Saturday, September 12, 2009

Key Indicator Strength

Last Sunday I talked about the stock market technicals showing unbelievable strength bouncing off 992 and being manipulated above 1015 at the close a week ago Friday. I talked about the fact that for some stupid reason those levels matter and the probability seemed to favor the bulls.

Well this weekend if your a bear I don't have much more favorable things to report. The stock market went up but it was the rest of the investment universe that was so discouraging. High yield credit surged all week. This has set a high in early August and had been moving down to sideways for over the last month. This week it went up on a rocket ship closing just below the August high. If your a bear this has to be very discouraging because historically the high yield credit markets lead the equity markets. They peaked in September of 2007 while the equity markets went on to set new highs. They hit a bottom before the equity markets did in March. I did hear rumors of a big debt fund being forced out of shorts so it may be technical in nature but that is not a good sign especially if high yield credit manages to set new highs next week.

Other indicators aren't positive for the bears either. Europe surged to new highs, as did Dow Transports, the dollar continued its sell off, and China showed strength all week.

There are always bones for the bears. Oil did not set a new high and showed overall weakness especially considering the dollars weakness. Copper also did not participate in any rally. The Baltic Dry Index which I did a post on early was flat all week. Asia at this point is lagging Europe and North America. Treasuries rallied all week which is typically considered a flight to safety trade. Finally the overall strength of the new highs for the U.S. indexes looks weak with fewer and fewer stocks participating.

Looking at everything it just doesn't look right for a major top. Of course no one said it had to but I can't imagine how the equity markets will start going down if the high yield index keeps going up.

I am getting killed but everything in the markets at this point is not being driven by fundamentals and it is hard for me to adjust because I don't consider myself a trader. Primarily is it being driven by the dollar continuing to sell off. THe problem with that though is a weak currency isn't the road to prosperity. If that was the case Zimbabwe would be the richest country on earth. Yeah for now it powers the markets unexplainablly higher.

No comments: