Market Thoughts and Analysis: Summer Doldrums or Hurricane Season?
Green Shoots, Head and Shoulders, P-PIP and BS. Actually lots of BS. This post is just a "random walk" through some current fundamental and technical issues. And FWIW, I believe the market volatility coming up will resemble hurricane season much more than summer doldrums.
I am going to try to start posting a few thoughts on a semi-regular basis. I have written a lot of "special topic" mammoth blog posts in the past when I had time on the weekends. This post will not be a tome, nor will any in this series of regular updates. Just a few thoughts on the Fundamentals and some charts that I watch on a regular basis. It will tend to be broad market / equity focused. I will save gold, commodities, and in-depth Dollar analysis for special more focused posts.
Here is a list of most of my in-depth market analysis posts:
- This Rally was Pure Weapons Grade Balognium Jun 22, 09 - LINK
- Thoughts on the US Dollar, Analysis of the USDX Long Term, Follow up on the Gold Blog Jun 17, 09 - LINK
- Market Thoughts and Analysis: The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) Jun 15, 09 - LINK
- More Thoughts and Analysis: Timeframes - Bearish, to Bullish ... to Bearish May 17, 09 - LINK
- Still Bearish: FA and TA on S&P500, Observations on the Economy May 10, 09 - LINK
- Technical Investing Themes: MacroTrends, USDX, Oil, Gold, S&P500, etc. Mar 27, 09 - LINK
- Is Natural Gas Potentially Bottoming? Mar 23, 09 - LINK
- Update on Oil, Gold and the USDX Mar 19, 09 - LINK
- Short Term Oil Jan 7, 09 - LINK
Here is a list of very good commentary posts that discuss inflation / deflation / monetary policy / macroeconomics, etc.
- Steve Saville: Market Value, Money and Credit - Good layman's description of TMS and its importance
- Quantitative Easing Explained - Just a good funny article on QE
- Steve Saville: Why We are Gold Bulls - A good inflationary summary
- Steve Saville: Money Confusion and Inflation/Deflation - Good discussion as to what consitutes money and why some monetary discussions are invalid
- Zeal: Big Inflation Coming 2 - Good discussion of inflation and deflation.
- Mises: TMS - Good Definition of True Money Supply (TMS).
- Saville: Inflations New Upward Trend - Misuse of the Velocity of Money concept
- John Mauldin: The Endgame - Very good deflation arguments.
Purpose and Background
First I am not trying to convince anybody of anything. You may hate TA and think it bogus. Fine. You may think Elliot Wave is garbage. Perfect. You may think my fundamental stance is idiotic. Good for you. I am quite literally fine with all of those responses. I am sharing my thoughts. That's it. Maybe it is useful to you, maybe it is not. I have nothing to sell. I am not trying to wow you with prognostications, nor am I trying to indisputably prove that TA works. I am sharing my thoughts. Nothing more, nothing less.
I have written several posts and many have come to appreciate my thoughts and / or my writing style. And many of you disagree with me. And that is perfectly fine too. In fact, the discussions from these disagreements are some of the best discussions I read on CAPS. So even if you don't agree with me, please rec my posts if you appreciate my thoughts, candor, or analysis and the time I take to write them.
Regarding my analyis and Elliot Wave counts specifically: Read this RANT. I will not regurgitate that rant here. I have done it many times already. Please read my rant first before questioning the validity of my analysis, or presuming that I am stating my analysis as more than a guess.
Many of us EW Technicians have what we call a “preferred count”. This means the count and analysis that is the most likely to happen, in our opinion. We may have several different counts that are viable based on the unfolding price action (because ultimately any pattern is incomplete until it is in the past). But we select one that is most likely, the “preferred” one. And per the observation made above, any good analyst knows that even the best guess is still a guess. So even the analyst who makes the count does not put an absolute 100% likelihood of occurrence on it..
Okay, that out of the way, lets get to the good stuff!
Yes indeed, this is binv's Tin Foil Hat Area! Acutually many people don't agree with my fundamental analysis, especially regarding inflation / deflation. And even less agree with my TA, especially my Elliot Wave Counts. So if you find yourself actually agreeing with what I write, then might I suggest wearing a Tin Foil Hat? I will gladly sell you one for just $19.95! (plus shipping and handling of course) .... :) (just kidding). On to the analysis!
Broad Market and Earnings Well here were are in the midst of earnings season and the misuse / overuse of the term "priced-in" will be spouted by talking heads as if they have Teret's syndrome. Companies will seemingly be reward for crappy performance, or rather performance that is not a crappy as was expected .... or will they? Alcoa (AA) is the first example here. It had horrendous earnings, but was "not as bad as expected. And it was up over 7% in before hours trading, was up 6.8% during hours. .... However it closed around 2.5% down.
So is the cycle of bad news being ignored over? In short, I think yes. June 11 marked the peak, technically and I think it did so in terms of sentiment too. My June 22 post discusses this in more detail: This Rally was Pure Weapons Grade Balognium Jun 22, 09 - LINK.
Real, honest-to-God, GAAP earnings estimates for the S&P 500 for 2009 are still around $40 from honest reputable analysts (think John Mauldin). I have seen non-GAAP estimates that are much higher (which are BS) or other "fiddled" estimates. So at ~888, we are still in the PE rang of 22. For an overdone rally, this is pretty high if you ask me.
Financials (pigs with wings) Many are still flying, but a lot of hunters have now realized there is bacon just flying around in the sky. This was never bound to last long. Whatever P-PIP plan gets put forward, which is ultimately another band-aid, always remember these points when it comes to finanicals (from Still Bearish: FA and TA on S&P500, Observations on the Economy May 10, 09 - LINK)
- 1. Consumption accounts for 70% of GDP
- 2. Consumers are hurting
- 3. Unempolyment is rising
- 4. Home Prices are Dropping
- 5. There is another wave coming to the mortgage crisis: Option-ARMs (read increased defaults and foreclosures)
- Points 1-4 will hurt counsumers which hurts financials due to increased defaults, and point 5 is a direct double whammy to financials
- 6. Most earnings are fake
- 7. Stress test results are fake
- 8. Mark to Market is fake
Maybe this weeds out the weak ones and the "strong survive" .... okay, good luck with all that. I personally do want want to place bets on completely opaque instutions with horrible fundamentals thinking it is a strong one and only to be blind-sided later on.
Why do I continually harp on financials? Because they led this rally up and I believe they will lead this rally down.
.... continued in the Comments section ....