September 5, 2012 (Investorideas.com Newswire) - eResearch Corp reports: The month of September is shaping up to be somewhat challenging for the cyclical sectors. The 'stop' on this particular observation is 30-year Treasury yields rising above 3.0%.
The arguments are as follows:
First, trends tend to run quarter to quarter. In the absence of something rather unexpected (like a sharp drop in the weekly U.S. jobless claims numbers below 350,000) we should expect “more of the same” until some time early in October.
Second, the seasonal trend tends to create the impression of weaker growth into the autumn and robust strength into the spring. The pivot points are typically October and November for the lows and May and June for the highs. From year to year the seasonal trend will impact the markets in different ways depending on the market's view on the benefits of growth. If, for example, the primary concern is inflationary pressures then slower growth can be a positive. Most of time, however, cyclical and bear market bottoms are made in the month of October.
Below is a chart of the sum of 3-month and 10-year Treasury yields. Notice that the lows for interest rates were made around the end of the third quarter in 2009, 2010, and 2011. This is a fine example of the seasonal trend at work.
The point is that there is a reasonable chance that September is going to be a gloomy month as we work towards a cyclical bottom into the final quarter of this year.
Our thought is that pressures through September will come from a weakening trend in China.
Next is a comparison between the Shanghai Composite Index and the Baltic Dry (Freight) Index.
The Dry Index represents ocean freight costs for dry bulk cargo and this is often a reasonable surrogate for the vibrancy of global trade.
The argument is that the Baltic Dry Index has settled back to the lows made in late 2008. A similar decline by the Shanghai Composite would pull it back towards the 1700 - 1800 level.
About the Author
Kevin Klombies is a prolific writer and market analyst. After graduating in 1980 from the University of Saskatchewan with a Bachelor of Commerce degree (Honours) in Finance/Economics, he was a broker for about 16 years for Wood Gundy Inc./CIBC Wood Gundy (changed name around 1990) Private Client Division.
While at Wood Gundy, he began to create the intermarket work that would later become the IMRA newsletter. He recalls starting with a DOS version of Metastock that he used to print out charts, drawing lines on them with a pen and ruler and taping them together upside down (at times). The first market review that he put together was in 1988 and was based on annual percentage changes in U.S. M1 versus the equity markets. It ended up going from desk to desk right to the Bank of Canada, which said there was, in fact, no relationship between money supply growth and the equity markets (“which probably explains why I have so little respect for central banks,” he says).
Klombies says his broker career was uninspiring, mainly because he spent way too many hours running charts and too little time prospecting for business. He found that what he liked best was analyzing the markets and what he liked least was selling, marketing, and client service. So. he eventually left the business and continued to work on the analysis while doing some trading and consulting.
He has been featured on a number of web sites, interviewed by Reuters TV in London and marketed by Agora Inc. (Daily Reckoning, etc.), but the majority of what he does is done privately and quietly.
Published at the Investorideas.com Newswire - Big ideas for Global Investors
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