Saturday, January 18, 2014

Jan 20, 2014 weekly outlook

Another sideways week.  After Monday it appeared we may be in for a down week of a few percent, but nearly all that was lost Monday was regained Tuesday and Wednesday.  In some cases indexes made new highs.  Market moved down moderately Thursday and up Friday.  So for the year so far the market is essentially flat. 

It appears all the new retirement money (401k, IRA, pension funding, etc.) has failed to move the market higher.  A lot of fuel burned without a launch of the rocket.

The talking heads on TV keep telling us about the positive #s.  Still it looks like retail for the 4th qtr 2013 was not healthy (Best Buy and others).  Consumers make up about 70% of the US economy, so it is hard to understand how the economy is doing well.  Employment number were pathetic (74,000).  So far earnings reports have not been that great (about 50% of companies just met or missed estimates).  Mortgage applications have been declining since May.  Building starts are declining and permits going forward are less still.  Auto sales are softening.

Despite 'blaming' the drop in the cost of dry bulk shipping on Colombian coal restrictions, it seems increasingly clear that the 40% collapse in the Baltic Dry Index since the start of the year is more than just that. While this is the worst start to a year in over 30 years, the scale of this meltdown is only matched by the total devastation that occurred in Q3 2008. Of course, the mainstream media will continue to ignore this dour index until it decides to rise once again, but for now, 9 days in a row of plunging prices is yet another canary in the global trade coalmine and suggests what inventory stacking that occurred in Q3/4 2013 is anything but sustained.

So fundamentally I see little that is positive as bank exposures are back at levels last seen 2007/2008.

Notional derivatives increased $6.2 trillion, or 3%, to $240.0 trillion. Notionals have now increased for three consecutive quarters, after having declined in five of the prior six quarters.

Money Flow (MFI - see following chart) is down for several months now as stocks advanced. This means stocks advanced on less and less money.  Eventually this stops and Money Flow and stocks move together. 

The Wall cycle has turned down, the qtr Wall cycle has turned up for 2+ weeks.  The half Wall cycle has turned up for about 5 weeks (thru Feb).  So the market continues sideways with possibly a slight upside bias next week.

Here is a visual:

GL traders



  1. re: 'It appears all the new retirement money (401k, IRA, pension funding, etc.) has failed to move the market higher. '

    You can't ascribe the lack of a continued market rally to that.

    Here is what I see...

    I see a hell of a lot of chartists out there touting 'oh look..did you see..the market did not soar this clearly going to drop now!'.

    What were all those maniacs touting Monday night after the -1.4% drop? Ohh yeah, a 1929 crash starting mid January.

    The primary trend remains UP. Everyone...even you, are getting overly focused on the day to day nonsense. Baring a break <1800..bears should frankly..shut up..and go away until the late spring.

    Aren't you tired of hearing the relentless top callers every week? I sure am.

  2. I am overly focused on day to day...?. I post once a week most weeks about the coming week and may add a comment or so during the week. How does that equal overly focused on the day to day. I sometimes add longer outlook for context.

    See the title of my blog "Swing Trade Cycles"? That implies interest in the shorter term but not daily or shorter (2 weeks or so). I rarely offer an opinion on daily or intra day moves except after the fact. Like it seems clear (except to those who seem to think they have a functioning crystal ball) we are looking at a double top on the SP500. Will it prove to be a top or a base for another move up. Well my crystal ball doesn't say and all I offer is an opinion based on what I observe. What I do know with certainty is with each passing week we are one week closer to a correction. And people who insist they know what the market will do as if it were a true fact (up or down) are taken with some skepticism

    1. No. I just meant, in terms of placing too much emphasis on short term cycles vs the bigger ones.

      Anyway, Kitchen cycle low, Aug' 2014, right?

    2. It is "Kitchin" after a person named Kitchin and he described a business cycle (some refer to this cycle as the inventory cycle). During an expanding economy companies tend to be overly optimistic and accumulate too much inventory (happens about every 41-42 months). Production slows as companies try to liquidate excess inventory (as happened in 2008) the economy and stock market turn down. So 1 kitchin cycle is late 2011 or early 2012 (cycle top). A kitchin cycle bottom is due any time (in theory) but David Knox Barker (Long cycle expert - google him) claims QE has stretched these cycles so 2014 may see a Kitchin bottom.

      But, keep in mind it may take several months (say 20% of the total cycle or 6-8 months) to go top to bottom. In other words except for 1987 it has taken more than a very few days to achieve a correction. Note: the markets normally take longer to go up (usually 70-80% time wise) to go up and less time (20-30%) to correct.

  3. 1987 3 step pattern todays 3 step pattern

    1. thanks for sharing your work inlet

    2. Thanks for the comparison ammo

  4. Hi Inlet,
    Looks like your 1790 target was hit -- well done! Curious to hear your thoughts on upcoming FED week...thank you for your work.

  5. eToro is the best forex trading platform for beginning and advanced traders.