Sell?
How about that equity rally on Thursday! The way that stocks collapsed on Wednesday afternoon was certainly cause for worry as Apple and so many other companies have had tremendous quarters and yet stocks dissolved in the Wednesday afternoon autumn twilight.
Is this rebound just a chance to sell, especially after the 65% rebound in the S&P 500 since the March lows? Remember that we're not your financial advisor but I'm not selling as of yet. Do I have a happy trigger finger with my various accounts? Absolutely!!!
By now 98% of you have seen the emails floating around from technical analysts showing how this market resembles that of 1937/38. If not recall our posting one month ago courtesy of Walter Deemer's charts and Mark Ungewitter's analysis:
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Case for Bulls:
Let's play the devil's advocate for a second, why can't we pop even higher in stocks (or risk-taking in general)? There is so little resemble from 1938 to 2009 that any theory comparing the two is outrageous. Charts alone can't tell the whole story. We're smarter today than we were back then and if charts can do the trick then why wasn't I watching these a long time ago?
Ok, let's have a look at what the various markets are telling us:
Currency markets: EURUSD, worlds best indicator of risk-taking, just eclipsed the psychological barrier of 1.50. It also propelled above the Sep. & Dec. 2008 highs which were close to 1.50.
Commodities: Crude is back up and over $80/barrel.
Rates: RBA just hiked rates and it won't be their last!
Sentiment: BoE has suggested that the world has stopped falling and consumers are spending money, UK retail sales is up +2.4% y/y.
Politics: The US Democrats agree with the Republicans that China is not manipulating its currency!
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Debunking the Bulls:
Currencies: The most powerful tool in either fundamental or technical analysis is Divergence. EURUSD failed at 1.60 last spring and any failure to break that high represents a "lower-high" and potentially an ugly loss of upside momentum.
Commodities: Crude actually crossed $140 last year, wow. Certainly an easy divergence case here as not only will we make a "lower-high" but Crude formed a "lower-low" this year when it was trading sub $40. A few brave souls will also tell you that the law of supply/demand should have Crude back around $30 but other items dictate that this does not happen.
Rates: Bernanke entered office touting the positives of an "inflation target". That same "inflation target" had the BoE against the wall in 2007 hiking rates to keep inflation below 2% in the medium term. They obviously failed to understand the genius of Greenspan and his ability to rewrite inflation and proclaim productivity when not feeling the need to hike rates.
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As for the RBA, bravo to any central bank looking to avoid 0% interest rates. If Japan wasn't lesson enough the US is the 2nd chapter. As for future hikes in Australia, 'not so fast my friend'. The latest stimulus package out of China is not everlasting and it's impact is wearing off. Also the unemployment rate in Australia has risen, which should be reflective of more people searching for jobs but the participation rate has not followed as of yet. These two should be hand-in-hand for a healthy rebound to be occurring. Another Divergence.
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Enough about the Wed/Thursday combo though. As we've said, the weekly charts are more important than the daily charts which leaves us to a very important trading session on Friday.
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