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The Day that Was - December 19th 2007

With each passing day we become more and more concerned about where our markets are heading. There is a lot of money that is being pulled out of the equities and being put elsewhere. A recent report of outflow data showed that for the 8th month in a row now the outflows from US equities has been greater than inflows is troublesome. As is the chart showing the divergence between the S&P 500 and the 10 Year T-Note yield. The lower the T-note yield gets, the more money is being put into the safety (a relative term) of bonds.

 

 

 

 

 

 

 

Chart: Comparison of S&P 500 vs 10 Year T-Note Yield

 

Today we learned just how much money banks have been holding out their hats for. The amount of money that banks are going out and trying to get to maintain liquidity is frightening. We can not stress enough how significant the events of the past 3 months have become. As I said, each day that goes by the more and more concerned we are becoming about the health of the economy and of the stock markets. This is not a ’shock and awe’ post tonight, it is simply to let you know that from our view we see much to be cautious about. Every advance in the markets just adds to the circus act of one more man jumping on top of the shoulders of the man below, A hard fall is in the making.

Let’s take a fresh look at where the S&P 500 is at. The chart below shows our current resistance levels…

 

 

 

 

 

 

 

 

 

 

And a chart of the Nasdaq 100, as represented by the QQQQ (aka Q’s):

 

 

 

 

 

 

 

 

 

An important note here regarding the Nasdaq. It is because of a few companies, i.e. Apple, Google, and Rimm that have been major supports of the Nasdaq. If these begin to roll over then the Nasdaq becomes much weaker and gets into dangerous territory.

The last chart I want to show you tonight actually came to me by way of John Murphy, in his commentary yesterday he brought to attention the world stock index which has shown it’s first sell signal since the bear market in 2000. This is a monthly chart, so the sell signal (MACD) is preliminary, but with the trading days remaining in this month becoming fewer and fewer it is looking like we may have our first sell signal on the world index.

 

 

 

 

 

 

 

 

 

The World Index is made up of benchmark stocks and funds from Australia, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom, and the United States. Being a global economy that we hear so much of these days it is important to grasp the importance of just how much the markets are intertwined more and more now. We now have Japan potentially rolling over into a bearish market, our market is dealing with a liquidity and credit situation of the likes not seen since the Savings & Loan crisis of the 80’s (and I should point out that this current liquidity crisis surpasses the crisis of the 80’s).

We are genuinely concerned about our markets, the amount Government rhetoric is ratcheting up at a pace which is becoming scary. The Secretary of the Treasury, Hank Paulson is in the news almost daily touting how great everything is. President Bush is heard talking about how strong the economy is almost on a daily basis. When the politicians talk this much about something that is ’supposedly healthy’ when the signs tell a different story then I get worried, and you should to.