Weekend May 18, 2014

The Big Picture

We have been expecting a transitional top similar to 1973-74. That was  a similar period of stagnation as 1966-1984 began and ended with the Dow at or below 1,000, never managing to break out for 18 years. This time some indexes have done that. But the situation from a social mood standpoint is very similar. A sitting President was re elected. His programs are now having difficulty with his own party, Keystone Pipeline, and the foreign policy front is a disaster, then Viet Nam now Ukraine, Middle East, South China Sea, even his wife is tweeting distress calls.  That makes this a similar situation to Bush in 2006 in his second term when he lost Congress.Obama now may lose the Senate having lost the House in 2010. 

Then in January 1973 markets had returned to their high sjust was they have now. We are forty years out from then which is two generations, long enough that not many of the current hedge fund managers remember what happened. An old adage has it that for a real bear to happen, enough time must pass that few are around to tell the story. Already memories of 2008 are history as Geithner assures everyone in the WSJ that things are well on their way. Yet nothing was really done about  the collapse of the Club Med countries. The number on food stamps continues to swell as student debt soars over a trillion dollars. 

Detroit has recovered. In 2008 the highly touted one billion dollar Toyota Tundra plant here in San Antonio shut down three months after it opened. Absolutely no one would have believed that prior to it happening. Now read Terry Box column on where pickups are today. After saving GM from bankruptcy, the Government slapped a $35 M fine on GM for the ignition switch recall, already critics saying it was not enough. So we have come full circle, from  a low of 11 million vehicles sold back near 16 million, and at high prices. Already though we are seeing lots of zero down, zero percent finance deals. 

The transition lower is being led by the NASD 100, the top tech stocks. That would correspond to the Nifty Fifty of 1973. Then too small stocks were hit hard. 

NDX

This is textbook example of breakdown. We have a head and shoulders pattern, a clear neckline, and change in CCI, and the MAs are beginning to break over. Amazingly THE HIGH occurred right to the five year anniversary of the low, March 9, 2009. 

CCI at the bottom shows the big change in the character of the NDX, from bull to bear. The ribbon of Moving Averages, MAs, is bending over. Major tech stocks have been hit.

Social mood towards high tech companies in Silicon Valley has turned quite negative. Our friends at Elliott Wave have an article on the same topic, see later post. 

This is precisely what we have bee nwriting about. When the mood changes, the markets change. 

Russell 2000 Small Caps

The small cap index has already broken all the daily MAs. This is leading the way for the rest of the markets. 

Dow INdustrials

The DJIA finally eek ed out a 100 point gain from the December high, and that during the good part of the seasonal cycle from November to May. After May go away may be quite prophetic this year. 

BID Sotheby's

Sotheby's is a near perfect social mood monitor for the markets. Here it registered a sell signal in almost perfect synch with a January top from forty to forty one years ago. I attribute the additional year of FED purchasing at $ 80 B a month for extending the date by one year. Bid has now broken all the daily MAs. 

BID Weekly 

Recall that socionomics holds that maximum mood is registered at the END of a move. With BID that is evident in this weekly three year chart. This past year saw a huge move up and an auction mania. 

IN true socionomic fashion, an Andy Warhol 'painting' really a photo, sold for $105 M in November 2013. That was only two months shy of the last spike up in BID. This is a fitting socionomic moment for this five year bull market. Indeed here is a comment from the article that reminds me of that 1929 quote that stocks had reached a new high permanent plateau. 

“The demand for seminal works by historical important artists is truly unquestionable, and we will keep witnessing new records being broken,” said Michael Frahm, a contemporary art adviser and partner at the London-based Frahm Ltd. “This is the ultimate trophy hunting.”

Christie’s said Tuesday’s sale brought in more than $691.5 million, the highest total for any single auction in history.

As stocks are an auction market as well, this is about as ironic a comment as one could find but typical of top of the market thinking. 

Bonds Nudge Small Stocks Aside

 This ratio chart of bonds to the NDX shows that bonds are beginning to out perform tech stocks. This is also typical of a market becoming more defensive. Note the big change in the CCI at far right as the ratio reversed course. 

Utilities

Even Utilities backed off their recent run. REITs remain strong

EEP

This Master Limited Partnership has caught fire. It offers a nice 7% dividend as well. 

Euro Tops Out

As I mentioned, I don't recall anything really being done about the Club Med countries failing to adhere to the Euro Agreements regarding budgets, etc. Yes some sort of 'austerity' was claimed but looks to me like everyone just stopped worrying about it. Now the inability to 

deal with the Ukraine while Germany and France continue to do business with Russia in arms. Indeed a transport ship is prcisely what Russia needs to project power to Crimea and the Ukraine. Be sure to read this one!

improve unemployment which is double digit in Spain and Italy

defend itself

French Stock Market

While most world exchanges have hit new highs, France registers lower highs with Hollande losing recent seats. With Germany and France comprising about half of the European GDP this is significant. 

 

The Bottom Line

Market are likely at the opposite end of where they were in March 2008. This is happening in the small stocks like the RUT but not in the large caps yet. Bonds via TLT have boomed 13 points since December showing a market becoming defensive. The MLPs and REITs have  also done well

Social mood is decidedly negative regading the high tech sector. This will likely lead the rest of the markets to the downside. 

 

Thanks for reading The Market Perspective

Dennislelam@gmail.com

 

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