Gee, Think.

Hey it’s Monday! Back to business!
Getiing right to it, I’m still looking for a drop in the Naz. I was
just perusing Robert Holmes’ daily pre-market update as I ride into
Newark. He reports what “seems” to be a consensus on the rate hike
pause. He also quotes a Cantor Fitzgerald u.s. Market strategist as
saying that the market has discounted the Fed’s move already. All
right, is suppose it’s possible that the market has already moved down
enough to prevent a huge sell off if the rates go up, but I believe that
there will be some sharp short term movement in the intraday chart
tomorrow based on what the Fed says accompanying its move. If they are
still hawkish they’ll scare the markets for at least a day. If they are
dovish we should see a rise.
The most interesting part of the pre-market summary was the updat on
international markets. The Hang Seng gained 0.4%, but London’s FTSE,
Japan’s Nikkei, and Germany’s DAX were all lower. I think that means
we’re headed down.

I’ve been reading more of John Murphy’s “Intermarket Analysis” book
lately. He has a couple chapters that discuss various business cycle
theorys and what they mean for the financial markets. As I understand
it, the idealized behavior is this:
1. Bond prices rise
2. Stock prices rise
3. Commodity prices rise
4. Bond prices fall
5. Stock prices fall
6. Commodity prices fall
Steps 1, 2, and 3 are part of an economic expansion. Steps 4, 5, and 6
are part of an economic contraction. The expansion is positive growth
and the contraction is negative growth. The time between steps 3 and 4
is when the economic growth actually turns negative, but it is decling
from the middle of step two to the midlle of step 5.
So, having read this theory on the business cycle and it’s relation to
financial markets, I’m going to try and plot our position in the steps.
Everyone who’s paying attention to the stock markets can see that we’ve
just experienced a major downturn. We also know that commodity prices
were soaring during this downturn. The commodities were corrected as
well if I remember correctly but I think they are still heading up.
This last week was a great week for the Dow, Naz, and S&P, but are
stocks done falling?
I think bond prices have been falling because yields have been
increasing. I think this means we are somewhere around step 4, which
would nake this an early recession. If that’s true we should see stocks
and bonds continue to fall over the next months. Commodities should
join the fall eventually as well.

Today’s Volume in the Qs was just above 65 million. That’s less than
half the average daily volume of 120 million, making this days activity
exceptionally light. The Qs drifted 10+ cents up, 10+ cents down, and
then settled right on the money at 37.11. Uncanny. I think they
drifted down a couple cent post market hours, but still, what a strange
day. Why is the voume so light? Is everyone too spooked about the
upcoming economic data?
What really confused me was seeing the Dow down 30 points and the Naz up
10 points at the same time today. I’ve never seen a day with that kind
of spread between the two markets. Usually they move in the same
direction, and about the same amount in percentage terms. Today’s
divergence was spooky.

I’ve heard that the Nikkei is a leading market for the US.  This seems to confirm what the moving averages are showing, today should be another big up day for the US markets.  Since Japan was up about 200 points, 1.3%, I would make a guess that we’ll be up more than half a percent today as well.  I haven’t been following the Nikkei as related to the US markets until now though.  So we’ll see!