Saturday, May 12, 2012

Tea leaves! May 12, 2012

The stock markets seem weak lately. I don't see much buying in the intraday price movements. The latest weakness increased following the employment report a couple weeks ago. Those numbers showed a continuing lack of job creation in the US economy. After all this time one would expect jobs to show up. This further enforces the notion of a "structural" employment problem. I think this structural problem that they talk about is due to the hollowing out of the middleclass and the polarization in income that has occurred over the last 20 years or so.  When people don't have money to spend and they have gone deeper in debt than they should, they don't spend. Another significant part of the "structural" problem is demographics. The baby boomer generation is starting to retire. And those that haven't retired are facing the prospect of retiring with inadequate money to retire on. Add to this the talk of the insolvency of the Social Security system and there is an urgency to save.

And given the above points and considering the fact that the US Federal Reserve has used up much of their stimulative ammunition with little result is it any wonder to expect weakness in corporate profits on the horizon. Remember, the stock markets are FORWARD looking. Profits may be strong now, but what will the future look like. On the world stage there is the increasing likelihood that China is experiencing a slowdown and is at risk of a full blown crash due to the property price run-up that they have had.
With all that being said there are points that indicate a lack of selling urgency in the stock markets. So far at least. The volume has not increased to a level that indicates any kind of panic. But the panic comes as the downtrend continues. So it is early. In my opinion I would not be long of the markets until they make new highs and stay there for a couple weeks at least. I point this out in the small cap chart in this post..... A move higher would be very surprising and for that reason would be a good reason to buy. When a market has every reason to go down, and then goes up, is bullish. Regardless of MY personal opinion!

Here are some charts.

It is folly to trade from the long side when the markets are trending down. (That is another reminder to myself!)

Control risk.

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