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. 

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq313.pdf

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