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Giving Bears Pause

 -- Published: Tuesday, 20 May 2014 | Print  | Disqus 

By Gary Tanashian

We have talked about what is negative for the US stock market. From the signal in the banks vs. S&P 500 to a young uptrend in long-term T bonds vs. the S&P 500. Here is the 2011-2014 market leading BKX-SPX in breakdown mode.


Throw in a bearish divergence in the Equity Put/Call ratio, an elevated Gold-Silver ratio right at resistance and Junk bond vs. Treasury/Investment Grade and the signs of a bearish market are not only there, they have manifested in some pretty good downside in the growth and momentum areas.

But aside from the Dow and Tranny already noted, there are other things that bears should pay attention to, starting as we often do with the Semiconductor index.

The monthly chart shows the absolutely cut and dry situation in the SOX. It broke out to 10 year highs as it led the February market rebound and remains there today.


The daily chart dials in the view. Sox will eventually either break up and out above the red line or it will fail the big picture breakout line (support) at 560.


This is just an epic juncture in the SOX and potentially the market, since the Semi’s were NFTRH’s ‘canary’ to a coming and not so surprising bull phase back in early 2013. The SOX, as long as it remains above 560, is a concern to bears to go along with the Dow and Tranny. Here are some others…

  1. The media is so on the job with respect to a significant correction or bear market that if one materializes it surely will not have arrived with no one expecting it.
  2. The US economy, as I have been writing since the Semi’s began chirping so long ago, is strong enough. Tune out the analysis that imagines otherwise until real deceleration begins. We have declining confidence in the Homies and a fluctuating consumer, but overall the thing has been stable to this point.
  3. The Federal Reserve, while talking out of all sides of its mouth, continues its immoral policy of holding its Fed Funds rate near ZERO in an apparent effort to abolish the very idea of saving as any sort of functional way to manage finances. Everybody into the risk pool!
  4. Have we had a market blow off yet? It has not looked that way to me. The bull can peter out and roll over or it can end in a burst of greed and speculation, compliments of a job well done by the Fed.
  5. Neither gold nor USD have begun to reclaim the risk ‘OFF’ bid yet. Further, Treasury bonds, the TIP-TLT ratio, gold and especially silver have not yet sniffed out an inflation problem, giving the Fed in essence a license to do whatever the hell it wants (in staving off deflation AKA a convenient Straw Man to justify policy?). What it appears to want is continued appreciation of the ‘right’ assets, notably the stock market, which Yellen herself admitted is helping fuel a ‘wealth effect’ for the populace.

To summarize, we have been tending a bear case during a mostly bearish 2014 for most of the market right along with much of the mainstream media. That alone makes me uncomfortable if I am a bear. This is not about John Hussman’s data points after all, it is about the Fed. One day Hussman will come front and center. Our data points have not all come in yet to state that today is that day.

Until the Gold-Silver ratio breaks above resistance, until the SOX breaks down from support and until the Dow and SPX finally join the bearish activity, the prospect of a bullish continuation (hello Jeremy Grantham) does indeed remain open. Case in point, in the time it took to write this post MarketWatch put this up on page 1. Clicking the graphic will yield the article…


I just report ‘em as I see ‘em, and as of 6:51 US Eastern Time on May 20, the SOX is still in breakout territory and the market has not yet decided on the near term direction. | Notes From the Rabbit Hole | Free eLetter | Twitter

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 -- Published: Tuesday, 20 May 2014 | E-Mail  | Print  | Source:

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