Biderman on why to expect a correction soon.
In 2010 the S&P 500 rose almost 5% the first three months of that year and then popped an additional 3% in April before topping out the second trading day of May. Then the S&P 500 dropped 13% by the August 2010 low.
Similarly 2011 mirrored 2010 as the S&P 500 rose a bit over 5% the first three months of that year and climbed an additional 3% in April 2011 as it did in April 2010. Then starting the first trading of May, the S&P plunged 18% by the August 2011 low.
In other words, the stock market in 2011 mimicked a similar trading pattern to what happened in 2010 for the entire year. And I would not be surprised if 2012 is the third year in a year that the stock market rises the first four months of the year before plunging over the next few months.
Why has the stock market risen the first part of each of the past three years? The answer is simple. The Fed has front loaded money printing each year, QE1 in 2010, QE2 in 2011 and Operation Twist this year.
Full video below.
Quick chart update. The Trader has been rather bearish on the Spanish and the Italian markets over the past weeks. Both indices have reached some short term suppot levels though. The long term picture is still ugly, but selling into these support levels is probably not wise.
The Eurostoxx 50 is not trading well, but has also reached some short term support levels.
Essential European charts below.
Spain is reaching that “when it rains…” moment. Unemployment is taking out new highs, PMI is falling off the cliff, the new PMs honeymoon is over and the property collapse is about to happen. Prices have come off from their highs, but it is not until this year we can expect the real downturn as the banks are forced to start hitting the market with their inventories of empty properties. If you think the US had a bubble, Spain is much worse. The big elephant in the European room is in motion. From Bloomberg.
Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings.
Home prices will decline 12 percent to 14 percent, according to research and advisory company R.R. de Acuna & Asociados, after Economy Minister Luis de Guindos in February gave lenders two years to make 50 billion euros ($67 billion) of additional provisions and capital charges for losses linked to real estate. That’s the most since the National Statistics Institute started tracking values in 2007. Standard & Poor’s forecasts borrowers with negative equity may rise to 25 percent this year from 8 percent in 2010, based on an analysis of 800,000 mortgages.
European unemployment figures continue to look nasty. Charts are exploding to the upside, as unemployment hits 15 year highs. The skyrocketing unemployment, and the fact that the fertility rates are insufficient, are two facts the Bazooka and the LTRO can’t take care of.
Europe’s most important charts below.
Another day on the Iberian Peninsula. The Trader has been writing extensively on the Spanish situation over the past year. The problems are now getting increased focus by investors, and we expect the Spanish situation to go much more intense over the coming months. The Spanish unemployment, debt levels, etc are one part of the problem, the other side is whether or not people actually know what is going on. “They” tell us the debt ratios are under control, buy simple not adding all relevant items. “They” tell us properties have bottomed out, but still there is probably over a million empty homes. “They” tell us the LTRO is great for the Spanish banks, but they use it for loans to bullfighting tickets. Espana, everything under the sun, especially indebted bullfighting tickets. From WSJ.
But by granting the new lease on life, the ECB program also has enabled the industry to delay its cleanup process, according to some bankers, investors and other experts.
“The LTRO has allowed for an extension of the period before which bank reconstruction is embraced, and the damage for the euro area could be material,” said Alastair Ryan, a banking analyst with UBS.
The tactics are most prevalent in Spain, where banks are awash in ECB loans but also are buckling under the increasing weight of bad real-estate loans. Lenders are making accommodations to small- and medium-size borrowers that take immediate heat off their customers, but possibly only kick problems to a later date.
Guest Post by The Technical Take.
April Fools! That is what it feels like when investing in this market. If you put money to work now and the market tanks, you feel like a fool. If you sit on your hands and watch the market levitate higher week after week, you feel like a fool. If you do jump in and the market goes higher, it is likely that you will need to be very nimble to lock in those gains as the best, most accelerated gains are behind us. What is an investor to do? You cannot win. In the end, the markets are a zero sum game, and we are all fools anyway! Ughhhh!
The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows extreme bullishness.