Monday, May 12, 2014

Great News! The Sky is Falling...

It seems like an awful lot I read, predicts that World and USA economic news is going to be awful for 2014.  Many seem to be on the bandwagon that the stock market is going to crash any minute.  Junk Bonds are going to take the economy down, and it will make the Great Recession look like a picnic.

Look at a chart of the DOW or the S&P 500, and price is very near the high of 2014.  The market is choppy for all 2014, but the price is in a trading range (which as I wrote over the weekend will resolve itself soon).

The point is there is no economic news in the near term that suggests all the doom-and-gloom is eminent. 

I do think we are going to see a correction to the downside, with a better than 50-50 chance it will start this week.  Why will it correct?  The only reason is the time-cycle is due to complete on May 15.  The cycle started on April 14, 2014, which confirmed an up trend for that cycle.  

Ukraine - Pro Moscow Seperatist declare victory

The People's Republic of Donetsk have declared victory on self rule.  They declare 89% of the voters have approved the measure.  Russia will recognize them, but Europe is saying they will not recognize them as they declare the ballot illegal.  Ukraine is nearing civil war. 

Japan's Current Account Surplus

Japan's current account surplus badly missed consensus.  Japan was hurt by weak exports and rising imports.  In April they had a hike in the sales tax.  The fear is growing that Japan's current account may slide into permanent deficit.  If that continues, it will hurt investor's confidence in the country's massive debt.

Stock Market

Choppy!!! The DOW closes at an all time high.  Today, the DOW, S&P 500 look like they will open up. 

Analysts from TBTF banks, to newsletters, to talking heads on TV all suggest M&A activity should continue to run at a good clip.  High stock prices have provided the liquidity. 

This a "BIG WEEK" in economic data with retail sales, PPI, CPI, initial job clais, industrial production and housing starts due to be released. China has a big week of economic reports as well.  For the USA, all this news is particularly important, because all bad news this year has been blamed on the weather.  

These new reports cover April and part of May, and the weather can no longer be held responsible. 

Europe and Asia stocks were generally higher going into the opening.  China's Shanghai Composite Index was particularly strong. 

Tale of TWO Markets:

1.   DOW Jones Average is well above the 50 and 200 day MVA.  So is S&P 500.  Large Cap stocks are still bullish.  Both are bumping up against resistance.

2.   Russell, however, is substantially different.  Russell 2000 is down 8.5% from its recent highs.  It is below its 50 and 200 day MVA.  Nasdaq is weak also, albeit not as weak as Russell 2000.   

This kind of divergence between large cap and small cap should make everyone very concerned about the health of the market.  This may be one of the reasons we hear so much doom-and-gloom about the stock market. 

Warning:  As I've been reporting, the divergence between the indexes will resolve one way or another.  It will be resolved along with resolution of the range trading in large caps.  Which way?  Range trading breakout is relatively unpredictable.  False breakouts are common, and retail traders often get caught on the wrong side of breakouts. 

World ETFs

Symbol	Price	Change	52-Wk
Israel (ISL)	17.46	-1.2%	+21.9%
USA (SPY)	187.42	-0.1%	+17.4%
Canada (EWC)	30.33	-0.9%	+8.5%
S. Korea (EWY)	62.58	-0.3%	+8.2%
India (IFN)	22.26	+2.5%	+7.6%
S. Africa (EZA)	68.21	-0.8%	+7.4%
Taiwan (EWT)	14.70	-1.1%	+4.7%
Japan (EWJ)	11.12	+0.6%	-4.3%
Singapore (EWS)	13.66	+0.4%	-5.1%
China (FXI)	34.59	-0.4%	-6.6%
Lat.America (ILF)	38.70	-0.5%	-7.7%
Russia (TRF)	13.29	-0.9%	-9.3%

From ETFdb

In addition to investing in a country with an ETF, world ETFs are interesting as they allow us to observe investor behavior with respect to a country.  Momentum investors often use this kind of comparison for short term momentum trades (either long or short).  Mostly, I find it useful to question what is going on if a major change in order is taking place.