We've Only Just Begun

I am strolling through the charts and seeing areas of the market that haven't even completed tops yet. It took 5 minutes of looking at charts to find these, this is the top of my giant pile of charts. And by top, I don't mean the best, though some are great. I mean I made it through only a sliver of all my watchlists and had enough charts for a short video.

Rally or Crash Charts

I have a zoomed out view of FedEx, the rest are zoomed in, but have broken long-term support lines. FDX faked lower and then rebounded. That's what it possible with the rest of the market here. The alternative is that like Nike, the market freefalls from here. There are divergences that suggest we are in "buy mode" for markets. The problem, again, is that crashes can happen with these divergences. Additionally, a massive short-term rally could be followed by much lower index values as it was in 2008. To say rally here doesn't say if its a day, days or a significant tradable low similar to June. I strongly lean towards former rather than the latter here on October 2 though.

Permarisers Die Violent Deaths

There are some stocks like Nike, McDonald's and so on, many stable, consumer stocks that have risen for years on end, sometimes going back to the 1970s such as FedEx. The early 2000s with McDonalds. Many more since the 2009 bear market low. They've never broken support. When they do, pay attention. You may only have a few days to catch an implosion. Case in point, I missed Nike.

Holy Schnikes!

Trendline from 1984 busted.

Emerson and Nike Long-Term Trendline Tests

Coca-Cola splits: what does Coke's chart signal?

One of the most interesting charts to me, in part because I own the stock, is Coca-Cola. Unlike the broader stock market, shares bottomed during the bear market of the early 2000s, and formed a major cup and handle chart since the peak in 1998. The chart is interesting in itself, in what it might mean and also because I'm bearish overall and this chart makes me question my assumptions.

First, the cup-and-handle typically leads to a major rally when the previous peak (the first edge of the cup) is broken. This cup forming phase is a long basing pattern and fits into Elliot Wave theory as a larger order corrective wave 2 or wave 4. Second, the chart shows a different pattern from the broader market.

In trying to think of why Coca-Cola could diverge from the market, or how it could stage a breakout (it must exceed 1998's high of 88.94, a gain of 19% from the current price) when it already has a relatively high P/E of about 20, calls for some explaining. First, I fully accept that KO may not breakout and we could see shares tumble along with the broader market. In the examples below, KO actually lags some strong performance by McDonald's and Nike. Even in this case, however, the fact that these companies did not make new lows in 2008 is interesting and implies strength that is lacking in the broader market.

I have two ideas I'm mulling on Coke and other multinationals: since China's entry into the WTO, emerging markets have made up an increasingly large share of the global economy and U.S. firms that sell globally could decouple from the U.S. market, if the U.S. were to continue its slow growth (taking a long-term view of a decade and more). The performance of some brand name firms suggests this is already happening.

Thinking in negative terms (what would cause KO to breakout when there's no positive reason), another possibility is that we are on the verge of hyperinflation. Gold (precious metals) performs best in hyperinflation, followed by hard assets, real estate and stocks. A company such as Coca-Cola is more than a drink seller, it owns an intangible asset in its brand and if hyperinflation leads to stock buying, the public will probably overload on blue chips.

I believe the economy on the other side of this crisis will increasingly be built upon intangible assets as manufacturing costs decline and software increasingly controls and customizes our experience with products. Imagine a world where the cost of manufacturing drops to zero: what is left is the image, the brand. Apple is perhaps the best example of this today and the performance of major brand names may be evidence that the market recognizes this ongoing shift to an information economy.

Here are some other companies that rely on their global brand name. In comparing them to KO, I'm looking for firms that did not hit a new low in 2008 or 2009; firms making the cut include global brand names such as IBM, McDonald's, Disney, Pepsi and Nike. Two brands that fail to make the cut are Microsoft and General Electric.

Maybe a major deflationary wave will take all of these stocks below their early 2000s lows. One reason many firms may have not hit a new low in 2008 is due to rapid growth during the decade. However, this brings me back to Coca-Cola, which didn't put up massive growth during the 2000s.

I have owned Coca-Cola since 1994 and have no plans to sell.