SPY 1, 2 & 3

Just as we (well, NFTRH) did with the GDX gold stock ETF over the summer, when we gauged resistances 1, 2 & 3 on the Ukraine hype b/s (GDX stopped at #3), we now have established resistances 1, 2 & 3 on the S&P 500, DOW and NDX on the rebound rally, which itself we had anticipated.

SPY hit a trend line today, which I have a feeling will not hold as ultimate resistance.  So understanding that in my nature I have a sort of chronic mental problem with being a strong short (this is me the faulty trader speaking, not me the top notch* macro market manager), I took the small step of shorting SPY today.  No leverage, just a short.  This is against some still held longs but the last 2 weeks have been pretty good and I want to seek out balance again.

This chart of SPY shows what could be the ultimate resistance level beginning at 196, but the indexes (ref. SOX post earlier) have started hitting some bounce targets so I thought it was worth a shot to begin creeping shorter the stock market.

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* Sorry, but that’s just how I feel about my own work.  It continually adjusts the faulty trader and keeps his head on straight.

The Great Inflation Lie

Guest Post by Bill Bonner

That we live in an age of man-made wonders is beyond dispute. Painless root canals. Tinder. Central bank price controls.

We were traveling hard over the last couple weeks. Somewhere along the way we picked up a cold, which dogged us from Vermont to Maryland’s Eastern Shore. But the security X-ray at Nashville International Airport seemed to finally knock it out.

Global stocks have lost more than $3 trillion of their value so far this month. But the authorities rushed to the rescue like a surgeon taking out a ruptured gallbladder.

As St. Louis Fed president James Bullard told Bloomberg TV (reprinted from yesterday’s Diary):

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Semi’s to Bounce Target

I found myself feeling self-satisfied at the profit already taken in LSCC and the growing profits in SIMO and INTC (all added on the Semi sector wipe out as bulls puked them up left and right), to go along with the profit in MLNX, which I held through the blood bath last week.  I found myself satisfied and realized that might not be a good sign.

I looked at the chart of the Semiconductor index and saw that it has hit my bounce expectation (not that it can’t bounce higher) and thought ‘book it’.  So I sold the first 3 items mentioned and hold MLNX for another hour, week or month.  In NFTRH we are watching correction leaders for clues on the rebound rally.

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The Real Reason the Stock Market Turned Down

Guest Post by EWI

Want to Know the REAL Reason Why the Stock Market Turned Down?

The rout in stocks is no “jinx”

In case you’ve been roving Mars for the past month, you’ve missed quite a fiasco from the world’s leading stock market:

“Since it topped out last month, the Dow has suffered eight triple digit losses� Add it all up, and the Dow has slid about 7.5% percent from its peak, the biggest retreat in more than two years. It also means the Dow has now given back all of its gains for the year — and then some.” (Daily Finance Oct. 15)

Now, according to the mainstream experts, there are 3 key causes for the market’s sell-off:

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Want a Sure Bet?

Well here it is; it is a sure bet that a lot of companies are saving their machine tool and high end manufacturing equipment purchases until year end, for tax management purposes.  This graph (from EDA) does not tell me this.  My many years in the industry do.  It’s a Q4 tradition, which I participated in on a few occasions myself.

Indeed, my contact (servicing the Semi industry) is planning to add a couple pieces.  Whether or not this bump will coincide with market strength is another topic, but one might want to watch the best of the machine tool and high end manufacturing equipment sectors.  Much hyped though it is, that would include the the 3D Printing guys too.

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Stocks Not Over Valued*

* [edit] This is a 5 year relative view.  Longer-term, the S&P 500 remains over valued per its historical corporate profits metrics.

Pretend with me that we are in Wonderland, where policy inputs can keep everything on the macro in control forever and allow conventional mainstream financial industry people to twittle their P/E ratios and growth metrics for individual stocks and sectors as if it is a normal recovery of a normal economy.  In this scenario the S&P 500 is no longer over valued, at least by the corporate profits data compiled by this SlopeCharts graph.

It’s the same one we used to illustrate the over valuation that even a buttoned down Wall Street analyst could see (or should have seen) in the run up to the recent correction.  Well, it’s fixed now.  Again, we’re talking about what the financial services industry will want to promote to its clients, not the macro.

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Why is Gold Mining Such a Crappy Business?

Guest Post by Steve Saville

That gold mining has generally been a crappy long-term investment for almost five decades is evidenced by the following chart. The chart, much of the data for which were provided by Nick Laird of www.sharelynx.com, shows the ratio of the Barrons Gold Mining Index (BGMI) and the US$ gold price from 1920 through to the present*. More specifically, it shows that, relative to gold bullion, the group of gold-mining stocks represented by the BGMI has been in a secular decline since 1968 and is now close to its lowest level since 1948. The question is: Why have gold mining stocks performed so poorly for so long relative to the metal?

saville1

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NFTRH 313 Out Now

313screenAfter weeks of bloating up to 35-40 pages in gauging what turned out to be a fully expected market crack, NFTRH slims back down to 26 concise and clear pages dealing with what we have now.  We look at 1998 to 2002, 2007-2008 and 2011 for reference and perspective on previous market tops; secular, cyclical and interim, respectively.

We also keep the relevant indicators in rotation and carve out some favored near to intermediate term plans for the US stock market.  Global markets are a mess and commodities are caught in a deflationary whirlpool circling around the drain.

Then there are the precious metals.  Most gold bugs fetishize inflation and most gold bugs are wrong.

A very enjoyable report to write and speaking personally, it was rewarding as well because it helped me clarify my own views on asset markets.

NFTRH 313 out now.  Check out a subscription.  You’ll be glad you did.