Markets: Straws of Angst are Blowing in the Wind

Imagine what the racehorses are feeling as their jockeys lead them into the starting gates.

Anxiety and skittishness are building. Now transfer those emotions to the market participants. Below is the evidence:

There are a couple of subtleties about the following chart (courtesy decisionpoint.com) that “smell” odd to me:

•    The $SPX has been drifting further away from its rising 200 day MA (an elastic band that keeps stretching generates increasing tension for a retracement)

•    The PMO (Price Momentum Oscillator) has been drifting gently downwards since February

•    There have been three volume “spikes” and those volume spikes have been associated with down days

In this next chart, we see that the % of stocks with PMO above zero has been slowly receding from above the 90% level. Note that the market bottomed in November when the %PMO above zero hit 35%. By the same token, 90% is at the opposite extreme – as is the current >80%. The $SPX can be expected to pull back from here.

Based on the horizontal count method as applied to the first P&F chart, the $1535 level is expected to be penetrated on the downside.

Conclusion

The window of opportunity to cash in those gambling chips maybe closing

Comment

One of the issues with which I have been grappling in my mind over the past few weeks revolves around the human propensity for ignoring bad news that becomes visible years in advance, and then to expect that the problems will be addressed as a matter of urgency when they finally become visible. Life doesn’t work that way. By the time the frog focuses on the fact that the water is boiling, its typically too late to jump out. I have been talking and writing about “solutions” for years,  and that these solutions will revolve around higher EROEI energy paradigms than fossil fuels, the re-emergence of ethical thought processes amongst decision makers, and a change in human values. They will not revolve around the ownership of gold, for example.  Also, natural gas is a stop-gap energy paradigm that might see us through to 2050, but it does not represent a “solution” either.

Right now, we have the following “urgent” social issues with which to contend:

•    The so-called solution to the Cyprus problem turned out to be more unethical than anything I could imagine. This served to undermine confidence in the entire world’s banking system. When I suggested to my wife recently that we should invest a small amount in convertible preference shares of one of Australia’s AA rated banks, she looked at me as if I was insane. She has no interest in the subject of finance/economics and wouldn’t know what a AA rating is,  but she watches television and she understood in her guts that the Cyprus solution was sufficiently dishonest as to render ALL banks untrustworthy. The public is not as stupid as their elected leaders assume them to be. As it happens, my wife has a higher IQ than I do. She just happens to have different interests in life.

•    The possibility that North Korea may be a Straw Man is something that I wrote about extensively in my second novel, The Last Finesse. Who knows if North Korea is just a subject of fear and loathing for the Western leaders to dangle out there when it wants to deflect attention away from the more fearsome realities of the day, or whether the threat from North Korea is real? The images of goose stepping soldiers are not particularly encouraging sights but the blankness in the eyes of its newly elected leader  an army  “General” is hard to mask. Is anyone actually at home in that head? Maybe he is capable of behaving like a psychopathic moron. Maybe it doesn’t matter because he is not the decision maker. How will North Korea finance its war against the West? Will JP Morgan lend them money, backstopped by the US Government? Or will Russia divert the proceeds of some of its oil and gas – just to maintain the balance of world power?

•    Next comes Syria: The civil war that rages and the reactions of China and Russia are not confidence builders. The country is destroying itself and they want to keep a hands-off stance because Syria is a sovereign nation? What kind of madness is that? Their stance is not about protecting the lives of Syrians, it is also about the balance of power amongst nations.

•    Iran’s sabre rattling is an enigma in context of the Ayatollah’s statement that building a nuclear weapon would be against the will of Allah. The fact is that the thought processes of Islamic extremists may be likened to corkscrews, and one has to wonder if the people who fall into this category are actually certifiably insane. Its hard to think sane thoughts when you genuinely believe that if you blow yourself up in a crowd of innocent civilians you will be rewarded with more virgins in heaven than exist on earth. And what will you do with those virgins if you have left your corporeal body and exist only in the spirit world?

•    And then there’s Iraq and Afghanistan – so its not only the Islamic extremists are showing signs of insanity. The West – based on supposedly reliable intelligence regarding Weapons of Mass Destruction – invaded Iraq. In Australia Little Johnny Howard chose to ignore the protestations of over 700,000 of this country’s citizens against such mindless stupidity as he chose to brown-nose the Angle-American allies. And who knows what the objectives are in Afghanistan? Its vast resources? Its poppy fields that seem, miraculously, to remain intact? 90% of the world’s heroine originates from Afghanistan and we are shooting at those who lust after virgins?

•    And, finally, we have some US leaders who spend around ¼ of their time on vacation – and use Boeing jets to get to their holiday destinations against a background of sequestration.

Struth! A Mad Hatters Tea Party, is what we’re all living in.

And, against this background, there are managers of Other People’s Money who talk about contra-indicators and argue that because it always darkest before the dawn, now is the time to invest. The markets are going to explode upwards – they believe. Really? Well, from where I’m sitting, it seems that the billowing storm clouds are creating the appearance of darkness and that the sun hasn’t even set yet. We are nowhere near midnight. The party is certainly not over and, thanks to Benny boy, the punch bowl runneth over.

By contrast, there are some who genuinely believe that they are pragmatists and that the “solution” is to buy gold, precious metals and  other “strategic” assets. Yeah, right. And all the other problems will just fade away as the sun rises over the horizon and a bright rainbow emerges.

So, the question I have been asking myself in the past few weeks is: What’s the point, Bloom? You’ve done what your conscience told you to do and you’ve been doing it for over a decade. Maybe its time to give it all  a rest. There is absolutely no doubt that there are solutions to our problems. We have the technical ability and the knowledge to address all our problems. What’s missing is “honesty”. No one can trust what comes out the mouths of people like Cheney and Obama and Putin and I’m-in-a-dinner-jacket and Al-Assad and Mursi and Gillard and Merkel, and Xi and, and, and …. And yes, when you cut through all the rhetoric and its associated static noise, our “democratically elected” leaders are all cut from the same cloth.  Will the docile public ever find the courage/wisdom to kick all the psychopaths out of office?

At the end of the day, that is the relevant question. If the fox remains in charge of the hen-house then we can’t expect to eat eggs for much longer.

Brian Bloom

Author, Beyond Neanderthal and The Last Finesse

www.beyondneanderthal.com

Beyond Neanderthal and The Last Finesse are now available to purchase in e-book format, at under US$10 a copy, via almost 60 web based book retailers across the globe. In addition to Kindle, the entertaining, easy-to-read fact based adventure novels may also be downloaded on Kindle for PC, iPhone, iPod Touch, Blackberry, Nook, iPad and Adobe Digital Editions. Together, these two books offer a holistic right brain/left brain view of the current human condition, and of possibilities for a more positive future for humanity.