Market Notes
Apple (AAPL) has become the world's largest company by market capitalisation... ever. It has now eclipsed Microsoft's market cap peak in late December 1999 during the technology bubble in nominal terms (not inflation adjusted terms). Amazingly, the parabolic run has created gains of 81 times over the last 10 years. Disclosure: I have started shorting Apple with OTM 2014 Puts.
The Nasdaq Composite approached March highs on the back of some of the weakest and narrowest breadth I have ever seen. When we look at the number of tech stocks making 52 Week New Highs and smooth it out over an one month time frame, the results are flashing warning signals as majority of the tech companies are failing to confirm the rally.
A few weeks ago I wrote about how the British Pound was a good short. I still believe this to be the case, as I think the pound's major consolidation pattern will resolve to the downside. I believe that the UK is going to enter a more serious slowdown but I seem to be in the minority, as many traders turn very optimistic towards future prospects of the British pound.
Precious metals are breaking out from their technical pressure points. We saw platinum start the move, followed by silver and finally gold has now joined the party too. While gold bugs are celebrating, I think the real test is ahead of us. PMs need to prove that they can rally even if volatility rises, risk assets including stocks sell-off and the US dollar starts to rally again.
We continue to see that industrial economic barometers like copper and crude oil are failing to rise above the 200-day MA and confirm the S&P 500's new highs in 2013. The Emerging Markets, saviour of global growth in the post Lehman recovery, also continue to lag other equity indices indicating that not all is well with the BRICs. Furthermore, the short term rise in the DAX 30, Commodity Currencies and Brent crude (not shown here) has been almost vertical and caution is advised. Finally, gold seems to be attempting a technical upside breakout, but the real test will be coming as global risk asset's volatility rises and the US dollar starts to rally again.
Global economic data continues to beat economist's expectations. Like previously stated, this is a positive for the time being and it has been helping global stocks and other risk assets move higher in the last couple of weeks. However, keep in mind that this indicator does not actually state weather or not global economy is improving, but just weather the data is coming in below or above economists expectations. During the middle of 2008, US economic data improved relative to economists expectations, and yet the recession just intensified and markets crashed afterwards.
Bulls from CNBC to Bloomberg are trying to convince bearish investors that the US economy is improving. Even some of the more respected investors are falling into the bullish trap as well. Some of them are even celebrating the fact that the ECRI Growth Index has risen from -3.5% to -0.6% (chart below) over recent weeks. Can I just ask, since when did a negative leading economic number deserve so much celebration and bullish speculation?
Do not believe the hype, as there is no strong evidence to support economic improvements. Money printing is having less and less of an effect on the economy. The chart above shows that every one of the intermediate tops over the current secular bear market came during a negative divergence between falling leading economic indicators and rising equity prices. We currently have higher rising prices during falling leading economic activity (another bearish non-confirmation), so will this time be different?
The chart above, thanks to alsosprachanalyst.com, shows that Chinese electricity output remains flat at best. Chinese National Bureau of Statistics showed that hydroelectric power was the recent overall output growth remained above 0%. More importantly, thermal power output growth keeps sliding in July towards -4.5%. Why is this important, you ask? Because electricity production has high correlation with Chinese GDP (which cannot be completely trusted) and global mining sector performance. All in all, Chinese leading data continues to slow. China holds the key to future prospects of copper prices, and the feature article below explains why.
Featured Article
I have been reading a variety of investment bank newsletters in my inbox over the last few days. The ones I always look forward to reading are commodity related newsletters because it is my opinion that commodities are still in a secular bull market, which started in 1999. The comment that stood out for me was by UBS Commodity Connections Q3 2012 newsletter, which stated that:
"China, the primary fundamental driver of the global copper price, has reported record-high semi-manufactured production rates, and a corresponding large drawdown in inventories. Now short copper, China’s likely to buy throughout H2, supporting the metal’s price."
So UBS is bullish on copper, one of the main barometers of global growth. I am in no position to argue for or against USB, as they have large team studying ground conditions regarding various copper fundamentals, as well as in-house export technical analysts. Nevertheless, I thought I would investigate matters further, but before we begin, it is important to understand that even though we are in a secular commodity bull market, there are periods when bears take over cyclical fundamental forces against the overall bullish price trend. One could say that we have been in a cyclical bear market for commodities for about a year now (chart below).
The chart above, thanks to alsosprachanalyst.com, shows that Chinese electricity output remains flat at best. Chinese National Bureau of Statistics showed that hydroelectric power was the recent overall output growth remained above 0%. More importantly, thermal power output growth keeps sliding in July towards -4.5%. Why is this important, you ask? Because electricity production has high correlation with Chinese GDP (which cannot be completely trusted) and global mining sector performance. All in all, Chinese leading data continues to slow. China holds the key to future prospects of copper prices, and the feature article below explains why.
Featured Article
I have been reading a variety of investment bank newsletters in my inbox over the last few days. The ones I always look forward to reading are commodity related newsletters because it is my opinion that commodities are still in a secular bull market, which started in 1999. The comment that stood out for me was by UBS Commodity Connections Q3 2012 newsletter, which stated that:
"China, the primary fundamental driver of the global copper price, has reported record-high semi-manufactured production rates, and a corresponding large drawdown in inventories. Now short copper, China’s likely to buy throughout H2, supporting the metal’s price."
So UBS is bullish on copper, one of the main barometers of global growth. I am in no position to argue for or against USB, as they have large team studying ground conditions regarding various copper fundamentals, as well as in-house export technical analysts. Nevertheless, I thought I would investigate matters further, but before we begin, it is important to understand that even though we are in a secular commodity bull market, there are periods when bears take over cyclical fundamental forces against the overall bullish price trend. One could say that we have been in a cyclical bear market for commodities for about a year now (chart below).
The overall region consumes almost 60% of the global copper supply (including Japan), as we can see from the chart above thanks to UBS. It becomes plainly obvious that inter-linked growth spreads even further towards many commodity exporting countries like Brazil, Australia, Canada, Indonesia, South Africa, New Zealand, Argentina, Mongolia among many others. In other words if China, as well as overall Asia slow down, world growth will be heavily affected.
