Brazil & Emerging Markets reflecting “Relative Strength” of late!

by Chris Kimble

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Shared the chart above with Premium & Sector/Commodity Sentiment extreme members as well as Stocktwits (here), that Brazil ETF EWZ looked to have formed a "Double Bottom" in the chart above.

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The chart above reflects that since the 8/21 posting, EWZ is reflecting relative strength compared to the S&P 500 (gaining almost 10% more than SPY over the past few weeks).

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This chart reflects that EWZ is making a strong attempt to break above another resistance line above.

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Weekly Price Performance

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Economy, Syria, long-term cycles converge amid market volatility

By Jeff Greenblatt

“Bridges so old, if they were human they’d be on Medicare,” from the mouth of Labor Sec. Perez. I wish I was making this up. As you know, infrastructure has been an ongoing theme in this column. That’s where the good jobs really are. With that in mind, we had another jobs Friday.

The unemployment rate dropped to 7.3% while the number was an underwhelming 169,000. It’s not that bad, but there’s no government jobs getting created. Normally that wouldn’t be a cause to sweat other than the fact it’s a reminder of the sequestration and ongoing debt ceiling drama. But the unemployment rate is going down only because there are less people in the work force. Where are these people? What are all the people doing who have given up looking for work? I wish I had an answer to that.

The July number was revised down to 172K from 188K but June dropped all the way from 162K to 104K. That’s not good. If a president creates 8 million jobs in his term that’s decent. For that to happen we need bare bones what we are doing right now. On a bell curve, what the economy is doing right now is at the low end of the normal range.

The next headline dominated the G20 meeting in Russia. Instead of talking finance, the key subject was the impending complicated situation going on in the Middle East.

Folks, this is turning into the most serious setup I’ve seen since the Yom Kippur war in 1973. I really don’t like hyping or dramatizing situations, but this is serious. Whether Congress goes along with this or not and it’s starting to look more like not, the president is now on record as comparing public sentiment to U.S. military action in WWII. As you remember the public kept FDR out for a very long time as it was very unpopular. FDR said it was in the best interests of the country. He was right. Right now the situation is really not comparable to WWII but vitally important nevertheless.

Best I can see, there is only one interest of national security involved here. The Syrians have violated a rule of war agreed to by the nations not to use chemical weapons and it appears the US and France are the only folks not in the region willing to stand up to the situation. If the president doesn’t act he gets the reputation of being the modern day Neville Chamberlain. Aside from that we find it very distasteful to line up with rebels who might be Al Qaeda backed. Finally, this gets so convoluted and confusing there is the potential the Syrian government didn’t even use chemical weapons; they may have been used by rebels to make it look like it was the Syrian government just to get the US in the door. Don’t laugh, in a simpler time Hitler went across the border into Poland and made it look like the Poles actually attacked the Germans as his excuse to start WWII. If it were only destroying a stock of chemical weapons it would be one thing, but the potential for exponential expansion rises by the day.

The big report I heard is on a UK website called Mail Online where an Iranian diplomat said Obama’s daughter will come to serious harm if this war goes through. They said a family member of every US minister, ambassador and military commander will be abducted and tortured. Do these people have such capability? Probably not, but the case of US journalist Daniel Pearl comes to mind. Someone probably will pay with their life.

Now we look at how many nations will be involved. We have the US, France, Turkey, Saudi Arabia, Syria, Israel, Russia, China and Iran just to name a few. It’s starting to sound like a Who’s Who.

So this is the backdrop over which we view these markets 162 months off the Internet bubble peak and now 234 weeks off the 2009 bottom. Remember some of these markets have also peaked 1,619 calendar days off that same 2009 bottom. Because we are dealing with such huge cycle points we have to take the potential for disaster in the markets and the world very seriously.

Previously, one of our proxies was the DAX which a week ago at this time was challenging an overhead gap. Last week the needle barely moved. Once again it’s the CAC which is leading Europe to the upside. You can’t like that if you are a bull.

Another major condition I’m watching is a developing divergence between the tech sector which is at the high end of the range again and the SPX/Dow which appears light years away. The NDX in particular is at a virtual triple top. Why is the SPX so far away? The culprit is housing which is struggling to hold the low end of the range. Housing has held a 61 day low for the past 2 weeks by the skin of its teeth and is trying to avoid experiencing a 3rd of a 3rd wave to the downside.

I’m here to tell you with flawless guarantee that nothing good can sustain in this market unless this HGX chart decides to get off the mat. It’s not horrendous and there’s no technical damage yet to the bigger picture bull market but we are one distribution day away from that condition. What this chart really tells us is we’ve either completed an intermediate term correction or we could have also completed wave 1 down of a bigger 3rd wave. In bull markets that 3rd of a 3rd never seems to materialize but as I said we are one misstep away from the cat getting out of the bag.

Looking at Europe, the cat really is scratching the bag is close to tweaking his way out. With all this concern about the war we never got the chance to talk about the debt ceiling debate which we are told will have to be raised sometime in October. Do you think if we hit Syria and that warship of China’s sitting near the Mediterranean with it’s 1000 marines (it’s a report I found on the Debkafile site) deploys the debt ceiling will need to get raised in any event?

Then you have the oil market which still tests our patience but should really test the May 2011 high. It has the chance to breakthrough and really spike but won’t do it unless the stock market stays elevated. This has the potential to be the most important week since the financial crisis in 2008. I’m not saying you’ll get the same result but the implications of everything floating around has the potential to become world history and could impact our lives for years to come. At this stage of the game, markets have very high risk for correction not only because of the potential for war, but for the combination of the geopolitical situation and the cycles as we’ve discussed.

It’s been a long time for me being in the basement but on Wednesday at noon eastern time I make my return to the Market Technicians Association with an all new webinar. Here’s the link, it’s free and you are invited. http://go.mta.org/lobby091113

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Know in Advance About the Fed’s Shift in Policy Simply by Watching This Key Data Point

By Sasha Cekerevac

The other day I was out with a friend of mine and the topic of conversation ended up being the Federal Reserve and the potential for economic growth going forward.

My friend’s concerns, I believe, are quite common among many readers; he’s confused at the mixed messages the Federal Reserve has been sending regarding changes to its monetary policies.

On one hand, he reads a report stating that the Federal Reserve will certainly reduce monetary stimulus; on the other hand, he hears about a data point showing slowing economic growth, which might keep the Federal Reserve on its current course.

For most investors, even for professionals, it can certainly be confusing.

Of all the things to really watch regarding the Federal Reserve, when it comes to economic growth, I would pay attention to higher wages.

The Federal Reserve’s moves to try and stimulate economic growth can only be an indirect driver for higher wages. Obviously, since the central bank doesn’t pay our salaries, it can’t directly influence income. But it is attempting to create some level of economic growth at which businesses feel comfortable in spending and expanding.

The latest Beige Book by the Federal Reserve offers additional insight into the underlying condition of economic growth in America. (Source: Beige Book, Board of Governors of the Federal Reserve System web site, September 4, 2013.)

With respect to wages, the Federal Reserve’s Beige Book notes that overall income remains modest, aside from those for job positions that are for highly skilled employees. I’ve mentioned this many times before: the lack of economic growth partially stems from a structural condition in which unskilled workers are unable to obtain positions because they are not trained for the new economy.

Unfortunately, there is nothing that the Federal Reserve can do to take a high school dropout with no skills and turn them into a high-tech computer programmer or an engineer. This step of re-training needs to occur through Washington, which we know is quite inept at making any sort of decision that benefits economic growth.

The Federal Reserve’s Beige Book did note that higher healthcare costs were beginning to affect compensation expenses, which certainly can have an impact on economic growth. If businesses are looking to expand and are facing significantly higher healthcare costs over the next couple of years, how likely are they to hire new people at an aggressive rate? I would think that at the very least, they would have second thoughts about hiring and bringing new people onto their payroll.

Without the increase in wages, economic growth will most likely remain quite subdued. This is beyond the realm of the Federal Reserve, since it can only create an incentive structure through monetary policy. However, if businesses can’t find skilled workers, this means that even if they would like to expand, they can’t. This is a sort of domino effect; if one industry can’t expand due to a lack of skilled workers, this means less economic growth overall.

An example of positive effects of the interlink between industries is the boom in housing, which is causing economic growth in many other sectors, including new trucks used in construction, companies that sell building materials, clothing companies that supply work boots, and so on. Economic growth will forever be linked between jobs and workers, and they need to match up properly.

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Connecting the Dots - 09/09/2013

by Marketanthropology

The long and short of things: Watching the three C's - Correction, Consolidation & Continuation

• Broadly speaking, equities (SPX + ~1.3%) outperformed commodities  (CRB + ~0.75%) last week, with emerging markets (EEM + ~5%) strongly outperforming the SPX (+ ~1.3%). 
• Silver, our leading proxy for the CRB & CCI had a strong close for the week (+ ~1.5%) and modestly outperformed gold (- ~0.35%). Commodity currencies, such as the Australian dollar (+ ~3.2%) had an exceptionally strong showing, while the USDX started to roll-over at its 50 day sma.
• Gold (GDX - ~0.4%) and silver (SIL - ~0.25%) miners underperformed spot prices after consolidating very sharp gains in August.

Click images to enlarge

For recent context - see Here

For recent context - see Here.

Although we favor precious metals through the fall, should the rally fail - we wanted to highlight a few possible scenarios. We continue to focus on silver, because of its leading relationships with gold, hard commodities and corners of the currency markets.

Recognizing seasonality, below is the sharp retracement rally for silver in 1981 that rolled over in September. 

With that said and as shown above in its weekly series, the current rally was from a substantially more oversold condition and has already extended itself above the top rail of the stochastic oscillator. This set-up is actually more representative of the tradable and long-term low that silver made a year later in June of 1982 (see series below).

Taking into account the great utility it has provided us on the short side over the past year, it would be foolish to ignore the structure and momentum profile of the Nikkei - circa 1992. We included the profile of 1991 as well that we had used last year coming through the fall.

For recent context - see Here.

For recent context - see Here.

The Aussie appears to be walking in silver's month-old footsteps. While we doubt the upside trajectory will be as steep, tailwinds from China's tarmac resurrection as well as the upside drift of the CRB should cast the currency in a more favorable light.

This dovetails with our work with the dollar - which sees the USDX rolling over into next year as commodities rally out of their late June low.

For recent context - see Here.

For recent context - see Here.

For recent context - see Here.

All of the foreign equity markets we have been following continue to point higher.

For recent context - see Here.

For recent context - see Here.

As mentioned in previous notes, although the SPX has run across the consolidation trend encountered in 2004, equities have followed the same momentum comparative where the market had four successively longer and deeper corrections - while digesting the Fed's transition to tighter monetary policy. Once that transition was digested, both the equity and commodity markets broke higher into 2005.

We find it noteworthy that for the CRB comparative with 2004 - although the trend profiles mirrored and ran across the grain throughout the year, the CRB is beginning to strongly trend with the comp.

Widening the lens from inside, a fractal comparison of the last four (4) years of the CRB could be made to the consolidation and continuation pattern from 2004.

Perhaps it's fitting that even as the equity markets trade above our demarcation of rationality - an 80% rise in the 10 year yield hasn't upset the party. Hopefully, the gorilla behaves, although we suspect another leg lower for the SPX is in the cards.

For further context - see Here.

Apple has been consolidating its gains over the past few weeks. We would not be surprised to see it trade another ~ 5-7% lower before resuming its uptrend through the end of the year.

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Hedge funds lift bullish soy bets to 10-month high

by Agrimoney.com

Hedge funds, in the face of continuing Midwest weather concerns, extended their surge of bets on higher soybean prices, offsetting fresh scepticism on hopes for higher grain futures and bearish sentiment on sugar values too.

Managed money, a proxy for speculators, hiked by 21,256 lots its net long position in Chicago soybean futures and options in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC), the US regulator.

The rise represented a fourth week running of increases in the net long position in soybeans, taking it to a 10-month high of just under 160,000 lots.

Indeed, the net long has risen by more than 115,000 contracts over the four weeks, a performance beaten only once by any such period since record began in 2006, and a shift reflecting the waning expectations for the US crop which took Chicago's November soybean lot within 1 cent of a contract high last week.

Polls show that analysts believe that heat and dryness has cut the US soybean yield to about 41 bushels per acre, from the 42.6 bushels per acre the US Department of Agriculture is currently forecasting, although its estimate is up for revision in Thursday's Wasde crop report.

Downbeat on grains

Hedge funds turned more upbeat in futures in soymeal, one of the two main soybean processing products, too, lifting their net long position nearly to 65,000 lots, the highest since June.

In soyoil, speculators cut their net short position by 1,883 lots to the lowest since May.

The bullish shifts contrasted with a return to more bearish sentiment on grains, with investors rebuilding their net short position in Chicago corn futures and options for the first time in three weeks.

With corn crops more developed, and indeed being harvested in southerly parts of the US, production prospects are less affected by current weather.

In wheat, whose prices have largely followed those of corn, hedge funds increased their net short position for the first time in four weeks.

Mixed softs

Among soft commodities, hedge funds took overall a more bearish position, particularly in cotton, in which price sentiment has been dented by improved production prospects, in the likes of India as well as the US, besides the sizeable discount of rival fibre polyester.

The managed money net long in New York cotton futures and optioned tumbled by nearly 12,000 lots to its lowest since June.

And in raw sugar, hedge funds raised their net short by more than 10,000 contracts – indeed, many appear to have been caught off guard by a revival in prices since spurred by Czarnikow's caution that demand for the sweetener may be far larger than had been thought.

Hedge funds have called better the cocoa market, increasing their net long position for an eighth successive week to nearly 60,000 lots, the highest since 2008, ahead of a rise in futures to their highest in nearly a year.

"Cocoa prices are enjoying an impressive upswing," Commerzbank said, pointing to a rise of 6% in rise since Tuesday.

"The fact that West Africa has also seen only roughly half its usual rainfall in recent weeks is fuelling fears about the next main harvest, due to begin in October."

Hogs vs cattle

And, in livestock, investors proved more bullish on hogs, boosted by signs of resilient demand for pork, but less so in live cattle, with high beef prices raising questions over demand.

Still, on feeder cattle, those ready for fattening, hedge funds raised their net long position for the first time in four weeks, amid hopes that the retreat in corn futures will support demand from feedlots.

Overall, hedge funds turned mildly more bearish in the top 13 US-traded agricultural commodities, but only just, cutting their net long position by 2,363 lots to 297,119 contracts.

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