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Monday, March 26, 2012

Charts I'm Watching: March 26, 2012

UPDATE:  5:15 PM

Just got an interesting daily update from ISE, which publishes a very cool version of the put/call ratio.
"The ISE Sentiment Index is a unique put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction. Opening long transactions are thought to best represent market sentiment because investors often buy call and put options to express their actual market view of a particular stock. Market maker and firm trades, which are excluded, are not considered representative of true market sentiment due to their specialized nature. As such, the ISEE calculation method allows for a more accurate measure of true investor sentiment than traditional put/call ratios."
Today's closing value for "all securities" was 182 -- the third highest value in the past year (though the intra-day high was 284.)

It's not shown on the chart below just yet.  But, if it were, you'd see that it's the third highest value in the past year.  The only values higher were 184 on Feb 8, 2011 and 202 on Jul 20, 2011.

The equities-only index closed at 410, which is literally off the chart (dates back to Mar '06).  The previous highs were 348 on Apr 15, 2010 and a cluster in the mid 300's in Dec 2010-Jan 2011.  Hmm...

Just noticed this post on Zerohedge that echoes these same sentiments.  A couple of the pretty pictures...

First, looking at Mutual Fund 1 Month Rolling Beta vs S&P 500 -- at record highs and well over 1x...

And, surging insider selling at record breadth...

Check out the Zerohedge article for more charts and interesting discussion.

UPDATE:  3:15 PM

SPX mainlining now, up 18+ and closing in on the .886 Fibonacci (1419.87) of the current rising wedge (with apex of 1464.27) we discussed last week.  There's also a channel line intersecting there, not to mention the .886 of the Fib time series of the wedge.

Up ahead, 1433 represents the 1.272 of the large Butterfly off the Jul 7 (1356) to Oct 4 (1074) decline.

Either target looks capable of being realized without upsetting the bearish divergence on the daily RSI - expanded in the chart below.

UPDATE:  2:15 PM

VIX is showing resiliency here, with the RSI channel theorized about a month ago and the RSI TL dating back to Oct 07 still holding.

UPDATE:  10:25 AM

From the bizzaro files, Fed Governor Plosser just quoted as saying GDP is on track to grow 3% and unemployment should fall below 8% -- but it'll be a challenge to get rates back up: "it's much easier to cut rates than it is to raise them."  Also, "inflation is unlikely to bit in the short term."   Really, Charles?  Call me naive, but I think rates would be very simple to get back up; the Fed could raise the discount rate and stop buying up every bond in sight.  The reality is that higher rates would swiftly destroy everything the Fed has worked to put into place.  Higher rates = music stops.

FLASH: Dallas Fed Manufacturing Activity in at 10.8 versus expected 16, prior reading of 17.8.

More from Bernanke's speech:  the nation's "weak housing market might be playing a role in holding down the labor market, but it is hard to see any concrete evidence of this in the data."  Since the surge in housing prices a few years back led to rapid growth in credit expansion/consumer confidence/retail sales/employment, is it that big a stretch to believe that a massive contraction in prices would lead to the opposite effect?

It doesn't take a PhD in economics to understand that Americans regarded their home equity lines as piggy banks to fund the purchase of everything from automobiles to big screen TVs, vacations to college degrees.  With more than a third of homes not worth the debt against them, of course spending is going to contract.  And, of course a consumption-driven economy is going to see negative employment effects.

The real question is whether Americans and American businesses can be tricked into believing the prophecy that things are on the upswing long enough for the prophecy to become self-fulfilling.  Regarding QE, the real question is how long the Fed can keep squirting lighter fluid into the fire before the fire travels up the stream and explodes the can in their face. 

Markets seem content to ignore the danger -- for now.  But, any significant shock could have disastrous results if the markets believe it will interfere with the Fed's ability to keep the game going.


Bernake is speaking to the National Association of Business Economists this morning, expresses concerns about whether the employment picture will continue to improve.  Market picking it up as a sign of additional easing, with eminis up 9 and GC up 15, DX down .20.   Bonds not crazy about the idea, with the 10-yr tagging 2.30 a few minutes ago.  As discussed last week, this is the conundrum the Fed will increasingly face:  any move to stimulate the economy (or even hint at accommodation) threatens to boost rates at a time when we can least afford it.

Meanwhile, positive business sentiment numbers out of Germany (in major conflict with atrocious March PMI numbers), where Merkel floats the idea of maintaining the 200-billion euro EFSF to run alongside the 500-billion ESM after it's up and running.  This is a trial balloon that will be roundly criticized by Merkel's political rivals.  Tongues are wagging as to whether anyone other than banks benefited from LTRO.

More later.


  1. It's all madness anyway.

    S&P is selling at a PE of nearly 24. Only two other occasions in history has it been more expensive and yet the other day some clown(can't remember his name) on CNBC was trying to tell me that stocks were cheap!

  2.  AAPL is 'cheap', relative to the usual nonsense, but most other stuff is certainly looking pretty expensive.

    Another 10% on SP to 1550, that'd take PE to 27/28..which is kinda in the 'ohoh, this market is real toppy' zone. If earnings are 5% weaker in April - but market holds up...then we could be looking at a PE of around 30 for the SP', which, without NOT sustainable.

  3. PW,

    I know its been a tough market.  Where do you stand on some of the positions you took for the portfolio a few weeks back?  I've been getting crushed on UVXY, just holding out hope for a spark to the fire which will burn down the forest...I'm interested in hearing your thoughts.  I understand the tough position bloggers are put in when readers ask them to take positions or give their thoughts on specific trades, but you're seemed to be open to discussing such trades

  4. This all gets back to the "data does not matter" anymore. Everytime some word of QE is mentioned it is good for a one percent rise. I do think that, as interest rates rise, that the FED will have to choose which market to support. Today the life span of the QE hope has not dimished. Guess we just have to wait for tomorrow.

  5. Hey Andrew:  Glad to discuss, but I don't have much to add to what you already know.  These ETF/ETNs have just been crushed -- even as VIX itself seems to have found its footing.  I know TVIX and UVXY both sported large premiums, but have been surprised as to the degree to which they've fallen. Guys who know a lot more than I about ETFs were extolling their virtues just a few weeks ago.  I got stopped out of both my original position and an additional purchase on UVXY for a 2% hit to the portfolio.  I'm always looking for oversold securities to buy, but this is getting ridiculous.  There are some good articles here:

  6. A question first, then some random thoughts...

    Question: Take the SPX daily chart. Do you know of _any_ way you could have gotten that bottom TL (from Oct 2011 thru April 2012) to appear on the chart without eyeballing it and drawing it yourself ? Is there some sort of Fib relationship or something ?

    Random thoughts: 
    - I don't think anything bearish can happen until after the quarter closes. Then I don't think anything really bullish has to happen until Memorial Day.
    - Where is that USS Enterprise carrier ?
    - On a day like today what makes stocks like VZ and PG different ? I think they have already topped off.

    Ooops - I just thought of another question. What program were you using to create those charts of the 80s the other day ?


  7. Hi Everyone,

    John Lounsbury over at Global Economic Intersection published that little Bernanke as Julius Caesar piece I did last week.  Be sure and drop in over there and check out their very cool website.  They do a very nice job of covering all the stuff I wish I could write about every day -- and then some.


  8. Congrats Pebs.
    Really enjoyed reading that the other week, good to see it get more exposure. Could be the start of a beautiful new career. Anyone who can make an article on BB sound interesting is doing well.
    Keep it up.

  9. Re the TLs, they're all eyeballed.   There's a Fib relationship between the lows that provide points along the line.  But, that's not essential - only that they line up with 2 or (preferably more) points.  In this case, we have 4+ which makes for a normally pretty reliable trend.

    I believe the Enterprise will be there within a few more days.  But, I have a friend on a nuke sub who isn't leaving port till Apr 15, so who knows?

    I don't follow VZ or PG, but I believe the leadership is getting narrower and narrower -- hence the outperformance of DJIA and SPX versus RUT or NYA.

    The program is just the Prophet side of Thinkorswim trading platform.  It has older data, which makes it nice.

  10. Couldn't have said it better.  We know the day is coming when folks will call BS on the "we really might do it this time" speeches.  But, it sure wasn't today.  Many think BB will have a tough time politically doing another round -- other than the shuffling paper approach currently in use. 

    So for now, the market goes up on good economic news because it's good, and up on bad economic news because it'll usher in more QE.  No wonder it's overextended on low volume, as that's so obviously a ludicrous premise.

  11. PW, good point. 

    In the old days, people invested by looking at PE.
    After 2009, people invest by looking at QE.
    Since then, people invest by looking at BE. (Bernanke's Exhibition)

    Just curious, are you still working something that knock your s(t)ocks off?    You mention that last week.   Somehow, this week, something does knock your stocks (your position as you revealed before) off.   Sorry to hear that.