Tuesday, August 14, 2012


It seems like everyone is negative about the markets.  As a blogger and market participant that is usually concerned about the health of the market I feel pretty negative too since I look at the long-term direction and structure of our economy and can't help but doubt that unrestrained deficit spending will be good for us.  However, when everyone is doubting the market and the economy, I have to question the sanity of crowding into the same side of a boat with all of the other passengers.  Since everyone is expecting a collapse, my guess is that we need to have the bots and the powers that be really screw things up and show us how powerfully bullish things can get.

Let's quickly look at a couple of charts and see if all of this one-sided negativity is warranted.

A review of the DJIA shows us that there may be some room to move higher if we can break through overhead resistance at 13,350.  If a breakout does occur, the upward channel 13,600 seems possible as well.  Clearly that overhead resistance is the major short-term challenge we need to watch.

Link for the chart - DJIA

We've monitored the Bloomberg Financial Conditions Index for almost three years now.  This indicator gives us a sense for whether the economy is contracting or expanding.  The print recently over 0.00 suggests now that the economy is not in a recession, but is in an expansion.  Obviously this metric is quite different than what we are hearing from the heard.  The index sits at .31 as I type.

Finally, we can't have a 100% bullish post in this blog, so we need to at least leave you with a chart that confronts this positive outlook head on.  Alan Greenspan watched the scrap metal markets while Chairman of the Federal Reserve to help him get a real gauge on the health of the economy.  Below I've captured a chart of the scrap metal composite index which is saying that the economy is absolutely not heating up and improving.  While I love this indicator, I think there is more to this than what we may initially think.


Perhaps, instead of saying that the US economy faltering, I think the chart suggests that this is more of an indication of what we are seeing a contraction in Asian countries.  These nations have been large buyers of recycled goods for a long time and scrap isn't any different.  A Chinese slowdown is absolutely impacting the price of these goods and this chart may be a better reflection of global trade.

Finally, we must keep watching the situation with US crop production and the drought.  Ultimately fuel costs could rise significantly on the loss of corn production and also food companies

No matter how bullish or bearish we are, we must always look to examine the market, the participants, and the other side of our view.  We looked at 3 charts that may help us discern the market direction.  The DJIA price chart suggests more strength if we can plow through 13,350 and the Bloomberg Financial Conditions Index also shows we are actually in a period of growth.  Scrap is in the toilet, but I think this is more about China than the USA.

I think we continue to melt up here until perhaps the first week of September as investors remember we actually have this place called Europe that is a total disaster, so carry on!

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/