Ryan Puplava's Blog

Ryan Puplava CMT shares three technical charts showing current levels of margin debt.

Over the last few years, it’s been fairly easy to make a macro call on the markets – “Dollar is trash. Buy Gold. Don’t own Financials. Own Financials. Buy a home because real estate never goes down. Sell your home and get out now while you still can."

Step over here for a second while I walk you through some macro events that are likely to shape markets over the next few months. The taper trade has been taking shape over the last month since the decent employment data for April and the Jon Hilsenrath article, “Fed Maps Exit from Stimulus”, have reintroduced the exit plan for the Federal Reserve’s purchases of bonds.

The intraday reversal in the markets Wednesday is of big interest and importance to traders and market technicians. Since the Jon Hilsenrath article, almost two weeks ago, investors have put more weight again on any tapering talk from the Fed.

The elusive bottom in Chinese stocks is becoming more constructive here with a higher low being put in, above the 200-day moving average. MACD signaled a buy in May and is moving into positive trend territory on the daily chart.

The April jobs report on May 3rd sparked a renewal of something I’m calling the "Taper Trade." As I mentioned last week, the effect of renewed faith in U.S. cyclical stocks post-Q2 earnings, along with a rise in the ECRI’s leading economic indicator, better housing data, and this jobs data has been a shift in investor sentiment back towards growth, and away from defensive tactical weightings in Treasuries, the dollar, healthcare, and utilities.

After a brief consolidation in March and April, industrial stocks and the transports are headed back towards their highs or higher. 3M Co, Union Pacific, Honeywell Intl, Boeing Co, Deere & Co, GATX Corp, CSX Corp, Kansas City Southern, Alaska Air, Norfolk Southern, and many other mid- and small-cap companies within the sector are touching all-time highs or breaking out.

For the past few months, there have been some catalysts that have depressed commodity prices. The number one reason has been the rally in the dollar caused by Italian elections, Cyprus’ banking issues, strong U.S. economics, and anticipation of Japanese easing monetary policy.

At a time when the Federal Reserve Bank has been debating how to end QE, recent developments in the economy have shown a deceleration in activity that has also transmitted into lower commodity prices. Stocks have been extended for some time, but have recently pulled back to support; while internally, many sectors have already exhibited sizeable corrections since February and March.

Picking up from last week’s article, I wanted to continue to develop the notion that the market is rotating out of growth and into lower beta stocks. In addition, some other signs of de-risking are developing.