Joan, it really is puzzling, but it may be a pre-cursor to some major pain for the market as a whole. the deterioration in even the sacred big cap indices internals is absolutely astounding. a mere 28 OEX stocks remain above their 200-dma...it is glaringly obvious that the market has become an extremely concentrated (=tech) affair. today the Fed added a total of 21 billion dollars in reserves to the banking system. you'd think Y2K was imminent or something <ggg>.
i believe we are seeing an immense effort to maintain the bubble...and it seems not to work anymore. intermarket analysis shows that the stresses and strains in this overleveraged system are steadily increasing. after initiating a speeding up of the curve inversion last week, the treasury has done a sort of about-face today, ostensibly to undo some of the damage. guess what, they caught all the major players on the wrong side of the trade AGAIN!
at the same time it seems the gold carry trade is about to be unwound, potentially removing an important source of liquidity.
the only positive i can glean in terms of liquidity flows is the weakening of the Yen...however, in spite of Japan apparently slipping back into recession, the JGB's are under heavy pressure, which is very ominous.
the Japanese institutions may just be crazy enough to throw more money at the NAZ, but clearly the tanker is leaking in several spots at once.
what's more, the data concerning the growth of margin debt are simply staggering. it stands now at 2,4% of GDP about 3,5 times the level just before the '87 crash (as a percentage of GDP).
if anything at all should happen to damage confidence i fear we could be in for some shock treatment.
i'm not saying this lightly...i'm really concerned.
having said all this, the market has shown over and over again that it can overcome all sorts of troubles and reach fresh heights of valuation absurdity. however, usually there is something people fret about. not anymore. we are told that neither oil price rises, nor interest rates matter to the market and people seem to be finally convinced that this is indeed true. otherwise neither the margin debt spree nor the most extreme sentiment readings of all time (all occurred staggered over this year, depending on the measure) would be evident.
it is definitely time to be on one's toes.
PS, the transportation average is rarely mentioned anymore.
due to the truly vicious bear market this index has been in since May last year, it now diverges from the industrials like never before. this is alarming. all sorts of economically sensitive stocks have joined the stealth bear market. in combination with the curve inversion this could be a major hint that the economy is much more vulnerable than it seems.
regards,
hb |
