Market’s Bill of Health: Short Term Reversal, Otherwise Bullish

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Getting Technical: Weekend Update

by Chart School - May 24th, 2013 10:35 pm

Courtesy of Doug Short.

Here’s the latest weekend update from Serge Perreault, a Chartered Professional Accountant and market technician located near Montreal, Canada. Serge has been following the U.S. market in a series of weekly charts. Here is his update on the S&P 500.

The S&P 500 bounced off its uptrend resistance and paused its ascension, on average volume and on falling momentum.

A break of this week’s low (1636) would confirm a correction in the direction of the EMA10 (1603).

Click for a sharper image

Note: For newcomers to technical analysis, here are brief explanations for the two key indicators that Serge features:

ROC (Price Rate of Change)

RSI (Relative Strength Index)

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Margin Debt and the ’’Highway to the Danger Zone’’

by Chart School - May 24th, 2013 7:35 pm

Courtesy of Doug Short.

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

Sir John Templeton first alerted me to the dangers of excess margin debt in the late 1990′s, and I’ve been a fan of keeping in touch with this key indicator ever since.

Fresh Margin debt numbers have just been released. My good friend Doug Short shared the chart below, reflecting that margin debt continues to move higher, reaching levels where the S&P 500 has struggled to move much higher!

Are we on the “Highway to the Danger Zone” due to these historically high debt levels? Will it be different this time? Was a Danger Zone level in the past, let’s see if it’s any different this time around!

Negative net worth has only been this low one other time in history! First time it didn’t end real well!

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S&P 500 Snapshot: A Fractional Loss Ends a Strange Week

by Chart School - May 24th, 2013 6:35 pm

Courtesy of Doug Short.

Durable Goods for April came in above expectations before the market opened, but the S&P 500 opened lower and slipped to its -0.89% intraday a little over 30 minutes later. The remainder of the day was a steady struggle higher with a touch of drama in the final hour of trading. The index closed the day with a modest loss of 0.06%, which tallies to a 1.07% loss for the week. This is the first negative week after five weekly gains.

The real drama this week was on Wednesday, which had the fourth highest intraday range of 2013. Why? Confusion over the Fed’s strategy for tapering QE. On Tuesday two of the Fed Presidents made dovish sounds, and Chairman Bernanke’s congressional testimony on Wednesday morning was harmoniously dovish. But the post-testimony Q&A sent mixed messages about the odds of near-term tapering, and the 2 PM release of the FOMC minutes added to the confusion.

Here is a 15-minute look at the week.

In case you’re wondering about the other three higher intraday ranges so far this year, see the chart below. The first trading session of the year following the disappearance of the Fiscal Cliff saw a 2.54% gain, the same as the range. The second, with a 2.55% range, was a 1.83% selloff on February 25th after the Italian election fiasco. The third, with a 2.36% range, was on April 15, the worst selloff so far in 2013. Factors included weak Chinese GDP, a swan-dive in gold and other commodities, and the Boston Marathon terrorism. The fourth, with an intraday range of 2.32%, was Wednesday’s befuddlement over apparent mixed messages from the Fed on the odds of near-term tapering of QE.

Not surprisingly on a relatively eventless day before an extended holiday weekend, volume for the S&P 500 was 25% below its 50-day moving average.

The S&P 500 is now up 15.66% for 2013 and 1.17% below the all-time closing high of May 21.

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.

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The ’’Real’’ Goods on the Latest Durable Goods Data

by Chart School - May 24th, 2013 4:35 pm

Courtesy of Doug Short.

Earlier today I posted an update on the May Advance Report on April Durable Goods Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation.

Let’s now review the same data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau’s monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index, chained in today’s dollar value. This gives us the “real” durable goods orders per capita. The snapshots below offer an alternate historical context in which to evaluate the standard reports on the nominal monthly data.

Economists frequently study this indicator excluding Transportation or Defense or both. Just how big are these two subcomponents? Here is a stacked area chart to illustrate the relative sizes over time based on the nominal data.

Here is the first chart, repeated this time ex Transportation, the series usually referred to as “core” durable goods.

Now we’ll leave Transportation in the series and exclude Defense orders.

And now we’ll exclude both Transportation and Defense for a better look at “core” durable goods orders.

Here is…

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Yet Another Debt Chart That Is Not Big Enough To Fit Japan

by ilene - May 24th, 2013 3:49 pm

The problem with being off the charts is that it impairs the doings of pretty artwork. Zero Hedge complains.

Yet Another Debt Chart That Is Not Big Enough To Fit Japan

Courtesy of ZeroHedge

By now every single chart laying out every possible permutation of a hopelessly insolvent and overlevered world has been compiled, created, colored and in some cases, animated and socially networked. The following chart showing global debt dynamics over time from the WSJ is no different: it is animated (check) it has lots of pretty colors (check), and it is quite informative because it remembers that in addition to public sector debt, there is a thing called the private sector (sadly it avoids shadow debt: perhaps someone good at making 3D animated charts should take a stab?). This chart succeeds in incorporating everything in one cool animation.

Yet why it may be most memorable, or not as the case may be, is that it is merely the latest chart in a seemingly infinite series which are just not big enough to fit Japan. Perhaps it is time to make a chart of all the charts that need to be bigger to show the true Japanese state of affirs.

That, or in reverence to the sadist joke, pardon "experiment" (as Jens Weidmann would say) that is Abenomics, we can finally start making bigger charts.

Interactive global debt dynamics chart after the jump:

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NYSE Margin Debt and the S&P 500: A Sign of Vulnerability?

by Chart School - May 24th, 2013 2:35 pm

Courtesy of Doug Short.

Note from dshort: One of my economic correspondents, James Ross, called my attention to the fact that the NYSE has released new data for margin debt, now available through April. I’ve updated the charts in this commentary to include the new numbers.

The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let’s examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.

The first chart shows the two series in real terms — adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its real all-time high. A similar surge began in 2006, peaking in July, 2007, three months before the market peak.

The next chart shows the percentage growth of the two data series from the same 1995 starting date, again based on real (inflation-adjusted) data. Margin debt grew at a rate comparable to the market from 1995 to late summer of 2000 before soaring into the stratosphere. The two synchronized in their rate of contraction in early 2001. But with recovery after the Tech Crash, margin debt gradually returned to a growth rate closer to its former self in the second half of the 1990s rather than the more restrained real growth of the S&P 500. But by September of 2006, margin again went ballistic. It finally peaked in the summer of 2007, about three months before the market.

After…

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Recession Watch: ECRI’s Weekly Leading Indicator Up Slightly

by Chart School - May 24th, 2013 1:35 pm

Courtesy of Doug Short.

The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 130.6, up slightly from last week’s 130.1 (a downward revision from 130.2). The WLI annualized growth indicator (WLIg) dropped to 6.8% from 7.0% last week.

Last year ECRI switched focus to their version of the Big Four Economic Indicators that I routinely track. But when those failed last summer to “roll over” collectively (as ECRI claimed was happening), the company published a new set of indicators to support their recession call in a commentary entitled The U.S. Business Cycle in the Context of the Yo-Yo Years (PDF format). Late last month the company added its most recent publically available commentary on their website: Nominal GDP Growth Falls Again.

Essentially ECRI is sticking to its call that a recession began in mid-2012, although the company calls it a “mild” recession, which is quite a shift from their original stance in September 2011: “…if you think this is a bad economy, you haven’t seen anything yet.”

ECRI posts its proprietary indicators on a one-week delayed basis to the general public, but last year the company switched its focus to a version of the Big Four Economic Indicators I’ve been tracking for the past year. In recent months, however, those indicators have slipped below the fold, replaced by the mixed bag of whatever Indicator du Jour might look recessionary, as in the “Yo-Yo Years” commentary linked above. Likewise, see this March 7th Bloomberg video. At about the 2-minute point Achuthan reasserts his call that a recession began in the middle of 2012. In previous interviews he has specifically mentioned July as the business cycle peak, thus putting us in the 11th month of a recession.

Here is a chart of ECRI’s data that illustrates why the company’s published proprietary indicator has little credibility as a recession indicator. It’s the smoothed year-over-year percent change since 2000 of their weekly leading index. I’ve highlighted the 2011 date of ECRI’s recession call and the hypothetical July business cycle peak, which the company claims was the start of a recession.

…

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Joe Friday: ’’Junk Bonds Look Bearish and Could Break Support’’

by Chart School - May 24th, 2013 11:35 am

Courtesy of Doug Short.

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

High Yield ETFs JNK & HYG have formed bearish rising wedges. Two-thirds of the time, prices end up lower in the future after forming this type of pattern. The support lines of the rising wedges are being tested very hard and appear to be giving way right now.

This pattern becomes very important with the effective yield on high yields at the lowest levels in 20 years plus (most overvalued ever), reflected in the chart below.

Joe Friday: “Effective yield has formed a bullish falling wedge at (1). This pattern suggested higher yields two-thirds of the time. If yields do move higher, the majority of the time stocks end up lower in price.”

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Durable Goods Orders in April Bounced Back Partially from the March Plunge

by Chart School - May 24th, 2013 10:35 am

Courtesy of Doug Short.

The May Advance Report on April Durable Goods was released this morning by the Census Bureau. Here is the Bureau’s summary on new orders:

New orders for manufactured durable goods in April increased $7.2 billion or 3.3 percent to $222.6 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 5.9 percent March decrease. Excluding transportation, new orders increased 1.3 percent. Excluding defense, new orders increased 2.1 percent.

Transportation equipment, also up two of the last three months, led the increase, $5.1 billion or 8.1 percent to $67.6 billion. This was led by nondefense aircraft and parts, which increased $1.9 billion. Download full PDF

The latest new orders number at 3.3 percent was above the Briefing.com consensus of 1.6 percent. Year-over-year new orders are up 2.4 percent. This is a welcome improvement over the previous month’s -5.9 percent MoM and -0.8 percent YoY.

If we exclude transportation, “core” durable goods were up 1.3 percent MoM. Year-over-year core goods up a fractional 0.9 percent.

If we exclude both transportation and defense, durable goods were down 0.5 percent MoM but up 1.4 percent YoY.

The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two.

An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

Here is an overlay with GDP — another comparison I like to watch closely.

…

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