We argue from time to time that if all we did was identify the ongoing trend we would have little to write about. There are times when we suspect that we should spend more showing the trend and less time working on when and how it will end but… that would make life too easy.

Around the end of 2008 or, perhaps, early in 2009 we started to focus on the emergence of China as the trend leader. As long-term Treasury yields began to rise we pointed out that this meant that the trend would be driven by cyclical growth. At the time this seemed a bit odd given that the S&P 500 Index was still a couple of months from its eventual lows but, if memory serves, we hedged this view by arguing that the SPX would make an early March pivot back to the upside.

The point? To the extent that we tend to look far down the road we often have the sense that we are struggling with our views yet, from time to time, we actually get something right. While the trend has yet to change the charts on this page show that it is most certainly at risk. The Shanghai Composite Index managed to close 7 points higher on Thursday to hold the rising support line while the CRB Index closed within a point of key support. The New Zealand dollar futures (shown below) ended yesterday’s session at the very bottom edge of the channel that we have been using to define the bullish trend.




Equity/Bond Markets

Below is a chart of Intel (INTC) along with two moving average lines  taken from the yield index for 10-year U.S. Treasuries. The red line is the 200-day exponential moving average while the green line is a 30-day e.m.a.

The argument is that as long as the 30-day (green line) is above the 200-day (red line) the trend for Intel is positive. When the lines ‘cross’ with the green line falling below the red line the trend turns negative.

Now… the chart shows the time frame from 2000 into early 2003. Our view is that a positive cyclical trend- the kind that leads to rising prices for economically sensitive sectors- will generally include rising interest rates. If rates are rising then the faster 30-day moving average will be above the slower 200-day.

The chart below makes a reasonable case that this might represent the kind of argument that we can fit in to our decision making process.

Also below we show the current time period. Notice that the moving average lines crossed to the down side way back in 2007 some months before Intel began to weaken. Notice as well that the trend is currently positive. Our point, by the way, is that while the equity markets routinely work through corrections  the base trend still appears to be positive.

Lastly is a comparison between Hong Kong’s Hang Seng Index and the ratio between Panasonic (PC) and FreePort McMoRan (FCX).

One of our views is that the decade ahead is going to focus on Asian consumer spending. We have a rather long explanation for this view but for now we will simply state that it is our contention that when the cyclical trend turns positive in the years to come the relative strength winners will tend to be goods makers instead of the producers of the raw materials that go into making those goods. In other words companies like Panasonic instead base metals miners like FreePort McMoRan.