The June Edition Of The Wealthbuilder Stock Market Brief From Christopher M. Quigley

1. Wealthbuiler Stock Market Brief 5th
. June 2014
Is now the time to go to cash?
Many commentators are asking whether this market is showing real signs of exhaustion,
suggesting that it is time to get out, go to cash, and wait for a serious correction or collapse to
jump back in.
To try to answer this question let us look at the situation from a more distant perspective than the
standard one. Accordingly, I am going to adopt a 6 year view using the following charts set out
below: 1. The Dow Transports, 2. The Dow Industrials, 3. The S & P 500, 4. The NASDAQ 100,
5. The Russell 2000 (small cap. stocks: weekly), The Russell 2000 (small cap. stocks: daily), 7.
The NYSE A/D Line and 8. The index of the percentage of stocks above their 200 DMA.
Observations:
The bull market which commenced in March 2009 shows no sign of abating. On the Dow
Transports and the Dow Industrials we see higher highs and higher lows and both indices are
congruent.
This strength is confirmed by the S & P 500 and the NASDAQ 100 as both are reaching ever
higher highs from ever higher lows.
The NYSE A/D Line shows no sign whatsoever of technical stress. If market breath was
seriously weakening we would begin to see compression of the 20, 50, 100 or 200 Daily Moving
Average lines. There is no evidence of that happening at the moment. Therefore the 2009 bull
trend is in place and firm.
However, there is some indication that the underlying economy may be weakening. The canary
in the coal mine is the Russell 2000. Small cap stocks are far more sensitive to economic
deterioration that large caps. Looking to the Russell 2000 daily chart we can see that the 50
DMA has crossed the 100 DMA and prices are struggling around the 200 DMA. Over the last
two months the 50 DMA line and the 100 DMA line became points of price resistance instead of
points of price support. Should near future price action experience the same resistance at the 200
DMA, this index will have entered a bear trend and that would be a cause for concern.
When we look at Chart 8; “The % of stocks above the 200 DMA”, we see more signs of
deterioration. This market breath indicator is showing us that fewer stocks are breaking above
this significant DMA. Thus the market is not getting stronger, it is in fact getting weaker, another
cause for pause, but not undue worry.
On balance, filtering all the information from the charts below, I believe the bull market is still
intact. Sure there are early signals indicating exhaustion but there has been no serious technical
damage in evidence to indicate near term price capitulation. On the contrary, should the
European weakness discussed in the news items below become more pronounced it is possible
that American GDP numbers going forward will weaken. However this news is a double edged
sword. Should Janet Yellen react to negative European growth data by slowing QE tapering the
market could explode into the latter stages of a hyperbolic bull. This means to me that there is as

2. much risk being out of the market as being in. Thus, I see no easy choices for investors and
money managers. The existing “wall of worry” will continue for some time longer.
Chart 1. Dow Transports: Weekly
Chart 2.Dow Industrials: Weekly.
TheD

3. Chart 3. S & P 500: Weekly.
Chart 4. NASDAQ: Weekly.

4. Chart 5. Russell 2000 Small Cap Stocks: Weekly.
Chart 7. Russell 2000 Small Cap: Daily

5. Chart 7. NYSE A/D Line: Weekly.
Chart 8. % Stocks Above 200 DMA: Weekly.

6. Spiraling Euroland Crisis:
I have not written with regard the EU for a long time. This is not because her problems have abated but
because they have become so pervasive that it is difficult to cover them all. To give readers a feel of what
is unfolding I have quoted below 4 short excerpts from blogs and the Irish Times to give a sense of what
is actually developing.
The recent lackluster growth figures for the Euro-wide area will have serious political ramifications given
that the new European Parliament is so divided. It is my opinion that as the crisis deepens it could
seriously affect the American recovery and could possibly convince Janet Yellen to consider putting on
hold her plans to phase out Quantitative Easing. Such action would have a major effect on all markets.
1. Economic data puts ECB into unknown:
The Irish Times, Dublin, Ireland, 5th
. June 2014.
“Eurostat confirmed that growth was an anemic 0.2 per cent in the first quarter.
Mario Draghi, president of the European Central Bank (ECB), will have been given pause by
recent data.
Eurostat yesterday confirmed that growth across the block was an anemic 0.2 per cent in the
first quarter – just half the relatively unchallenging 0.4 per cent analysts had expected. Year on
year, the growth came to just 0.9 per cent.
And what growth there was stemmed mainly from Germany, with a little help from Ireland’s
recovering economy. France stagnated and, in Italy, the Netherlands, Finland and Portugal,
economic output fell.
Even in Germany, which recorded growth of 0.8 per cent in the first three months of the year,
economists expect the pace to slow over coming months.
Separate figures for industrial producer prices gave no succor either. Seen as a proxy for
consumer price inflation, prices at factory gates in the euro zone fell again in April, by 0.1 per
cent, the fourth successive retrenchment and a 1.2 per cent decline from this time last year. Of
the five largest economies in the euro zone – Germany, France, Italy, Spain and the Netherlands
– only the Spanish saw any increase in prices.
Actual inflation figures have been no better, with Eurostat data on Tuesday showing the annual
rate dipping to 0.5 per cent from 0.7 per cent a month earlier. At a quarter of the ECB target
rate of just under 2 per cent, the inflation figure is well within the danger zone.
Meanwhile unemployment remains stubbornly high.
Various ECB figures have over the past month stressed their determination not to be complacent
about the risks of a protracted period of low inflation. Faced with this week’s wave of negative
data, and having used most of the conventional policy levers, today’s meeting seems certain to

7. signal a move by the bank into the realm of the unknown and possibly into the arena of negative
interest rates.”
2. A divided parliament following May 23rd
elections:
Euro News: “It has been a night of seismic shocks for Europe as the election counts came in
from all over the EU. One minor tremor that surprised many was that voter turnout was up by
0.1% defying projections of continued voter apathy.
But, the exit polls indicated that Eurosceptics were scooping up the majority of the votes in some
of the biggest member states, yet the head of the largest pro-European party in parliament
(EPP), still saw it as a reason for celebration.
“I would like to tell you. We’ve stopped the trend of lowering turnout. This was one of our main
goals, in terms of democracy. Obviously, it’s not perfect, sure, we’re not satisfied, but at least
it’s the first time we’ve stopped the tide of absenteeism,” said Joseph Daul speaking at the
parliament in Brussels.
In France the far-right National Front swept away the two mainstream parties with 25% of the
vote, standing on a platform against the EU, the euro, and immigration, whipping up feelings of
nationalism in her rhetoric.
“Our people demand a single politics, the politics of French people for French people, with
French people,” declared Marine Le Pen, continuing, “They no longer want to be directed
externally, be submitted to laws they have not voted for, nor obey Commissioners who are not
subjected to the legitimacy of universal suffrage”.
The question remains whether the Eurosceptic politicians will be able to form a Euro Tea Party
group which could disrupt the Brussels’ assembly, but impact may be felt closer to home.
“We’re going to get a good number of Eurosceptics elected to the European parliament.
Whether that makes big difference in European politics, remains to be seen,” explained Nigel
Farage leader of the UK Independence party. “But it’s going to make a very big difference in
domestic politics… Up until now European integration, whether one liked it or not, always
seemed to be inevitable. Well, this inevitability will end with these results tonight,” he added.
Another anti-EU party swept the board in Greece. Alexis Tsipras Syriza parties took 26% of the
vote. Elsewhere Eurosceptics in Denmark also clinched victory, sounding a wakeup call for pro-
Europeans when the dust settles on election night.”
3. The Ukrainian crisis, an EU one:
STRATFOR, From Hungary, 21st
. May 2014.
“The Ukrainian crisis can only be understood in terms of the failure of the European Union.
Germany is doing well, but it isn't particularly willing to take risks. The rest of northern Europe

8. has experienced significant unemployment, but it is Mediterranean Europe that has been
devastated by unemployment. The European financial crisis has morphed into the European
social crisis, and that social crisis has political consequences.
The middle class, and those who thought they would rise to the middle class, have been most
affected. The contrast between the euphoric promises of the European Union and the more
meager realities has created movements that are challenging not only membership in the
European Union but also the principle of the bloc: a shared fate in which a European identity
transcends other loyalties and carries with it the benefits of peace and prosperity. If that
prosperity is a myth, and if it is every nation for itself, then parties emerge extolling nationalism.
Nationalism in a continent of vast disparities carries with it deep mistrust. Thus the principle of
open borders, the idea that everyone can work anywhere, and above all, the idea that the nation
is not meaningful is challenged. The deeper the crisis, the deeper and more legitimate the fear.
Compound this with the re-emergence of a Russian threat to the east, and everyone on Ukraine's
border begins asking who is coming to help them. The fragmentation of Europe nationally and
socially weakens Europe to the point of irrelevance. This is where the failure of the European
Union and the hollowing out of NATO become important. Europe has failed economically. If it
also fails militarily, then what does it all matter? Europe is back where it started.”
4. ‘They are stealing everything, even our homes’:
By Afrodity Giannakis, from Thessaloniki, Greece. 21st
. May 2014
“I wish I could leave Greece. I can’t go on living here. I work very long hours and live more
frugally than ever, but I still can’t pay the bills, the income tax or the other taxes like the
property poll tax. My tax debt keeps building up. I’ll end up losing my home. They are stealing
our homes and they are not communists. And people are getting sadder and madder every day. I
can’t go on like this.”
This was the response I got when I greeted a stall holder at an open-air market in my area. Due
to my own extremely difficult working and commuting conditions, I hadn’t seen him in months.
His anger and despair were much stronger than before, as is the case with most ordinary people
in Greece.
My friend’s allusion to the communists concerns a decades-long anti-communist argument used
by the power elites. The argument went that if the communists came to power, they would
confiscate people’s homes. It was recently used by far-right health minister Adonis Georgiadis.
In fact, small real-estate property is being confiscated under capitalism. People are losing their
homes to the banks for failing to meet mortgage payments, or to the taxation department for
accumulated tax debts.
Home confiscations have been facilitated by a recent law enabling seizure of salaries, pensions,
bank savings and property for even small debts to the state. There are specified debt amounts
that incur property seizure or jailing. They vary according to the recipient (whether the money is

9. owed to the taxation department, a public insurance fund etc.). The different amounts are often
changed by the government. The latest ministerial circular (issued on April 15, 2014) concerning
tax debts sets the line at 1500 euros.
The number of confiscated homes has risen in recent years. A big wave of new house seizures is
expected soon. The finance ministry has made an agreement with the “troika” (the European
Union, European Central Bank and the International Monetary Fund) to set the opening bid at
auctions at 30% of the houses’ real values.
Financial hardship, combined with recent law changes, has led to a dramatic rise in debt-related
jailings. People are kept in barbaric and unconstitutional prison conditions.”
Charts courtesy of Worden Bros.
© Christopher M. Quigley 5th
. June 2014.