This Is What Winning Looks Like

Duh!!!!!!!!!!!

Great Rotation Underway?

The "Great Rotation" Has Begun, ChartWatchers, May 18, 2013, written by Richard Rhodes.  We'll see.... it does not necessarily follow that money pulled out of bonds would automatically be invested in stocks, and that potential head and shoulders bottom has not yet been completed by a weekly close above the neckline.

The Great Rotation is in its early stages. For those initiated to this concept, it is simply that rising interest rates will cause asset allocators to sell bonds and buy stocks. And we shall posit that it shall become more pronounced in the weeks and months ahead as interest rates are on the verge of rising faster than many believe at this point.

Technically speaking, this is due to the 10-year note yield developing weekly "head & shoulders" bottom forming on the weekly chart. We'll mention that a bullish monthly key reversal to the upside is also forming, but the basis of this sharp move lies in the confirmation of the "head & shoulders" bottom on a close above 2.03%...a mere 8 basis points higher. Further, the volatile manner in which the 10-year note is trading would suggest it could happen next week, which would then target the 2.90% level...last seen in July-2011.



So, although the S&P 500 and other indices may be overbought in the short-term, then can remain so for quite some period of time. And we are correct in our 10-year note yield assessment, then our target of the S&P 500 is 2000...and that is not a typo.

Pullback and Blastoff?

Decision Point, Carl Swenlin, 5/17/2013. 

I am a real believer in the validity of technical analysis on long-term charts (my short-term charts are the weeklies, ha ha). Seldom has the long-term risk/reward ratio looked as good to me as it does right now. I've learned that when I see something this convincing on a monthly chart, I should believe in it. The S&P 500's objective is now an amazing 2380 (Dow ~22,000), and future corrections should find good support between 1550 and 1600 (Dow ~14250-14750). I don't see any blue chip stocks cheap enough for me to buy, but I certainly see no reason to sell them either! Blue chip US stocks have apparently become the world's new bonds.... But as Carl Swenlin wisely points out at the end of each of his articles, "Technical analysis is a windsock, not a crystal ball.")

While we tend to focus more on the short and intermediate term, we notice that there is a lot going on in the long term time frame.

Most obvious is the breakout above the top of a long-term trading range. The breakout is decisive (more than three percent), so the technical assumption is that it is unlikely that prices will fall back below the line of resistance, which is now support.

After a breakout we expect prices to correct back toward the point of breakout. We can see that the index is approaching the top of a rising trend channel, and, when that is reached, it would be a logical time for a correction to begin.

However, we noted in our blog earlier this week that a parabolic up move appears to be in progress. On the chart this has been annotated as purple trend lines with ever-increasing angles of ascent. Parabolic moves are signs of mania in the market, and this can cause prices to move higher and faster than would be considered reasonable. These moves can be fun to ride, but it is virtually impossible to know when they will end. When they do end, the reversal is usually abrupt, and the decline breathtaking. The most exaggerated parabolics occur in prices of a single stock or commodity. With an index composed of many stocks, it should be more subdued.

Conclusion: The S&P 500 is in uncharted territory, and the only resistance is the top of the rising trend channel, at which point we would expect a consolidation or correction toward the point of breakout to begin. The long-term breakout implies that prices are going to go higher, and the parabolic nature of the advance implies that it is likely to accelerate.

Don't Slumber at Lumber

Sober Look, May 16, 2013

According to Nick Timiraos from the WSJ, the latest drop in the seasonally adjusted housing starts measure is nothing to worry about.

In fact he lists 4 reasons why this unexpected decline isn't in any way a sign of potential slowdown in the housing market.

WSJ: - Thursday’s housing report isn’t as much a signal that the sector is cooling—at least not until there are a few more of these reports—and instead a sign that the housing rebound isn’t going to unfold in a straight line

Perhaps. If we are not witnessing a cooling in new home construction, maybe Mr. Timiraos can explain why lumber futures have declined over 20% in the last couple of months. In April the explanation for the decline was related to cooler than usual weather conditions hampering construction. What happened in May? Some have rationalized this by the economic weakness in China. But the last time we checked a large chunk of this Globex-settled lumber still goes into new home construction - while the supply certainly hasn't changed. We look forward to hearing Mr. Timiraos' explanation.

July-2013 Random Length Lumber Futures (source: CME Group)

Rail Traffic Softens.....Bullish!!!!!!!!!!!!! ;)

This week’s rail traffic reading showed modest improvement over recent weeks, but the longer-term trend remains negative.  Intermodal traffic was up 3.9% this week which was an improvement over last week’s reading of 2.8%.  The data, however, continues to soften on a rolling 3 month basis with the latest reading coming in at 3%.  That’s the lowest level since January.  The good news is we’re not seeing the type of consistently negative readings that tend to precede a recession.  The bad news is that the growth is tapering.

Here’s more via AAR:

“The Association of American Railroads (AAR) reported an increase in traffic for the week ending May 11, 2013, with total U.S. weekly carloads of 280,986 carloads, up 0.6 percent compared with the same week last year. Intermodal volume for the week totaled 248,266 units, up 3.9 percent compared with the same week last year. Total U.S. traffic for the week was 529,252 carloads and intermodal units, up 2.1 percent compared with the same week last year.

Five of the 10 carload commodity groups posted increases compared with the same week in 2012, led by petroleum and petroleum products, up 50.8 percent. Commodities showing a decrease compared with the same week last year included grain, down 21.3 percent, and farm and food products, excluding grain, down 10 percent.

For the first 19 weeks of 2013, U.S. railroads reported cumulative volume of 5,244,498 carloads, down 1.9 percent from the same point last year, and 4,540,879 intermodal units, up 4.3 percent from last year. Total U.S. traffic for the first 19 weeks of 2013 was 9,785,377 carloads and intermodal units, up 0.9 percent from last year.”

Chart via Orcam Investment Research:

http://pragcap.com/rail-traffic-continues-to-soften-2

Agree...This Is Just Silliness

Just Plain Silly

Submitted by Tyler Durden on 05/16/2013 13:57 -0400

Presented with no comment...

US Macro data is its worst in 8 months...

(note - the US Macro index is Bloomberg economic surprise index which not only tracks absolute performance but relative to consensus - so we missing expectations and macro data is dropping...)

and the markets are just as stunned by equity exuberance...