Monthly Market Analytics & Technical Analysis

March 2012 Edition

Gordon T Long
3/6/2012

1 March 2012 Edition

Copyright 2012 Gordon T. Long All Rights Reserved

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Monthly Market Analytics & Technical Analysis

MARCH 2012
SUBSCRIPTION SERVICE: PLAN IV
BIG PICTURE - KEEPING YOUR PERSPECTIVES ..................................................................................................................................... 5
HIGHLIGHTS - WHAT YOU NEED TO KNOW ........................................................................................................................................... 8
OUR APPROACH - MACRO ANALYTICS ...............................................................................................................................................13
Global Macro Drivers - Techno-Fundamental Bridge ............................................................................................................. 14
Currency & Spread................................................................................................................................................................ 14
Real versus Nominal - (Don't Fight the Fed)x ......................................................................................................................... 16
Comparisons to the Japanese Nikkei .................................................................................................................................... 21
Risk-On - Risk-Off ................................................................................................................................................................. 22
OUTLOOK - ANALYTICAL ANALYSIS .....................................................................................................................................................24
Warnings Everywhere - But No One Is Listening ................................................................................................................... 24
Goldman Sachs Investor "Wall of Worry" ........................................................................................................................ 24
Investor Sentiment - Shifting With Gas Scare................................................................................................................... 25
Economic Surprise Indicator - Due for a Surprise ............................................................................................................. 26
Complacency At High - VIX at Low .................................................................................................................................. 28
Glaring Anomaly in Yields ................................................................................................................................................ 29
Time Tested Warning Sign - DOW Transports Divergence .............................................................................................. 30
Investor Sentiment - Retails Sales Always the Final Sign ................................................................................................. 31
Market Breadth Aligns With A Pullback Scenario ............................................................................................................. 32
Market Breadth Aligns With A Pullback Scenario ............................................................................................................. 35
Near Perfect Rounded Top Is In - But It Needs Revisiting! .................................................................................................... 38
Golden Cross & New Closing High................................................................................................................................... 39
Longer Term Timing Indicators ........................................................................................................................................ 40
Monthly Moving Average - Non Confirmation ................................................................................................................... 41
We Have Seen this Pattern Before - 2000 and 2007 ........................................................................................................ 42
Wolf Wave / Megaphone Tops .............................................................................................................................................. 43
SHORT TERM TECHNICAL ANALYSIS ................................................................................................................................................47
Gann Analysis ....................................................................................................................................................................... 47
Channels & Regressions ....................................................................................................................................................... 49
Fibonacci - Controlling Time Extensions................................................................................................................................ 50
Elliott Wave ........................................................................................................................................................................... 52
Sentiment - Consumer, Investor & Trader ............................................................................................................................. 53
Consumer Confidence - Conference Board ...................................................................................................................... 53
Consumer Sentiment - Michigan ...................................................................................................................................... 56
Consumer Comfort........................................................................................................................................................... 57
Investors Intelligence ....................................................................................................................................................... 58
American Association of Independent Investors ............................................................................................................... 58
National Association of Active Investment Managers (NAAIM) ......................................................................................... 59
Small Business Optimism ................................................................................................................................................ 60
Smart Money / Dumb Money Confidence ......................................................................................................................... 61
Percentage Stocks Above 50 & 200 DMA ........................................................................................................................ 62
Margin Levels .................................................................................................................................................................. 63
Mutual Fund Cash Levels v S&P 500 ............................................................................................................................... 67
Oscillators & Breadth Indicators of Importance ...................................................................................................................... 69
NYSE Overbought / Oversold .......................................................................................................................................... 69
OEX Open Interest (Puts/Calls) ....................................................................................................................................... 70
TRIN ................................................................................................................................................................................ 71
McClellan Oscillator ......................................................................................................................................................... 72
INTERMEDIATE TERM RISK ANALYSIS............................................................................................................................................73
RISK SUMMARY- Aggregated Global Financial Risk Index................................................................................................... 73
Banking Risk - LIBOR-OIS Spread (Updated) .................................................................................................................. 74
Banking Risk - TED Spread (Updated) ............................................................................................................................. 74

2 March 2012 Edition

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Credit Risk - Global Credit Default Swaps (Updated) ....................................................................................................... 74

Credit Risk- EU Credit Default Swaps (Updated) ............................................................................................................. 75
Consumer Risk - Housing- Rate of Change (Reference) .................................................................................................. 76
Economic Risk- ECRI Leading Index (Updated) ............................................................................................................... 78
Inflation Risk- Money Supply Growth - M3 (Updated) ....................................................................................................... 79
Inflation Risk - Money Velocity (Updated)......................................................................................................................... 79
Monetary Risk - Bank Liabilities (Updated) ....................................................................................................................... 80
Cost of Money Risk - Interest Rates (Updated) ............................................................................................................... 81
AGGREGATED RISK LEVEL .......................................................................................................................................... 82
Complacency - Currently the Biggest Risk ............................................................................................................................ 83
Complacency: Complacency Measures are High ............................................................................................................. 83
Complacency: Exhibit A, January Volume ........................................................................................................................ 85
Complacency: Volume Crashes ....................................................................................................................................... 86
Market Warning Telltales - 'Canaries in the Coal Mine' .......................................................................................................... 90
Canaries: Risk Premiums................................................................................................................................................. 90
Canaries: Extreme Hunger for Risk .................................................................................................................................. 91
Canaries: Negative Margin Debt ...................................................................................................................................... 92
Canaries: 2008 Comparison ............................................................................................................................................ 93
Canaries: Only Four General (CAT, HD, MCD & IBM) Holding Up the Market .................................................................. 94
Canaries: Mutual Fund Outflows Surge As NYSE Short Interest Back To March 2009 Levels .......................................... 96
Reference Article: Tired of Ups and Downs, Investors Say, 'Let Me Out!' ........................................................................ 98
Reference Article: Comparing The 2007 Topping Pattern To Now ................................................................................. 100
Reference Article: New Stock Bear? .............................................................................................................................. 102
Warnings - New Additions "Pounding the Table" ................................................................................................................. 103
Warning: John Hussman PhD, CIO Hussman Funds ..................................................................................................... 103
Warning: Joe Granville, Granville Market Letter ............................................................................................................. 104
Warning: Charles Biderman: CEO TrimTabs' ................................................................................................................. 105
LONGER TERM - FUNDAMENTAL ANALYSIS....................................................................................................................................... 106
Highlights ............................................................................................................................................................................ 106
What We Called for Is Now Happening .......................................................................................................................... 109
Q4 2011 Earnings ............................................................................................................................................................... 114
What the Major Corporations Are Telling Us About The World Economy ....................................................................... 116
Shifting Secular Sands - Emerging Impediments to Global Earnings Growth Rates ............................................................ 120
Cost Push now Creating Margin Compression! ................................................................................................................... 121
Margin Compression versus PE Compression ............................................................................................................... 123
S&P 500 PE Ratios ........................................................................................................................................................ 124
Big companies' P-E's shrivel to single digits ................................................................................................................... 124
Reduced Earnings Growth Rates - Need to be Watched Carefully ..................................................................................... 125
Equities as a Matter of Belief ......................................................................................................................................... 125
The Charts Wall Street Doesn't Want You To See On Annual Returns .......................................................................... 128
Some Sobering Japanese Comparison Charts from Michael Darda at MKM Partners (Reference Article) ..................... 133
Are Corporate Profit Margins About To Grind Lower For Another 10 Years? (Reference Article) ................................... 136
Corporations Have Captured 88% Of All Post-Recession Income Growth (Reference Article) ....................................... 137
Think Stocks Are Cheap? Here's 7 Reasons Why That's A Myth (Reference Article) ..................................................... 138
Valuation Methodologies ..................................................................................................................................................... 139
Four Set Consolidated Market Valuation Indicators: Overvaluation Remains High ......................................................... 139
Crestmont from the Arithmetic........................................................................................................................................ 141
Cyclical PE 10 Ratio ...................................................................................................................................................... 143
Q Ratio .......................................................................................................................................................................... 146
S&P Composite Regression-to-the-Trend ...................................................................................................................... 151
S&P Fair Value .............................................................................................................................................................. 152
Rule of 20 (Reference Article) ........................................................................................................................................ 158
Cyclically Adjusted PE's (CAPE) are Richly Valued (Reference Article) ......................................................................... 159
Value Line Arithmetic (Reference Article) ....................................................................................................................... 160
Shiller PE Ratio (Reference Article) ............................................................................................................................... 160
Comments on Estimated Forward Operating Earnings (Reference) ............................................................................... 161
S&P Earnings Yield versus Bond Yields .............................................................................................................................. 162
200-250 Point Market Divergences that History Says must be Resolved ....................................................................... 162

S&P 500 TARGETS ..................................................................................... 165

CONCLUSION .............................................................................................. 167
3 March 2012 Edition
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general@GordonTLong.com