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Some of them are still singing, but
technically markets seem to have finished the hymns of praise.
Signs Of The Times
This Year:
"Dollar Turns
Bearish amid Disappointing Housing Data"
~ Forex,
March 26
"Heavy hitters such as
Goldman Sachs and J.P. Morgan are now actively adding equity exposure."
~ Financial Post, March 27
"Betting On
U.S. Homes Comeback"
~ Financial Post, March 30
"The overall
technical backdrop remains bullish so buy-on-dips is still the most
profitable strategy."
~ Technical letter, March 30
Last Year:
"Stocks
climbed as the better-than-expected data on confidence and manufacturing
bolstered optimism on the economy."
~ Bloomberg, April 15, 2011
"Flight From
U.S. Dollar"
~ Financial Post, April 21, 2011
"Don't Like a
Weak Dollar? Might as Well Get Used to It."
~ Breitbart,
April 26, 2011
Concerns about the dollar were so
wide-spread that Geithner stated "We will never embrace a strategy
to weaken the dollar".
Our notes from then included someone
else's description of the Geithner Bond. "No principle, no yield
and no maturity".
The DX dropped to 72.70 as the good
times ended on May 3rd and rallied to the 80 level as the panic about
sovereign debt ended last fall.
On the recent surge to good times,
the DX declined (accompanied by the usual bad press) to only the 78 level.
The low as the bubble completed in 2008 was 71.33. The low on the speculative
surge to March 2011 was 72.70 and the recent low at 78 sets a rising trend of
important lows.
Against these, commodities (CRB) set
a sequence of speculative spikes at 474, 371 and at 326 in February. Clearly,
commodity speculators are not accommodating the Fed's implicit policy of
dollar depreciation.
It is worth noting a plea for help
during the troubles of September, only six months ago:
"Investors just
want to know, even if it is a Band-Aid, that there is some cure that's going
to be announced."
Perspective
Our list of "Boom Sayer" exclamations has been accompanied by technical
readings of momentum and sentiment usually found at important tops. Last
week, Market Vane's Bullish Consensus reached the highest reading since 2007.
Also, as we have been discussing insider selling has reached significant
levels.
We have been looking for a rolling
top whereby not all sectors peak at the same time. This seems to be working
out with cyclicals such as base metal miners and
S&P Energy setting their highs in late February. Of Dow Theory
importance, the Transports set their high in early February and the bounce
seems like a failed test.
Overseas, the DAX, FTSE, Shanghai and
Hong Kong set highs earlier in March and have recorded downtrends.
More recently, technical work such as
yesterday's "Bearish Divergences" provides confirmation of a
topping stock market from an unusual point of view.
Under such conditions it has been
prudent to sell the rallies.
Currencies
The U.S. Dollar is in a technical
pattern leading to an outstanding rally. Historically, one of the features of
the post-bubble condition has been a chronically firm senior currency. That's
against most currencies and most commodities, for most of the time.
Commodities
In momentum and enthusiasm, the CRB
has been replicating the action in 1Q2011, but at lower levels on the index
and in excitement. This year's high was 326 set in the third week of
February. At 306 today, taking out 305 would extend the downtrend.
This would confirm that last year's
high of 371 was, indeed, a cyclical peak.
Credit Markets
The action in longer maturities
stopped favourable trends in mid-February. Over the
past two weeks, a turn for the worse has started. The price on the sub-prime
mortgage bond has broken down.
This has serious implications, as
does the action in sovereign debt. As an example, yields
for the Spanish bond has been rising since early March, taking out
technical resistance. Taking out 5.75% will be a serious event. The chart
follows.
Since the middle of March, yields and
spreads for junk and high-yield have been moderately adverse.
Representing shorter maturities, the
Ted-spread stopped narrowing in late February and the chart seems to be
"bottoming" since.
And it is worth keeping in mind that
after there has been joyous action in spread markets in the first part of the
year, the seasonal reversal in May can lead to disaster in the fall.
Spain
 
Municipal Bonds
Note:
- Positive
divergence late last year.
- Negative
divergence in February.
Bob Hoye
Institutional Advisors
The opinions in this report
are solely those of the author. The information herein was obtained from
various sources; however we do not guarantee its accuracy or completeness.
This research report is prepared for general circulation and is circulated
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Copyright
© 2003-2008 Bob Hoye
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