Stocks Sell Off Globally

Financial Market Report for January 10, 2010

1) … Introduction.
World stocks, VT, and ACWI, fell lower on a slurry of bad news. The world small cap shares excluding the US, VSS, have fallen significantly, The World Small Cap Dividend, DES, have entered an Elliott Wave 3 sell off.

2) … The rally provided by the liquidity trade that came with the announcement of QE 2 is fading.
Beginning in September and intensifying in October and November and then running through the end of the year, there was disinvestment from bonds, BND, with the announcement of QE 2 from Jackson Hole by Ben Bernanke, and then more so with the formal announcement in early November.

The Federal Reserve’s monetization of debt created risk for holders of US Treasuries. As a result the 30 10 Sovereign Debt Yield Curve, $TYX:$TNX, flattened, and investors rapidly sold out of the longer maturity debt such as well as the 30 Year US Government Bond, EDV, and the 10 to 20 Year US Government Bonds, TLT.

Together with a flight from sovereign crisis in Europe, there was a liquidity trade in the US dollar which stimulated junk bonds, JNK, and investment into North American small cap shares, as is seen in the chart of New Zealand, Brazil, India, Australia, Canada Small Caps, Japan, Dow Energy Service, and Small Cap Energy … ENZL, EWZ, INP, EWA, CNDA, EWJ, IEZ, XLES.  

This weeks’ fall lower in junk bonds represents an investment sea change: moneyness is now flowing out of all fiat investments — both stocks and bonds. The fall lower in Junk Bonds, JNK, in light of falling major currencies, DBV, and emerging market currencies, CEW, suggests a beginning to “the end of credit” as it is now known.

Teck Resources, TCK, was one of the most favored investments, its fall lower today establishes it as a short selling opportunity. Aqua America, WTR, has entered an Elliott Wave 3 down and is short sellable. Dollar liquidity trade investment has now peaked in business equipment and furniture maker Steelcase, SCS. It is helpful to compare Steelcase with business services provider True Blue Inc, TBI, as both got Dollar moneyness in December, but this provider of labor peaked and fell lower in early December. That makes sense as business furniture seems like a stronger investment than human labor. Labor Ready is also trading at the cliff, that is at the edge of a head and shoulders pattern. Business rental provider United Rentals, URI, rose strongly last week and now resides at what is likely a peak. Starwood Hotels, HOT, saw a lot of the dollar juice; it has peaked and is now turning lower.   

The Small Cap Energy Shares, XLES, have entered an Elliott Wave 3 Down. And thus Apco Oil and Gas, APAGF, represents a short selling opportunity. Small Cap Energy, ION Geophysical, IO, and Bronco Drilling, BRNC, have fallen to the edge of a head and shoulders pattern and thus represents one as well. And the same is true of Kodiak OIl and Gas, KOG,

Coal, KOL, has sold off and thus Alpha Natural Resources, ANR, and Arch Coal, ACI, both are short sellable.

Canadian Small Caps, CNDA, being laden with mining companies that are falling in value, has turned sharply lower.    

Large cap Alcoa Aluminum, AA, traded up 0.4% and manifested a lollipop hanging man candlestick suggesting that a top in this basic material, IYM, stock has been achieved. Of note, the chart of the basic materials, IYM, has turned lower. Caroline Valetkevitch of Reuters reports Big Earnings Beats May Not Move Stocks

Dollar Liquidity came to the Small Cap Health Shares, XLVS; but it is now flowing out. Five Star Quality Care, FVE, has entered into an Elliott Wave 3 sell off and represents a short sell opportunity. The same is true of pharmaceutical companies Akorn, AKRX, and Salix, SLXP,   

It is the North American small caps that rose in strong manner as compared to many of the larger caps. Chart shows that the hot money flow came to the Small Cap Industrial Shares, XLIS, is now flowing out. Flow Intl, FLOW, manifests this dynamic quite well as it is perched on the edge of head and shoulders pattern; which is in contrast to the larger industrial Illinois Tool Works, ITW, which is still strong. Other small cap industrials which have turned lower and are pending a significant sell off are Acuity Brands, AYI, Polypore, PPO, Trimas, TRS, Watts Water Technology, WTS,

The Small Cap Consumer Discretionary, XLYS, rose and fell with the dollar liquidity cool aid. And now many consumer goods and consumer service companies are short selling opportunities: Artic Cat, ACAT, Boston Beer, SAM, Rent-A-Center, RCII, Tootsie Roll, TR, Toro, TTC, and especially CoStar Group, CTSG, Royal Caribbean Cruises, RCL, Liberty Starz Group, LSTZA, Estee Lauder, EL, Harley Davidson, HOG, Krispy Kreme Doughnuts, KKD, RSC Holdings, RRR, Shutterfly, SFLY, EchoStar, SATS, Liberty Media Holding Corp, LCAPA, Thor Industries, THOR, Weigh Watchers, WTW, Winnebago, WGO, Deckers Outdoor Advertising, DECK, Fossil, FOSL, Darling, DAR, Lululemon Athletica, LULU.

Dollar Liquidity came to the home improvement stores Home Depot, HD, and Lowes, LOW; these have now fallen lower in an Elliott Wave 3 Down and reside at the edge of a head and shoulders pattern and represent short selling opportunities.

Dollar Liquidity came to the Software Holders, SWH; it has entered into an Elliott Wave 3 sell off.  

Uranium miners, URA, are another dollar liquidity trade that is manifesting a breakdown in an Elliott Wave 3 sell off. Uranium Miner, Denison Mines, DNN, resides at the edge of a head and shoulders pattern, portending a major sell off.

Shipping Services, Mitcham Industries, MIND, resides at the edge of a head and shoulders pattern.

The Nuclear Energy Shares, NLR, saw dollar liquidity inflows, and now today are at the top of and Elliott Wave 2 and ready to enter an Elliott Wave 3 Down. The large cap design and build company Fluor, FLR, has completed its rise is poised and ready an Elliott Wave 3 Down.  

The Nanotechnology shares, PXN, are in the middle of a broadening top pattern portending a fall lower; history shows these are fast fallers rewarding the short seller.  

Disk drive manufacturers Quantum Corp, QTM, and Seagate, STX, have both likely peaked out; and look to be good short selling opportunities.

Dollar liquidity has come to Internet Capital Group, ICGE, and it has entered into an Elliott Wave 3 sell off. And the same is true of Nasdaq Internet Shares, PNQI.  

The small cap pure value shares, RZV, have broken support and fallen lower in an Elliott Wave 3 Down; this is now established as a very good short selling opportunity.

Moneyness has left Active Power, ACPW, Active Technology, AVID,

Latin America saw hot money inflows in December; now that money is flowing out. The Latin America ETF, LATM, is poised on the edge of a head and shoulders pattern. Companies such as  Grupo Televisa, TV, and Companhia de Bebidas das Americas, ABV, are terrific short selling opportunities.

Given that transportation leader Ryder, R, has entered into an Elliott Wave 3 sell off, it is a short selling opportunity.

3 … The success of carry trade investing is also seen failing.
Ed Ponsi writing in article did Someone Say Carry Trade? documents that carry trade investment turned around in April 2009. This is confirmed by the chart of the New Zealand Dollar, the Australian Dollar, the Indian Rupe, the Brazilian Real, the Canadian Dollar and the Japanese Yen …  BNZ, FXA, INR, BZF, EWC, FXY.

But now carry trade efficiency is over and investing long in carry trades is producing negative returns as Ron Harui and Wes Goodman of Bloomberg report:  “Currency traders that seek profits by borrowing in nations with low interest rates to fund purchases in countries with higher yields are losing more money than at any time in at least a decade.  The strategy lost 2.5% in 2010 as the dollar — a favorite for financing the trades because of record low U.S.  rates — appreciated, according to an index compiled by UBS … That’s more than the 0.98% drop in 2008.”

The Optimized Carry Trade ETN, ICI, entered an Elliott Wave 3 Down on December 28, 2010, documenting that investment returns can no longer be achieved from carry trade investing.

4) … Governments seeing inflation are taking actions that are adverse to investors.
Inflation globally, threatens investors, as Governments have declared war on inflation, with the result that investors are selling out of hot markets. Indonesia,  IDX, lost 3.1%, in the first week of January as the the Jakarta Globe reports Indonesia’s core inflation spooks investors as Government talks of stern action. Brazil, EWZ, fell 1.7% in the first week of January and Brazil Small Caps, BRF, lost 1.2% as Alexander Cuadros and Iuri Dantas of Bloomerg report: “Brazilian financial shares tumbled in Sao Paulo, with the benchmark gauge heading to the biggest two-day drop in six months, on concern government measures to contain currency gains and restrict credit will hurt earnings.”

Is it too dramatic to say that a global bond and currency war has commenced? South Korea President Lee Myung Bak has called for a “war against inflation” as government bond prices declined, Amer Bank Group reports in article Treasury Pulse which adds: Taiwan’s Central Bank has increased the key interest rate by 12.5bps to 1.625%, and policymakers have introduced additional measures to curb capital inflows on December 30.

It will be interesting to follow the market slide in Taiwan shares, EWT, compared to other countries such as South Korea, Hong Kong, Shanghai, Thailand, Turkey, Peru, Chile, Australia, and Brazil, as  seen in the chart of EWT, EWY, EWH, CAF, THD, TUR, EPU, ECH, EWA, EWZ, as well as the small cap shares globally VSS, TWON, SCIF, HAO, KROO, BRF, CNDA, IWM, SCIF,

Chris Kay and Ian C. Sayson of Bloomberg report Emerging Stocks Drop Most In A Month On Inflation. The chart of the emerging markets, EEM, and the emerging market consumer staples, ECON, shows today’s drop in price.

In contrast to other commodities, basic things people consume rather than things use to build and construct, may stay in demand  with Agriculture, RJA, Food, FUD, Grains, GRU, and cooking oil, FUE, most likely staying high.

5) … Economists are reporting mostly bad economic reports out of Eurostat.
And there are mainly bad European economic reports coming from economists whose research is based on Eurostat reports such as that of Merijn Knibbe. The Euro, FXE, has entered an Elliott Wave 3 of 3 Decline according to Elliott Wave Surfer, this was when Mrs Merkel called for sovereign debt bond holders to take a haircut.

6) … Rising interest rates and a falling Euro turn utilities and dividend payers lower.
International Utilities, DBU, fell 2.8% last week confirming a deflationary investment period lies ahead; they have turned lower on the falling Euro, FXE, and higher global interest rates seen in rates seen in International Corporate Bonds, PICB, falling lower.

Wind Energy, FAN, has started to sell off; it shows the way of the future is deflation; as has Interntional Dividend Payers, DOO The chart of DOO communicates that they are all done. Debt intensive Utilities, XLU, has fallen lower in an Elliott Wave 3 sell off. Because of past price volatility, Dynergy, DNY, is an attractive short seller.

7) … Copper prices fall lower turning basic material stocks and country stocks lower.
Bloomberg reports Copper Heads for First Weekly Decline in Six Amid China Tightening Concern. Copper in London headed for the first weekly drop in six as concerns that China is set to further tighten monetary policy in the first quarter curbed demand, while rising inventories signaled adequate supply. “Market sentiment on China commodities in 1Q11 will be largely driven by potentially further tightening of monetary policies,” Goldman Sachs Group Inc. analysts Julian Zhu and Steven Tao wrote in a report today. “Potential tightening measures are likely to cause further near-term pressure on Chinese commodities.” (Hat Tip to Gary of Between The Hedges).

This means that basic material stocks, like Alcoa Aluminum, AA, a Morgan Stanley Cyclicals Index, $CYC, component, Copper Miners, COPX, copper producer Southern Peru Copper, SCCO, Basic Materials leader BHP Billiton, BHP, are a sell. Falling base metal prices took a toll on Australia, EWA, Peru, EPU, and Chile, ECH. The 7.9% fall in Chile shares for the first week of January gives a salute to the end of the age of leverage that featured Free To Choose investing that prospered under the neoliberal Milton Friedman ZIRP Bank of Japan carry trade lending scheme. The chart below documents the new age of deleverage that will feature risk avoidance, deflation, and economic contraction.

Claudia Carpenter of Bloomberg reports Copper Drops for Fifth Day as China Tightening Concerns Dim Demand Outlook. dropped for a fifth day, erasing gains in early Asian trading, on speculation that China may further tighten monetary policy, dimming the demand outlook in the world’s largest metals user. Three-month copper on the London Metal Exchange fell as much as 0.4 percent to $9,378 a metric ton before trading at $9,410 by 9:49 a.m. Singapore time. “The issue of tightening in China has been brought back to the fore and against this backdrop, investors are unwilling to enter the market at such high levels and consumers are also unwilling to buy at such high prices,” said Yang Zhenqiang, an analyst at First Futures Brokerage Co.

A falling price of oil, $WTIC, will be turning the energy service providers, OIH, lower. Yes the entire breath of companies RIG, HP, PDE, NBR, NE will be turning lower. Transocean, RIG, jumped higher on Friday January 7, but today fell lower near its Thursday January 6 value.
The Energy Service ETF OIH has entered an Elliott 2 Wave top and is falling into an Elliott Wave 3 Down, therefore Transocean, RIG, is a sell. Dow Jones Oil and Gas, IEZ, has fallen lower and evidences that the that the US Dollar Carry Trade Rally is over. National Oilwell Varco, NOV, entered into an Elliott Wave 2 Up on Friday January 7, 2010, and is ready to enter into an Elliott Wave 3 Down; it is a most excellent short selling opportunity.

8) … China stocks fall on credit tightening.
China Financials, CHIX, turned lower today, as did China Real Estate, TAO, causing a continuing fall in China, FXI, China Materials, CHIM, and China Small Caps, HAO, that began late last week. This as Paul Panckhurst, Zheng Lifei, Jay Wang, Bloomberg report Reserves Set for $2.8 Trillion Means Tightening Of Credit The Shanghai shares, traded by Morgan Stanley A Share Fund, CAF, fell lower. Hong Kong, EWH, and Singapore, EWS, have turned lower with China’s down turn.

9) Of note the New York Composite, NYC, has appears to be ready to enter an Elliott Wave 3 Down.

10) … Some ProShares 200% ETFs manifest as short sellable.
The ProShares 200% of Japan, EZJ, manifested as a short selling opportunity today as did Mexico, UMX, as did Oil and Gas, DIG as did Financials, UYG. Real Estate, URE, is short sellable as it resides at the edge of a head and shoulders pattern; the same is true of Retail, RETL.  Semiconductors, USD, have risen parabolically into a sellable position. The ProShares 200% of the Russell 2000, URTY, manifested as a short selling opportunity on January 7, 2010; its fall potential offers the greatest reward of all.   

11) … The US Dollar, $USD, may be in for a fall as most currencies have fallen lower from their highs.
With the exception of the Canadian Dollar, FXC, and the Mexico Peso, FXM, most currencies have fallen lower. Thus the US Dollar, $USD, which closed lower at 80.90, traded by the Dollar Bull ETF, UUP, may be in for a fall into a sideways consolidation pattern.

In such a pattern, it would fluctuate, that is alternate up and down; as other currencies rise and fall.

A fall lower in the US Dollar, would most likely mean a fall lower in US stocks accentuating the fall of the small cap stocks listed above, greatly rewarding those who are short with the 200% of the Russell 2000 ETF, URTY. which has fallen from its January 5, 2010 value of 164.65 to today’s value of  162.54.

Dollar moneyness that came after to the Euro Rally brought investment returns up through the end of the year to those invested in US based stocks. Since the announcement of the EFSF Monetary Authority in July, Yahoo Fianance Interactive Chart shows returns as follows: Morgan Stanley Cyclicals Index, ^CYC, 31%,  Small Cap Energy Stocks, XLES, 42%, Russell 2000, IWM 28% , Small Cap Pure Value 27%, and the S&P, SPY, 18% .

12) … Charts show volatility rising, that is they rose yesterday and fell today which opens the possibility for them rising this week.
ProShares VIX Mid-Term Futures ETF  VIXM,
ProShares VIX Short-Term Futures ETF,  VIXY,
iPath Long Enhanced S&P VIX Mid Term Futures ETN,  VZZ,
iPath S&P Mid Term VIX Futures ETN Futures, VXZ
iPath S&P VIX Short-Term Futures ETN,  VXX,

13) … Sovereign risk is likely to support the price of gold as financial stock fall lower.
Having presented many short selling opportunities, I do disclose that I am solely invested in gold bullion, as I perceive of an enduring investment demand for gold stemming from the risk of European Sovereign Default and Banking Default.  The chart of gold relative to the New Zealand Dollar, GLD:FXA, shows that gold is is continuing its strength in terms of the Australian Dollar; the same applies to many currencies.

Both the Emerging Market Financial Institutions, EMFN, and European Financial Institutions, EUFN, fell lower today, as did all the global financial firms, IXG.

Tyler Durden in article A Global Album Of Sovereign Insolvency published part of the Mr. Buiter, chief economist at Citigroup, report which relates the following on the Spanish Banking System: “In our view, the banking system remains a key source of uncertainty surrounding Spain and its medium-term fiscal sustainability. The restructuring of the banking sector has only just started, with several mergers among savings banks (the ‘cajas’) agreed in June. The total amount of capital injected into the banking sector by the Spanish government — around €14.4bn (1% of GDP) — appears woefully inadequate in light of the size of the real estate bubble and exposure of the banks to real estate and construction-related assets. By comparison, the Irish government had committed around 30% of GDP even before the most recent recapitalization measures as part of the bailout package42. Reports of ‘deposit wars’ between Spanish banks suggest continuing funding difficulties and will weigh on profitability.”

European Shares, VGK, and Spain, EWP, fell lower today, as did Banco Santander, STD.

Emerging market bonds, EMB began to suffer consequence of the formal announcement of QE 2 in early November, which is monetization of  debt, as well as the call of Mrs Merkel for sovereign debt bond holders to take a haircut. The chart shows the bonds fell lower as John Mauldin relates in that the European Leaders were kicking the can down the road in not providing a comprehensive resolution to their sovereign crisis in mid December; and then entered an Elliot Wave 3 of 3 down this year. This stimulated the currency traders to reintroduce their program of competitive currency devaluations as is seen in emerging market currencies, CEW, falling lower.   

The European Sovereign and Bank Debt Imbroglio has deepened and that means there is no safe sovereign. In his 80 page report Mr Buiter said:  “It is clear that the debt which will take a haircut is the current debt, not the future debt,” … “All bank and sovereign debt is now at risk — that is the reality.”

Landon Thomas Jr of the New York Times relates: “With an economy growing at just 1 percent and hampered by noncompetitive exports and steep deficits, Portugal is entirely dependent on outside investors for financing. But no one expects it to keep borrowing money at 7 percent — a level that led Ireland and Greece to exit the bond market and seek financial rescue packages.”

Mike Mish Shedlock relates France, Germany Pressure Portugal To Take Aid

The sovereign debt crisis will only get worse … And then out of Götterdämmerung, an investment flame out, a European Chancellor, will arise to establish order.

This Sovereign will be one who has credentials, such as that of having been awarded the Charlemagne Prize. Candidates for the EU Leadership include Herman van Rompuy, Angela Merkel or John Redwood or Tony Blair

And a Banker, that is a Seignior, such as Wolfgang Schäuble, or Olli Rehn, or Jean-Claude Trichet, or Gordon Brown or Jose Manuel Barroso, or Giulio Tremonti or Jean-Claude Juncker or Nicolas Sarkozy or Christine Lagarde will rise to provide credit.

One Response to “Stocks Sell Off Globally”

  1. Bagus@bestsavingsaccount Says:

    Just simply. Wow great information

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