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Do Markets Sense Trouble?

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4-12-2013 3-45-07 PM force

Retail Sales lay an egg (-.4% vs 0% exp & prior 1.1%) and ex-Autos/Gas (-1% vs .3% exp & prior .4%). The more unreliable U of Michigan Consumer Sentiment Indicator (72.3 vs 79 exp & prior 78.6). Business Inventories fell (.1% vs .4% exp & prior 1%) Lastly, PPI tumbled (-.6% vs -.2% exp & prior .7%) while the pathetic “core” PPI rose slightly (.2% vs .2% exp & prior .2%). PPI data was the biggest decline in 10 months, as gas prices plunge. This headline number here will allow more justification for QE and $1.25-1.75 Fed buys scheduled for Friday.
 
JP Morgan (JPM) earnings were released beating some expectations but overall they’re a confusing mix of “except this and that”. A deeper analysis courtesy of Zero Hedge, “JPM beats expectations solidly, coming at $1.59 on expectations of $1.39 print, this was largely driven by a bigger than expected loan loss reserve release in its real estate portfolios ($650MM pretax), and card services ($500MM pretax), which was the largest combined release number since the $2 billion reduction in Q1 2012.” Wells Fargo (WFC) beats on earnings 92 cents vs 89 cents expected but like JPM misses slightly on revenues $21.3 billion vs $21.6 billion expected.
 
Japan stated it doesn’t intend stimulus (QE) to have any impact on the value of the yen. If you believe that then I’ve a nuclear plant to sell you in Fukushima.
 
In Europe stocks were weaker on losses for Rio Tinto and auto makers including VW. Is it possible Cyprus will need 30% more in the bailout funds? It would seem so according to the PM. Collateral? That’s all gone.
 
China stocks were down for the week with the Shanghai CSI 300 down nearly 1% on the week. The India Sensex index lost roughly 1.5% last night occasioned primarily by losses to software heavyweight Infosys which slid an amazing 21% on earnings miss. In Australia bonds are set to rally as the terrible unemployment there rose prompting more QE there according the PIMCO.

Friday saw panic selling in gold as the metal broke $1,500 in a free-fall move. Is this a sign of “risk on” or something more sinister? Perhaps Cyprus is a major seller or there’s a large margin call somewhere. Some even assert some countries with debt problems are selling gold to raise capital to finance their country’s needs.
 
Markets seem to be coming unglued as inter-market correlations are breaking down. Those countries and regions engaged in QE are significantly outperforming those not in that game. Those markets with the greatest volatility (EMs, commodities and BRICs) are seeing selling while more conservative sectors (healthcare, consumer staples, dividends and big caps) are garnering the most inflows. Low volume is still ubiquitous in U.S. sectors overall. Bulls suggest inflows are great but most of this comes from large pension plans, hedge funds and particularly overseas investors seeking more safety in U.S. companies. Bond prices (TLT) were higher once again on a safety bet. The dollar (UUP) was flat. Commodities (DBC) continue their substantial declines indicating little global economic demand and growth.
 
We’re still 60% long mostly equities with a mix of fixed income and dividend issues. The rest is in cash.
 
Volume was once again light and breadth per the WSJ was negative.

 

4-12-2013 5-21-28 PM Markets Diary

 

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

 


The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

 

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

 


 

There is something wrong with markets. Perhaps it’s just me but I feel it in my gut. What serves us well is to stay systematic and disciplined. In this environment it isn’t easy.
 
Next week is mostly about earnings with economic data focused on the Beige Book (Wednesday) and Philly Fed (Thursday).
 
Let’s see what happens.
 

 


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