The long and the short of it

December 17, 20125 Comments

Short term view

Last week’s negative action took a little bit back from the rally off of mid-November. The recent meandering by the markets may continue until this whole “fiscal cliff” dilemma gets some positive action behind it. Technically, a few factors suggest that markets will stay more or less where they are (up/down by a few points) until then. The S&P is supported by its 50-day MA. Resistance comes in at under 1430, which just so happens to lie at the neckline of a potential H&S bottom formation. Positive cliff news should result in a neckline breakout, and a move to my often mentioned target of 1500-1550. Seasonal influences are usually positive at this time of the year–the famous “Santa Clause Rally” can push stocks higher into the first week of the New year, and the “best 3 of the best six months” include November, December and January.

Meanwhile, there are some technical arguments for a near termed pullback. As you may already be aware, stocks are usually traded in lots of 100 shares. Odd-lot sales, which are orders of below 100 shares, versus odd lot purchases has hit a two-year extreme.  This has been a relatively successful contrary indicator and is a short-term warning sign for stock market downside, according to sentimentrader.com. Similarly, Stochastics was a bit overbought on the S&P500- it’s rounding over at this time (bottom pane of chart above). There is some room for downside momentum if the cliff is not resolved soon. Despite these signs, the most likely outcome is for positive movements between now and late January, based on seasonal and technical observations noted above. Note on the chart below that the TSX is also supported by its 50 day MA. RSI is not overbought.

Longer term: Baltic Dry Index

Not being an economist, I’m not usually interested in economic indicators. However, I do note that the Baltic Dry Index, an indication of overall economic health, has been trending down for 2 years. As Howard Simons, an economist and columnist at TheStreet.com said:  “People don’t book freighters unless they have cargo to move”. The downtrend here signals a bigger problem for the economy than the stock market – a theoretical leading economic indicator – might be building in.

CEO performance vs. stock performance

Here’s a link to an article citing some research I did on the correlation between companies run by Financial Post magazine’s winning CEO’s and their respective stock performance thereafter: http://business.financialpost.com/2012/12/12/rankings-offer-investors-glimpse-into-ceo-performance/

5 Comments

  • With the baltic dry index that low that explains why the shipping companies are at almost record lows. Some are near bankruptcy. But as some fall to the side, the ones with strong balance sheets will survive and now may be the time to get them relatively cheaply

    Reply
  • Hi Kieth,

    Gold looks to be making a new low, breaching the low set on Nov. 5. Where do you see the next stop? I am thinking around 1640 level.

    Thank you
    Parm

    Reply
    • support was taken out at $1680 today. If it stays below for 2 more days (I use a 3-day rule) then next stop is likely $1630

      Reply
  • Problem with bdi as indicator is that many new ships were ordered pre-2008 and take a few years to build so the market has become saturated driving price wars between shippers

    Reply

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