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Get Ready for Europe to Print

Courtesy of Doug Short.

Summary:

  • Core Eurozone CPI inflation rate falls to 0.70%, a multi-decade low
  • This occurs at a time when the PIGS’ average unemployment rate rests near 24%
  • Deflation threat in Europe real as GDP in Europe likely to peak this year
  • European hawks moving towards dovish side of the fence, opening door for more QE
  • Implications: stronger European stock market, stronger USD, weaker commodity prices, stronger global growth

Back in February I laid the groundwork for why we should expect to see the European Central Bank (ECB) massively expand its balance sheet (see article). The case for expecting to see the ECB print is only increasing as core Eurozone inflation is currently matching nearly a 25-year low at a 0.70% year-over-year (YOY) rate.

Click to View
Source: Bloomberg

This is occurring at a time when unemployment in the PIGS (Portugal, Italy, Greece, Spain) rests near 24% and Eurozone unemployment is still in double-digit territory.

Click to View
Source: Bloomberg

As the two charts above highlight, there is plenty of cover for the ECB to expand their balance sheet as the Eurozone risks outright deflation amidst stubbornly high unemployment. While current inflation rates and unemployment data alone suggest this, fiscal and monetary authorities are likely to have another justification in the months ahead with a slowing economy as well.

Money supply growth rates tend to lead economic activity and this relationship is shown below with ECB M1 money supply growth relative to the Markit Eurozone Manufacturing PMI. The slide we’ve seen in M1 growth suggests the European economy should decelerate for much of 2014. The last time we saw a prolonged deceleration in the Eurozone was in 2011 and that was the last time the ECB ramped up its printing presses. Should the Eurozone PMI fall as M1 growth rates suggest, the ECB will likely resort to expansionary measures once again.

Click to View
Source: Bloomberg

Ever since 2011, there has been a tighter relationship between M1 money supply growth and the ECB’s balance sheet, which you can see below (M1 growth rates are shown advanced and inverted relative to the ECB’s total assets).…
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S&P 500 Snapshot: Six-Day Rally Ends

Courtesy of Doug Short.

The six-day rally in the S&P 500, the longest since early September, came to a halt with a modest 0.22% decline at the close. Today’s trading took place within the second narrowest intraday range of the year, a mere 0.31% — slightly wider than the 0.29% on March 5th. The popular financial press blames today’s loss on some pre-open earnings disappointments and a surprisingly weak New Home Sales report (see the interesting analysis of the latter by New Deal Democrat). Even more surprising was the market’s indifference to the bad numbers. Today’s market mentality was probably more focused expectations of Apple’s quarterly earnings after the close, which has triggered a surge in futures as I type this.

The yield on the 10-year note finished at 2.70%, down 3 bps from yesterday’s close and 10 bps off the 2014 low of 2.60%.

Here is a snapshot of the past five sessions.

Here is a daily chart of the SPY ETF. The sideline mentality of traders is evident in the extremely week volume.

The S&P 500 is now up 1.46% for 2014 and 0.82% off its April 2nd record close.

Here is a longer perspective, starting with the all-time high prior to the Great Recession.

For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.





Daily Market Commentary: Modest Losses

Courtesy of Declan.

The S&P experienced a small loss on lighter volume. After a long series of gains, today’s loss was welcome, and doesn’t change the larger bullish picture.  Technicals remain bullish, and with the 20-day and 50-day MAs converging, the chance for a retreat and bounce at these MAs remains compelling.


The Nasdaq experienced a larger loss than the S&P, finishing a few points below its 20-day MA. The triple swing low dating back to December 2012 remains the most likely place to find support, although the MACD and On-Balance-Volume ‘buy’ triggers remain in play.

The Russell 2000 experienced a similar loss as the Nasdaq, finishing just below the 20-day MA too. It too has a MACD trigger ‘buy’ along with a relative ‘buy’ trigger against the Nasdaq.

The short term setup remains bearish, but not enough to suggest a broader sell off is about to develop. This is likely to be a buyers retreat, unless there is a break of the February swing low.





Dead-Cat Bounce Over for the Housing Market?

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


I have been saying this for a while: You can’t have a housing recovery unless actual home buyers are involved.

We are very far away from seeing the housing market reach its 2005 highs … and as time passes, it becomes clearer that this generation may never see them again.

How can I say that?

What we have seen in the housing market since then, but mostly since 2012, in my opinion, is nothing more than a dead-cat bounce scenario — an increase in prices after a massive decline. The chart below shows how far off we are from the housing prices of 2005.


Chart courtesy of www.StockCharts.com

One of the key indicators I follow in respect to the state of the housing market is mortgage originations. This data gives me an idea about demand for homes, as rising demand for mortgages means more people are buying homes. And as demand increases, prices should be increasing.

But the opposite is happening…

In the first quarter of 2014, mortgage originations at Citigroup Inc. (NYSE/C) declined 71% from the same period a year ago. The bank issued $5.2 billion in mortgages in the first quarter of 2014, compared to $8.3 billion in the previous quarter and $18.0 billion in the first quarter of 2013. (Source: Citigroup Inc. web site, last accessed April 14, 2014.)

Total mortgage origination volume at JPMorgan Chase & Co. (NYSE/JPM) declined by 68% in the first quarter of 2014 from the same period a year ago. At JPMorgan, in the first quarter of 2014, $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago. (Source: JPMorgan Chase & Co. web site, last accessed April 14, 2014.)

I still see too much optimism around the housing market. Let me make this very clear: I don’t expect an outright collapse in home prices like the one we saw when the housing market bubble burst in 2007, but I do see the momentum slowing down in the housing market, and this may result in lower home prices.

The bottom line with the housing market is that its rebound over the past couple of years has been sustained by institutional investors who have…
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Gasoline Volume Sales, Demographics and our Changing Culture

Courtesy of Doug Short.

The Department of Energy’s Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-January, were published yesterday. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.

Because the sales data are highly volatile with some obvious seasonality, I’ve added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.4% below the all-time high set in August 2005, a new interim low.

The next chart includes an overlay of real monthly retail gasoline prices, all grades and formulations, adjusted for inflation using the Consumer Price Index. I’ve shortened the timeline to start with EIA price series, which dates from April 1993. The retail prices are updated weekly, so the price series is the more current of the two.

As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction … slightly. The 12-month MA hit an interim high in November 2010, and then resumed contraction. The moving average for the latest month is about 8.0% below the pre-recession level and 4.9% off the November 2010 interim high. For some historical context, the latest data point is a level first achieved in May 1998.

Some of the shrinkage in sales can be attributed to more fuel-efficient cars. But that presumably would be minor over shorter time frames and would be offset to some extent by population growth. For some specifics on fuel efficiency, see the Eco-Driving Index for new vehicles developed by the University of Michigan Transportation Research Institute. However, if we look at Edmunds.com for data on the top 10 best-selling vehicles, energy efficiency doesn’t seem to be a key factor, to judge from the percentage of pickup trucks and…
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STTG Market Recap April 22, 2014

Courtesy of Blain.

We continue in this “V shaped” move off last week’s touch of the 200 day moving average on the NASDAQ.  The S&P 500 gained 0.41% and the NASDAQ 0.97%.  The indexes are nearing overbought near term so a day or two of rest would serve the bulls well to try to attempt a new leg higher.  In economic news existing home sales hit 4.59 million in March, versus a 4.55 million estimate.

In terms of the indexes the S&P 500 stalled at the trend line that connected the lows of summer 2013; some congestion lies ahead at year highs.

spx

The NASDAQ has come back from deeply oversold conditions as this index is heavy with biotech and momentum stocks.  The dotted blue line is the previous high; since early March we have not seen the NASDAQ make a new “higher high” which would be step one to a true reversal.  So watch that level closely.

nasdaq

In the healthcare space Allergan (AGN) – the maker of Botox and breast implants – jumped after Valeant Pharmaceuticals International proposed a merger.

agn

Gilead Sciences Inc (GILD) advanced 2.% in after hours after the drugmaker said its new $1,000 hepatitis C pill generated quarterly sales of $2.27 billion, helping the company’s quarterly net profit nearly triple.  This is one of the companies in the very hard hit biotech sector.

gild

The transportation sector hit a new high today which is a good sign….

tran

…stocks like United Airlines (UAL) led the charge.

ual

And we are seeing a return to momentum stocks such as Tesla Motors (TSLA).  If both momentum stocks and biotech stocks regain their mojo it would be bullish.

tsla





Daily Market Commentary: Sixth Day of Gains for S&P

Courtesy of Declan.

The S&P banked another gain while the Dow touched resistance. Percentage gains in the Russell 2000 and Nasdaq were greater than the Dow and S&P, but the outlook for the latter indices looks better.

The Dow is nicely positioned to break upside, perhaps by the end of the week. Tuesday registered as an accumulation day, marking good demand from buyers. Bears may try to push their luck tomorrow, but the close proximity of 20-day and 50-day MAs makes any selloff unlikely to hold.


The S&P didn’t push resistance, but did register an accumulation day.  The S&P also has converging 20-day and 50-day MAs to lend support.  It’s not as strong as the Dow, but bulls won’t care.

The Nasdaq maintained its run of good form, closing above its 20-day MA, but is well away from its 50-day MA.

Nasdaq Breadth is indicating a swing low, but not a major swing low. Technicals haven’t confirmed, but given the relative position of supporting indicators it may yet be a few days before they do.

Also helping the Nasdaq is the semiconductor index. Its rally has take it above both 20-day and 50-day MAs, but hasn’t yet approached the last swing high.  One to watch.

Tomorrow may see some downside as a lengthy sequence of gains finally comes unstuck, but it looks like the S&P and Dow will see new all-time highs sooner rather than later.





S&P 500 Snapshot: Rally Now at Day Six

Courtesy of Doug Short.

Asia-Pacific indexes had a mixed day with the Shanghai Composite up 0.44% Nikkei down 0.85%. European indexes fared better — the EURO STOXX 50 rising 1.39%. The S&P 500′s 0.41% gain didn’t match the European enthusiasm, but it extended its rally to six days, the longest since its 7-day advance in early September of last year. Year-to-date the index is up 1.69% and only 0.60% below its record close on April 2nd.

The yield on the 10-year note finished at 2.73%, unchanged for the three sessions and 13 bps off the 2014 low of 2.60%.

Here is a snapshot of the past five sessions.

Here is a daily chart of the SPY ETF with today’s volume highlighted. It remains quite light although a bit above yesterday’s thin participation.

Here is a longer perspective, starting with the all-time high prior to the Great Recession.

For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.





Weekly Gasoline Update: Premium Above $4.00

Courtesy of Doug Short.

It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is up 3 cents and Premium four, the eleventh week of increases. Regular is up 49 cents and Premium 46 cents from their interim lows during the second week of November. The average for Premium at 4.01 has breached the four dollar benchmark for the first time since March of last year.

According to GasBuddy.com, California and Hawaii remain the only states with regular above $4.00 per gallon, with Hawaii now at $4.30 and California at 4.21. Montana has the cheapest regular at $3.33, up five cents from last week.

How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here’s a visual answer.

The next chart is a weekly chart overlay of West Texas Intermediate Crude, Brent Crude and unleaded gasoline end-of-day spot prices (GASO). WTIC closed today at 104.35, up from 103.58 this time last week.

The volatility in crude oil and gasoline prices has been clearly reflected in recent years in both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). For additional perspective on how energy prices are factored into the CPI, see What Inflation Means to You: Inside the Consumer Price Index.

The chart below offers a comparison of the broader aggregate category of energy inflation since 2000, based on categories within Consumer Price Index (commentary here).

Here are some additional commentaries related to gasoline prices:





The End of the Gold Standard

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


It was 100 years ago, in 1914, that the Gold Standard died. When World War I began, most countries went off the Gold Standard and attempts to return to a Gold Standard since have all failed. Some people have called for a return to the Gold Standard as a way of disciplining governments and ensuring that they do not inflate their way out of their current fiscal problems. If it were only that easy.

What many people don’t understand is that in the long run, the International Gold Standard was a very brief phenomenon, and the fact that the world moved to a Gold Standard in the late 1800s was a sign of weakness in the role of gold and silver in the economy, not of strength. The reality was that Europe was on a bimetallic standard, not a Gold Standard, from the Middle Ages until World War I, and gold triumphed in the nineteenth century because bimetallism had failed. This should have been taken as a sign that the gold standard too would inevitably fail, not that it was the result of teleological inevitability.

The first gold and silver coins were issued by Croesus in Lydia around 600 BC. Before that, both gold and silver were used as a store of for wealth, for conspicuous consumption, or to value other goods, but no coins existed. The value of gold relative to silver, the gold/silver ratio, changed over time. In 2700 BC it was around 9 to 1; under Hammurabi in 1800 BC it was 6 to 1; and by the time Croesus issued the first gold and silver coins, rather than electrum coins, it was 12 to 1.

The gold/silver ratio remained around 12 to 1 for the next 2500 years, though it could range as low as 9 to 1 or as high as 16 to 1. Athens built its empire on the silver mines of Laurium; Alexander the Great plundered the treasuries of the Persians; and the Romans seized this stolen bullion when they conquered the Mediterranean. Constantine took the gold of the Pagan temples for his needs, and whoever controlled Egypt could rely upon the mines in Nubia as a source of gold. When the Arabs spread Islam through the world,…
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Insider Scoop

Delhaize Group Announces Sale of Bosnian & Herzegovinian Stores

Courtesy of Benzinga.

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Delhaize Group (Euronext Brussels: DELB, NYSE: DEG), the Belgian international food retailer, announces that it has signed an agreement with Tropic Group B.V. on the sale of its Bosnian & Herzegovinian stores.

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Groupthink Or Black Swan Rising? Not A Single 'Economist' Expects An Economic Downturn

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A 100% Consensus

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#MyNYPD...

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.

Actually, it is their NYPD, not ours.

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Get Ready for Europe to Print

Courtesy of Doug Short.

Summary:

  • Core Eurozone CPI inflation rate falls to 0.70%, a multi-decade low
  • This occurs at a time when the PIGS' average unemployment rate rests near 24%
  • Deflation threat in Europe real as GDP in Europe likely to peak this year
  • European hawks moving towards dovish side of the fence, opening door for more QE
  • Implications: stronger European stock market, stronger USD, weaker commodity prices, stronger global growth

Back in February I laid the groundwork for why we should expect to see the European Central Bank (ECB) massively expand its balance sheet (see article). The case for expecting to see the ECB print is only increasing as core Eurozone inflation is c...



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Mid-Day Update

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Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Soy Numero Uno

Soy Numero Uno

By Paul Price of Market Shadows

Bunge Limited (BG) is the world’s largest processor of soybeans. It is also a major producer of vegetable oils, fertilizer, sugar and bioenergy.

When commodities got hot in 2007-08, Bunge’s EPS shot up and the stock followed, rising 185% in 19 months.

The Great Recession took its toll on operations, dropping EPS to a low of $2.22 in 2009.  Since then profits have recovered.  They ranged from $4.62 - $5.90 in the latest three years. 2014 appears poised for a large increase. Consensus views from multiple sources see BG earning $7.04 - $7.10 this year and then $7.83 - $7.94 in 2015.

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Casino Stocks LVS, WYNN On The Run Ahead of Earnings

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Sabrient

What the Market Wants: Market Poised to Head Higher: 3 Stocks to Consider

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Courtesy of David Brown, Sabrient Systems and Gradient Analytics

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Swing trading portfolio - Week of April 21st, 2014

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We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

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Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly. Click here and sign in with your PSW user name and password, or sign up for a free trial.

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Facebook Takes Life Seriously and Moves To Create Its Own Virtual Currency, Increases UltraCoin Valuation Significantly

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

The Financial Times reports:

[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process. 

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See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

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Here We Go Again - Pharma & Biotechs 2014

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Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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