Home > Uncategorized > 2012/08/18: Quick Post: Weekend Reading on Continued Contentious Inconsistencies

2012/08/18: Quick Post: Weekend Reading on Continued Contentious Inconsistencies

© 2012 ROHR International, Inc. All International rights reserved.

Equities seem like the Energizer Bunny of up trends right now… they just ‘keep going and going’, even if in a choppy and grinding manner some of the time. Yet, as we noted in the wake of Wednesday’s first September S&P 500 future daily Close above the 1,399-1,402 resistance, the burden of proof was on the bears to put the market back down or it was likely headed higher in the near term.

We will be very concise once again on the specific market comments in this post, because yesterday’s TrendView Brief Update  is a pointed discussion of the significant clash of forces between the equities market and other asset classes.  And a lot of the intermarket tendencies were just plain inconsistent with classical tendencies, and that became more so the case into late last week.

As we noted in our QE is the Opiate of the Perma-Bulls part 1a (part 2 to be provided soon) post a week ago Wednesday, it has been a “bad news is good news” equities market of late. And Perma-Bulls seem to feel the worse the better, at least insofar as that increases the chances for additional central bank Quantitative Easing or other forms of market intervention.

In a “rock and a hard place” psychology, that would be the ‘rock’ that underpins the market. And yet the ‘hard place’ that both investors and short-term portfolio managers find themselves in is the now almost pervasive weak economic data outside of the US. Even the stronger than expected UK Employment figures and Retail Sales this week along with US Retail Sales, Industrial Production, NAHB Housing Market Index, Michigan Sentiment, and Leading Indicators did not seem to help equities all that much in the face of weak data elsewhere.

And the other key aspect we keep a close eye on also reconfirmed those troubling global economic tendencies two weeks ago…


…in the form of Organization for Economic Cooperation and Development (OECD) Composite Leading Indicators (CLI) confirming pretty much the whole world rolling over into weaker tendencies. And this month’s indications were particularly telling insofar as they confirmed the shift to weakness noted last month for Japan, and most importantly the US. As the latter is supposed to be the engine which helps buffer weakness in the rest of the world, along with continued Chinese weakness that is just not good.

None of which means the equities will necessarily crumble right away, or the primary government bonds and US dollar will push-up markedly in the near-term. It is more of an intermediate-term backdrop, and timing and risk management will still be paramount in such a psychologically-driven market buffeted by such strong opposing views. And yet, in spite of the general bonhomie breaking out in Europe on the “do whatever is necessary to save the euro” psychology (nice touch Signore Draghi) that now has Chancellor Merkel on board (at least until the specifics need to be agreed with the weaker sisters), the primary government bond market had quite a nice late week rebound. Of course, that is wholly inconsistent with any significant rescue effort funding by Germany; which should have brought even more pressure on the Bund into the weekend.   

Even so, at the very least some of the inconsistencies we noticed previous between the equities and govvies on one hand (which seem to at least passingly reflect classical ‘counterpoint’), and foreign exchange and metals on the other hand not only were continuing contentious dislocations in normal intermarket trend relationships, but have proceeded even further in that direction. If the global economy is really going to improve rather than deteriorate, why is the euro still so weak with such a consensus seeming to take hold, and (halfway around the world)if the PBoC can and will do something to reinvigorate the Chinese economy (which we also doubt they can pull off right now due to food inflation risk) why is the Australian dollar losing ground to the greenback?

While it all may end well, those are the kind of combined questionable factors that lead us to believe OECD may still be more correct in its negative assessment than the optimists would like to think… or even necessarily imagine right now.

[As a final note, the OECD Composite Leading Indicators available through the link above is one of the few English language versions available right now. Sadly the OECD has been having a sustained problem with their website since at least the time of this month’s CLI release. The link that normally defaults to display the English language version has only been able to display the French language version since Thursday morning of last week (August 9th.) Along with our advisory clients and readers, we wish to thank the very nice individual in the Secretary-General’s office who was kind enough to e-mail us the English language version.]

General Market Observations and EXTENDED TREND IMPLICATIONS that are critical to the general overview are revisited in today’s TrendView Brief Update. The rest remains much the same as last Monday’s Summary Perspective or Technical Projections (depending on the extent of your interest in the broader range of markets.)

Thanks for your interest.

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