liquidity cycle

[dtrader98]

While this indeed looks very ominous, looking back on historical data, I think this implies that we've just stepped over a major disaster mine. Looking forward, and taking the historical information into account, while this is a major disaster area, I would interpret it as a local market bottom in this context. Just about every sentiment indicator has broken down like a compass in a electromagnetic pulse abomb. Plenty of fear in the streets.

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[scriabinop23]

very fascinating work. keep it up.

 

[dtrader98]

One more post regarding employment.
Seems like there is almost an inverse relationship between the employment in construction numbers and the housing sector index. From the cyclical employment envelope, we would expect the next employment streak to be down, while the housing sector turns up?

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1595720" border="0" alt=""><br /></font></p></font></p></font></p></font></p>

 

[scriabinop23]

Quote from dtrader98:

One more post regarding employment.
Seems like there is almost an inverse relationship between the employment in construction numbers and the housing sector index. From the cyclical employment envelope, we would expect the next employment streak to be down, while the housing sector turns up?

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1595720" border="0" alt=""><br /></font></p></font></p></font></p></font></p>

i'd like to see longer data. Those employment #s are obviously seasonal with the uptrend loooking finished.

nothing about that chart suggests to me a near term reversal of the housing sector.

 

[dtrader98]

Hey scriabinop23,

If you know of a housing index with a longer lifespan, I can rerun the data.
Only problem was the index i used didn't run that far back.

Anyways, looking at the oscillations on the employment data and the inverse relationship with the housing index, notice how in late 05, even while employment turned down, housing turned up?

Housing looks like it's traversing a downward channel/envelope, which if held, signals a short term oscillation back up to the top of it's band IMO. Such behavior would also retain the inverse relationship between the two (assuming employment continues dropping in that area).

 

[dtrader98]

Although a long term housing index is not available, it is useful to look at how well the S&P500 and construction employment numbers seem to track. A comparison is shown with S&P 500 on a log scale for resolution. Notice the S&P500 didn't crash along with employment during the recession in the early 90s. However, both did pull back in tandem during the 2k recession period.

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[dtrader98]

In the spirit of the liquidity cycle thread.

Recession periods highlighted. Sure does look like a recession is possible here.
Remember, rate cuts don't necessarily stop a waterfall (although 90 market wasn't badly affected).

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1596350" border="0" alt=""><br /></font></p>

 

[dtrader98]

Of the 65 Fed Fund Target Change events that occurred between 1990-Present, over 63% were followed by flat to positive changes in the S&P 500 7 closing days later. Note many positive returns occurred even when there were hikes
of 25 basis points or greater.

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[dtrader98]

Ok, So how's the patient doing? From the charts, there are a few interesting observations to point out.

Firstly, on the arachnoid physiology, if you consider the financials to be the heart of the markets, there are a few foreboding EKG readings to ponder.

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1643125" border="0" alt=""><br /></font></p></font></p>

1) C just announced a 57% drop in earnings, and the market didn't respond with much enthusiasm. While today's 3.5% drop may not seem like a precipitous ledge, consider that C is the number one weighted component of XLF.

2) GS numbers have been called into question by some journalists. They cited some cloudy volatile figures used to brew the spectacular surprise report.
http://money.cnn.com/2007/10/14/news/companies/goldmanearns.fortune/index.htm?source=yahoo_quote

3) Where does this lead to? Looking at the TA view of the XLF does not look very promising as the bottom channel kiss could have been set up for a bull trap. While soaring energy has been making up the slack (coincident with wonderful low inflation statistics reported every quarter), XLF has been just downright lethargic compared to the cumulative S&P 500's ascent off the last deep trough.


Secondly, looking at the cubes view, in case you missed it, I mentioned the four horseman have hit some potential short term resistance on their hyperbolic ascent.
http://elitetrader.com/vb/showthread.php?s=&threadid=106345

Does this mean the q's are done? Not necessarily, the short term overbought conditions have shown some propensity to pull back since that post.
However, I've mentioned this several times in the past; considering how weak nasdaq has been these past few years, and watching it's recent strength, I could very well envision the techs coming back up to speed in the event that energy loses some of her recent stamina. Although, it does concern me to see how much weight RIMM holds in the major tech indices, and how it's exponential price rise hasn't quite been matched by quarterly earnings and rev--http://elitetrader.com/vb/showthread.php?s=&threadid=105717 Though, that doesn't exclude the possibility of another leader rising to take RIMM's and/or even APPL's stellar leads (GOOG anyone?).

Lastly, net bearish sentiment continues to provide fuel for the upside. It's looking more and more like the mid 90s scenario, than 87 IMO.

In sum, techs are looking strong (long term) and any short term corrections could actually be a great buying opp, while the area to be short IMO would be financials. Lastly, although energy has been the silent, yet colossal bellwether for the last few years, I wouldn't be surprised to see the juggernaut take a breather and let tech take over the reigns for awhile.

 

[dtrader98]

Quote from dtrader98:

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1643125" border="0" alt=""><br /></font></p></font></p>

...
3) Where does this lead to? Looking at the TA view of the XLF does not look very promising as the bottom channel kiss could have been set up for a bull trap. While soaring energy has been making up the slack (coincident with wonderful low inflation statistics reported every quarter), XLF has been just downright lethargic compared to the cumulative S&P 500's ascent off the last deep trough.

[/B]

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And a bull trap it was. Something tells me the financial carnage isn't quite done yet. And I get the feeling there is going to be a collective unison of dirty laundry rushed into the laundromats by the end of the year.