Stock Market: A Big Picture View

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Bank of America is the 3rd bank I have heard about this week that has experienced lower mortgage origination revenues. Makes sense, with the climb in mortgage rates. Yet BAC had better than expected results due in part to fixed income trading revenue. What, gaming the credit markets? That sure is productive for America.

We have had the banking sector pegged as an important leader to the bull market as it has been in a trend channel since late 2011. That would be the year when commodities topped out and precious metals blew off. Since then it’s been all paper, baby.


I don’t want to be an alarmist (to bears), but it is weeks like this that make me think about the seemingly ridiculous target measurements we have had in view for some time in NFTRH. SPX to 2192 and the Russell 2000 to 1378 were produced in NFTRH 263, over 10 weeks ago as a mental exercise for keeping minds open to bull blow off possibilities. Here are the updated versions…



Then a few weeks later in NFTRH 267, we charted measurements for a couple of PIIGS and damned if they do not have a shot at their seemingly ridiculous targets as well.



With a stock market leader like the banking sector (assuming the sector’s results follow BAC’s), one wonders how far this market can go. Real sectors and phony baloney sectors alike are rising. Sound countries and PIIGS alike are rising, many against a big picture bear trend. The market is bullishly indiscriminate as it rises in the wake of the BKX-SPX ratio, Junk to Quality bond ratios, a dormant VIX, an Equity Put/Call ratio burrowing further south and a whole lot of ‘gotta get me some’ catch-up emotion.

A common theme is appearing in the media. That would be that economic growth is in the bag for the US and now increasingly, global markets. It was 1 year ago that I had to put out some updates talking about what was coming in the Semiconductor equipment industry and its potential implications for manufacturing and the economy. From an update about a year ago in support of an economic growth spurt thesis…

“The startling thing to me is that just a month ago, the semi equipment sector was dead. Now it is revving up.

Two points here…

  1. Semi is not the consumer feeling peppy and buying more this month. This is high cost capital equipment in the 100′s of thousands if not millions of dollars range a pop.
  2. The semi downturn probably led the Philly and Empire data. That is why I called it a canary in the coal mine. The equipment is usually ordered and upgraded before a new chip cycle.”

Back then a financial adviser near and dear to me had recently (November, 2012) advised how the best fund managers were all cash due to the Fiscal Cliff non-event. Back then the media had nowhere near the level of bullish assumptions they now promote.

So where are we now? Well, last ‘channel’ check about a month ago, the Semi Equipment companies were projected strong through Q1, 2014. So we are still on the bull by that measure. But they are canaries in the coal mine, after all (along with certain leader ratios we use routinely). Things are pervasively bullish and the theme that 2014 could well be a year for a macro pivot (after whatever upside blow offs may be in the offing) remains alive and well, based on equal and opposite sentiment to that which launched the bull 5 years ago. Cue SPX cycle chart:


But the interim sure is going to be interesting as bullish ‘dumb money’ with momentum at its back dukes it out with a maturing cycle. Meanwhile, here is a look at the SOX index by a big picture chart from NFTRH 265. The ‘conservative’ measurement is a technical thing, based on a would-be breakout. Certainly real world, 900 is not conservative.


And here is one of Intel, a featured player (also from #265) with its potential measurement…


It’s do or die now for the Semiconductor index and for Intel. They just may do. We’ll have to wait and see. If they terminate, the market would lose its ‘canary’. If they keep going, well… we’ll have more people flying out of 0% T bills and into the risk markets, just as monetary policy over the last 5 years has seemed to instruct.

A final chart… from NFTRH 261 showing that Europe appears ready to challenge a big downtrend line. Some markets are in blue sky, some having secular bear rebounds. But risk is all over the place now. That has been the consequence of policy.


Bottom Line

Got risk? It’s everywhere; in being short (momentum is a brute force) and being long (complacency and bullish assumptions are extreme). Enjoy. | Notes From the Rabbit Hole | Free eLetter | Twitter