We’re Testing Highs, But Europe’s in Big Trouble
Dear Reader,
We’re about to find out if my “gut” has been right, or if the pivot point I’ve been talking about is really a springboard for stocks to go a lot higher.
The roughly 4.3% drop in stocks only a few short weeks ago, and their subsequent bounce back, set up a pivot point halfway back to the highs of late March and early April.
So far the pivot point is looking like a staging ground for a rocket launch, as we’ve kept moving higher, seemingly with little resistance.
At least that’s what it looks like to most people, especially analysts and market pundits.
I’m not convinced.
I’m sticking with my gut. I’ve been telling you I don’t trust the rally.
I’ve been saying that from the pivot point, we’re either going to go higher and test the early April highs, or go lower and test support levels established in early March.
Well, we’re headed towards testing the old highs.
On the Dow Industrials, we’re getting very near. We closed Friday at 13,228, and we’re very, very close to testing late-March, early-April closing highs of around 13,264-13,269 and the Dow’s intraday high of 13,297. These will be major tests.
If we fail to break out and instead meander lower, we could drift down to the 12,734 bottom channel line and maybe test 12,700. If we break 12,700, we’ve broken the back of the rally in the Dow.
The S&P 500 closed Friday at 1403. Its resistance is at 1422. It’s very close. If it doesn’t break out, it’s got support at 1358 down to 1340. Below that, it might be dicey.
And the Nasdaq Composite, after closing at 3069, is looking up to 3122 and then 3134 to break out. It’s interesting to me that the index with the greatest weightings of Apple and Amazon (last week’s rocket stocks) has the furthest to go to break out. Go figure. If the Composite doesn’t continue its strength this week, it could head back down to fill a gap at 2979. It has support at 2940 and strong support at 2900. If it breaks that… take the summer off.
I’m the first one to admit when I’m wrong, which I’ll do if we break out in the next few sessions, or Monday for that matter. But of course, I won’t be wrong, because it will be my gut that was wrong, not me (that’s a joke).
Why is my gut so queasy? Because I feel like there’s something out there, something’s coming. I don’t know what it is (I could speculate, I have some ideas), but it’s out there.
It’s not here. Here in the heartland, things aren’t great on the GDP front, but at least we’re not double-dipping like the U.K. is now, after its first-quarter GDP dip came on the heels of a dip in the fourth quarter. Two consecutive quarters of negative GDP growth constitutes a recession, folks.
Looking through our GDP numbers for the first quarter, which were disappointing to say the least, there are some ugly underpinnings of stalling growth. After all, we slowed from 3% growth in Q4 to 2.2% growth in Q1.
What’s ugly? We had a 2.1% drop in non-residential fixed investment and spending on software and equipment rose a paltry 1.7% in Q1 after rising 7.5% in Q4. That’s a huge slowdown. Consumer spending slowed to 3.5% growth year over year. Which sounds okay, but isn’t good coming from recession lows. And what really worries me is that disposable income grew only 0.4%, while the savings rate dipped to 3.9% (lowest since 2007), down from 4.5%.
So are consumers borrowing from their savings and on their credit cards to consume? Yes, they are.
However, My Biggest Worry Remains Europe
I know I sound like a broken record. But, hey, if I’m right, I’m not the kind of guy to say I told you so. But maybe I will (that’s not a joke).
Seriously, we’ve got fringe politicians challenging the paper walls that have been erected to ring fence Europe from itself. France has its runoff on May 6; we’ve got Greek elections coming up; and all, as in ALL the peripheral European countries, the ones in serious trouble, are in bigger trouble since the start of the crisis in 2010.
All of them are now facing record unemployment, or very close to it. All of them have to pay more interest on their national debt now than in 2010, and all of them have a higher debt-to-GDP ratio than they did in 2010.
Oh, and Europe’s banks…
They have to come up with $152 billion by June (yes, this June) to meet new capital adequacy ratios of 9%. If they don’t – and good luck with that – they’ll have to shed, oh, about $3 TRILLION of loans and assets (those are the IMF’s figures, not something I pulled out of my… ear).
And of that $152 billion, 70% is needed by the banks in Europe’s periphery. Yeah, those banks in those countries that are already reeling. Good luck with that.
So, that something I think is coming, well, we can hear the footsteps. Are you listening?
By the way, I hope you appreciate that I go “all out” in my calls. I don’t mind being wrong (actually, I HATE it), but if you don’t have conviction, you don’t have credibility.
Shah
…. don’t have conviction, you don’t have credibility. ! ! >>> TRUE
Always a treat to read your comments. Great humor and insight.
The diverse world situation requires “wait and see” at this time if
you want to protect your financial position. Only a fool would
claim to know what is going to happen at this time. Better to be
patient for a clearer picture than to jump in because you have a
“hunch”.
I appreciate the integrity of your opinions. There is far to much “waffeling” out there. Right or wrong, please keep it up.
…..but a wrong conviction could lead to a different kind of conviction (no joke)
I’m not too confident in Eurozone structures to increase liquidity for the banks to stabilize, or in Frau Merkel to further relent in easing monetary firewalls, or in counter austerity moves in EZ constituent nations to take hold, but positive signs are emerging–slowly.
The IMF position and leadership, Fed and Treasury jawboning, increasing liquidity are going enhance the evolving changes in severely conservative policies keeping banks on tenderhooks. More liquidity is available when necessary, just as Bernanke has provided US liquidity to preserve our banks. Next, the German Chancellor has eased her pro-austerity, anti-bailout stance over time to bring her nation of frugal workers and authorities into the 21st century reality. And the impending possibility of electing Hollande who abhors austerity, favors the socialism of his country and provides a counterpoint to restrictive (or recession inducing) austerity measures in the southern tier, should reverse the negative slide in so many EZ nations while preserving the EZ and Euro.
No doubt there will be backsliding and speed bumps along the way to stabilization on the continent and within the EZ, but their policies are starting to resemble those in the US which prevented depression, stopped the unemployment slide, restored economic growth and preserved the most assets for the most individuals and groups. I’m positive about Europe, although watching the United Kingdom askance, so long as cool analytical heads are in charge, but with enough grounding in the common man to make policies evolve, not radically change, for hundreds of millions of workers.
Well, with the ups and downs of economic cycles sooner or later you will
be correct. Until then enjoy the current trends.
while I respect your opinion,I cannot believe how many people think monetary easing and money printing can work! All the periphery nations have more debt, not less. the large nations debt in
Europe and Imf and Ecb continues to rise. The TEMPORARY result of better employment,less depression,etc is the result of a false liquidity wave. when it wears off and the economies and debts aren’;t really better, or the economy has slightly improved, but the debt is times ten ,eventualy people will not take the money and the cards come crashing down. Yes it has saved us temporarily, but you had better use this reprieve to get your self to a better situation. Because it ain’t going to last! In the usa possibly shale gas could be enough to bring back manufacturing,. help our balance of payments,due to less oil importing. But can it evolve fast enough to save us? We and Europe had better hope so Because when the dollar goes, it all blows to hell, including china and brics. It isn’t going to be fun!
Wow. “Money for nothing and chicks for free.” Currency can’t be printed with abandon without consequences. To believe otherwise is to have faith in…well…central bankers.
The Germans chose to print a lot of money in the 1920s. That didn’t turn out so well. Granted, it was a microeconomic example in the scheme of our current situation.
Regardless, if printing money could create thousands of productive companies developing wealth-producing technologies like Apple, we’d already be colonizing Mars and mining asteroids.
At the very least, when the Euro and the US Dollar collapse, Keynesianism will hopefully be put to rest once and for all. Otherwise, it’s the Austerians that will be relegated to the trash heap.
I keep thinking about that huge glut of derivatives; 2-4 times the entire World’s GDP, and getting bigger every day.
When will it implode? We’re talking about 75-90% DE-flation here!
What I don’t like is Wall Street applauding the possibility of QE3. I guess Wall Street Vegas wants short term profit at the expense of long term destruction
I am european, am concerned about banks here and the artificial floating of the financial structure, but WHEEW should one put one’s assets ( and not all in 1 basket of course) ? US, Germany, the Brics exposed the the changing state rules that might decide to nationalise?
How is the US going to look after the election? Still a few happy guys controlling the volumes of Wall Street?
Germany, that is starting to slide too. So where? gold or under the mattress exposed to real inflation here of 3.3%? thanks Maria
If you read the history of the 1929 disaster , you will find the TITANIC is following the same route ,that will lead to the sinking of the ship again ‘ HOOVER hired professors who followed the market and paid them to go on radio and tout stocks .,FOLLOW CNBC . 2 cars in every garage ,etc.
HISTORY does repeat itself . None of our Government officials want the SEC, or any other Regulatory agency to “investigate “,the financial markets .
We did not investigate what happened on 911 ,but the truth can be found in the 12 PUBLIC MEETINGS held by the 911 COMMISSION , . I have it ,along with a Professor in Phoenix ,Arizona . We are not about to give away any hints or statements . thank you . Chief Investigator
Yeah, the entire thing is a scam. Bernanke’s inspector on the record testifying to congress they won’t account for 9 TRILLION.
Corzine. Triple AAA Ratings. Nobody goes to prison. What is wrong with this picture?
With the decline in big house ownership, hence downsizing to single car garage houses, it’s a car in every garage and four on the lawn.
I expect the Greeks, and maybe the Irish to get fed up with austerity measures and choose to just outright default. I have no idea about the political fall out, and don’t really care. It is up to the folks who live in Europe to work that out. But I expect European stocks to drop like rocks. At that time I am prepared to scoop up some of the better ones for pennys on the dollar. Lots of folks did that here in the states a few years ago. I won’t miss another opportunity like that. Just my opinion, and probably worth every thing it costs you. Good luck Maria.
Politicians will do what is required. Print money in one way or another.Firstly to preserve their own jobs and of
course all the other millions !!
The whole concept of countries borrowing from other countries and/or institutions and paying INTEREST is to my mind unrealistic. No matter the basic financial underpinnings, the country’s currency depends to a great extent on the perception of the country’s politics and its receptivity to immigrants who can ‘power’ their economies. Corporations on the other hand have to perform based on their sales revenues and profits and future programs to grow their business/es.
America by its ‘printing’ has currency far in excess of its economic under-pinning but its value is based on the profitability of its corporations, and its openness to immigration – ALL THIS WILL CHANGE IN THE FUTURE as Exporting countries who export their citizens grow to retain their citizens through moderate non-coercive policies.
There is always the small voice saying you learn more from your mistakes than all the books. BUT you’re NOT wrong about this one Shah. The footsteps are definitely there – and picking up the pace. AND the clang of bank doors closing seems to be close behind. I know it won’t happen, but I wish there would be a reckoning after this.
I share Shah’s viewpoint.
Consider this simple fact: it is an election year.
What happens in an election year? The incumbent pulls out all the stops to put a happy face on things. It is very simple, really.
Do I need to add more? Reality will come crashing thru the gates soon enough. The only question is just how much time the corrupt oligarchs who own Obama can purchase between now, and January 20, 2013.
Yes,, And look ,S&P, downgraded Spain,, still went higher…..
It’s all in the Stars’s Astrology….
The same happened in 1873—1878—Dow & S&P,, went way out of bounds for no reason… Biggest Depression ever……;
I hope it is not,,, but I see now reason not to,, it is not only Government’s debt but people A like….Not sure when it was maybe 1987—1990… I read A article less than 8% in USA,, had no debt… I was in the middle of my career,, A independet,, small farmer doing OK,, had no debt… I felf BLESSED for awhile,, being the minorty,, Then I realized by not being in debt people who went in debt had more things some had more wealth,, some went Broke,,Of course nowday’s they write U down…I am 71– still no Debt,,
looks like I paid A big price for doing things the right way…..
JW GARDNER ; i am 77 , Janitor ,security guard ,etc. Same boat , same life style ;Hope we can pull out of this mess soon . Good LUCK >>
It’s going to be a rough summer!!!!
Good gut feelings Shah , call it as you see it
Convictions are needed to try and predict the out come of a world awash in debt ,,,,,,,, BEDT MUST BE REPAID ,, Each day as I watch the markets move thinly higher I ask what is it that I am missing? Housing is a sad mess in more places than USA, take Spain , BAD NEWS , China BAD NEWS and no good recovery in sight at this time. China may help the EU but nothing concrete, ONE exit from the EU and its curtians, Iran just pulled its OIL industry from all internet exposure CYBER WARFARE being the cause.
Bond boubles about to explode and INFLATION much worse than whats being reported, Education debt out of control with increased lending rates coming closer each day. Europe is declining daily, Brits printing faster than a runaway train , Euro banks sit on the erroded emBANKment of fast moving rivers and UNEMPLOYMENT at epidemic levels world wide, Is this MY GUT too Shah or the reality ,,,,,,, QE# coming but with less effect?
Elections year CRITICAL . Governance undecided,,, and yet the markets climb the wall of fear ,,,, my GUT says you are right Shah ,, its coming around the corner and now is time for protection of your portfolio.
Whispers of devaluation …. I HATE to be negative but the world speaks and ONE incident falls the house of cards ,,,,,,,,,, any one situation can be controlled but the turmiol is beyond control in the foreseeable future
Your candid honesty and GUT feelings reflect mine too, Conviction is Credability ,,, keep up the good work
Dubious
European politicians are masters of deception and manipulation. That’s how they stayed in power while spending more and more money they didn’t have and would never have.
So it’s quite possible they will re-schedule or forgive bank debts, depreciate the Euro, shift the problem onto future generations of tax payers, and declare that they have solved the financial problem.
The rest of the world’s politicians will be happy to play along with that scam.
Robert, sounds to me like your are refering that Europeon politicians are the same as the politicians in the USA .
If this is the case,I completely agree with you. They are all the same the world over.
Shah, I share your gastric distress. The question that bugs me is “When will the massive bailout money hit the streets?” Right now, it is locked up in banks and in bankers’ back pockets. The bankers are still supporting Tiffany and Saks, the poor and the neo-poor are still supporting Walmart, but the rest of America is still waiting for spenders to appear. Bankers got bailed; humans didn’t.
Never, there’s no delivery system. There’s no motivation to deliver the bailout money to those on the short end of the stick.
Shah, can you see any kind of solution to the problems within the Eurozone Creditsystem? I am afraid by June we will have the break down.
With Germany, NL, LU, and Finland carrying the burden for the rest, the people start to catch on. NL gov’t resigned last week. Mr.Holland possibly new President in France wanting to renegotiate the current agreement.
The dilemma for Germany is our economic dependency. Ifo-Institut Business Climate Index for April is up!! Check this report to understand.
http://www.cesifo-group.de/link/10indexgsk
Shah is right, even though the outcome is likely to go against his conclusions. The overbearing socialist governments and organizations of the world, including the Fed and the IMF just won’t allow the market to work and will print their way out of the long overdue correction.
Hi,
I live in Spain
Spains economy is / has been based on tourism and housing (mainly for the foreign market).Spain is in debt up to it’s neck.The banks have repossed much of the housing stock as the construction industry goes broke.Very similar to the U.S. subprime.Youth unemployment is now 50% and
climbing.Foreign tourism (hotel occuponcy) is on yhe fall.Spain is tied to the
Euro and is therefore unable to act to help it self (example not able to de-value)These are just SOME of it;s problems.My opinion is we are the “calm before the storm” moment in time. Many of us (the Guys with any brains) now only keep enough in our bank acount to cover the next months expenses,most keep our liquid assets in the British economy. . .
Spanish John,
Your first cure seems to be devaluation, Are there any other tonics on the table. Our finance minister just said no to the IMF. He is a little guy with big balls.
My image is a poker table and the only thing that matters are the number of chips in play. The amount of chips left back in the vault are unimportant. The only destructive thing is when some one player comes to the table with unlimited chips. That is when everything goes sideways.
Add to your concerns that are very real, the outcome of the talks with Iran on May 23 that may or may not go wrong, and you have the makings of a possible perfect storm. If shots are fired in the Middle East, all bets are off as oil will probably soar to $200 per barrel, and the markets will tank. This may pose a bigger threat than Europe imploding, or may be the trigger that hits the first domino in a global market melt down. Based on this where would you invest your money? The U.S. is already deploying F22′s to the area. Watch for the possible movement of other U.S. military deployments to this region as in aircraft carriers et al. Maybe a shot will be heard around the world, or maybe Iran will do a 180 degree turn. What is your opinion?
by John Cleese – British writer, actor and tall person
A final thought: Greece is collapsing, the Iranians are getting aggressive, and Rome is in disarray.
Welcome back to 430 BC
1. E-Mini SP500 early April high to the present: a 76.8 Fib retracement from 04/02 to 04/27, where price is now declining from about the 3:00 p.m. mark.
2. Historically, major highs and lows do not occur in the middle portion of the year.
3. Bear Trend change – going by the 50 MA crossing the 200 MA is foolish; suggest one view price decline below 50 MA toward 200 MA; expect price to recover and if it does not make a new high, then expect a major decline. This conforms to the principle that a major downtrend is a ‘process’, unlike trend changes to the upside.
Thus, I am currently expecting a significant move to the downside, followed by another up move – then I will wait to see if a new high or not. Wild card is Fed intervention to prevent a severe market downturn.
Just my opinion…
Thanks Shah for another interesting and thought proviking article. I too think disaster is brewing. Actually, I’ve felt this way for a long time ever since the Fed started printing money. The whole U.S. financial system and now the EU is house of cards that’s going to come crashing down soon. The reality is, all of the money printing has helped prop up the stock market and made corporations much more liquid and profitable, but it’s done little else to spur the economy like employment and housing. Companies are still reluctant to hire and banks reluctant to loan becuse of a huge amount of uncertainty that still prevails worldwide. Things are really not much better than 2008 except now I have a job after not having one for over 2 years. But I also make 50% less than I did in 2008 and the cost of living certainly isn’t 50% less. Something has to give. You can only keep going further and further into debt for so long. Over $15 trillion in the U.S. and growing exponentially. Social security and medicare going broke. How does that get fixed? You just can’t stop the bleeding from an arterial wound with a band aid.
Nobody gets out here with their shirts on this year.. maybe next year… Brussels has to enforce an Iranian oil embargo come July 1, as well as watch its three most fragile economies, Greece, Spain, and Italy all the most affected by embargo through the highest exposure to Iranian crude imports..Not good timing at all.
If Europe is not sick in bed for another year I’ll my hat…..while buying lots more stocks and feeling wonderfully hopeful and ready to live again. If they stumble we are in for another haircut…all of us…
I still think ‘up’ is going to be a few years off… forbid. Then again I am still dark and depressed from ’08.
The value of money is only people’s faith in it. If people stop believing in money’s value….then the whole power of central banking goes up in smoke. Central banking enables a few people to manufacture illusory value that the rest of the population accepts at face value. The people and political leadership of Iceland did the right thing…….walk away from the slavery of these money masters.
Math …Politicians….reallity….should say something about our elected officials
Horray for TV and it’s star struck (type) votors. Here and in foriegn.countries …..looks like we’re all alike US HUMANS Opps!
I must not have been there when the KING WORE NO CLOTHES
…
Shaw,
Is this not the Globalists’ Plan End Game that the approaching hoofbeats are announcing? Spend, steal, and hoard 5 Generations worth of capital within the Elete Ranks; Pretend to try “fix” it; Then crash the World Economy, and accumulate everything in sight at $.10 to $.25 on the [previous] Dollar;
Then offer Themselves as the solution, along the lines of One World Government / One World Currency [which they will claim would have avoided
all this disaster, if we had adopted both sooner];
Oh, and then relate to the Public that they [Globalists] didn’t cause this; “Those other Guys did [somewhere across the water];l
But, now, if you’ll just “do it our way………….we will rebuild!”
Wild Card is not just the European Politicians, but what will the White House promise and do, so this doesn’t happen before the Elections?
This is where your informed viewpoint helps everyone listening; Whatever happens, keep your head, and keep Managing!
Best Regards,
Doc
Wouldn’t all this doomsday pessimism be the contrarian indicator that it’s going higher? Bearishness is at the same level it was last fall. How many of you missed that rally and are still hoping to be right? Nothing new said here – all these bad expectations are already out there and we are still within striking distance of new highs for the year. The wall of worry has never been higher – better start climbing!
Well done Shah,,, Open MINDS and eyes
Check this site and it falls into place
over 100 years in planning and they almost did it
http://www.silverbearcafe.com/private/04.12/thrive.html
its about time capitalism did what its designed for and free Markets with opportunity
Dubious
Plan A – The people making the decisions will soon do something to fix everything and we will all be just fine.
Plan B – Start today to help yourself. Draw all of your resources around you to create a situation in which you and your family will be safe and have food on the table. Grow a garden, raise chickens, move out of the city, get into small business that does useful things, help your neighbors, acquire useful tools and skills, get healthy. start thinking. Use your business or trade to make your close community stronger.
Those are the two main plans. I’ve chosen Plan B.
It seems that very soon there will be a fire sale of all assets by the eurozone banks. These banks have massive leveraged bets on Med countries sovereign bonds and the eurozone banks are essentially insolvent. Their distress should be felt worldwide as these banks have tie-ins with other banks worldwide through debt swap arrangements and holdings of their securities in money market funds.
I am thrilled to read what I am reading. Sentiment indicators are pointing to a significant rise the rest of this year and most of you are running scared. It is highly likely no significant correction will occur until around early fall. After a 10-12 % DOW correction from around 14,200-14,500 one of the greatest year-end rallies will likely take place. This year may be similar to the 1998-2000 and the 2006-2007 fifth waves of the bull markets at that time. This year “sell in May and go away” is exactly the wrong thing to do. My technical indicators show just the opposite, so it’s time to buy on dips. I’m looking for the Dow to reach between 15,000 and 15,500 by early next year. Any shallow bear market that will take place will likely be next year and take us back to the 12,700-12,800 area, not this year.
The public has yet to get on this rally bandwagon. When we see at least a couple of hundred billion dollars buying equity mutual funds and sentiment indicators flying off the wall let’s talk about the pitfalls of this market. Be smart and don’t follow the crowd. Some really great moves are about to take place, especially in small cap and emerging growth companies. Even low priced stocks will have their day. You’d better be in now because the public has yet to be in with all the negative talk about Europe. We are in the first bull market of a secular 15-20 year trend; however, this bull market is far from over.
EU, democracy is only for those allowed it..
Banks and thousands of owned subsidiaries will be bailed out see- itsfraud.com
Governments will still hide the fraud and corruption.
And the public will not allow it any more.
Or as one policeman recently said, (if I cant feed my children, I will steal rob and join a revolution to rid my country of the rats whose greed destroyed my friend my country and yours.
Living in France, I have a closer view of Sarko. He’s a crafty varmint, the closest to Britain’s Disraeli that France has ever had, ruthless, unscrupulous, amoral and exceedingly hard to beat. Martine le Pen is his female clone. She’ll trade – she’s waiting to the last moment, when she’ll get the best terms – and so will he.
Did you admit you were wrong last yearabout shorting bonds?
No Worries Levi, as long as your predictions aren’t based on any economics I’m right with you !
shah: I have some hard gold and silver, thats good but! I have a 11 different gold and silver stock plays, when we get the correction that is bound to come sooner or later, should i be thinking of selling them here if we get a little bump and buy them back later, like in november?
I will not be suprised if they come with some new way to stave of the inedible. I guess some sort of phoney promise to come after the elections, and in the future. I have seen this many many times, and I’m waiting to see what they cook up this time to put out the fires.