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Wednesday, October 22, 2014

Investors Caught Chasing Their Tails Again

US Stocks
A week ago, investors frozen in fear by an endless stream of negative headlines were selling the decline ahead of the great crash.  Since then, a rally from the October low has been slowly replacing fear with hope.  Headlines such as 'Why Stocks Suddenly Look As Good As They Have In Years' have investors chasing hope and their tails again.

While the direction of the dog's spin has changed (from fear to greed), it has yet to change the message of the market.  Anyone following the dog should retreat to the safety of the sidelines.



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Review of US Stocks: Defining Cause Building Phases

US Stocks
The message of the market has been one of cause building since early October. Expect this message which urges patience and caution to be largely ignored by the inexperienced. Cause building, while easy to label, is extremely difficult to recognize and quantify. That is, unless you use point and figure charting techniques and volatility measures.





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'Stupid' Bankers Making Smart Decisions

News
There goes those 'stupid' bankers maximizing risk and reward by lending only to (rich) people that not only pay interest but also repay principle. If only everyone were this 'stupid', we'd have far less business failures.

Let's be clear about the lending trends. A breakdown of total credit at all US commercial banks, in fact, illustrates significant deterioration (bearish trend in real estate, consumer, and surging cash assets holdings) in all but commercial and industrial loans (chart 1). If banks are lending again, I'd hate to see these trends when economic cycle turns down and lending stops completely.

Clearly, the public coddled by endless stream of headline interpretations doesn't understand what's unfolding in plain sight.  The lack of preparation stemming from their ignorance means a large chunk of the population will be filing for bankruptcy during and after the next panic.

Chart 1


Headline: Banks are lending again, but mostly to rich people

For five years, U.S. consumers have been undergoing a massive debt reduction: Paying off credit cards, paring back spending and building up funds for a rainy day. Investors, though, have been looking to see whether Wall Street banks are lending for a positive sign that the economic recovery is picking up steam.

Last week, investors got a sign—though not quite as positive as they may have hoped. For banks like JPMorgan Chase and Bank of America—which each reported "core" loan growth in the single-digit percent range—the uptick in borrowing came from high net-worth clients in their brokerages, not from the consumer banks.

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Tuesday, October 21, 2014

Review of Natural Gas

Natural Gas
Natural gas (NG), despite a cooler than normal spring and summer, has been building cause since February/May 2014 (chart 1); NG's trend oscillators have been negative for months. While retail money, emotionally-driven and perpetually price focused, chases weakness with the pessimistic herd, they're likely missing an important change in the message of the market.  This invisible hand, likely preparing its winter home in Bermuda while the majority chases its tail, is clearly anticipating a colder than normal heating season.


Chart 1




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Review of US Stocks: Upside Reaction Continues

US Stocks
While fear towards US equities have receded during the light volume rally from the 10/15 low, it lingers in the periphery as long as the 21-day put/call premium ratio (put/call(E)) holds above 1.  As of 10/20, it stands at 1.06 (chart 1).  Fear, amplified by volatility, which, in turn, is driven by economic instability created by enormous debt burdens throughout the Western economies, can be transient (temporary) or persistent (lingering for months). Disciplined investors must respect the latter by viewing this rally as an upside reaction within downtrend of a cause building phase until the message of the market confirms a bullish interpretation.

Heavy volume 'tests' of support (green lines), indications of expanding downside force, raise the probability that they'll be tested again (chart 2). The force behind the reactionary rally and cycles will help traders 'time' these retests. If previous support acts as resistance as volume contracts significantly, it suggests waning upside force and vulnerability. Vulnerable rallies often reverse around important transition cycles (chart 3).

The NYSE composite stands at 10327 as of 10/20.  Resistance zones for the NYSE Composite are 10130-10150 - broken to the upside on light volume, 10400-10500, and 10600 (chart 3). We will be watching volume, REV(E), and the movement of leverage (equity DI) as the rally challenges these zones.

Chart 1


Chart 2




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Monday, October 20, 2014

Apple Pay set to square off against retailers with their own mobile pay plans

News
Electronic money, neither anonymous or privately controlled (sorry Bitcoin fans), is coming sooner rather than later.  Apple, Google, Paypal - soon to be released from Ebay control will pay the way for its ultimate acceptance as transacting medium within a society increasingly yearning for a little privacy.




Headline: Apple Pay set to square off against retailers with their own mobile pay plans

Starting on Monday, millions of people who bought an iPhone 6 or 6 Plus will be able to go shopping with Apple Pay, the company’s new wireless mobile payment program.

Shoppers will have to add at least one Visa (V), Mastercard (MA) or American Express (AXP) card from a participating bank to Apple’s (AAPL) Passbook app on their phone to get started. Once Apple Pay is set up, to make a payment, a customer simply touches the iPhone fingerprint sensor while next to the cash register.

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Review of the Yen

Yen
It's highly likely that Japan, deep into debt that will ultimately fail, will raise taxes to save the status quo. This should sound familiar to citizens of Western economies. Today's flavor of the month political crisis in Japan, pales in comparison the evolving, less-visible crisis of confidence unfolding in the Yen.

Withdrawal from the Yen will accelerate beyond the scope of today's downtrend once the public realize that economy cannot recovery without an iteration of Schumpeter's creative destruction.

Chart 1




Headline: Japanese PM Abe suffers setback as two ministers quit

(Reuters) - Two Japanese cabinet ministers resigned on Monday over the dubious use of political funds, dealing Prime Minister Shinzo Abe his biggest setback since he took office in December 2012.

The resignations of the two women, including the high-profile trade and industry minister, could complicate tough decisions on key policies, including whether to go ahead with an unpopular plan to raise the sales tax and planned restarts of nuclear reactors shut down after the 2011 Fukushima disaster.

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