Quite strong selling on Friday, but Rob Hanna’s Capitulative Breadth indicator stayed at zero, suggesting the selling in stocks is not likely over.
Source: Andrew Nyquist
Commodities took a hit as well, particularly oil, as attention turns to slowing growth. The economic surprises for the developed economies continue to tumble at an alarming rate.
Compensating to some degree we see China is overall looking positive ahead (though still tentative in some areas).
US earnings finished last week with 3 bad days of results, taking the overall beat rate from 69% down to 61%, quite a drop. No longer a very impressive beat rate. ECRI US leading indicators came in at zero this last week, a further drop back and now threatening to turn negative again.
Money has poured back into US treasuries, taking the yield back down towards the previous lows. But Spain and Europe CDSs have paused, not contuning their climb for now.
In Zeal LLC’s latest essay they suggest stocks will make another push up before rolling over properly, and this echoes the lack of major topping indicators at the 2012 highs to date. My own historical comparisons suggest an overall sideways range for stocks into next year’s solar peak, so I’m on the look out for opportunities short or long, when indicators align one way or the other. Short term then, I am expecting some more selling to take out the April low, in the early part of this coming week, and will be looking for bottoming indicators to reveal themselves. Upward pressure should emerge again as we move towards 21 May, around the new moon. If we do make another push up to highs in stocks, perhaps after that, then I will be looking for negative divergences and topping indicators.
Gold did its best to defy the selling on Friday. We still have those contrarian buy signals in precious metals, miners and certain agricultural commodities. It’s possible that we could see commodities outperfom stocks here if China data continues to improve whilst Western economic data languishes. However, if selling gains momentum it is more likely all will fall together. Gold could potentially rise alone as a safe haven, particularly if participants become more expectant of QE based on poorer data. The next FOMC is June 20. That gives them 6-7 weeks to assess further trending in data. It is also when Twist expires. If data continues to decline, and the Fed does deliver a stimulus programme of some kind, then maybe that would set up the final commodities launch that I am expecting into 2013. Well, let’s see how data trends develop into June.