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7/31/2019 rpt-MTA-2012-10-qe-Peak
1/4
1 October 2012 Edition Restricted & Confidential
Copyright 2012 Gordon T. Long All Rights Reserved [email protected]
Monthly Market Analytics & Technical AnalysisOctober 2012 Edition
Gordon T Long
10/15/2012
7/31/2019 rpt-MTA-2012-10-qe-Peak
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2 October 2012 Edition Restricted & Confidential
Copyright 2012 Gordon T. Long All Rights Reserved [email protected]
Monthly Market Analytics & Technical AnalysisOCTOBER 2012
SUBSCRIPTION SERVICE: PLAN IV
BIGPICTURE-KEEPINGYOURPERSPECTIVES..................................................................................................................................... 6
HIGHLIGHTS-WHATYOUNEED TOKNOW........................................................................................................................................... 9
SUMMARY ANALYSIS ........................................................................................................................................................... 9
"QE
Unlimited": Fed Panics - "OMT" Unlimited: ECB Panics ......................................................................................... 14Defining Chart #1 - "Delusional Distortion" Expectations .................................................................................................. 14Defining Chart #2 - Long Term ......................................................................................................................................... 15Defining Chart #3 - Short Term ........................................................................................................................................ 16Defining Chart #4 - Short Term ........................................................................................................................................ 17
OURAPPROACH-MACROANALYTICS...............................................................................................................................................20
............................................................................................................................................................... 21
OCTOBER 2012: Global Macro Drivers .............................................................................................................................. 22DRIVER: Real Wealth, Commodities & Dr Cooper ........................................................................................................... 23DRIVER: Carry Trade & the : Cross .......................................................................................................................... 26DRIVER: Currency & Forex Markets ................................................................................................................................ 28DRIVER: Yield, Spread & Credit ...................................................................................................................................... 32RECIPIENT: Global Equities ............................................................................................................................................ 34
RISK: Risk-On versus Risk-Off........................................................................................................................................... 35RISK: Major Contrarian Warning Signal ........................................................................................................................... 37RISK: Bearish Signals Indicating a Short to Intermediate Correction-Consolidation ......................................................... 38RISK: Earnings Gamesmanship & Folly - Cheating ......................................................................................................... 40RISK: Earnings Gamesmanship & Folly - Who Is Manipulating? ...................................................................................... 41RISK: Earnings Gamesmanship & Folly - Equity Investors Fleeing Equity Markets .......................................................... 42RISK: Earnings Gamesmanship & Folly - Historical Perspective ...................................................................................... 43RISK: Earnings Gamesmanship & Folly - The Folly ......................................................................................................... 44
RISK: Avoiding Risk May Have Caused a Bond Bubble ................................................................................................... 46TECHNO-FUNDAMENTALS ................................................................................................................................................ 47
PATTERN: QE III Doesn't Bode Well For Traders ............................................................................................................ 49PATTERN: Short Shelf Life for QE3 & OMT ..................................................................................................................... 50PATTERN: Markets Show Strong Correlation With QE Policy .......................................................................................... 53PATTERN: Transports Flagging Non-Confirmation & Weakening Strength ...................................................................... 57PATTERN: Consolidation or Topping Pattern? ................................................................................................................. 60PATTERN: Topping Signals Starting to Show .................................................................................................................. 61
OUTLOOK-ANALYTICAL ANALYSIS.....................................................................................................................................................63
STUDY: Earnings Estimates & Forecasts .......................................................................................................................... 67EARNINGS ESTIMATES - 4.3 Up versus Down Revisions Highest Since 2001 ............................................................... 67EARNINGS ESTIMATES - First Earnings Decline in 11 Months of - 1.34%...................................................................... 68EARNINGS ESTIMATES - Stealth Warnings Season Not Going Well .............................................................................. 69EARNINGS ESTIMATES - Goldman's Down then Up Call ............................................................................................... 70
STUDY: Earnings Warnings ............................................................................................................................................... 74WARNINGS: Earnings Estimates Simply Don't Match Reality .......................................................................................... 74
STUDY: Preliminary Q3 Earnings Results ......................................................................................................................... 76PRELIMINARY EARNINGS - Alcoa & Cummins .............................................................................................................. 76
STUDY: Valuations .............................................................................................................................................................. 79VALUATION - Markets Seriously Overvalued by Most Metrics ......................................................................................... 79VALUATION - Over Next Year Trailing PE to be Below Generational Norm. .................................................................... 81VALUATION - Foreign Profits Kept Untaxed Offshore ...................................................................................................... 83
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3 October 2012 Edition Restricted & Confidential
Copyright 2012 Gordon T. Long All Rights Reserved [email protected]
SHORTTERMTECHNICAL ANALYSIS................................................................................................................................................84
SUPPORT & RESISTANCE ................................................................................................................................................. 84Gann Analysis.................................................................................................................................................................. 84Boundary Conditions ........................................................................................................................................................ 85Channels & Regressions.................................................................................................................................................. 87
Fibonacci - Controlling Time Extensions .......................................................................................................................... 89Elliott Wave ...................................................................................................................................................................... 94
SENTIMENT - Consumer, Investor & Trader ...................................................................................................................... 99CONSUMER
Consumer Confidence - Conference Board ................................................................................................................... 99Consumer Sentiment - Michigan ................................................................................................................................. 102Consumer Comfort ...................................................................................................................................................... 103
INVESTORInvestors Intelligence .................................................................................................................................................. 104
American Association of Independent Investors .......................................................................................................... 104National Association of Active Investment Managers (NAAIM) .................................................................................... 105Small Business Optimism ........................................................................................................................................... 106
TRADERSmart Money / Dumb Money Confidence .................................................................................................................... 107
Percentage Stocks Above 50 & 200 DMA ................................................................................................................... 108Margin Levels ............................................................................................................................................................. 109Mutual Fund Cash Levels v S&P 500 .......................................................................................................................... 113
OSCILLATORS & BREADTH: Indicators of Importance ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ....... 115NYSE Overbought / Oversold ........................................................................................................................................ 115OEX Open Interest (Puts/Calls) ..................................................................................................................................... 116TRIN .............................................................................................................................................................................. 117McClellan Oscillator ....................................................................................................................................................... 118
INTERMEDIATETERMRISKANALYSIS.......................................................................................................................................... 119
RISK SUMMARY- Aggregated Global Financial Risk Index ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... .. 119BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................ 120BANKING RISK - TED SPREAD (Updated) ................................................................................................................... 120CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) ................................................................................. 121CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) ........................................................................................... 122
CONSUMER RISK - HOUSING - RATE OF CHANGE (Reference) ............................................................................... 123ECONOMIC RISK - ECRI LEADING INDEX (Updated).................................................................................................. 124INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) .................................................................................. 125INFLATION RISK - MONEY VELOCITY (Updated) ........................................................................................................ 126MONETARY RISK - BANK LIABILITIES (Updated) ........................................................................................................ 126COST OF MONEY RISK - INTEREST RATES (Updated) ............................................................................................. 128
AGGREGATED RISK LEVEL ............................................................................................................................................. 129
JULY - Signs Everywhere ................................................................................................................................................. 130Blatant Distortions: Corporations Reducing EU Risk Exposure (aka: Bank Runs) ......................................................... 130Blatant Distortions: Hong Kong's Hang Seng Warning (August) ..................................................................................... 131Blatant Distortions: Deutsche Bank Warns of 5 -10% Market Correction (August) ......................................................... 132Blatant Distortions: Canaries Singing but Few are Listening - TSE Halted (August) ...................................................... 132
MAY/JUNE - Everyone Is Suddenly Nervous ................................................................................................................... 133Nervousness: GREECE: Investors Flock to Safety as Euro-Exit Fears Rise .................................................................. 133Nervousness: FRANCE: Showdown in Europe: Hollande Takes on Merkel and Draghi, Insists on Renegotiation ofMerkozy Treaty .............................................................................................................................................................. 134
LONGERTERM-FUNDAMENTAL ANALYSIS....................................................................................................................................... 135
HIGHLIGHTS ...................................................................................................................................................................... 135
VALUATION METHODOLOGY .......................................................................................................................................... 136Four Set Consolidated Market Valuation Indicators: Overvaluation Relatively Unchanged ............................................. 136
Crestmont from the Arithmetic ..................................................................................................................................... 138Cyclical PE 10 Ratio ................................................................................................................................................... 140Q Ratio ....................................................................................................................................................................... 144S&P Composite Regression-to-the-Trend ................................................................................................................... 149
Estimating Future Returns ............................................................................................................................................. 150
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4 October 2012 Edition Restricted & Confidential
Copyright 2012 Gordon T. Long All Rights Reserved [email protected]
S&P Fair Value .............................................................................................................................................................. 158
REFERENCE METHODOLOGIES ANALYSIS .............................................................................................................. 164Rule of 20 ................................................................................................................................................................... 164Cyclically Adjusted PE's (CAPE) are Richly Valued ..................................................................................................... 165Value Line Arithmetic .................................................................................................................................................. 166
Shiller PE Ratio ........................................................................................................................................................... 166Comments on Estimated Forward Operating Earnings ................................................................................................ 167S&P Earnings Yield versus Bond Yields................................................................................................................... 168
PE CONTRACTION & MARGIN COMPRESSION .............................................................................................................. 169We Warned this was Coming, Now Here it is ........................................................................................................ 169Corporate Earnings - Signals of Margin Compression .................................................................................................... 175PE Ratios - Have Significant More Room To Compress ................................................................................................. 177Expect Further PE Compression: Margin Squeeze ....................................................................................................... 178Shifting Secular Sands - Emerging Impediments to Global Earnings Growth Rates ....................................................... 180Cost Push now Creating Margin Compression! .............................................................................................................. 181
FUNDAMENTALS - ANALYSIS 2012................................................................................................................................. 186AUG: Downward Revisions Accelerating........................................................................................................................ 186MAY: Forward Guidance Significantly Lower than Reported Strength ............................................................................ 189
APR: Equity Valuations: It's All Downhill From Here ....................................................................................................... 191APR: EARNINGS - Continuing to Weaken without much Media Fanfare ........................................................................ 193APR: Corporate Margins - 2013 Margin Expectations Not Credible ................................................................................ 194APR: EARNINGS - A Different Earnings Season. .......................................................................................................... 195APR: Profits Have Stalled. Has the Market?................................................................................................................... 197MAR: Government Spending Driving Profits: Artificially High Margins ........................................................................... 199MAR: Inflation Expectations - Markets Mistakenly Expecting Growth & Profit To Accompany It .................................... 200MAR: Major Warning Needs Heeding: FedEx ............................................................................................................... 201JAN: What We Called for Is Beginning To Show ............................................................................................................ 203JAN: Equities as a Matter of Belief ................................................................................................................................. 208JAN: The Charts Wall Street Doesn't Want You To See On Annual Returns .................................................................. 211JAN: Some Sobering Japanese Comparison Charts from Michael Darda at MKM Partners ........................................... 216JAN: Are Corporate Profit Margins About To Grind Lower For Another 10 Years? ......................................................... 219JAN: Corporations Have Captured 88% Of All Post-Recession Income Growth ............................................................. 220JAN: Think Stocks Are Cheap? Here's 7 Reasons Why That's A Myth ........................................................................... 221
S&P 500 TARGETS ..................................................................................... 222
CONCLUSION .............................................................................................. 224
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