Skip to comments.Technicals flash amber as ECB and Fed struggle to validate rhetoric
Posted on 09/02/2012 5:34:38 PM PDT by bruinbirdman
Louise Yamada clinched her reputation as Americas oracle of technical analysis with an emphatic sell warning at the top of the Wall Street boom in 2007.
She is watching the torrid rise on US and European bourses with mounting unease. Retail investors have not taken part. Americas mutual funds haemorrhaged further $12.7bn in July, the fifth consecutive monthly outflow.
A lot of this rally is just short-covering by hedge funds. There is underlying weakness creeping into the markets. Volume is low, and going down. You could call it a vacuum rally. New highs against new lows have been deteriorating.
The US index of transport stocks have lagged the Dow Jones industrials, a time-honoured warning sign. There is no question that we have a Dow Theory sell signal in place. This is rare and needs to be watched carefully. It tends to accurate, eventually, she said.
Morgan Stanleys equity team says stocks are still cheap in historic terms but many of their sentiment indicators are nevertheless flashing amber to red. It is as if the great debt hangover has sapped our strength. Europes stocks cannot seem to claw their way above a 12-month forward price to earnings (P/E) ratio of 11.
Both the VIX volatility index and the "put/call" ratio on the options market are signalling the sort of complacency levels seen at past peaks.
Speculative long positions on the NASDAQ exchange are stretched. The RSI momentum indicator is back up at nose-bleed heights. Brent crude is nearing the $120 level that short-circuited recent rallies.
From a valuation standpoint, we are now close to peak levels seen over the past couple of years, said Graham Secker, the banks chief European equity strategist.
It has been a heady summer rally. Americas S&P 500 index is up 10pc since early June. Frances CAC
(Excerpt) Read more at telegraph.co.uk ...
Sheesh, every day it seems another financial pundit appears who called the crash of 2007. Soon you won’t find anyone who didn’t see it coming. They’re all so brilliant, you know.
There were plenty of them right here on FR.
The biggest danger to Americans is legal. MF Global stole money from segregated accounts and no one went to jail. A Fed Judge just ruled that financial firms that have several financial functions can use it to borrow against investor accounts (customer is told that can never happen), and if the hedge goes wrong, the firm can use its multi definition to select a bankruptcy structure where customer segregated accounts can be frozen and used in the settlement with creditors and preferred stock holders. If the financial system gets out of control, there is nothing to prevent savings banks do the same, take their investment function as the definition for their bankruptcy filing, but prior to bk, take money out of people’s savings to pay off any bad hedges or freeze people’s savings as part of the assets used to settle what they owe to creditors. Even if this is illegal, the money in the savings are gone, the CEO and inner circle plead ignorance and the FDIC (US taxpayers are on the hook for the losses). The US needs to bring back Glass Steagall.
It’s no secret that this is the rally everyone hates... but the tape keeps going higher.
With Europe’s problems and now the truth finally coming out in China, I don’t see how we can duck the mounting issues and just cruise on by the wreckage on either side of us...
Inside the rally, I also see an increasing number of earnings downgrades and take-downs of previously announced projections. So while Yamada might be looking at squiggly lines, there’s plenty of solid indications that all is not well...
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