Monthly Market Analytics & Technical Analysis

February 2012 Edition -

Gordon T Long
2/4/2012

1 February 2012 Edition

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Monthly Market Analytics & Technical Analysis

FEBRUARY 2012
SUBSCRIPTION SERVICE: PLAN IV
BIG PICTURE - KEEPING YOUR PERSPECTIVES ..................................................................................................................................... 5
HIGHLIGHTS - WHAT YOU NEED TO KNOW ........................................................................................................................................... 7
OUR APPROACH - MACRO ANALYTICS ...............................................................................................................................................11
Global Macro Drivers - Techno-Fundamental Bridge ............................................................................................................. 12
Currency & Spread................................................................................................................................................................ 12
Real versus Nominal - (Don't Fight the Fed)x ......................................................................................................................... 14
Risk-On - Risk-Off ................................................................................................................................................................. 17
OUTLOOK - ANALYTICAL ANALYSIS .....................................................................................................................................................19
Fibonacci Sequencing ........................................................................................................................................................... 19
Long Term Linear Regressions and Boundary Conditions ..................................................................................................... 24
January Rounded Top ........................................................................................................................................................... 27
November Framework (Reference - Rounded Top Tracking) ........................................................................................... 28
Emerging Head & Shoulder Fractals ..................................................................................................................................... 29
Technical Cross Currents: A Golden Cross ........................................................................................................................... 32
Confirmed Death Crosses (Reference Analysis).................................................................................................................... 42
Rolling and Cascading Global Markets (Reference Analysis) ................................................................................................ 47
SHORT TERM TECHNICAL ANALYSIS ................................................................................................................................................55
Gann Analysis ....................................................................................................................................................................... 55
Channels & Regressions ....................................................................................................................................................... 57
Elliott Wave & Fibonacci........................................................................................................................................................ 59
Sentiment - Consumer, Investor & Trader ............................................................................................................................. 60
Consumer Confidence - Conference Board ...................................................................................................................... 60
Consumer Sentiment - Michigan ...................................................................................................................................... 63
Consumer Comfort........................................................................................................................................................... 64
Investors Intelligence ....................................................................................................................................................... 65
American Association of Independent Investors ............................................................................................................... 65
National Association of Active Investment Managers (NAAIM) ......................................................................................... 66
Small Business Optimism ................................................................................................................................................ 67
Smart Money / Dumb Money Confidence ......................................................................................................................... 68
Percentage Stocks Above 50 & 200 DMA ........................................................................................................................ 69
Margin Levels .................................................................................................................................................................. 70
Mutual Fund Cash Levels v S&P 500 ............................................................................................................................... 74
Oscillators & Breadth Indicators of Importance ...................................................................................................................... 76
NYSE Overbought / Oversold .......................................................................................................................................... 76
OEX Open Interest (Puts/Calls) ....................................................................................................................................... 77
TRIN ................................................................................................................................................................................ 78
McClellan Oscillator ......................................................................................................................................................... 79
INTERMEDIATE TERM RISK ANALYSIS............................................................................................................................................80
RISK SUMMARY- Aggregated Global Financial Risk Index................................................................................................... 80
Banking Risk - LIBOR-OIS Spread (Updated) .................................................................................................................. 81
Banking Risk - TED Spread (Updated) ............................................................................................................................. 81
Credit Risk - Global Credit Default Swaps (Updated) ....................................................................................................... 81
Credit Risk- EU Credit Default Swaps (Updated) ............................................................................................................. 82
Consumer Risk - Housing- Rate of Change (Reference) .................................................................................................. 83
Economic Risk- ECRI Leading Index (Updated) ............................................................................................................... 85
Inflation Risk- Money Supply Growth - M3 (Updated) ....................................................................................................... 86
Inflation Risk - Money Velocity (Updated)......................................................................................................................... 86
Monetary Risk - Bank Liabilities (Updated) ....................................................................................................................... 87
Cost of Money Risk - Interest Rates (Updated) ............................................................................................................... 88
AGGREGATED RISK LEVEL .......................................................................................................................................... 89
Complacency - Currently the Biggest Risk ............................................................................................................................ 90

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Complacency: Complacency Measures are High ............................................................................................................. 90

Complacency: Exhibit A, January Volume ........................................................................................................................ 92
Complacency: Volume Crashes ....................................................................................................................................... 93
Market Warning Telltales - 'Canaries in the Coal Mine' .......................................................................................................... 97
Canaries: Risk Premiums................................................................................................................................................. 97
Canaries: Extreme Hunger for Risk .................................................................................................................................. 98
Canaries: Negative Margin Debt ...................................................................................................................................... 99
Canaries: 2008 Comparison .......................................................................................................................................... 100
Canaries: Only Four General (CAT, HD, MCD & IBM) Holding Up the Market................................................................ 101
Canaries: Mutual Fund Outflows Surge As NYSE Short Interest Back To March 2009 Levels ........................................ 103
Reference Article: Tired of Ups and Downs, Investors Say, 'Let Me Out!' ...................................................................... 105
Reference Article: Comparing The 2007 Topping Pattern To Now ................................................................................. 107
Reference Article: New Stock Bear? .............................................................................................................................. 109
Warnings - New Additions "Pounding the Table" ................................................................................................................. 110
Warning: John Hussman PhD, CIO Hussman Funds ..................................................................................................... 110
Warning: Joe Granville, Granville Market Letter ............................................................................................................. 111
Warning: Charles Biderman: CEO TrimTabs' ................................................................................................................. 112
LONGER TERM - FUNDAMENTAL ANALYSIS....................................................................................................................................... 113
Highlights ............................................................................................................................................................................ 113
What We Called for Is Now Happening .......................................................................................................................... 116
Q4 2011 Earnings ............................................................................................................................................................... 121
What the Major Corporations Are Telling Us About The World Economy ....................................................................... 123
Shifting Secular Sands - Emerging Impediments to Global Earnings Growth Rates ............................................................ 127
Cost Push now Creating Margin Compression! ................................................................................................................... 128
Margin Compression versus PE Compression ............................................................................................................... 130
S&P 500 PE Ratios ........................................................................................................................................................ 131
Big companies' P-E's shrivel to single digits ................................................................................................................... 131
Reduced Earnings Growth Rates - Need to be Watched Carefully ..................................................................................... 132
Equities as a Matter of Belief ......................................................................................................................................... 132
The Charts Wall Street Doesn't Want You To See On Annual Returns .......................................................................... 135
Some Sobering Japanese Comparison Charts from Michael Darda at MKM Partners (Reference Article) ..................... 140
Are Corporate Profit Margins About To Grind Lower For Another 10 Years? (Reference Article) ................................... 143
Corporations Have Captured 88% Of All Post-Recession Income Growth (Reference Article) ....................................... 144
Think Stocks Are Cheap? Here's 7 Reasons Why That's A Myth (Reference Article) ..................................................... 145
Valuation Methodologies ..................................................................................................................................................... 146
Four Set Consolidated Market Valuation Indicators: Overvaluation Remains High ......................................................... 146
Crestmont from the Arithmetic ................................................................................................................................... 148
Cyclical PE 10 Ratio ................................................................................................................................................. 150
Q Ratio ..................................................................................................................................................................... 153
S&P Composite Regression-to-the-Trend ................................................................................................................. 158
S&P Fair Value .............................................................................................................................................................. 159
Rule of 20 (Reference Article) ........................................................................................................................................ 165
Cyclically Adjusted PE's (CAPE) are Richly Valued (Reference Article) ......................................................................... 166
Value Line Arithmetic (Reference Article) ....................................................................................................................... 167
Shiller PE Ratio (Reference Article) ............................................................................................................................... 167
Comments on Estimated Forward Operating Earnings (Reference) ............................................................................... 168
S&P Earnings Yield versus Bond Yields .............................................................................................................................. 169
200-250 Point Market Divergences that History Says must be Resolved ....................................................................... 169

S&P 500 TARGETS ..................................................................................... 172

CONCLUSION .............................................................................................. 173

3 February 2012 Edition

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