StreetSmartPost

Saturday, July 19, 11 a.m.

Markets most everywhere closed up this week. At first glance it looks great. But a look at the technical charts shows it was not impressive, particularly in the U.S. and Europe.

For instance, the NYSE Composite and Nasdaq closed down 1.5% the previous week and bounced back only 0.4% this week. The Russell 2000 closed down 4.1% the previous week, and closed down another 0.7% this week.

Germany and France closed down 3.4% the previous week, and bounced back only 0.6% this week.

It didn’t change anything in the short-term risk picture.

But those are only short-term charts and the markets do remain within a few percentage points of their highs. A few short-term support levels at 50-day moving averages have been broken, but that has happened fairly often.

So no worries – right?

Short-term market patterns.

The way the market continues to follow its short-term patterns is almost spooky.

Most recently, an up-week in keeping with the ‘monthly strength period’. Then a down week in keeping with the tendency for the week before an options expirations to be negative. And now an up week this week in keeping with the tendency for the options expirations week to be positive.

Is the economy really rebounding from the winter slowdown?

We know the Federal Reserve has an ax to grind in always painting a positive picture of the economy. Imagine what would happen to consumer and business confidence, and markets, if the Fed came out with an assessment saying that “We have a number of problems that will have the economy in a continuing slowdown.”

So we see the Federal Reserve, at least in their public statements, always behind the curve at turning points. For instance, then Fed Chairman Bernanke assured us after the housing bubble burst in 2006 that, “Our assessment is that this looks like an orderly and moderate kind of cooling off.” In 2008, with the ‘Great Recession’ already underway, that, “The Federal Reserve is not currently forecasting a recession.”

We know Wall Street and its cheerleaders have a compelling reason to always paint a positive picture of the economy, in an effort to keep investors confidently buying, and bull markets going as long as possible.

So we see Wall Street and its cheerleaders cherry-pick the economic reports, playing up those that are positive and pretty much ignoring those that are negative.

But does not the important economic question of the last six months remain, whether the economy is rebounding from the pronounced winter slowdown?

The slowdown began last fall when GDP growth fell from 4.1% in the third quarter to 2.4% in the fourth quarter, and plunged further to negative -2.9% in the first quarter of this year.

The Fed and Wall Street assured us there would be a robust rebound in the spring. Pent-up demand from the winter months, when consumers couldn’t get out to spend due to the weather, would add to the normal strong spring buying season, especially for housing.

Well, spring has come and gone, and we’re almost halfway through summer.

In its FOMC statements, and Beige Book this week, the Fed says the economy has indeed bounced back, with moderate growth, strong jobs reports, with only perhaps a little disappointment in a somewhat slow recovery in housing.

However, realizing the Fed and Wall Street have obviously self-serving motivations in painting a rosy picture for consumers and investors, let’s look at the negative reports they have been pretty much ignoring. What is the picture those reports are painting?

Consumer spending accounts for 66% of the economy. Home purchases are their biggest expenditures. The housing industry is a major driving force of the economy in both directions.

So how are those areas of the housing industry, retail sales, and consumer confidence looking?

A month ago it was reported that new housing starts fell 6.5% in May. Permits for future starts fell 6.4%, to a four month low.

This week it was reported that they plunged again in June, down 9.3%, to an annualized rate of 893,000, the slowest pace in 9 months. And already dismal housing starts for May were revised down from the originally reported 1.0 million to 985,000.

Looking ahead, mortgage applications fell sharply in June, down double-digits for the month, and this week we learned they fell sharply again in the first week of July.

U.S. retail sales were up almost 1.0% in February, almost 1.5% in March, but only 0.5% in April, and 0.5% in May.

The consensus forecast was that they would be up 0.6% in June. But they didn’t come close to even that. June retail sales were up only 0.2%, the slowest pace in five months.

Meanwhile, yesterday it was reported that consumer confidence (University of Michigan/ Thomson/Reuters Consumer Sentiment Index) fell from 82.5 in June to 81.3 in July, a four-month low.

Those reports do not indicate a big bounce back from pent-up demand created by the winter weather, at least from housing and consumer spending.

Recent reports also showed Factory Orders fell 0.5% in May, and Industrial Production rose at a slower than forecast 0.2% pace in June.  

It was also reported this week that the Producer Price Index jumped 0.4% in June, adding to the concerns from the Consumer Price Index that inflation may be picking up, lowering the spending power of the dollar, and making it more difficult for consumers to spend more even if they wanted to.

The economy was no doubt back in positive territory in the 2nd quarter, but in a robust big recovery that has the economy in a significant recovery uptrend?

The Fed and Wall Street say so. Therefore it must be so.

To read my weekend newspaper column click here:  Will Investors Get Out On Time This Time-

Subscribers to Street Smart Report:

In addition to the charts and signals in the ‘premium content’ area of this blog, the new issue of the newsletter from Wednesday is in your secure area of the Street Smart Report website.

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Check out our new bull market/bear market indicator (BBMI) by clicking here: Market Timing Strategy !

U.S. market yesterday.

A strong bounce-back rally from the previous day’s triple-digit plunge. Volume was just over 0.7 billion shares traded on the NYSE, light for an options expirations day.

The Dow closed up 123 points, or 0.7%. The S&P 500 closed up 1.0%. The NYSE Composite closed up 0.9%. The Nasdaq closed up 1.6%. The Nasdaq 100 closed up 1.6%. The Russell 2000 closed up 1.6%. The DJ Transportation Avg. closed up 1.3%. The DJ Utilities Avg closed up 1.1%.

Gold closed down $6 at $1,310 an ounce.

The U.S. dollar etf UUP closed unchanged.

The 20-yr bond etf TLT closed down 0.3%.

Our global market etf holding closed up 1.0%.

Asian markets closed mixed in their last session of the week.

Asian markets closed mixed Thursday night (Friday in the U.S.).

The Asia Dow closed down 0.1%.

Among individual markets:

Australia closed up 0.2%. China closed up 0.2%. Hong Kong closed down 0.3%. India closed up 0.3%. Indonesia closed up 0.5%. Japan closed down 1.0%. Malaysia closed down 0.6%. New Zealand closed down 0.1%. South Korea closed down 0.1%. Singapore closed up 0.1%. Taiwan closed down 0.1%. Thailand closed down 0.2%.

European markets closed mixed yesterday.

The London FTSE closed up 0.2%. The German DAX closed down 0.4%. France’s CAC closed up 0.4%. Belgium closed up 0.1%. Denmark closed down 1.0%. Finland closed up 0.1%. Greece plunged 2.3%. Ireland closed down 0.7%. Italy closed up 0.6%. The Netherlands closed down 0.1%. Norway closed down 0.9%. Portugal closed down 0.8%. Spain closed down 0.1%. Switzerland closed down 0.4%.

Global markets for the week. 

A bounce-back week everywhere. Not impressive in U.S. or Europe.

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In the premium content area this morning: The next short-term market pattern. Charts and signals on the U.S. stock market, gold, and bonds, signals (long-term, intermediate-term, and short-term), and analysis of each.

Thursday, July 17, 9:25 a.m.

There are three observations being made about the current resilience of the stock market.

1. The market has gone 33 months, since 2011, without at least a 10% correction.

2. It has gone 1,014 days without a 20% correction. That’s the longest stretch since it went 1,127 days, from July, 1984 to August 1987, 30 years ago.

3. The average bull market over the last 100 years lasted 53 months. The current bull market is now a very rare 65 months old. The last time it came close to that long was the 2003-2007 bull market, which lasted 60 months to its 2007 top.

That’s three time-frames in which the market is currently flirting with the odds in trying to last even longer.

I thought it might be interesting to compare the charts of this year to the year when those previous long stretches ended.

1. The market has gone an unusual 33 months since 2011 without at least a 10% correction.

In 2011, GDP went negative in the 1st quarter for first time since the Great Recession, as it did this year. Actually it went twice as negative in the 1st quarter this year as in the 1st quarter of 2011.

On the following market chart, 2011 followed a strong 2010, with repeated new highs. It declined in March, and then resumed making repeated new highs until mid-year.  And then a 19% plunge to the October low.

This year, 2014, follows a strong 2103, with repeated new highs. There was a decline in January, and then new highs to mid-year so far. 33 months since that last correction of 10% or more in 2011?

2. The S&P 500 has now gone 1,014 days without a 20% correction. That’s the longest stretch since it went 1,127 days, from July, 1984 to August 1987, 30 years ago.

In 1987, the market had a minor decline in May then climbed to successive new highs into early August. It then topped out into a 36% decline including the 1987 crash in October.

3. The current bull market is now a very rare 65 months old. The last time it came close to that long was the 2003-2007 bull market which lasted 60 months to its 2007 top.

Among some other conditions, market valuations are even higher now than they were in 2007, as is margin debt and other conditions often seen at significant market tops.

In 2007, the market was coming off a strong 2006. It pulled back early in the year, then recovered and began making repeated new highs into July. It then declined 10% into August, only to recover to a new high in October. That had everyone thinking all was well.

But that time it was not just a correction, or even just a quick crash as in 1987, but the beginning of the severe 2007-2009 bear market. 

It may not mean anything. Three data points are not meaningful statistically.

But, annual seasonality and the 2nd year of the Presidential Cycle going back 100 years do have a statistically meaningful history, and are also in play.

Combined with the three unusual time stretches the market is trying to exceed, (time since last 10% correction, since last 20% correction, and since last bear market began), and the similar conditions and appearance of the charts in those years, it looks a bit more ominous.

The consensus of our intermediate-term indicators came off their buy signal of last fall in February but only to neutral. The market is still making new highs, and our intermediate-term indicators remain neutral. But we are holding 60% in cash with odds still high of a sell signal at some point fairly soon, and significant profits from downside positioning. 

The above comparisons of 2011, 2007, and 1987, do not alleviate my concerns.

To read my weekend newspaper column click here:    The Bond Rally Is Not a Good Omen for the Stock Market

Subscribers to Street Smart Report:

In addition to the charts and signals in the ‘premium content’ area of this blog, the new issue of the newsletter is in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market. 

A positive day to fractional new highs for the Dow and S&P 500. Volume was just over 0.6 billion shares traded on the NYSE.

The Dow closed up 77 points, or 0.5%. The S&P 500 closed up 0.4%. The NYSE Composite closed up 0.5%. The Nasdaq closed up 0.2%. The Nasdaq 100 closed up 0.5%. The Russell 2000 closed down 0.2%. The DJ Transportation Avg. closed up 0.6%. The DJ Utilities Avg closed up 0.5%.

Gold closed up $2 an ounce to $1,298.

The U.S. dollar etf UUP closed up 0.2%.

The 20-yr bond etf TLT closed up 0.5%.

Our holding in the global etf closed up 0.7%.

European Markets rallied off oversold condition yesterday as expected.

The London FTSE closed up 1.1%. The German DAX closed up 1.4%. France’s CAC closed up 1.5%. Belgium closed up 1.4%. Denmark closed up 1.1%. Finland closed up 1.3%. Greece closed up 0.8%.  Ireland closed up 1.2%. Italy closed up 3.2%. Netherlands closed up 1.2%. Norway closed up 1.0%. Portugal closed up 3.1%. Spain closed up 1.8%. Switzerland closed up 0.5%.

Asian Markets closed mixed last night.

The Asia Dow closed down 0.1%. Among individual countries:

Australia closed up 0.1%. China closed down 0.6%. Hong Kong closed down 0.1%. India up 0.1%. Indonesia closed down 0.8%. Japan closed down 0.1%. Malaysia closed down  0.2%. New Zealand closed down 0.1%. South Korea closed up 0.4%. Singapore closed up 0.1%. Taiwan closed down 0.8%. Thailand closed up 0.3%.

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For Street Smart Report subscribers only, used to provide additional info to that provided in the newsletter, mid-week reports, and hotlines.

NOTE: To gain access call our subscription office at 1-386-943-4081 (week-days only). If you can afford two cups of coffee a week you can afford the cost of 25.95 a month ($6.50 a week). For that you also receive the full Street Smart Report advisory service (newsletter, hotlines, in depth mid-week reports on stocks, gold ,bonds, etc.). Or to subscribe online click here:https://streetsmart.securesites.net/order.html