Monday, 13 December 2010

Top Building a la Hindenburg

TMN has been calling for a top in the making in equities for a while now and it has not been a pleasure watching the daily chop. While the calls on the USD and on Bonds have been working out as expected, stock markets, with exception of the European periphery and selected emerging markets, have been puzzling TMN quite a bit. The deterioration of the quality of the advance has been one obvious feature of this market and it is only a matter of days until we will see an initial signal for a Hindeburg Omen on the NYSE. It is striking indeed that there are so many new 52w lows during a period when American stock indices are gunning for new highs on a daily basis. However, a closer look tells the real story, the issues scoring new 52w lows are almost exclusively listed trusts and funds that are heavily involved in Muni Bonds. A large number of US states are about as bancrupt as certain European countries and the market for their bonds has been declining strongly for the last few months now.

Who knows, maybe the US government will seek an extension of the 'Build America' programme, although at the moment it does not look like it. This is politics though and therefore we know that things can change quickly...

Possibly TMN is getting caught here and is missing the point. Is it true that the market has developed a taste for privately owned enterprises over anything that is government owned? Could be, given the fact that also federal bonds have been under strong pressure lately. Let's double check:

The above chart shows that there is still a battle going on. Obviously income seekers are not having an easy time these days, the choices available are simply horrible. The Feds have done a pretty good job in pushing people into stocks, commodities etc etc as the chart below shows:

Even one of the poster boys is showing signs of deterioration, see below charted versus the USD:

In any case, TMN remains highly suspicious of current price action and believes that the same old issue, namely CREDIT, will derail this advance soon. If so, then the chart below will have to turn up asap:

TMN concludes that, as the entire advance out of the 2009 lows has been built on the thesis of credit not blowing up (for now), it should have an extremely negative impact on equities when credit actually does start blowing up! One of the next few down days on the NYSE will certainly trigger an initial Hindenburg signal. TMN fully expects the government and the FED to launch a counter attack (QE+N or an extension of the tax fun on muni bonds) as soon as this happens, which likely will produce another great selling opportunity for government bonds. It's not only income seekers who are trapped in this market it is to a rapidly increasing level also the government and the central banks. Public service has likely seen its peak, from now on they will have to work for their money or feel the consequences.

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