Tuesday, September 1, 2009

Checklist for market warnings

I have prepared a checklist for intermarket warnings as most markets peak before the stock market, and all markets are interconnected. I have left out US treasuries for now as they haven't warned (yet?). They may in the future.

There were 6 major warning signals given last year that warned of the debacle in the fall of 2008. This year, 3 of them are giving warnings, and another 3 are still up for debate (in red). For a major top to be confirmed (S&P 1018 as of August 7th; currently 996 as of August 19th), the USD has to rally big-time and commodities and credit markets have to sell-off.

The remaining weeks of August into early September should be telling.

Summary of 2008:

1) Credit markets peaked in early May. Major warning. Major problems continued into the summer.

S&P peaked at 1440 in mid May (2 week lead)

2) Baltic Dry peaked early June. (Chinese stocks already topped in early January and resumed downturn before Baltic Dry in mid-May)

3) Commodities (incl oil) peaked early July (1 month after Baltic Dry).
4) USD bottomed in mid July (2 weeks after commodities topped)

5) Chinese stocks rolled over in early August.
6) Gold/Silver ratio soared in early August.

S&P topped Aug 11 and double top Aug 25 but was basically in a trading range until early September. It rolled over and did a waterfall decline into early October.

In 2009

1) Baltic Dry peaked again in early June.
Gold/silver bottomed in early June.
2) Oil and commodities did a first top in mid June


Stocks bottomed in early/mid July and then embarked on a blow-off top into late August

3) Chinese stocks rolled over again in early August and head sharply lower.
(Baltic Dry down sharply)
4) USD bottomed in early August?
5) Credit market topped in early August?
6) Gold/Silver doing a double bottom in late August?

Oil and commodities did a double top in early/mid August?
Stock market topped late August?

We need confirmation from the USD (rally to 80+), gold/silver to take out 70/72 and credit markets to tank.

This would likely confirm a top in commodities and stocks and allow for a substantial correction at a minimum and even possible a break/test of the March lows. To this list, I would also watch:

A) Financials
B) Yen
C) TLT (proxy for long term treasuries)

Disclosure: Positions in SKF, QID, HOD.TO, FXP, SPY, EUO, POT, TCK-B.TO, HDU.TO, Cdn & US financials options and stock, US&Can cash

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