Stocks Lose Steam, Latin America Battered

Stocks took a breather this week despite continued monetary stimulation from central banks across the globe.

Gold continued to shine, up over 2% on the week.  Bonds, represented by TLT also did well.  On the year, TLT is up 26%, outpacing Gold by 2X.

Decliners outpaced Advancing issues in my work Adv 55 - Dec 111.  Last week, it was 50/50 and the prior week, there were only 3 decliners.  While the averages are holding higher, the vast majority of stocks are reflecting more of the reality.  No one can possibly predict what is to come next.

Latin America Pains

Looking across the Americas, Latin America was hard hit, led by political turmoil in Brasil along with oil woes faced by Mexico.

Latin American investors are looking at market valuations not seen in decades.


US Sectors

Not much was working in terms of broad based sectors.  But quite a few stocks were doing very well.

As mentioned last week, Wheaton Precious Metals and Franco Nevada shares continued making new highs.

I continue to like and look for more opportunities to buy more should any sell-offs hit.  There is little doubt that even while the market prices of gold and silver continue to disappoint, these shares are getting noticed by buyers.  I have yet to hear anything though on the main stream market channels.  Once the mainstream catches on, the potential for considerably higher prices will be released.


Shining Stars

Healthcare, technology and services led the way but keep in mind that even in these sectors, most stock charts looked lackluster or hitting resistance.

Some of the shares I'd like to display

Scotts Miracle Grow
Basic Materials

Momentum strong, looking as it might take out the highs.  Maybe it's waiting for Michigan seed sales to begin again.

Pool Corp
Consumer Products

Picking up steam here.  Maybe if you can't go to the beach, you need to put in a home pool?


Johnson and Johnson
Healthcare

Healthcare stocks continue to make headlines for a multitude of reasons as corporations race to supply health care works, produce easy to use virus tests, and create vaccines.  Seems that in every event there are winners and losers if you are alert.

Cerner Corp
Technology

Quite a number of stocks in this sector that looked good.  I chose this one to illustrate as it appeared to have good momentum for hitting the highs.  Otherwise, technology overall appears to be highly valued so if you are a value investor, which probably no one is anymore, finding true value is pretty difficult


Other Areas

There was nothing that looked good in the Industrial, Finance and Utility sectors.


What's Coming Next?

Those that have followed me over the years know that I look at 3-period tests of highs and lows to help confirm buy and sell signals.  Over the past 12 years, few sell signals manifested as stocks were in an ever ascending mode.  Terms such as the "Fed Put" always emerged as stocks continued to dazzle the trend followers.

We can see in this chart of QQQ, a proxy for the Tech sector, we are very close to the three month test of the high.  Thursday marks April 30 so next week's report will confirm if stocks are to continue rallying or if a tentative sell is issued.  I find it so interesting when I can watch the market closes around tests of highs and lows.  It's a real concept.  You can see the battle often raging between buyers and sellers at the critical closing price.

One thing that I am cautious about though is that while the January closing price is the highest closing price, prices did go higher in February but then closed lower.  So it's still possible that even if April's closing price was below January's, prices can still go higher in May, testing the ultimate top.

As the QQQ monthly close is but a few points away from January's close, it will be most interesting to see what happens here.  Tech has been the strongest sector by far.

S&P 500 Monthly

The S&P 500 chart is far below January's close so a massive move can be anticipated.  Crazy as it sounds, this is the formation set-up so I'd be cautious about shorting as we anticipate an unfathomable test of the high.

Let's see what happens.

One key dynamic to watch is how much money central banks will be continuing to throw into the economies.  At some point though, the reality of what continued money creation will hit home.  What actually backs currencies?  Is it merely backed by the tax base? the government's ability to service debt?  With interest rates close to 0% and actually negative in other places in the world, Debt servicing may not be such an issue, especially if you are a country that can create more currency to pay that interest.

So many claim that there is no inflation.  Can you really believe that?  Highly educated economists actually say this, inflation is low or there is little chance of inflation.  I can only guess that these individuals earn so much money that the incremental shifts in prices are not noticed.

Last year, I was able to buy grapes for $0.99/lb.  I have not seen them under $1.99 this year.  Same with other produce that I regularly buy.  Apples were $0.49 and now if you can get them for under $1, you've got to stock up.  Plant-based milk was going for $2.29 to 2,49.  At best I'm lucky if I can find 2 for $7 and many places it is up to $4.49.

I don't know if you've looked at home prices.  I have started looking as I am anticipating that real estate will take a nose dive if the pandemic situation does not get resolved quickly.  I'll see a home that is tiny, perhaps a 2 bedroom one bath at most.  Basic basic.  I would think $125K tops?  Nope, try close to $300K.  This is insanity and fueled by all of the monetary stimulus to Federal Reserve has been injecting into the system.  Yes the asset prices go up because the money is there and it has to be invested less it total devalue into nothingness.


What Effect Money Printing?

If we look at the value of the S&P 500 and take into consideration the amount of currency, as measured by M1, we can see that stocks have been going down ever since their peak in 2000

How sad it is that in reality, we are getting trashed.

I often am thinking, what can I do with the money?  Where can you invest it?  Is there any way that one can stay afloat?


USDEBTCLOCK.ORG

Is this reality?

Silver at $2,455an ounce?
Gold at $20.351 an ounce?

Why are prices so depressed?

There are 173 times the amount of physical silver in the silver "paper" market.  88 times in the gold market.

Someday, perhaps not in my lifetime, there will be reality.  Don't really see buying stocks as part of my reality, other than the gold/silver stocks that I had mentioned.

Looking for the tests of the monthly highs this week.  a clear failure, especially in QQQ may spur me on to buy some SDS or SPXS.

Fed Returns to Boost Market - Will We Ever Have Reality Again?

Stocks staged a massive rally this week with the S&P 500 rallying more than 300 points or 12.2% from the previous week.  Of special notes, REITS (real estate investment trusts) rallied the sharpest, rising 24%.  Midcap stocks which have been underperforming for quite a while also turned in stellar weeks, with the Midcap (MDY) and Russell 2000 (IWM) rising 18%.

From an industry perspective, all sectors of the market rallied.

 
Basic Materials, a sector that failed to make new highs in the latest market bull thrust, performed best, rising 20.6%.

Closely following was the financial sector, rising sharply on the Federal Reserve Bank’s latest stimulus announcement
Federal Reserve Stimulus - CNN article

I had been paying close attention to a number of exchange-traded funds to gauge the health of the US economy.  It appeared to me that low interest debt had enabled businesses that might have failed in 2008-2009 to remain.  These had often been referred to as Zombie Corporations.  As interest rates continued to fall, businesses were able to issue more and more debt to stay afloat.  Eventually, some event would trigger this debt to default.  It was my thought that when these ETFs started to drop in price, it would be an indication of an impending recession.

One of my proxies for this lower quality debt was an instrument with the ticker symbol JNK.  As the symbol implies, the debt held in this ETF is just that, junk.  You can see that this ETF price fell off a cliff.  There was a real possibility that heavily debt-ridden companies would go bankrupt.  But that reality quickly came to an end as the Fed announced that they would bail out not only quality corporations, but shaky corporations as well as states, counties and likely foreign banks and governments as well.  Soon the Fed will own the entire world.


Other ETFs that the Fed may now be buying include:

If the Federal Reserve Bank can buy these ETFs, and the Fed can’t lose money, then if could be foolish to try to fight the trend.  Or so it seems.

What's Next?

In a normal world, the rally to the 50% retracement level is by no means extraordinary.  While many oohh and ahh over the remarkable rally, the Fibonacci retracement levels automatically include a 50% retracement along with the real Fibs of .328 and .618.  In some theories, prices failing at the 50% retracement level can be expected to fall to the -.23 level.  This would suggest S&P prices falling to the 1900 level.

It's hard to imagine this to happen though.  Despite 16 million people filing for unemployment and businesses across the world being shut down, liquidity has always seemed to reign supreme, despite any fundamental support.

Once again, markets have no correlation with reality.



Money Supply Spikes

As the chart of the M1 money supply illustrates, money supply has been surging to dizzying heights, now backed not only by government treasuries but also a wide range of corporate bonds.  Some can interpret this as the Federal Reserve Bank and the US Treasury taking control over US corporations.


The increase in the money supply is said to be temporary and will be pulled back when things normalize.  But as we've seen post-2009, things never normalized.  Any attempt to decrease the money supply was met with swift negative market reactions.  This is the new reality, 0% interest rates, increasing Federal Reserve stimulus actions to keep the financial structure afloat; many suggesting that it won't be long until the Federal Reserve starts buying stocks.  Again, does it make any sense to fight the Fed?  It does appear to be inevitable.  But ultimately, must it fail?

I thought it might but after 11 years of the Fed-controlled market, I do not expect to see a normalization in my lifetime.  As such, I choose to stay out of stocks, except for special situations such as some gold and silver mining stocks.

I continue see gold still as a safe haven.  In times of loss of confidence in fiat currencies, gold stands out as one asset that can provide purchasing power.

Gold futures rallied to new recent highs but still are a few hundred off of the lifetime highs.  One can expect gold to continue rallying and perhaps even silver following.

Two Schools of Thought

Inflations:  Gold and real estate are often said to be good hedges against inflation.  The sharp move in REITs this week along with gold making new highs supports this view.

Deflation:  How quickly will the economy recover?  Some suggest that things won't start getting back to normal in July, the President is pushing to get things moving as quickly as possible.  A slowing economy might present a deflation scenario.  Holding US dollars is often recommended to ride out this storm.

I suggest holding both.