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The reason they don't seem insane is because we have been led here, bit by bit. We are like the proverbial frogs in the pot full of water; the temperature has been turned up very gradually, and we don't notice what a dire situation we're in.
Let's just step back and look at the facts: the entire financial world is breathlessly awaiting the words of a lifelong academic who couldn't successfully manage a Burger King. The most powerful position in the financial universe has been given to The Bearded One, and while all the chatter this week is going to focus on whose Jackson Hole is going to get reamed, the real fireworks will be on September 13th.
The three Daily charts below show the Percentage of
Stocks Above their 20-50-200 Day Moving Averages. At the moment, they
are all above 50%.
In the event that the 6 Major Indices and 9 Major Sectors drop and
hold below their middle Bollinger Band on their Daily timeframe, I'd check to
see if the percentage on the above referenced three charts also drops and holds
below the 50% level. If all three fall and hold below, it's a likely
confirmation of further weakness to come in the equity markets in the short,
medium, and longer terms…possibly signalling a correction.
Good article from Business Insider where Ethan Harris of BOA says he's very concerned about the market due to the on going Eurozone problems and the pending fiscal cliff in Q4
In our view, the markets have been lulled to sleep by a temporary remission in negative macro news.We remain very concerned about the outlook. In our view, the markets have been lulled to sleep by a temporary remission in negative macro news. The better US data probably reflects a combination of the usual random variation and weather distortions. Mild weather boosted the winter statistics, there was a payback in the spring and now the data are settling into a weak trend…
We believe the Euro zone crisis is far from over. At this stage the policy pattern for Europe is well established: (1) A funding problem in one of the peripheral countries arises; (2) policy makers engage in brinkmanship with the core demanding austerity and the periphery demanding bailout; (3) the markets start to melt down; (4) policy makers do just enough to satisfy the markets, but not cure the underlying problem. There is nothing merry about this go around. Over time it undercuts the foundations of the Euro zone. The economy steadily slides into recession, populist parties grow in strength and the markets become increasingly fragile. For the US and the rest of the world this means ongoing collateral damage, primarily through confidence and Capital Markets.
The worst of the US fiscal crisis also lies ahead. Note that in the uncertainty shock literature, the impact of the shock grows exponentially as the day of reckoning approaches. The cliff is slowly working its way into corporate thinking. The real test will come in the fourth quarter when the cliff will be just months away and the incentive to delay spending and investment decisions will peak. The timing is tough, but we would expect some weakening in the September data and very soft numbers in the October to January period. We are keeping a close eye on corporate commentary, confidence surveys, indicators of hiring and capital goods orders.
I didn't do a Lazy Trade posting on Friday, so I didn't want another day to go by without doing one.
The S&P 500 has done a great job of recovering off of the morning lows and holding those new intraday highs. As we come out of the lunch period, I'd expect to see the bulls to give this market another push higher as a result.
In regards to the lazy trades posted below, I'm strongly considering jumping into SalesForce (CRM) shortly after I post this as the 5min and daily charts are providing a great entry to this breakout play.
GUANGZHOU, China – After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.The glut of everything from steel and household appliances to cars and apartments is hampering
China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.
The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.
I posted the SPX chart below in my MarketShadows post at the weekend and I'll post it again this morning. You can see that full post here. It shows the very ambiguous close on Friday at the retest of broken support and at resistance on the declining channel from the high. I sketched in two topping options if we see a break up from there this morning, and they are that SPX has made the first high and valley low of a double or M top, or that SPX has put in the left shoulder of an H&S pattern. Either of those would obviously allow the current high to be tested or exceeded: