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Stock Market Broadening Top, Time to Look for the Exit?

Stock-Markets / Financial Markets 2010 Mar 13, 2010 - 01:36 PM GMT

By: Anthony_Cherniawski


Best Financial Markets Analysis ArticleConfidence among U.S. consumers unexpectedly declined for a second month in March, a sign Americans are discouraged about the labor market.

The Reuters/University of Michigan preliminary consumer sentiment index fell to 72.5 from February’s final reading of 73.6. Economists surveyed by Bloomberg News projected the gauge would increase to 74, according to the median estimate.

Retail Sales in U.S. Unexpectedly Rose in February.

Sales at U.S. retailers unexpectedly climbed in February as shoppers braved blizzards to get to the malls, signaling consumers will contribute more to economic growth.

Purchases increased 0.3 percent, the fourth gain in the past five months, Commerce Department figures showed today in Washington. Figures for the prior two months were revised down, taking some of the shine off of today’s data. Sales excluding autos rose 0.8 percent, exceeding all estimates.  There’s a good chance that the February figures will also be revised down.

JPMorgan, Citigroup Helped Cause Lehman Collapse, Report Says.

JPMorgan Chase & Co. and Citigroup Inc. helped cause the failure of Lehman Brothers Holdings Inc. by demanding more collateral and changing guarantee agreements, according to a court-ordered report on the biggest bankruptcy in U.S. history.
Barclays, Mizuho, UBS, Deutsche Bank, And KBC may also have attempted to "squeeze" Lehman Brothers.  They may have had good reason to do this.  Sadly, there is no change in behavior by the survivors. 

The S&P 500 is in a “Broadening Top.”
-- Investors are being whipsawed by a broadening formation.  Unlike normal market tops where the price range narrows and volume diminishes, the broadening or megaphone formation shows expanding trading volume along with wider price swings.  The pattern draws in an unusual amount of public participation, as evidenced by the lowest cash holdings since 2007 in stock mutual funds.  Time to look for the exits?




Treasury Bonds pull back.
-- Treasuries pulled back this week, but their uptrend is intact.  An immensely popular idea is to short US Treasuries on the premise that inflation will erode their value.  The evidence so far is that treasuries have room to rally, especially if the stock market cannot hold up to selling pressure in the near term.   Stocks and real estate may be near their respective highs, so US Treasuries may be a safety play.




Gold cannot overcome resistance.
-- As many of the economic stimulus measures are winding down, the demand for gold as an inflation hedge may also diminish.  Gold investors have been uncertain as shown by the sideways market over the past two months.  Traders are still thinking that investors will be looking towards gold as a safe haven.  The chart does not agree.




The Nikkei is in a speculative frenzy.
-- The rise in the Nikkei 225 Stock Average for the past five weeks had more to do with investor expectations than real results.  Investors may have been speculating that the Bank of Japan may increase its bailout funds for financial institutions.   Expanding the bailout fund would not only prop up failing financial institutions, but also weaken the yen, which might help exports.




China still market may be cooling off.
-- China’s stocks fell, trimming a weekly advance, as investors speculated that the Bank of China would raise interest rates further to curb borrowing.

Property values also dropped, as new regulations requiring a 20% deposit on land purchases increased the cost of developers and cooled the red-hot property market.  Will stocks be next?




The U.S. Dollar may perform better than other currencies.
 The speculation is that the Fed will attempt to keep interest low for the balance of 2010.  Given that scenario, investors have been migrating over to higher-yielding currencies, thinking that the dollar run may be over.

The fly in the ointment for the speculators is that the dollar has risen above a very important support shown in the chart, which suggests that the speculation may not be very long-lived.



There’s no rush to restructure Fannie and Freddie

-- The federal government has spent the past half year seeking to roll back its emergency efforts at propping up the financial markets -- with the notable exception of its involvement in mortgage giants Fannie Mae and Freddie Mac.  

As the government has pledged more and more money to cover the companies' losses, it has assured the public that planning was underway for overhauling the firms so the bailouts would end.  Thus far, no plan has been produced.


Gasoline prices are still jumping.
The Energy Information Agency weekly report reports, “The U.S. average price for regular gasoline increased for the third consecutive week, moving up a nickel to $2.75 per gallon. The price was $0.81 above the average last year at this time.  Prices rose in all regions of the country with the East Coast climbing four cents to $2.74 per gallon.  The average in the Midwest increased the most, jumping nearly six cents to $2.70 per gallon.”




Moderating temperatures affecting Natural Gas prices.
The Energy Information Agency’s Natural Gas Weekly Update reports, “Since last Wednesday, March 3, natural gas spot prices posted declines at market locations across the lower 48 States as temperatures moderated. Warmer temperatures throughout most of the lower 48 States and continued strength in natural gas production likely contributed to falling natural gas prices.  Weekly natural gas consumption fell in all market sectors, decreasing about 12 percent for the lower 48 States overall since last week.”

Housing subsidies have a dark side.

The government-run mortgage finance agencies Fannie Mae and Freddie Mac owned more than 131,000 properties between them at the end of 2009, according to recent annual filings. That’s roughly the equivalent of San Francisco’s owner-occupied housing stock. The two companies sold off nearly 200,000 units last year that they took over after owners defaulted. But despite those efforts, Fannie and Freddie owned substantially more units at the end of 2009 than they did a year earlier.

The Stimulus Scam.

The recent improvement of the global economy, with particularly high economic-growth numbers for the United States, is just one more deception in a long series of deceptions that have plagued policy makers and investors. While official statistics register a rising gross domestic product, the long-term production potential of many economies around the world is actually contracting. The present economic expansion is brought about by massive stimulus policies. This kind of economic expansion does not constitute genuine economic growth.

I hope you all have a wonderful weekend!

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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