It’s Not A Stock Bubble But A Bigger Corporate Bubble
With liquidity running somewhat perilously noncommittal since June, you would think the riskiest parts of the credit market would be most affected. That is incorrect and once again stands out as to the bubbly nature of the current age. Aside from liquidity draining enthusiasm into and around October 15 and December 1, high yield debt has not only repriced itself back toward its prior levels but has also seen increasing exuberance in terms of volume.
The effects of the October 15 liquidity event remain as a reminder about volatility, but the dent itself has not yet appeared permanent or even durable. Starting with leveraged loan prices, the recent “pause” in “dollar” disruption has meant not just sideways trading in this highest of risk tiers but an actual retracement to a significant degree.
 I heard myself say “take profits!” so I did on the 2nd half of the TTNP position. No worry though, there’s another one dropping toward my buy point. Reap and re-plant…
The play has been to use the weekly Biotech index as a backbone. As long as it is on this firm trend, the sector is okay.
With the above backbone in place the area I (in temporary Casino Patron mode) have been working is in the more speculative Biotech stocks that had formed basing patterns. This was originally a seasonal (tax loss/Jan. effect) play but now it appears to be morphing into a latter stage sector play as the speculative stuff starts jumping well beyond January. Last week we looked at TTNP, which I de-risked by taking half off the table. Also, profits were taken on CUR and OMED. As these things bounce up and down, some provide buy back opportunities as well.
Rummaging for financial news and analysis from around the Web…
Gold-CCI & GDX and Gold CoT Improving, But…–NFTRH[biiwii comment: hey look, a fledgling rally appears to be getting started, but with PDAC next week the gold bug dream machine could get a bump up again and the sailing beyond the near-term is not yet indicated to be ‘all clear’]
Healthcare/Biotech Names Still Dominating–B.I.G.[biiwii comment: don’t I know it… did some profit taking last week but also a little replanting within the Bio’s. The weekly BTK chart has been bullish and until that changes, it’s on a trend]
Periphery Fragility List–Credit Bubble Bulletin[biiwii comment: i just found doug noland again, so CBB will be back either in ‘around the web’ format or directly published]
We declared risk ‘ON’ weeks ago and today it remains on. That is obvious, with the ridiculously over bullish sentiment. Further, today brings a new recovery high the Junk Bond fund (HYG), while its ratios to Treasury and Investment Grade bounce.
As usually happens, momo oriented bulls come out to play well after the turn (after all, everybody on the planet knows the US market is in breakout territory now). The question for markets remains in whether the indexes will correct when they reach short-term breakout targets (we are tracking them in NFTRH) or proceed forward to out of control mania?
I am trading now on a stock by stock, market by market basis locking in gains and remaining flexible in the short-term. It is just not in my makeup to be comfortable setting it and forgetting it along side the kind of bull now at play. Risk management is never out of style.
Gathering thin reeds–Jeff Saut[biiwii comment; oh jeff, how could you own anything by putnam? oh, they’ve cleaned up their front running act? i see. all the same, no thank you… not that it matters to you, but you are on notice for inclusion in this segment in the future. putnam? really? every time I saw the ‘proud sponsor of the n.e. patriots’ ads this past football season, I wanted to hurl]
HP Warns and Blames the Mighty Greenback–Across the Curve[biiwii comment: add hp to the list. since q4 we have been on watch for the strong dollar dynamic to have some effect in corp. america. not the end of the world, but an effect]
The US stock market’s job this week is to make this break (Dow used as an example, as it broke upward on Friday, following the leadership indexes) to new highs stand up. What it’s got going for it is that it’s not particularly over bought and it made a weekly close above resistance. What it’s got going against it is a degenerating sentiment backdrop (toward an over bullish extreme).
If the breakouts in the Dow and other indexes holds up, the markets could be going much higher; including a long… not anticipated, but provided for… manic blow off scenario. Watch things beneath the surface having to do with sentiment, participation, breadth and one indicator that alerted us to the bull phase weeks ago, Junk bonds and bond spreads. Thus far, they do not show a negative divergence.
 I made an assumption on STOXX vs. SPX based on activity in the European ETFs, but it turns out that STOXX itself did not rise nearly as high. The basic situation of the chart below remains roughly the same.
Folks, the market was bullish; and by market I mean US, Europe, China, Japan… the whole enchilada. Why people even bother taking the headlines seriously is beyond me. All this Greek stuff did was reset sentiment to sustain the bull just as so many hysterics burped up by an unhinged system have done for years now. They are like a series of jolts to the system. What’s that thing EMT’s use to try to revive people?
Don’t think in linear terms; it’ll get you killed. Instead, think about value and long-term term investment in things of value, but at the same time realize what bullish is in the casino. While I have continued trimming profits on individual US stocks, I have been replanting in others. I’ll take what the casino gives.
The US stock market made another all time high last week amid more mediocre – at best – US economic data. Much of the gain was credited to positive developments in the geopolitical arena as a ceasefire was announced in Ukraine and negotiations continued on Greek debt relief with some positive signs that an agreement might be reached. Whether either of those things are important for the value of US stocks is questionable at best but the bulls managed to convince themselves that they are and that is all that really matters. From a technical and fundamental perspective I’m a bit skeptical of this move even if it does make a new high. The rally was on fairly light volume, stocks have been struggling for months and this doesn’t change much in that regard. The S&P is up less than 2% on the year and less than 4% since September. Not exactly ripping even if it does go into the record books.
If we are going to use the CCI-Gold ratio as an important indicator to global economic contraction, we might view its recent bounce as making sense with respect to a broad global asset market bounce (incl. commodities) and in the US, a break upward from the recent nerve wracking ‘swing phase’ of volatile ups and downs in the stock market.
NFTRH managed the bullish stock market break in real time and I personally positioned accordingly. But I am not going to go all ‘Dow 30,000′ on you in Armstongian fashion. I am simply going to note that the indicator above has made a cyclical trigger (most recent red arrow) and its companion, the Palladium-Gold ratio is looking none too good either (though the MA’s have not triggered).
If these act as they historically have, they are a ticking clock. This clock ticks painfully slowly, but it is ticking for the economy none the less.
Retail Sales figures today were weak. Retail Sales ex-Auto and Gas (I usually just look ex-auto, but then they look really, really bad because of how far gasoline has moved) just recorded the two worst numbers (0.0% and 0.2%) in a year.
Retail sales are volatile, so one shouldn’t get too exercised by a couple of weak figures. Except for the fact that we also know that overseas sales are going to be suffering, thanks to the strength of the dollar. The disinflationary tendency imparted by a strengthening dollar is mild, and takes some time to be evident in the figures. However, the effect on overseas sales tends to be more rapid, and the effect on earnings more or less instantaneous (because earnings need to be translated back into the reporting currency).
So it isn’t just the weakness in retail sales that should give an investor pause here. It is difficult to sell stocks in an environment of abundant liquidity, but perhaps this chart (Source: www.Yardeni.com) is one reason to do so.