Markets Now Seem Risk On, But Fundamentals Have Not changed

Did you see that market reversal? It looked so bearish, but then there was a complete pattern change. How about that. Once oil stopped its fall, everything went risk on. While I absolutely agree that American innovation is at work every day, I can't agree that the American company is an island unto itself.

The American consumer is proving tepid, except with, of all things, SUV cars. I like any vehicle with a wide foot print and a comparatively low profile. I like this feature for safety reasons. That really limits my options to a couple of companies.

Looking at the chart of the U.S dollar, we can see stability. Take a look:

From oil and the U.S. dollar, compare high risk assets, such as high yielding bonds:



We do have a risk on attitude. My posit is that two causative points exist for a rally in risk on assets. First, and for some reason, a bottom in oil has been thought to be found. Excluding fires and strikes, the fundamentals have not changed in oil. Where gas pricing can be seasonal, the fundamentals also have not changed. Even if SUV sales increased, reality is this idea of "subprime" vehicle loans. Frank reality is, versus the real estate market, those vehicles get repossessed over night and sold the next day. Second is why not buy in a bull market where any news is good news, despite U.S. multiples advancing on stock pricing.

Confusing the issue is the drop in U.S. treasury values. Stated otherwise, the spike in U.S. treasury yields. Look at the 10 year:



Any person with a conscience can see that rise in the 10 year yield, which means a drop in the price of the 10 year U.S. Treasury Bond, is a whole bunch really fast, despite trends and changes in fundamentals.

The guard to put up now is despite no real change in economic fundamentals over the last month, one should become cautious. This looks so much like a strange head fake to be caught on an over-head cross punch, if you've ever boxed. Maybe not. But look at the fundamentals.

Looking at currency markets, we are seeing in equity and debt markets, what I think is a bull's head bounce on risk assets, not a real issue that will deviate from stronger cross market trends. I could certainly be wrong.

Always remember, I offer opinions only, no investment advise. For investment advise, learn from ideas and ask of the person holding your money.

Reality of Markets, Look at European sustainability

Equity markets were down today. I don't like to say bearish chart patterns might be gaining more conformation. If you please, see yesterday's post on this space.

I must, however, notice fundamental data. Germany"s industrial production disappointed by showing a December number of advancing .1% v. an expectation of .5%. Year over year, Germany's industrial production is down -.4%. Combine this with CPI data from Germany, and a point should be evident.

Today, France showed a growing trade deficit for December, despite a persistent decline in their currency, being the euro. France's trade deficit actually grew in December by 3.4B euro. But, to be intellectually honest, I must explain that France grew in exports by 1.8%, and this does reflect a 5th rimonth of continued gains. France needs that. But France also shows a 2.6% rise in imports. I have key chains France might like.

United Kingdom (England), similarly showed a merchandise trade (balance of trade) number of -10.2B sterling. Anticipation was only -9.1B euro.

We need to see this data for what it is. Essentially for me, I was surprised that my chart patterns proved out today. Now, more data must be considered. Any reader of this internet, or mobile communication space, must become astute and self responsible.

I write opinions. Which, in the course of  how opinions develop, need to be challenged. I have to welcome all thoughts, ideas and people that want to review the previously spoken....If there is something to be said, bring it, my friend. I will treat you with respect, dignity and I will try to answer any question.

Market Volatility: A View on Markets, Based on Bonds and Charts

Obvious for markets today is the volatility associated with price movements. My first exhibit is this chart of the S&P 500, which looks rather "whipsaw" in fashion:

Evident from the chart is how the S&P has went up and down in fast gyrations. Such movement would certainly dissuade me from having any association with this market at first glance. Yet, as one can see, a range has been set. Second observation is that a chart pattern might be proving itself. If one opens the chart, today's high of the S&P remains lower than the last high. The last high was on January 22 at 2063, today's high, on February 5, reached only 2062. That sets into place a bearish descending triangle pattern, given two essentially equal lower price points of 1992 on January 15 and January 30. One can argue a third horizontal price point on January 6 at 1992 on the lower end of the candle.

Such a set up tends to portend rather bearish. Same can be said for the Nasdaq, but not as technically precise, here's a look:

Nasdaq reveals also a falling triangle pattern. Open the screen up and one can see more clearly...being falling highs for the Nasdaq, with a February 5 close at 4,765 versus its previous high on January 26 of 4,771. Add to this the nearly equitable triple bottom of December 16, January 6 and January 16, and we have a close to perfect descending triangle.

By themselves, no one can rely on but a few chart patterns to see the tea leaves. Reality is that the Dow can look rather bullish. A cautionary tail for all stocks is the out-performance of Disney for the Dow and Apple for the S&P, and certainly for the technology space.

 Consequently, I have to visit the VIX to gain a better understanding. Let's see:

What I see are higher lows and lower highs. In the chartist's form of understanding, and if I'm not mistaken, this looks to be a defining form of a bullish symmetrical triangle. Meaning the VIX could go up, based on chart patterns. When the VIX goes up, stocks go down.







Charting, I suppose, is based mostly on past behavior that has proven itself reasonably reliable over time. The question raised by that proposition is how reasonable. I looked for other indicators to spell out this issue.

I couldn't help but notice the yields for short term U.S. treasuries. Those yields have been resiliently high in anticipation of an increase in short term interest rates by the Fed, and have helped to flatten the yield curve. Because of this, we need to look at the charts and see what they say. Right below is a chart of the 5 year U.S. Treasury:

Next below is the 10 year U.S. bond, which really provides a baseline, being longer term, this chart provides dimension for our next diagrams:

 Did you see the progressing drop in yield of the 10 year U.S. Treasury bond over 2014. In 2014, money liked the idea of low yield and safety. Most noted, however, is the drop in the 10 year yield at the start of 2015, steep. Does that drop in yield betray a deeper issue, perhaps of global implications?






This 10 year U.S. Treasury yield countervails, but eventually meets, sentiment in short term treasuries. Let's look again at the 5 year U.S. bond:

One can see how the five year treasury bond held its yield so well through 2014, but sacrificed so much ground at the start of this year. What do you suppose made the 5 year treasury lose so much yield? Or, stated otherwise, gain so much in value nearly over a month?

This question is confirmed in its need for an answer by taking a gander at the U.S. Treasury 2 year, we need to see:

This 2 year treasury bond increased in yield through 2014 like nobody's business. Only in the stock market "correction" of October, 2014 did it break its trajectory. Now, it has once more broken its trajectory.

My observation is that short term treasury yields fall when, in the short term, economic prospects look weak, safety is needed, and uncertainty exists. Such prospects result in a later than expected increase in rates by the Fed. Further, such increases in the price of short term treasuries typically are associated with stock market weakness. But, it is here that we are witnessing a divergence. Despite short term treasuries breaking their trend line, stocks are simply too volatile to touch.

Viewing treasury  bond activity along with the activity in the stock exchanges, and VIX signals, one can expect a decline in markets. In fact, tomorrow will tell if the chart patterns for stock exchange indexes such as S&P and NASDAQ get further confirmation, or lost. The chart pattern for the VIX looks disturbingly resilient.

Overall, fundamentals need to be noticed, and these fundamentals seem to be leading indicators based on short term treasury yields.