Wealthbuiler Stock Market Brief 5th

. June 2014

Is now the time to go to cash? Many commentators are asking whether this market is showing real signs of exhaustion,

suggesting that it is time to get out, go to cash, and wait for a serious correction or collapse to

jump back in.

To try to answer this question let us look at the situation from a more distant perspective than the

standard one. Accordingly, I am going to adopt a 6 year view using the following charts set out

below: 1. The Dow Transports, 2. The Dow Industrials, 3. The S & P 500, 4. The NASDAQ 100,

5. The Russell 2000 (small cap. stocks: weekly), The Russell 2000 (small cap. stocks: daily), 7.

The NYSE A/D Line and 8. The index of the percentage of stocks above their 200 DMA.

Observations:

The bull market which commenced in March 2009 shows no sign of abating. On the Dow

Transports and the Dow Industrials we see higher highs and higher lows and both indices are

congruent.

This strength is confirmed by the S & P 500 and the NASDAQ 100 as both are reaching ever

higher highs from ever higher lows.

The NYSE A/D Line shows no sign whatsoever of technical stress. If market breath was

seriously weakening we would begin to see compression of the 20, 50, 100 or 200 Daily Moving

Average lines. There is no evidence of that happening at the moment. Therefore the 2009 bull

trend is in place and firm.

However, there is some indication that the underlying economy may be weakening. The canary

in the coal mine is the Russell 2000. Small cap stocks are far more sensitive to economic

deterioration that large caps. Looking to the Russell 2000 daily chart we can see that the 50

DMA has crossed the 100 DMA and prices are struggling around the 200 DMA. Over the last

two months the 50 DMA line and the 100 DMA line became points of price resistance instead of

points of price support. Should near future price action experience the same resistance at the 200

DMA, this index will have entered a bear trend and that would be a cause for concern.

When we look at Chart 8; “The % of stocks above the 200 DMA”, we see more signs of

deterioration. This market breath indicator is showing us that fewer stocks are breaking above

this significant DMA. Thus the market is not getting stronger, it is in fact getting weaker, another

cause for pause, but not undue worry.

On balance, filtering all the information from the charts below, I believe the bull market is still

intact. Sure there are early signals indicating exhaustion but there has been no serious technical

damage in evidence to indicate near term price capitulation. On the contrary, should the

European weakness discussed in the news items below become more pronounced it is possible

that American GDP numbers going forward will weaken. However this news is a double edged

sword. Should Janet Yellen react to negative European growth data by slowing QE tapering the

market could explode into the latter stages of a hyperbolic bull. This means to me that there is as

much risk being out of the market as being in. Thus, I see no easy choices for investors and

money managers. The existing “wall of worry” will continue for some time longer.

Chart 1. Dow Transports: Weekly

Chart 2.Dow Industrials: Weekly.

TheD

Chart 3. S & P 500: Weekly.

Chart 4. NASDAQ: Weekly.

Chart 5. Russell 2000 Small Cap Stocks: Weekly.

Chart 7. Russell 2000 Small Cap: Daily

Chart 7. NYSE A/D Line: Weekly.

Chart 8. % Stocks Above 200 DMA: Weekly.

Spiraling Euroland Crisis: I have not written with regard the EU for a long time. This is not because her problems have abated but

because they have become so pervasive that it is difficult to cover them all. To give readers a feel of what

is unfolding I have quoted below 4 short excerpts from blogs and the Irish Times to give a sense of what

is actually developing.

The recent lackluster growth figures for the Euro-wide area will have serious political ramifications given

that the new European Parliament is so divided. It is my opinion that as the crisis deepens it could

seriously affect the American recovery and could possibly convince Janet Yellen to consider putting on

hold her plans to phase out Quantitative Easing. Such action would have a major effect on all markets.

1. Economic data puts ECB into unknown:

The Irish Times, Dublin, Ireland, 5

th. June 2014.

“Eurostat confirmed that growth was an anemic 0.2 per cent in the first quarter.

Mario Draghi, president of the European Central Bank (ECB), will have been given pause by

recent data.

Eurostat yesterday confirmed that growth across the block was an anemic 0.2 per cent in the

first quarter – just half the relatively unchallenging 0.4 per cent analysts had expected. Year on

year, the growth came to just 0.9 per cent.

And what growth there was stemmed mainly from Germany, with a little help from Ireland’s

recovering economy. France stagnated and, in Italy, the Netherlands, Finland and Portugal,

economic output fell.

Even in Germany, which recorded growth of 0.8 per cent in the first three months of the year,

economists expect the pace to slow over coming months.

Separate figures for industrial producer prices gave no succor either. Seen as a proxy for

consumer price inflation, prices at factory gates in the euro zone fell again in April, by 0.1 per

cent, the fourth successive retrenchment and a 1.2 per cent decline from this time last year. Of

the five largest economies in the euro zone – Germany, France, Italy, Spain and the Netherlands

– only the Spanish saw any increase in prices.

Actual inflation figures have been no better, with Eurostat data on Tuesday showing the annual

rate dipping to 0.5 per cent from 0.7 per cent a month earlier. At a quarter of the ECB target

rate of just under 2 per cent, the inflation figure is well within the danger zone.

Meanwhile unemployment remains stubbornly high.

Various ECB figures have over the past month stressed their determination not to be complacent

about the risks of a protracted period of low inflation. Faced with this week’s wave of negative

data, and having used most of the conventional policy levers, today’s meeting seems certain to

signal a move by the bank into the realm of the unknown and possibly into the arena of negative

interest rates.”

2. A divided parliament following May 23rd

elections:

Euro News: “It has been a night of seismic shocks for Europe as the election counts came in

from all over the EU. One minor tremor that surprised many was that voter turnout was up by

0.1% defying projections of continued voter apathy.

But, the exit polls indicated that Eurosceptics were scooping up the majority of the votes in some

of the biggest member states, yet the head of the largest pro-European party in parliament

(EPP), still saw it as a reason for celebration.

“I would like to tell you. We’ve stopped the trend of lowering turnout. This was one of our main

goals, in terms of democracy. Obviously, it’s not perfect, sure, we’re not satisfied, but at least

it’s the first time we’ve stopped the tide of absenteeism,” said Joseph Daul speaking at the

parliament in Brussels.

In France the far-right National Front swept away the two mainstream parties with 25% of the

vote, standing on a platform against the EU, the euro, and immigration, whipping up feelings of

nationalism in her rhetoric.

“Our people demand a single politics, the politics of French people for French people, with

French people,” declared Marine Le Pen, continuing, “They no longer want to be directed

externally, be submitted to laws they have not voted for, nor obey Commissioners who are not

subjected to the legitimacy of universal suffrage”.

The question remains whether the Eurosceptic politicians will be able to form a Euro Tea Party

group which could disrupt the Brussels’ assembly, but impact may be felt closer to home.

“We’re going to get a good number of Eurosceptics elected to the European parliament.

Whether that makes big difference in European politics, remains to be seen,” explained Nigel

Farage leader of the UK Independence party. “But it’s going to make a very big difference in

domestic politics… Up until now European integration, whether one liked it or not, always

seemed to be inevitable. Well, this inevitability will end with these results tonight,” he added.

Another anti-EU party swept the board in Greece. Alexis Tsipras Syriza parties took 26% of the

vote. Elsewhere Eurosceptics in Denmark also clinched victory, sounding a wakeup call for pro-

Europeans when the dust settles on election night.”

3. The Ukrainian crisis, an EU one:

STRATFOR, From Hungary, 21st. May 2014.

“The Ukrainian crisis can only be understood in terms of the failure of the European Union.

Germany is doing well, but it isn't particularly willing to take risks. The rest of northern Europe

has experienced significant unemployment, but it is Mediterranean Europe that has been

devastated by unemployment. The European financial crisis has morphed into the European

social crisis, and that social crisis has political consequences.

The middle class, and those who thought they would rise to the middle class, have been most

affected. The contrast between the euphoric promises of the European Union and the more

meager realities has created movements that are challenging not only membership in the

European Union but also the principle of the bloc: a shared fate in which a European identity

transcends other loyalties and carries with it the benefits of peace and prosperity. If that

prosperity is a myth, and if it is every nation for itself, then parties emerge extolling nationalism.

Nationalism in a continent of vast disparities carries with it deep mistrust. Thus the principle of

open borders, the idea that everyone can work anywhere, and above all, the idea that the nation

is not meaningful is challenged. The deeper the crisis, the deeper and more legitimate the fear.

Compound this with the re-emergence of a Russian threat to the east, and everyone on Ukraine's

border begins asking who is coming to help them. The fragmentation of Europe nationally and

socially weakens Europe to the point of irrelevance. This is where the failure of the European

Union and the hollowing out of NATO become important. Europe has failed economically. If it

also fails militarily, then what does it all matter? Europe is back where it started.”

4. ‘They are stealing everything, even our homes’:

By Afrodity Giannakis, from Thessaloniki, Greece. 21st. May 2014

“I wish I could leave Greece. I can’t go on living here. I work very long hours and live more

frugally than ever, but I still can’t pay the bills, the income tax or the other taxes like the

property poll tax. My tax debt keeps building up. I’ll end up losing my home. They are stealing

our homes and they are not communists. And people are getting sadder and madder every day. I

can’t go on like this.”

This was the response I got when I greeted a stall holder at an open-air market in my area. Due

to my own extremely difficult working and commuting conditions, I hadn’t seen him in months.

His anger and despair were much stronger than before, as is the case with most ordinary people

in Greece.

My friend’s allusion to the communists concerns a decades-long anti-communist argument used

by the power elites. The argument went that if the communists came to power, they would

confiscate people’s homes. It was recently used by far-right health minister Adonis Georgiadis.

In fact, small real-estate property is being confiscated under capitalism. People are losing their

homes to the banks for failing to meet mortgage payments, or to the taxation department for

accumulated tax debts.

Home confiscations have been facilitated by a recent law enabling seizure of salaries, pensions,

bank savings and property for even small debts to the state. There are specified debt amounts

that incur property seizure or jailing. They vary according to the recipient (whether the money is

owed to the taxation department, a public insurance fund etc.). The different amounts are often

changed by the government. The latest ministerial circular (issued on April 15, 2014) concerning

tax debts sets the line at 1500 euros.

The number of confiscated homes has risen in recent years. A big wave of new house seizures is

expected soon. The finance ministry has made an agreement with the “troika” (the European

Union, European Central Bank and the International Monetary Fund) to set the opening bid at

auctions at 30% of the houses’ real values.

Financial hardship, combined with recent law changes, has led to a dramatic rise in debt-related

jailings. People are kept in barbaric and unconstitutional prison conditions.”

Charts courtesy of Worden Bros.

© Christopher M. Quigley 5th

. June 2014.