Wednesday, January 08, 2014 Zeb’s Vue

General Information and Analysis

 

US

Comment for 1/7/2014	Measure	Indicator	Ranking
Weekly RSI	WeeklyRSI	70.2	OverB
Long Term MVA (200 day MVA)	200 MVA	9.88%	Bull
5 Day Slope of 55 day MVA	Slope55MA	0.53%	Bull
Intermediate Trend (Using ADX)	ADX(14)	18.45	Neutral/Chop
Short Term Trend (Daily RSI 3)	RSI(3)	60.48	Bullish
Relative Volatility ATR vs. 1Stdev	ATR(90)	0.77%	Calm
VIX - MACD 10/30 (slope down)	MACD	0.13	Neutral/Bull

Comment:

Long Term price movement is bullish.  Look for today (Wed.) to be choppy again, unless some new information enters the market. News and earnings will be important this week

The table above is a rating for intermediate and long term trend in the S&P500.  I used the S&P 500 as the indicator for the USA stock market.  For day traders: You may find it useful to trade in the direction of the trend.  However, looking at any daily chart over lots of years, the trading direction for the day is pretty random. 

S&P PIVOT ES Mini March Contract - Tuesday- Useful on Wednesday 1/8/2014

High	1834.75
Low	1819.50
Close	1830.75
R2	1843.75
R1	1837.50
Pivot	1828.50
S1	1822.25
S2	1813.25

Stocks –

Zeb’s View:

Stating the obvious: yesterday saw a large bullish move in stocks in the USA.  There is an interesting thing that may be pointed out, and that thing is worth considering if you are a day trader. 

Most of the market's move yesterday was in the overnight electronic trading.  Floor trading (day) was choppy, and depending how you would like to read it, the market was down in a choppy trend after the first hour and 1/2 after opening.  The movement in night trading is happening quite regularly now.

Labor:  ADP Labor Report

The increase in jobs is much better than expected @ 238,000.  This maintains the (mostly) strong economic indications in both the USA and the rest of the world.  ADP is a precursor to Friday's Employment report.

The results of the ADP report, reversed the overnight "down" trend. However, in the futures market (S&P e-mini), price found resistance at yesterday's close.  For day traders, there is a very narrow range between YDClose and YDPivot.  This is still indicating that this may be a choppy day. 

 

Other things:

March 10 year T-Notes are down this morning likely due to short covering.   Yesterday, T-note futures closed higher.  Since 2014 started, T-Notes have closed higher every day on 20 year T-notes.  ZNH14 (T-notes 10 YR futures) also so futures closing higher every day.  So what?   At the moment, the stock investors do not seem to be concerned over the rise in the cost of notes.

7:32 AM PST - I'm going to add a comment for those who do not understand bond valuation.  This is simple, so please read.  It is a take-off from a Bloomberg article.

In general, if rates rise, the market value of US bonds could be hurt significantly.  This is true for all bonds in general.  For example if the federal funds rate were to rise to 3%, the longer-term Treasury bonds would lose value; as much as a third of its market value.

For the housing market (as the Fed Tapers), mortgage bonds could be hurt significantly.  The current policy (as noted) is leading to higher rates, which in turn may negatively affect the housing recovery. 

Then, does the Fed cooperate, and resume QE? or does it continue to tighten?  If they tighten, will it cause the housing market to tumble.  In some way, all the information I'm providing today is related to the Federal Reserve's decision to taper, and the pressure they will be under to stop tapering and increase QE. 

Here is the kicker: Janet Yellen knows that the second the Federal Reserve backtracks on the taper, the Federal Reserve creditability goes poof. For every 1% increase in interest rates, expect the 10-year US Treasury Bond (and notes) to lose approximately 8%-8.7% in value.  "and IT's Gone". http://www.youtube.com/watch?v=-DT7bX-B1Mg  (humorous, but unfortunately shows truth).

Dollar Index is up slightly. 

Gasoline and Diesel futures are up as the cold in the East shuts down refineries.  This may (stress may) cause concern about refined petroleum supplies, and future prices may increase (at least today). Crude Oil on March futures is up slightly.

INTERESTING:  Wall Street Journal is reporting that Lord Abbott Micro Cap Growth (LMIYX) generated 12 month returns of 78.6%, and is one of the top performing fund of 2013.  Would you like to make those returns?  Admit it: sure you would, but the cost is in managing the risk.  One would need strong discipline and the ability to deal with stress as the risk is very high.  The rewards are great, but the volatility is also high. 

Eurozone's jobless rate is not decreasing.  Germany (of course) is all right, but many of the larger economies are still unable to put young people to work. 

Barclays put out an article saying that 2014 will be "the year of the dollar".  Jose Wynne Barclays Bank: " “The U.S. cyclical position continues to look relatively healthy versus other developed market countries, where central banks are either in easing mode or are not expected to tighten policy any time soon,”  Well, I hope you are right Mr. Wynne, but I think you may be wrong unless Europe's fundamentals are much worse than being reported. However, I do expect the ECB (European Central Bank) to attempt to weaken the Euro as they climb on-board the Japanese, USA, Euro, Pound race to be the ugliest currency in the market. 

 

 

Is it not fun to watch the currency war and all the dancing and hoopla "I'm not devaluing my currency".  "We do not have no stinking currency war." sheesh.

 

Bloomberg is reporting that by April the Euro will drop 6% against the US Dollar (all aboard?).  Still, the Euro would be above the US dollar, and when Janet Yellen sees the error of her ways, the Federal Reserve will jump in with more stimulus, and thereby financial policy will drive the dollar lower again.  OK, Fed watching (and bashing) is popular, but I just don't think the Federal Reserve can gracefully unwind QE, and all the dollar-bulls will be sacrificed on the alter of worship of the Federal Reserve.  However, if the facts in April say the Federal Reserve continues on their tapering ways, then I will admit I'm wrong (as I've done so many times).  The markets are humbling for everyone, and the way to lose everything, is to be inflexible in dealing with them.