It was a poor day for US Stock markets. The down volume was 92% and it was soon after a 90% up day on Friday. When this happens, “usually” it is not a good sign. There are tons of technical indicators and each of those has rationale expectations. What I am sharing is “experience”, and not an OP Indicator. I assume you are already out of the equities since mid April /early May 2010 and avoided this grinding market of the past several months.
The only bright side of today’s action was, that it was delivered on very low volumes. But that doesn’t mean much as the whole rise since Mar’09 was never sponsored on strong volumes.
I would like to share a couple of charts that might provide some inputs on what’s going in the financial markets especially in the past year or so. I shall try to share my perspective in as simple language as I can.
The above charts depicts key sectors that investors usually look for diversification or asset allocation and those are Currencies, US Bonds, Stock Market, Gold, Oil, commodities. I have also added Agricultures prices to differentiate broader commodities vs. real day-to-day necessity.
Notice from the first chart, not matter what main stream media told you, in the past 52wks, markets as represented by S&P500 is up only 2%. The biggest gains are in Gold and guess what, Agriculture prices. The 3rd area of double digit growth is US 30 Years bonds which gives (at current prices) 3.58% annual yield and you hardly get anything for short term bonds.
The 2nd chart provides a picture of what’s been happing since the start of this year. Somewhat similar story except that money is flowing out of Stock market and probably flowing into the same 3 asset classes i.e. gold, agriculture and bonds. Notice the sharp contrast between “commodity” and “agriculture prices” and this is where a common street person is hurt the most. The daily necessity. On one hand you hear stories about recession, on the other you find food prices heading higher, specially in most of the Asia.
Why is the theme almost consistent? i.e. Gold, Agriculture and Bonds?
Bonds signify safe heavens. But if the prices decline by almost 10%, your 3 years or interest collection is gone. Don’t forget, The US Bonds are showing signs as if it is late 2008/early 2009.
Gold, of course it has stood the test of history. Though on absolute $$ it might be, inflation adjusted it no where near to the record high. But gold is not for the weakest either.
Agriculture- Large segments of 2 major economies China and India needs to be fed. These are population with rising income and are ready to spend for food (in addition to other things). India is already facing water shortage. Total arable land is shrinking in both countries and by importing food grains, they are actually importing arable land. Unless something major happens, the trend will continue.
The attached chart will show you that since first extreme day (in recent past) was spotted on April 16 2010 distribution a total of 27 “extreme days” (other call it 90% days) of which 16 or 60% are down days. Yesterday was first time since then, when a 90% upday was immediately followed by a 90% down day. Churning is evident as well. Look at the long red bar that represents high volume on the down days.
I am not recommending that after reading, you jump into Bonds, Agriculture or Gold investments. I would you to be aware of what’s happening so you could do due diligence before making new investments. Stocks markets are showing signs of tiredness. If were to make any suggestion, it will be this. Be careful, and if possible avoid going long at least for next few weeks. Full and Final. I am more than happy to be wrong, but it will not be a good service to my readers if I don’t tell them what I see and in case it turns out to be right again.
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Trade Profitably, Trade Carefully, OP