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Equities seem like the Energizer Bunny of up trends right now… they just ‘keep going and going’, even if in a choppy and grinding manner some of the time. Yet, as we noted in the wake of Wednesday’s first September S&P 500 future daily Close above the 1,399-1,402 resistance, the burden of proof was on the bears to put the market back down or it was likely headed higher in the near term.

We will be very concise once again on the specific market comments in this post, becauseyesterday’s TrendView Brief Update  is a pointed discussion of the significant clash of forces between the equities market and other asset classes.  And a lot of the intermarket tendencies were just plain inconsistent with classical tendencies, and that became more so the case into late last week.

As we noted in our QE is the Opiate of the Perma-Bulls part 1a (part 2 to be provided soon) post a week ago Wednesday, it has been a “bad news is good news” equities market of late. And Perma-Bulls seem to feel the worse the better, at least insofar as that increases the chances for additional central bank Quantitative Easing or other forms of market intervention.

In a “rock and a hard place” psychology, that would be the ‘rock’ that underpins the market. And yet the ‘hard place’ that both investors and short-term portfolio managers find themselves in is the now almost pervasive weak economic data outside of the US. Even the stronger than expected UK Employment figures and Retail Sales this week along with US Retail Sales, Industrial Production, NAHB Housing Market Index, Michigan Sentiment, and Leading Indicators did not seem to help equities all that much in the face of weak data elsewhere.

And the other key aspect we keep a close eye on also reconfirmed those troubling global economic tendencies two weeks ago…

…in the form of Organization for Economic Cooperation and Development (OECD)Composite Leading Indicators (CLI) confirming pretty much the whole world rolling over into weaker tendencies. And this month’s indications were particularly telling insofar as theyconfirmed the shift to weakness noted last month for Japan, and most importantly the US.As the latter is supposed to be the engine which helps buffer weakness in the rest of the world, along with continued Chinese weakness that is just not good.

None of which means the equities will necessarily crumble right away, or the primary government bonds and US dollar will push-up markedly in the near-term. It is more of an intermediate-term backdrop, and timing and risk management will still be paramount in such a psychologically-driven market buffeted by such strong opposing views. And yet, in spite of the general bonhomie breaking out in Europe on the “do whatever is necessary to save the euro” psychology (nice touch Signore Draghi) that now has Chancellor Merkel on board (at least until the specifics need to be agreed with the weaker sisters), the primary government bond market had quite a nice late week rebound. Of course, that is wholly inconsistent with any significant rescue effort funding by Germany; which should have brought even more pressure on the Bund into the weekend.

Even so, at the very least some of the inconsistencies we noticed previous between the equities and govvies on one hand (which seem to at least passingly reflect classical ‘counterpoint’), and foreign exchange and metals on the other hand not only werecontinuing contentious dislocations in normal intermarket trend relationships, but have proceeded even further in that direction. If the global economy is really going to improverather than deteriorate, why is the euro still so weak with such a consensus seeming to take hold, and (halfway around the world)if the PBoC can and will do something to reinvigorate the Chinese economy (which we also doubt they can pull off right now due to food inflation risk) why is the Australian dollar losing ground to the greenback?

While it all may end well, those are the kind of combined questionable factors that lead us to believe OECD may still be more correct in its negative assessment than the optimists would like to think… or even necessarily imagine right now.

[As a final note, the OECD Composite Leading Indicators available through the link above is one of the few English language versions available right now. Sadly the OECD has been having a sustained problem with their website since at least the time of this month’s CLI release. The link that normally defaults to display the English language version has only been able to display the French language version since Thursday morning of last week (August 9^th.) Along with our advisory clients and readers, we wish to thank the very nice individual in the Secretary-General’s office who was kind enough to e-mail us the English language version.]

General Market Observations and EXTENDED TREND IMPLICATIONS that are critical to the general overview are revisited in today’s TrendView Brief Update. The rest remains much the same as last Monday’s Summary Perspective or Technical Projections (depending on the extent of your interest in the broader range of markets.)

Thanks for your interest.

Short & Sweet again on the specific market comments in this post, because today’s TrendView Brief Update is a pointed discussion of the significant clash of forces in the equities market. As we noted in last Wednesday’s QE is the Opiate of the Perma-Bulls part 1a (part 2 to be provided soon), it has been a “bad news is good news” equities market of late. And Perma-Bulls seem to feel the worse the better, at least insofar as that increases the chances for additional central bank Quantitative Easing.

That would be the ‘rock’ that underpins the market. And yet the ‘hard place’ that both investors and short-term portfolio managers find themselves in is the now almost pervasive weak economic data. Even the stronger than expected UK Employment figures this morning and past couple of days’ US economic data (Retail Sales, Industrial Production, NAHB Housing Market Index) did not seem to help equities much in the face of weak data elsewhere.

And the other key aspect we keep a close eye on also reconfirmed those troubling global economic tendencies last Thursday…

…in the form of Organization for Economic Cooperation and Development (OECD)Composite Leading Indicators (CLI) confirming pretty much the whole world rolling over into weaker tendencies. And this month’s indications were particularly telling insofar as theyconfirmed the shift to weakness noted last month for Japan, and most importantly the US.As the latter is supposed to be the engine which helps buffer weakness in the rest of the world, along with continued Chinese weakness that is just not good.

None of which means the equities will necessarily crumble right away, or the primary government bonds and US dollar will push-up markedly in the near-term. It is more of an intermediate-term backdrop, and timing and risk management will still be paramount in such a psychologically-driven market buffeted by such strong opposing views.

Even so, at the very least some of the inconsistencies we noticed previous between the equities and govvies on one hand (which seem to at least passingly reflect classical ‘counterpoint’), and foreign exchange and metals on the other hand have become continuing contentious dislocations in normal intermarket trend relationships.

[As a final note, the OECD Composite Leading Indicators available through the link above is one of the few English language versions available right now. Sadly the OECD has been having a sustained problem with their website since at least the time of last Thursday’s CLI release. The link that normally defaults to display the English language version has only been able to display the French language version since Thursday morning. Along with our advisory clients and readers, we wish to thank the very nice individual in the Secretary-General’s office who was kind enough to e-mail us the English language version.]

General Market Observations and EXTENDED TREND IMPLICATIONS are briefly revisited intoday’s TrendView Brief Update. The rest remains much the same as Monday’s Summary Perspective or Technical Projections (depending on the extent of your interest in the broader range of markets.)

Thanks for your interest.

Short & Sweet again on the specific market comments in this post, because today’s TrendView Brief Update is a pointed discussion of the significant clash of forces in the equities market. As we noted in Wednesday’s QE is the Opiate of the Perma-Bulls part 1a(part 2 to be provided soon), it has been a “bad news is good news” equities market of late. And Perma-Bulls seem to feel the worse the better, at least insofar as that increases the chances for additional central bank Quantitative Easing.

That would be the ‘rock’ that underpins the market. And yet the ‘hard place’ that both investors and short-term portfolio managers find themselves in is the now almost pervasive weak economic data. Even the recently Teflon Equities could not withstand the weak Chinese Export data today in the wake of their other weak data yesterday. All of which is only the further reflection of across-the-board weak global economic indicationsbacklashing into China.     

And the other key aspect we keep a close eye on also reconfirmed those tendencies yesterday…

…in the form of Organization for Economic Cooperation and Development (OECD)Composite Leading Indicators (CLI) confirming pretty much the whole world rolling over into weaker tendencies. And this month’s indications were particularly telling insofar as theyconfirmed the shift to weakness noted last month for Japan, and most importantly the US.As the latter is supposed to be the engine which helps buffer weakness in the rest of the world, along with continued Chinese weakness that is just not good.

None of which means the equities will necessarily crumble right away, or the primary government bonds and US dollar will push-up markedly in the near-term. It is more of an intermediate-term backdrop, and timing and risk management will still be paramount in such a psychologically-driven market buffeted by such strong opposing views.

[As a final note, the OECD Composite Leading Indicators available through our Brief Update is one of the few English language versions available right now. Sadly the OECD has been having a sustained problem with their website since at least the time of yesterday morning’s CLI release. The link that normally defaults to display the English language version has only been able to display the French language version since yesterday morning. Along with our advisory clients and readers, we wish to thank the very nice individual in the Secretary-General’s office who was kind enough to e-mail us the English language version yesterday morning.]

General Market Observations and EXTENDED TREND IMPLICATIONS are briefly revisited in today’s TrendView Brief Update. The rest remains much the same as Monday’s Summary Perspective or Technical Projections (depending on the extent of your interest in the broader range of markets.)

Thanks for your interest.

While Part 2 will be forthcoming soon, there are some developments which warrant immediate review due to the market focus highlighting them into tomorrow. For anyone who has not already read it, you might want to review our post from Thursday for some key points that we expand upon below. Also note that our general skepticism over the central banks’ ability to reinvigorate economic health purely with liquidity expansion is not a recommendation to sit short of equities at any particular point. Timing and risk management are still essential, and right now the equities are trading well technically.

That said, we seem headed for the next critical phase either later this week or by the middle of next week. And much of it relates to the same sorts of things reviewed in our discussion last Thursday: problems in Europe and relative health of China, even if the US Fiscal Cliff dilemma seems (incredibly) off the table with Congress out for a five week summer break.  

As noted in previous analyses, Europe is now being ceded a “benefit of the doubt” grace period on the inference that ECB President Draghi will be ready to move forcefully if Spain and Italy get German approval for European Financial Stability Facility (EFSF) support. That is typically a 3-5 day hiatus from bearish sentiment, and may even last a bit longer this time given how close they seem to something more substantial than previous efforts.

However, that only plays into our previous concerns over whether crisis mitigation and/or liquidity expansion amounts to anything that actually restores robust global economic growth. While the bulls use the prospect of various forms of Quantitative Easing(QE, ultimately the ‘Bernanke Put’ and now the ‘Draghi Put’) as an excuse to move money into equities, there is a far more important real world influence late this week.

That comes in the form of…

…the economic data out of Asia on Thursday along with the Organization for Economic Cooperation and Development (OECD) Composite Leading Indicators (CLI.) While its growth has been slowing markedly for months now, there are those who still believe that China is going to stabilize and resume more vigorous growth from current levels throughout the second half of this year. Not the least of those believers is the Reserve Bank of Australia.

It was most interesting that it’s “no change” interest rate decision on Tuesday wasaccompanied by a statement that not only observed conditions elsewhere, but made a specific prediction. As our highlights point out, in a world that will only see average (to possibly below-average) growth in 2012, they have noted that growth in China “…does not appear to be slowing further.”(!?)
They were willing to state that in spite of the observation that the continued weakness in Europe is a risk factor; and exactly the sort of thing that could still dampen Chinese growth. With due respect for Australia’s unique position as a trading partner China and the rest of Asia, this would seem to be a blatant exercise in ‘talking their position’. If this was anything more than upbeat sentiment, why cite Europe as a potential fly in the economic ointment when it is so blatantly weak as to impugn the original assertion?

And to the degree data rather than central-bank psychology might drive the equities trend in the near-term, the major economic focus swings around to Asia Thursday into Friday along with the OECD CLI. Those include Thursday’s Australia Employment report andextensive Chinese inflation, Industrial Production and Retail Sales data. Thursday also brings an atypical midweek release of OECD Composite Leading Indicators. The latter are more important than usual after the recent downturn for most countries in the last release; especially the USA.

Friday brings the Japanese Domestic Corporate Goods Price Index and Industrial Production as well as Chinese Trade figures. Much as with the German Trade figures earlier today, more than just the Trade Balance is important. It has been the repeated case of late that positive trade balances have been cooked up through the canard of lower exports offset by even more restrained imports. In other words, there has been a weak overall indication for international trade.

All of which relates to some aspects of last Thursday’s original installment of this perspective, including an excellent Short View column by James Mackintosh on the three key dangers that the equities are ignoring at present… much like they ignored the US debt ceiling debate last year until it was too late. Those are the imminent bankruptcy of Greece, US fiscal cliff, and the extent of the Chinese slowdown. The online version of that column at ft.com also contains a video that includes graphs and additional discussion beyond the short analysis in the column.
It is still worth a look if you have not already seen it. And it points up the importance of the ‘Asia Factor’ over the next couple of days.

General Market Observations
The September S&P 500 future ability to hold not much worse than the violated 1,375 resistance highs (now support) is important in the near term; even if the 1,350-55 area remains the more prominent historic congestion. It is also important in the near-term that any pullbacks since Monday and not drop back below 1,385-90 short term support; including last Friday’s 1,389 weekly Close. As noted on Monday, the whole central bank “doing something’ euphoria was likely worth a retest of the low 1,400 area resistances already seen yesterday and today. Those include the early May 1,399-1,402 DOWN Closing Price Reversal (CPR), and in case that has overrun there are both September contract and June (lead contract continuation) contract rally highs back on April 2^nd at (respectively) 1,411 and 1,417.50.

EXTENDED TREND IMPLICATIONS
These are simply the direct influence from, or counterpoint to, the equities strength which has been so glaringly apparent when the September S&P 500 future gapped above 1,375 on the Regular Trading Hours opening last Friday. That has variously caused the September T-note future to drop back below 134-00/133-24 even if there is further significant support down in the 133-00 area. No secrets in the US Dollar Index either on the push up to a retest .8350 when the equities were weak last Thursday only to drop more than a full point on the equities push to a new high for the current rally. And even if the euro is still problematic on itsEUR/USD recovery stalling at the low end of the 1.2450-1.2500 range, the commodity currencies have predictably benefited very nicely from the renewed equities optimism.
It is all still ‘of a piece’ insofar as a more buoyant equities market encouraged by crisis relief is being interpreted as a sign of better global economic activity to come. Is that real? We shall see, and especially so tomorrow with that next release of OECD Composite Leading Indicators.

Thanks for your interest.

The weekly Report & Event Calendar is available through the link in the right hand column along with this week’s Summary Perspective on Key Influences. Even as we remain a bit skeptical of the extended rally, it must be allowed that the better sentiment from the extended implication of ECB President Draghi’s press conference can push equities higher in the near-term.

That much was apparent by Friday morning, so it is no surprise that the positive equities influences have the upper hand for now. And as we noted on Friday, that means the primary government bond markets and US dollar were going to suffer as their ‘haven’ bid tendencies were reversed in the face of the sustained near-term equities strength.
And with a relatively light reporting calendar early this week, the factors that might discourage equities once again can only appear from Wednesday into Thursday based upon two aspects…

 …such as the typical 3-5 day “benefit of the doubt” window for equities to hope for the best during these Euro-zone ‘consensus’ phases. That points toward seeing how the news from Europe is developing into this Thursday or Friday. Given the magnitude of the current finely tuned decision President Draghi set up last week, the grace period might even last a bit longer.

There is also the issue of the economic data that intensifies through Wednesday into Thursday… culminating in extensive Chinese inflation, Industrial Production and Retail Salesdata Thursday, along with an atypical midweek release of OECD Composite Leading Indicators. The latter are more important than usual after the recent downturn for most countries in the last release.

General Market Observations

We have changed the format in the Summary Perspective on Key Influences to include the excerpts from the technical projections for the key markets in the final Concise Market View section. That means it encompasses more than just the typical brief comment on theS&P 500 future provided previous in this section. As was also the case in these posts’EXTENDED TREND IMPLICATIONS, it now includes the T-note, Eurodollar and the US dollarand cross rates foreign-exchange indications as well. The extended support and resistance levels and select comments from the Technical Projections will provide better, more convenient access to the extended technical levels throughout the week.
The initial response on the shift from the previous more extensive text-based comments to providing the extended technical levels with concise commentary has been very good. We hope you find this useful as well.

Thanks for your interest.