MLR - Premarket Pulse February 19, 2013

Published : February 19 2013 at 8:24 ET

The general market finished slightly lower on mixed volume as all major indexes held tight despite selling off at various points in the day most likely due to options expiration volatility, which also tends to boost volume. Small caps continue to outperform which is a good sign since they are considered riskier investments, thus is a sign of confidence. The markets continue to baby step higher on average to above-average volume. As the markets continue to "coil" in such a manner the probability of a sharper move higher increases, although we would still consider a short-term correction to be a normal occurrence at this stage of the rally. The fact that the market has refused to sell off is indicative of strength as the list of leading stocks expands.

Wal-Mart Stores (WMT) had a weak earnings report which caused a 2% drop in the stock on triple volume. WMT saw the weakest sales start for the month in seven years due to the payroll tax increase which has affected middle- and lower-end consumers.

Funds from money printing are being used to pay for various government entitlements and other costs which does not help create wealth and thus does not contribute to the future growth of the economy. WMT's earnings announcement shows the population is not spending this printed money but rather attempting to save it for hard times ahead. Meanwhile, the Fed is painted into a corner as they cannot increase taxes AND lower entitlements. The Fed must continue quantitative easing (QE) since tax revenues will not be sufficient to deal with the massive amount of looming debt. The US Government cannot afford to not increase taxes and reduce entitlements, although the "solution" of increasing tax rates ignores the fact that higher tax rates will generally result in lower tax revenues. But higher tax rates and reduced entitlements would potentially cripple the economy, so it still needs to continue printing money since the tax measures will not be enough to reverse the debt tide.

Gold is currently moving into "backwardation" where futures prices are lower than spot prices, indicating tightness in physical supplies despite the prices of paper gold and silver continuing to move lower. As they move lower, the metals are moving towards long-term support levels, and it is possible that central banks such as China will continue to buy physical gold so they can continue to sell the US dollar, so this should put a floor under gold. As well, India has now become a bigger buyer of gold than China. At some point, with the money printing presses continuing to roll in full measure, more pronounced inflation will be a consequence which should ultimately be good for gold and silver.

This information is provided by Virtue of Selfish Investing, LLC (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2016 Virtue of Selfish Investing, LLC. All rights reserved.