First a reply to a comment from Dave…
The chart of the World Index is meant to show underlying weakness, not as a tool for deciding to buy or sell. You mentioned that the bull market has been strong, on the contrary, all of the technical indicators and market breadth charts have shown that while the markets have advanced the supporting indicators have been softening. This is what is called a divergence and it is important to keep them in mind going forward. The new highs and new lows index chart clearly shows that while the market has been advancing over the past year the new highs has been falling. There is no argument or discussion with regard to what that means. It is a clear indication that the markets have been advancing on fewer and fewer stocks rising. This is visible on the advance / decline charts as well. Just how long do you think the broad markets will keep going on Apple, Google, Solar stocks, and some shippers? Sorry, but a handful of momentum stocks will not support our entire stock market.
We will continue to look for long positions as well as short positions to trade. But we NEVER lose sight of the big picture. For it is the big picture that tells us where we are likely to be headed.
Some news items over the weekend:
- Japanese newspapers are reporting that the Bank of Japan may cut Japan’s GDP yet again, the article reports that Japan may cut the GDP to 1.3%, down from 1.8%. Recall the chart I showed of the Nikkei Average. I am concerned about the Japanese market going into a long down trend.
- The Financial Times reported this weekend that over the last 6 months commercial and investment banks in the United States have had to raise $83 Billion dollars in liquidity. This is an all time record. Now think about this for a minute if you will, never in history until now have banks had to raise so much mi9ney in such a short period of time in order to have enough capital to operate. That does not give me a great deal of confidence in our financial markets health.
- A famous and well respected economist, Robert Shiller from Yale University in an interview with the London Times said yesterday that the losses resulting from the housing crisis will likely triple over the coming years. And goes on to say that the current losses which can be attributed to the housing crisis have already hit $1 Trillion Dollars.
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