next moves in equities is now as widespread as the flu. NOBODY has a clue. As the following charts from the American Association of Individual Investors (AAII) show, the normal order of sentiment amongst investors has been inverted, shaken, pilloried and set to Stravinsky’s ‘Rite of Spring’….

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Turn Tide, Turn! (TLT,LVNTA,SPY)

Turn Tide, Turn! (TLT,LVNTA,SPY) We file these reports on a strict weekly deadline. No matter what happens, we’ve committed ourselves to arriving at your inbox on time, week in, week out, every Thursday by noon. And, of course, it’s tough nuts to us if we have to offer a trade in the midst of a major market selloff. Lord knows how tough it is to read markets while a storm of volatility is crashing down upon us, just like that which appears to be at our doorstep. We have a few options available when this happens, to be sure. We can refocus on a calmer quarter of the investment world and attempt a trade where no one is looking, so to speak, and, indeed, that has proven an effective strategy on several occasions. The commodities, as a group, have been surprisingly stable during this week’s five percent NASDAQ selloff, and could provide us with a safe harbor trade, if needed. Or we could hedge ourselves with a bet on just about anything that offered limited upside or loss potential. A short term spread in either direction would accomplish that. But we’re going to undertake something a little less conventional at…

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The Wisdom of Solomon (TLT)

The Wisdom of Solomon (TLT)   You’ve been listening to the car rattle and shake for some time now, but it still moves OK, and everyone tells you what a fine looking beast she is and how she’s reliable and all, so you let it go.   But the noise is bothering the wife a little too much to maintain peace in the castle, so in lieu of letting her fears fester and risk an outright coup, you take her to the shop.   The car, that is.   You shimmy on down to the local industrial zone, and, as usual, Sonny is all smiles and handshakes, the black under his fingernails a tad worrisome as he takes the old Edsel for a spin to check out the damage.   And whaddaya know, it’s not much of a thing at all.  Streering fluid’s low and there may be a bit of a leak from the pipe leading therefrom, but when all is said and done, it’s only a half day shot and 180 bucks, and you’re back on the road a’smilin’.   Phew!   Modern Day Financial Proverbs   We offer the foregoing as a perfectly relevant allegory for the…

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The Problem With Flying (XLP,DIA,TLT)

The Problem With Flying (XLP,DIA,TLT)   There are a few things that kinda trouble us these days, but none so much as the technical picture of the Dow Jones Industrial Average, whose daily, weekly and monthly charts are all now spinning through lala-ville, overbought every darn j-candle of them, and presenting the very picture of a dead man walking.   So it is.   And we have to acknowledge the reality.   But before we turn to the actual charts, know that neither the S&P 500 nor the NASDAQ are as bloated as the Dow.  Know, too, that the Dow Transports and the rest of the world’s major market indices are also nowhere near the froth-flood we see on the Old Lady of New York.   And we’ll have more to say on that in a moment.   But first, take a look at the Dow’s daily paste-up – Here, you see a picture of some 1500 points achieved in under just eight weeks (in blue), a relentless juggernaut of a climb that rarely saw a down day and pushed the index’s Relative Strength Indicator (RSI) high into overbought territory for almost a full month (in green).   What the…!?…

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NORTH KOREA PIZZERIA BALLERINA SHOP IKEA (TLT)

NORTH KOREA PIZZERIA BALLERINA SHOP IKEA (TLT)   “Turn ‘em into North Tortilla” – Rear Admiral James Evans Jr., 14th Naval District (Pacific Fleet)   There will be a great deal of tension and market volatility in the days leading to a resolution of the current impasse with North Korea, and of course, we all hope for a peaceful and just outcome without resort to force.   That said, both the rhetoric and activity of the last few days have been increasingly explosive, and it’s our opinion that a military clash of some variety is presently in the making.   Whether it be limited or ‘overwhelming’ – as one senior cabinet appointee proclaimed – it will no doubt be short-lived.  There’s little chance of a long-lasting, attritive battle between the two Koreas and their sponsors.  There’s simply too much at stake, too much hardware primed to launch and too much ill-will between the sides for anything but a) a limited, short-lived escalation that immediately cools under pressure from the relevant third parties (China and Russia), or b) a full-bore race to annihilation of one side or the other that leaves untold damage and death in its wake.   Either way,…

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ReVEnGe! (TLT,SPY)

There’s not a whole lot in this world that gives you the yummy-tum as watching an enemy go down.   Slowly.   When the come-uppance is cold and unexpected, when it comes after a significant wait, and is delivered gently, it’s as tasty as it comes.   So we read and always believed to be true, but it wasn’t until we tasted the sweet sauce of the swallows returning to Capistrano that we understood the bone rattling truth of the vengeance concept. We’re referring, of course, to the weekend story of the swindler from Boston who tried one trick too many, was too clever by half, and fell into a trap laid for him by a rival group of hucksters.  Not only did he lose everything he owned (including a fair chunk that he stole from yours truly!), he also lost both his hands and family in the bargain.   Apparently, the Mrs. and his twin sons were in on the sting.   And he goes to jail, too.   Lash by bloody lash…   As to the market, it now looks like both gravity and the bond market are about to take their revenge on the investment world: the…

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