10302011 Weekly Strategic Plan

8/3/2019 10302011 Weekly Strategic Plan

1/13

Liquidity Cycle Update: Bounce or Bull?

Here are the weekly and daily SP 500 charts:

Pretty solid and fast move back into congestion as very negative sentiment is reversed by

announcement of a plan for Europe. The US indicator moved out of lower congestionbefore the big rally last week but mostly consolidated during the week. The Global

indicator popped sharply however as most global equity markets responded with sharp

rallies.

The next two charts show something new is happening as the mid cycle components of

the equity markets have actually outperformed the early stage groups and the defensivesfor the last couple of weeks. This is interesting because it indicates the entire cycle is

running very fast. The normal roughly 4 year periodicity seems to be cut in half or evenmore. I believe this is a function of the extraordinary government efforts to manipulate

markets rather than allow giant imbalances to sort themselves out. The interventions

overwhelm fundamentals temporarily and incite very rapid sentiment change amongmarket participants. History does not indicate these policies will have a happy outcome.Here is one such historian on the subject:

Rogoff: Nice Try, But Greece Will Leave The Euro


2/13

Now the two charts mentioned: The stage 2 groups begin to outperform. These includematerials, energy, industrials and other markets which have been correlated with Asian

growth so it is no coincidence that we see plurality in related equity markets.

The markets reacted to the refinancing solution proposed for Europe by ratcheting upglobal growth forecasts and while I am personally skeptical that growth will be robust,

that is the way to bet at present.

Copper daily, Freeport Mc Moran Copper and Gold

David Fullermoney discusses the plurality new signals in the Asian equitymarkets.

Fullermoneys interesting charts - Price charts enable disciplined observersto monitor trend consistency and momentum, and also to recognise thedynamics of eventual trend change.


3/13

China's Shanghai A-Shares Index(weekly & daily)

has had a number of false starts over the last two years, during which theeconomy has continued to grow strongly, enabling valuations to improve.

Interestingly, after a significant decline since April, we have seen twoupside key day reversals off reaction lows this month, and a weekly keyreversal has also occurred over the last five days. These reversal dynamicsindicate that a low of at least near-term significance has been reached anda new closing low for the year would be required to offset current scope for

sideways to higher ranging in a further recovery over the next few months.


4/13

Hong Hong's HSI Index (weekly & daily)

accelerated to a low in early October and has seen its biggest rally thismonth since the high at 25,000 one year ago. This indicates that apotentially important low has been established and that downside risk isnow limited to a partial retracement of recent gains in a support building

process prior to an additional recovery.

India's Sensex Index(weekly & daily

as rallied from lateral support near 16,000 to lateral trading near 18,000which has provided both support and resistance over the last year. TheSensex has also approached its downward trending 200-day MA.Consequently, it is at an interesting level as further strength would breakthe downward trend, although this would not be fully confirmed until theprogression of lower rally highs - the last one was in July - is broken.Conversely, a decline back beneath 17,000 would begin to suggest thatsupply had regained the upper hand. In what is a finely balanced technical

picture, I would give the upside the benefit of the doubt, unless provedotherwise, due to the rebound in global stock markets, although anoffsetting factor may be the Bombay Banks Index's currentunderperformance.


5/13

Singapore's Straits Times Index(weekly & daily)

has surged higher since its early-October low. This increases the possibility that asustainable low has been reached. However, a partial pullback and additionalsupport building phase may be required before potential resistance from

overhead trading, the declining MA and lateral trading near the psychological 3000level is successfully challenged.

Indonesia's JCI Index (weekly & daily),

so often an upside leader, has regained approximately two-thirds of its declinefrom the August high. This increases chances that the late-September low willhold, although resistance from the upper boundary may make further upwardprogress more laboured. Nevertheless, a close backbeneath 3600 would berequired to question the current outlook for sideways to higher ranging.


6/13

Australia's AS51 Index

(weekly & daily) accelerated to a low in August and continued to buildsupport above its 2008-2009 base for the next two months. Overheadsupply may make further upward progress laboured but a close beneath4130 would now be required to question evidence that demand has

regained the upper hand.

Plurality in this rally was extraordinary the magnitude of the rallies already raisesissues of too far too fast but the developed monetary authorities have suppliedvast liquidity and the Europeans are now promising more while in the US hints ofa QE3 program promises even more to come. Liquidity and money printingseems to be reflected in equity markets first. My advice is give this move thebenefit of the doubt but stick to balance sheet strength and dividends for theirdefensive support.

Risk factors remain in the form of three major areas: First as the details of the

European plan are evaluated doubts are going to arise quickly. This was a bareminimum not a bazooka and many of the features are only minimally credible.

Second results of the super committee are due soon and real positive results arestill a low odds proposition. The lack of leaked material so far is a small positive,but I would not bet your money on the current crop of elected miscreants.

Third policy changes in China and other big Asian economies must becomesomewhat easier. The high food component of price indices in these economiesmeans inflation is especially dangerous. So far very little inflation relief hasshown up making it difficult for officials to publicly abandon the fight against

higher food prices. But the threat of hard landings is growing and policy has along lead time so the time to ease up is nearing. Failure to act will abort thenascent global recovery.

Technically the market has corrected so quickly that the number of stocks abovetheir 50 ma has actually climbed into overbought readings as the next chartshows. However, the number of issues above the 200 ma is in much saferterritory as the second following chart shows. Charts from The Chartstore.com


7/13

50 day

200 day


8/13

Market Environment: A lot of markets have turned to volatile this past week.


9/13

Global Equity Environment

Note the green uptrend indicator came on for the US the best other markets cando so far is turn off the sell indicator. This means the US market is the only onewith open buy permission and the other rankings pertain to relative value trades.


10/13

Seasonality and Spreads

The Gold chart from Hinde Capital indicates gold is responding to its seasonalinitiation of strength lending support to the likelihood that recent lows will holdand the long uptrend is stil in control.

Energy spreads were dramatic this week driven both by changing growth prospects butalso by the promise of a return to more normal availability of Libyan light crude. Also the

oversupply of inventory in Cushing appears to be improving thus reducing that discount.

A very big shift in the WTI curve confirming the up move in WTI prices.


11/13

Brent prices remained up near resistance and the spreads moved to confirm slightly.

But the real change is the shrinking discount of WTI. I like this to continue.

Too early to tell how far the discount may shrink because a risk premium for light Middle

Eastern oil will likely remain due to potential for renewed Arab Spring like violenceand thus uncertainty.

Grain prices moved up during the week and spread prices were relatively benign in cornand in first year wheat. Soybeans saw dramatic spread strength in the next crop year and

wheat also showed extra strength in next crop year prices. Global supply demandevidence makes it increasingly clear the world ending stocks are tight and need strong

crops again next year. Cotton prices had a notable advance with spreads quiet.


12/13

The Eurodollar futures curve moved down in the backend reflecting the increasedprospect for global growth and thus higher interest rates further out the curve. This was

consistent with the bullish rebounds in global equity indices.


13/13

Documents

10302011 Weekly Strategic Plan