DJI 10k!!
A short and sweet write-up today as I can't let the latest visit to Dow Jones 10,000 come and go without a comment. This time though we're heavy on charts and short on words as we'll let the G20 officials fill up the news-wires ahead of their visit to Heinz Field this w/end, I mean Pittsburgh.
A seamless move to 1150 in the S&P 500? We can only hope as few resistance areas appear beforehand, volume is heading in the right direction and the moving averages are cooperating.
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We have to applaud and boo the Obama administration on the same item, "Cash for Clunkers". Copying the same recipe that was used in October of 2001 when ultra low interest rates led to the Zero percent financing. Buy now, pay later led to a 6.5% m/m surge in October 2001 retail sales and kick-started the economy.
The latest 2.7% m/m gain in August of 2009 is not on the same scale as Oct, '01 but the underlying details of the report were actually quite good. In fact ex-Autos the retail levels were better than those from the same period in 2001 so back-to-school shopping is arguably stronger during this economy than it was then.
Boo for just flipping back to "student body right" and the lack of any creative thinking, again, but their concern was obvious, consumers were leaving the beach and starting to lose confidence in the economy before they took action as the chart below illustrates:
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If you overlay Consumer Confidence to Retail Sales you find a very tight fit. The cycle renews, consumption will eventually lead to less accommodation, etc...
The chart above is a monthly chart and so is the one below. The correlation on the charts seems to match both fundamentally and technically (besides the divergence around 2006 which should have been a nice signal):
Let's hope, at least I am, that the XLF finds 16 to be a speed-bump en route to 21 but we shall see. Over 38% of the XLF represents just 4 stocks, so any further gains will be led by either JPM, WFC, BAC or GS. As we describe below, we may becoming closer to PT time so 16 may be it.
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It's not all roses and we all know that, in fact most correspondence to me right now is "where should I put my stop on my Short position?"
Remember to pay attention to your investments as closely as you do your other chores such as dinner, why? See the charts below courtesy of Walter Deemer. They compare the price action of 1937 - 1940 to 2008 - 2011. It should be straight forward enough but further analysis is provided below:
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As mentioned the charts were created by Walter Deemer but further analysis is by Mark Ungewitter: "Breakaway momentum" is a term that Walter coined in the 1970s to describe an NYSE advance/decline ratio of nearly 2-to-1. Coppock momentum is the traditional monthly formula popularized by Edwin Coppock in the 1960s. In 1938, the market rallied for a total of 136 sessions from bottom to top, and for 20 sessions beyond the third breadth-thrust ("breakaway momentum") reading. If behavior now repeats, we'll top on October 14th or 15th, in the vicinity of Dow 10,450.
Bottom line: October will be a month to pay attention to your investments as we may be nearing the latest peak and reversal. Not shown are charts on the currencies but watching EURUSD and EURJPY should be mandatory as divergence to stocks is likely to appear as well.
Before we finish, back to DJI 10,000. First hit in 1999 and repeatedly hit many times since. What period and level does this remind us of other than that provided above? The chart below is from 1960 - 1980 and you can probably pick your level whether its 750 or 800 or even 1000 but it was two decades worth of gains for those that paid attention to the markets and a lost decade(s) for those that did not. The same as today right?
Ciao for now,
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