Roundup into the FOMC

Another bullish day yesterday for pro-risk, and we are now at dual resistance on the SP500:

Source: TSP Talk / Decision Point

Yesterday was the new moon, and downward pressure now emerges on my lunar geomagnetic models as of tomorrow.

We also see short term overbought signals that suggest a pullback is required, such as on the Nymo:

Source: Stockcharts

It gives us a set up whereby today’s FOMC could disappoint the markets, because of the trio of short term overbought, technical resistance, and lunar/geomagnetic down pressure as of tomorrow.

Now let’s just step back a moment and see the bigger technical picture.

Bullish percent and put/call ratio are down at the low extreme still, suggestive of a more enduring rally.

Source: Stockcharts

Hulbert Stock Newsletter sentiment is at the low extreme level that suggests a more enduring rally also.

Source: Hulbert / Sentimentrader

A spike in bearish ETF volume is synoymous with previous important lows and significant upside ahead.

Source: Sentimentrader / NYSE / Bloomberg

The recent pop in insider buying is suggestive of the market rallying ahead, as this smart money historically calls it correctly.

Source: Insider Score / Technical Take

And a low extreme followed by a new upturn in breadth also reflects important previous bottoms.

Source: ShortSideOfLong

In short, the technical picture for US stocks is bullish in a multi-week/month timeframe. So, if a short term pullback comes to pass, it is likely to be followed by further upside. If we draw in recent oversold/overbearish extremes in global stocks, commodities and the Euro, and the recent parabolic rise in treasury bonds, we have further support for an enduring move out of safe havens and into pro-risk.

Yet, the global macro picture continues to deteriorate. Economic surprises continue their downtrend and don’t display a pull-up ahead of a stocks rally, as we have seen the last couple of years. Leading indicators continue to decline – yesterday Australia came in at -1.4% (Conference Board). Euro CDSs continue to flirt with records.

As I previously stated, a mean reversion rally away from the oversold/overbearish extremes in pro-risk was likely to occur, regardless of the outlook, and we are seeing that currently. Either leading indicators and economic data start to improve and pro-risk does more than just mean-revert, or mean reversion then gives way to further declines.

US earnings begin again with Alcoa 9th July. The recent off-season beat rate has been almost 80% which suggests we may see a bullish earnings season.

Presidential cycles are supportive of upside into the US November elections, but that is largely because the President creates a positive backdrop into the elections, with concrete actions and also data spin. We start today with the FOMC and see how supportive the outputs are. Meanwhile, European leaders still need to do significantly more if they are to diffuse Euro CDSs. China also appears to need to do more to stimulate and other countries also.

Agricultural commodities had a bumper day yesterday, as concerns over the hot dry weather came to the fore. One day doesn’t make a trend but data shows that commercials were taking positions, not just speculators. I believe June and July’s climate data will really determine whether or not we see a major H2 rally in soft commodities this year.

I am going to take a couple more pro-risk profits today, selling into the strength before the unknown of the FOMC, but still retaining the vast bulk of my pro-risk positions. As I stated above, there are reasons for a short term pullback (unless the Fed really goes full-stimulus, which I don’t believe they will).

Thereafter I remain of the view that the speculative push into the solar peak of 2013 will occur. As noted above the technical picture for Euro, dollar, bonds, stocks and commodities very much suggests an enduring rally should emerge here. I therefore believe slightly less bad news in terms of leading and current data and developments is likely to spur pro-risk higher, i.e. it doesn’t have to be great, just better. I also believe we are in the midst of another period of global central bank easing and stimulating action and that we will see further rate cuts and credit easing actions and the like.


11 thoughts on “Roundup into the FOMC

  1. I agree. I am based in Australia and have watched our central bank drop the cash rate by 1.25%. The laughable situation is that every time majority of economists say its only a one off cut and no more! In reality Aussie equities are still 50% off its 2007 peak and credit markets here are still are pricing in another 1% off rate cuts. Once the rate cuts and the easing cycle concludes, it will be very bullish for pro risk incl commodities. The easing cycle is happening all across Asia currently with an expected conclusion in the 2h 2012. Add in some stronger stimulus from the fed closer to election time and indeed a strong pro risk rally will really gather steam. Asian equities and commodities should bring in a strong 2h 2012/13.

  2. The Bradley Model has been right on as as has the Gann Master Time Factor 60 year cycle – strong stock market and $, weak commodities (’til Nov). Rosecast and some other astrological service said this week and next were suppose to be terrible, don’t know what’s going on there.

    1. Hi Kent, I was looking at the Bradley model yesterday. It says up from 12 June to 28 July, before down again. That up period fits with lesser seasonal geomagnetism.

  3. I think while it might be premature to short risk prior to the end of the US elections some months down the track, those that are super bears amongst us might give it a try right here, but only if the Fed disappoints. Remember, they only have 3 months worth of short term debt to Twist and furthermore also remember that the last Twist did not top the Dollar like QE2 did.

    Therefore, S&P 500 is now overbought from intra day perspective as we have rallied almost 10 handles up from 1266 to 1360 or so. At the same time, Dollar correction is on some type of a support around 81 (previous resistance). Weekly momentum in S&P 500 looks very bad form March / April highs.

    I’m considering a major sort against Junk Bonds (HYG) sometime soon, especially if we have a strong euphoric pop on the Fed day today. I personally think a recession is coming as soon as election is over.

  4. Thanks guys.

    Several of the analysts I read reckon the Fed yesterday telegraphed QE3 to come at the 1 Aug FOMC, subject to continued trends in employment and non-troublesome inflation. Today we see the considered reaction to the Twist extension.

  5. No new money printing is still a decent outcome for the US Dollar. Now we move back to Europe as the main focus. Greece might not default tomorrow or by the end of the month due to can kicking, but it will default eventually. As long as Fed doesn’t print, path of least resistance for Euro is down, until we get a default and total capitulation.

    On the other hand, as John mentioned above, the Fed has constantly stated it will act further if necessary. So what falls under necessary? Apparently a few people think that come August Fed will do QE because we are currently at a necessary stage. I don’t think so… by necessary I’d argue that the Fed will do QE3 when we see negative GDP growth and when non farm payrolls fall into negatives as well.

    Currently the US economy is still popping along, even if its at very average speed. However, I could obviously be wrong if Mr Obama struck some kind of a deal with the Fed to get re-elected. He struck a deal with Saudi Arabia to flood the market with Crude by 3 million barrels extra per day which has crashed Crude Oil prices since March.

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