This Rally Is Different Than Those Seen Since September

BFG Outlier Research
BFG Comments Very positive as longest stretch since last summer for scores to remain above 0. Love to see the VIX crack 40. Market could run out of steam if VIX hits 36.54

Sector Potential Breakouts Based On Relative Strength to S&P 500 and 30 Day Exponential Moving Ave Cross

Improving Transports
Deteriorating Energy (watch closely) Food Beverage Tobacco Telecommunications (on the edge)


S&P 500 vs. Russell

Russell 2000 takes control. Move to high beta stocks.

Macro
Love It S&P 500 EEM EFA HYG

Like It TLT CFT IGE

Mixed S&P 500

Hate It UUP


Stock Specific Erlanger Review


Dow Jones Stocks criteria Weekly Displaced Moving Average (DMA)

+ BAC GM(speculative) HD INTC JPM KO T WMT
Close but no cigar
- JNJ KFT PG XOM

Transports criteria Weekly Displaced Moving Average (DMA)

+ JBHT UPS YRCW
- AMR CAL FDX JBLU LUV OSG

Stocks Getting Ready to Move as New Trend Ready to Begin

+ V FCL
- HANS (very aggressive sell or short) Y NDAQ ARO

MACD Special

+ PBCT
- BSY BPL

200 Day Upside

+ SOLR SHI

200 Day Downside

- HNG DEP

50 Day Upside

+ ZMH WAT MXB

50 Day Downside

- HMY EQT

Moving Average Crosses Of Note
+ PCLN
- ERIC

ETD Changes - Pullbacks and Downtrends crushing Rally and Uptrendx

+ AA PL LSR TMK DE LLTC BYD (for those that want a cheap priced stock)
- AWR LANC ACV

It's the bond market stupid

In the early days of the Clinton Adminstration,1993 and onward,the powers that be would ask the question,"... how policy decisions would affect the bond market?" Robert Rubin, then Treasury Secretary, ingrained the concept that uncontrolled spending could cause interest rates to rise and these thoughts weighed on Bill Clinton, James Carville and other key advisors including Larry Summers.

It is about time that Larry Summers have a little talk with President Obama. Why? There are two bond markets and subsets of those two markets. First there is the government bond market. Second there is the corporate bond market. Within the corporate bond market there is the high yield (aka the junk market) and the corporate investment grade market. The ETF we use to track the high yield market is HYG and corporates are tracked via LQD and CFT.

Both these are in a state of quasi freefall. Meanwhile governments via treasuries remain strong. The November stock rally coincided with HYG, CFT and LQD moving lock step with stocks. If the equity market starts to rally and these ETFs do not, then one will know this rally has no legs.

President Obama declared on Tuesday that P/Es are low and valuations are cheap. Funny I guess he does not realize that the P/Es can go even lower and valuations could fall as cash continues to be depleted from the balance sheet of corporate America as the decession continues to play itself out. President Obama needs a few Economics 101 lessons from Larry Summers because such statements would not be made if he was watching the corporate bond market trade. Make no mistake about it there is trouble in corporates.

One of my oldest and dearest clients Bennet Sedacca ingrained in my head that stocks cannot do well if corporate bonds are in trouble. General Electric (GE) has fallen below $7 from above $10 in a few weeks because the corporate bond market is voting against General Electric and specifically General Electric Capital.

If President Obama and Larry Summers begin to talk about restoring the bond market then one can breathe a little easier. Until then, we are in trouble, James Carville noted, "Every time I would talk to someone, they would say, ‘You can’t do that, it will freak the bond market out.’ I said, ‘Goddamn, whoever the bond market is, these bastards are powerful.’” Indeed powerful bastards they are and the way they are voting is not pretty. Let's hope things turn around quickly with corporates but it does not look good.

Retracement Levels

As stocks and indexes dropped they fell through what are called retracement levels. These levels take a move from a low to a high and then determine the normal pullback levels. These levels are 38.2%, 50% and 61.80% and the dreaded 100% pullback.

The two retracement periods we are watching are the November low to the January high. Also, I believe that the longer term October 2002 to October 2007 high. Tje November to January period see the Dow Jones and S&P 500 having broken all retracments. The S&P 500 needs to gete back above 741.02 and the Dow Jones Industrial Average above 7392.41. A plus is the NASDAQ Composite and S&P 400 are above their 100% retracement levels.

The longer term retracement level on the S&P 500 is 768.63. The Dow Jones Industrial Average 100% retracment is 7181.47. The longer term retracments have not been taken out on the NASDAQ Composite or S&P 400. These levels are 1108.49 and 370.83.