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Friday, February 26, 2010

HOW TO JUDGE THE "HALF FULL VS. HALF EMPTY" DEBATE

The great guru debate right now: Is the economy in a real recovery, and is a decent job market on the way back? Or are high-profile bears like Harvard's Ken Rogoff right? Are new debt "shockwaves" set to rock everything?

As always, let's consult the market... and let's mind a huge potential "1-2-3 trend change."

Bulls need the uptrends in companies like Darden Restaurants and Home Depot to remain intact. These uptrends tell us the government's E-Z-Credit program is keeping the consumer and the banking industry afloat. If the uptrends suffer severe breakdowns, we'll know the negative effects of the credit bubble are still with us.

And don't forget to watch copper as a "must hold" asset for the inflationary bullish case. Copper is an essential ingredient in cars, refrigerators, power lines, and electronics. However the economy is performing – good, bad, ugly – you'll see it reflected in copper prices. As you can see from the chart below, copper suffered a major decline in late January/early February (1). It has since made an effort to climb back to its old high, which failed (2).

We now have a situation where copper is set up for a classic Vic Sperandeo 1-2-3 trend change, just like the euro experienced in December. If copper turns lower – and blows through its recent low around $2.85 per pound (3) – the E-Z-Credit stimulus boom is withering.

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