Is A Stock Market And Commodities Correction Coming?
Let's take a quick pulse of the markets. While we have had a positive bias over the past month, it has been weak by many measures. The oft watched market internals such as new highs and advance-decline line look reasonably okay but the NYSE internals have become very misleading anyway. Too many bond-like instruments, ETFs and international ETFs are now traded on the NYSE. In addition, the advance-decline line can be very misleading. If stocks have a larger daily range on up days versus down days, the advance-decline line can and does remain negative for years regardless of whether markets are rising or falling. Be that as it may, the market doesn't appear unhealthy looking at these data points.
Looking underneath the hood there are quite a few flags in the market. Regardless of what is being said in the press, I don't see an enormous appetite for risk. Traders are positioned very defensively. The only place I see insanely bullish action is in the uranium, steel and some grain markets. To look at the uranium market, I see a repeat of copper and oil mania into May of 2006. Is this a second major commodities top setting in for a correction? Are we about to see another leg down in oil? Uranium is definitely going to crater at some point. $7 to $125 a pound is simply stupidity. Or, if you are a trader who has been long that market, it is a thing of beauty. I'm not saying uranium isn't an interesting investment long term. But, at this price I guess those traders without a degree in nuclear physics don't realize there is something called economic substitution. Thorium is much more widely available, cheaper and substitutable should nuclear fuel technology continue to advance. In other words, this move in uranium is solely driven by traders anticipating future demand. It takes the better part of a decade to get approval and then build a nuclear power plant. While we may see substantial nuclear power growth in the future, is a move from $7 to $125 warranted?
The new data point of the day for the deliriously bullish is shipping rates. The global economy must be great because shipping rates are up. Maybe. But, what they fail to tell you is we have also seen shipping rates crater each time they have reached this level in this cycle. That was followed by stock market corrections. Hmm. I guess they forgot to tell you that small point.
So, with the market risk profile looking a little shaky at best, coincidentally parabolic moves in some commodities and China's re-established run of credit card investing, are we setting up for another May correction? Much of what I model tells me yes but that could change. I doubt it but we just have to see how the next two weeks play out.
Let's take a stab at another short term prediction and pick three possible market reversal dates: April 20th (lower odds with options expiration), April 21st and May 5th. Since the 21st is not a weekday, let's substitute the following Monday, April 23rd. If I were a betting man, and I'm not, I'd go with May 5th. Let's wait and see.
Looking underneath the hood there are quite a few flags in the market. Regardless of what is being said in the press, I don't see an enormous appetite for risk. Traders are positioned very defensively. The only place I see insanely bullish action is in the uranium, steel and some grain markets. To look at the uranium market, I see a repeat of copper and oil mania into May of 2006. Is this a second major commodities top setting in for a correction? Are we about to see another leg down in oil? Uranium is definitely going to crater at some point. $7 to $125 a pound is simply stupidity. Or, if you are a trader who has been long that market, it is a thing of beauty. I'm not saying uranium isn't an interesting investment long term. But, at this price I guess those traders without a degree in nuclear physics don't realize there is something called economic substitution. Thorium is much more widely available, cheaper and substitutable should nuclear fuel technology continue to advance. In other words, this move in uranium is solely driven by traders anticipating future demand. It takes the better part of a decade to get approval and then build a nuclear power plant. While we may see substantial nuclear power growth in the future, is a move from $7 to $125 warranted?
The new data point of the day for the deliriously bullish is shipping rates. The global economy must be great because shipping rates are up. Maybe. But, what they fail to tell you is we have also seen shipping rates crater each time they have reached this level in this cycle. That was followed by stock market corrections. Hmm. I guess they forgot to tell you that small point.
So, with the market risk profile looking a little shaky at best, coincidentally parabolic moves in some commodities and China's re-established run of credit card investing, are we setting up for another May correction? Much of what I model tells me yes but that could change. I doubt it but we just have to see how the next two weeks play out.
Let's take a stab at another short term prediction and pick three possible market reversal dates: April 20th (lower odds with options expiration), April 21st and May 5th. Since the 21st is not a weekday, let's substitute the following Monday, April 23rd. If I were a betting man, and I'm not, I'd go with May 5th. Let's wait and see.
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