Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Disquieting Underlying Technical Deterioration

Stock-Markets / Stock Markets 2010 Oct 17, 2010 - 04:33 AM GMT

By: Peter_Navarro

Stock-Markets

Best Financial Markets Analysis ArticleHere's the lowdown on last week's action from Marketedge: “Stocks continued to march higher last week as both the DJIA and the NASDAQ posted modest gains for the period.… The technical condition of the market was mixed last week as the CTI lost a couple of points, there was considerable deterioration in the Strength Indexes but the Momentum Index remained strong." Translation: The upward trend remains intact but there's some disquieting underlying technical deterioration that we must take note of.


On the fundamental front, virtually all economic leading indicators are pointing towards a slow growth scenario over the next 12 months, in the range of 2% real GDP growth, which is significantly below our potential output of about 3% to 3.5%. If this forecast holds true, unemployment will remain high, income will remain stagnant, and it is unlikely that consumption will help pull the economy up to full and steady growth.

As for why the stock market is rallying on this lukewarm news, the most likely scenario here is that the market’s upward trend is more an illusion than reality once one discounts for the rapid, recent decline in the dollar.

It's a salacious little menage a trios we have goin gon: The Federal Reserve keeps short-term interest rates low and engages in quantitative easing to lower long-term interest rates and thereby turns on the monetary printing press. The increase in the money supply drives down the value of the dollar. Meanwhile, the Smart Money borrows money at low interest rates and buys stocks, with a heavy skew towards energy and commodity-based stocks which will hold their value through price appreciation as the dollar falls.

In other words, pierce this veil and you see that there's nothing really going on fundamentally to suggest a strengthening economy. Rather, it is more a house of mirrors from the Federal Reserve.

On that note, I used to think that Ben Bernanke was a very smart guy doing a very dumb thing by printing endless reams of money at

the Federal Reserve. Maybe he is just Machiavelli. Could this latest move with QE2 and a cheapening of the dollar simply be Beggar Thy Neighbor Ben’s way of stimulating our economy via exports and putting more pressure on the Chinese to let their currency float? Smart or dumb, Ben Bernanke is playing a very risky game.

So what does all this mean for traders and investors? For traders, there remain opportunities for short-term trading with the upward bullish trend – but be careful, as the technical indicators are suggesting softening. For investors, despite the upward trend of the market, I remain nervous about fully deploying cash into this market.

Finally, I have to talk (brag?) a little bit about TBT. After lamenting several weeks ago that this has been one of my worst trades – so far – I also indicated that I wasn't really worried about being in the red and that I had adopted a modified "double down" strategy that has involved adding to the position every time TBT (which shorts the long bond) went down.

Last week, that strategy finally paid off as TBT made a nice upward move and put the trade back into the green. The move was all the more amazing in the light of repeated announcements by the Federal Reserve that it would engage in more quantitative easing, which should push long-term bond yields down and prices up and further push TBT down. However, that didn't happen, and the reason I think goes back to the issue of the impact of a falling dollar on the inflation rate and an eventual bursting of the current bond market bubble. So I continue to like the TBT trade. Let's see where it goes.

I opened new positions in several rare earth stocks based on China's export restrictions on its supply – China is the OPEC of rare earths. (See my video about this at TheStreet.com.) This is strictly very high risk, penny stock stuff; and I run the risk of buying late in the run so I am only buying small positions and will only add them as the trade moves in my favor. So far, I have opened small positions in ARAFF, GWMGF, and LYSCF. (I purposely stayed away from Molycorp as it is way too expensive.) (If any readers have any thoughts on the rare earths stock plays, I'd love to hear from you.)

I also opened up a new position in FEED based simply on technical considerations – this is an agricultural play in China.

Stocks that I am long:

CYB,DTV,DUSA,GTXO,HOV,LPTN,MDVN,NRGX,QTWW,SVMI,SNT,SBOTF,TEVA,VVUS

Stocks I am short: GME.

Updates: I cashed out both DEPO and SNTA with very nice gains -- no news in the nearer midterm future to propel them much higher. I took a small loss in SOMX – a bad trade where i got sucked into a parabolic move. I also significantly trimmed my very large position in SNT – I still have faith in it but will only add back to this position as it moves up, which looks like it will take a long while.

Last take: I haven't mentioned previously my long position in DTV. This is kind of like a "Peter Lynch" play – the famous mutual fund manager who used to get his ideas from talking to his children about what they saw at the mall. I'm just seeing a lot of satellite dishes going up.

Navarro on TheStreet.com

Click here to review my videos on TheStreet.com.
———-

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.

© 2010 Copyright Peter Navarro - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in