S&P near bottom of range… ready to head lower yet?

The S&P remains within the bounds of its lower support (around 1110) for now.  It’s worth noting, however, that the S&P also remains above the support area of its 2010 lows.
In stark contrast, many “lead” indicators have broken lower, and are  now below their 2010 support area.
High yield bond (as represented by HYG, here):
Emerging markets (represented by EEM):
And, due to its accurate tip-off in 2007 and 2009, we’ll separately note the breakdown in China (here represented by FXI):
To me, this (along with ECRI calling for recession – which aligns with my suspicion) provides plenty of reason to remain extraordinarily cautious with equities.  I hold plenty of short positions, and will take some profits under 1120.  But I will also hold onto some positions, and will likely add to them if it looks like support is giving way.  My belief is that the breakout from our range will be to the downside.  One indicator I will be watching closely is copper.  Copper has broken down severely, but is still above its 2010 levels.  It has both historic price support and a 50% Fibonacci retracement level around $2.93.  I’ll be watching to see if that level can hold for copper.
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  1. Ao
    October 3, 2011 at 6:38 pm

    Here’s the Martenson post I had been thinking about:

    http://www.chrismartenson.com/blog/commodities-look-set-to-rocket-higher/62178

    His charting skills (or lack thereof) are on full display.

    Stoneleigh from The Automatic Earth (who is knowledgable but too permabearish for me generally) has a gentle takedown of Martenson here:

    http://theautomaticearth.blogspot.com/2011/10/october-3-2011-commodities-and.html

  2. October 3, 2011 at 10:40 pm

    Ao, thanks for the note. I had read that Martenson article (in fact, I think I linked to it). I don’t have any problem with Martinson’s charting. I am not an expert technical analyst by any means. I tend to view it as a pretty subjective art form, not a science, and though some may be qualified to stand in judgement – I am not. I can see the “bull flags” he notes, and recognize them as such in the instances he noted. What about his charting did you dislike in that article?

    The Stoneleigh counterpoint was good reading, and I thought a very effective. I tend to agree with Stoneleigh. I think that the hyper-inflation camp tends to discount the degree to which commodity prices are a product of financialization. I mean, water is the most important of all resources, yet my water bill hasn’t gone through the roof – why? – because it hasn’t been securitized for the benefit of speculators yet. At least that’s my thumbnail theory. Martenson notes a difference between “real” and “paper” assets, but I see them as being the same in that, without the paper securitization of hard assets, there would be anywhere near as much demand. Most of the demand is for the paper version, not the real one.

    I am not a committed member of either the infation or deflation camp. I lean toward deflation, but I’ll go wherever the charts take me (and right, it sure looks like deflation). It seems to me that some of your issue with Martenson might be that you disagree with him, and thus see him as uninformed. Is that possible? I’m not omniscient, and don’t really see much black and white when it comes to matters of the financial markets. I only see the grey of opinion.

    As an aside, I don’t necessarily agree with everything I post. I try to provide some variety instead of just posting my own ideas in the words of others – since, Lord knows, my ideas may be wrong. I’ll try to avoid posting Martenson articles in deference to your taste. That work for you?

  3. Ao
    October 4, 2011 at 12:54 am

    Sorry – I guess I sounded like I was on a crusade against him. By all means, don’t change what you’re doing for me. (I think I have a strong aversion to self promoters and that compounds my view of him.)

    As for his charts, I think they suffer from his overall problem: oversimplification. A commodity flag would likely be confirmed on the charts by any number of other indicators, from the USD onwards.

    I agree regarding shades of grey – I tend to see deflation as the most likely short and medium term outcome. Hyperinflation seems to only occur when actual printing happens or there is a major currency crisis that’s independent of a credit implosion. We don’t have a setup for that now or for the foreseeable future (though it’s certainly possible in the long run).

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