[T.S.R:16437] Deydun: Do Not Ignore Established Trends Or The Indian Consumer

Deydun: The Metals Markets Are The Tightest Ever

 

The US stock market has more faith in Bernanke's printing press than following the lead from Europe's sovereign crisis. That seems to be the verdict of the tape, where despite a near meltdown in European Indices recently, the US has remained steady as a rock. A few days ago we showed you this trend line on the Dow – a line we felt had unusual merit given the way it was drawn. It broke the line on Mon but then closed back above it. It broke the same line yesterday, retested the low and then managed to close back above it. The line has gotten stronger with this week's action.

 

The way the Metals, Industrials, Chemicals and Autos have traded through this European malaise, suggests that some other dynamic is operative in Europe than the sovereign crisis alone. What is it? An anecdote that's caught the imagination recently is worthy of mention here. Apparently, in the 2^nd/3^rd tier Indian town of Aurangabad, a few dozen professionals got together and put in a block bid for 150 Mercedes Benz cars (http://www.mycarforum.com/blog/myautoblog/793/the-ultimate-group-buy-150-mercedes-benz-bought-by-residents-of-aurangabad-india/).

 

It's a stunning story yet a very real one to get your head around. Maybe we are all making a huge mistake paying such close attention to Europe's woes, when there is a strong set of consumers going gangbusters for European branded goods. Look at the relative chart of SXNP plotted against SXXP and you'll get a real taste of what an awesome bull market is going on here. Smart portfolio managers who have been long European Industrials and Chemicals all year must be laughing at all those (us included from time to time) who send them 250 bearish bloombergs on European financials and sovereign CDS's literally on a daily basis.

 

With every passing day, we learn something from the tape. And we would be behaving like a stick if we did not respect price action of the US Indices. That market is convinced (or at least that seems to be the only valid interpretation just now) that fading Bernanke is the wrong call. Add the Emerging Markets consumer dynamic and Jeremy Gray's (fundamental metals analyst we respect hugely) big call that the supply side in commodities is as tight as he's ever known it to be – it's a pretty tough battle a bear is fighting. As recently as today, the Australian Equity Index (AS51 Index) has left behind a lollypop candle (real nomenclature is a hammer which also looks like a lollypop), which carries bullish portents for Metal stocks. Looks like RIO, BHP, XTA, KAZ, AAL – are ready for fresh legs higher from here.

 

The bottom line is that this is a "more of the same" market and we know that established trends are worth backing as they are a lot harder to reverse. We've known where those trends are. The new information we need to digest this week is the resilience of the US Indices. Traders ignore this development at their own peril. Banks and Insurers are rallying today, but those rallies should remain low quality. There is no incentive to buy them, until they can at least regain their 45 EMAs.
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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