The Market Perspective

Looking Ahead

Sunday February 18, 2012

I was just reading The Genius of Renoir: Paintings form the Clark. Sterling Clark, an heir to the Singer Sewing Machine fortune, was an art collector. This volume describes his collecting history and features many from his Renoir collection. 

But I call your attention to this paragraph on page 26.

Although he fretted heavily  about the heavy tax burden imposed under the New Deal and railed against theconomic policies of FDR, the Depression turned into the collecting opportunity of a lifetime for Clark. 

Taking advantage of the dip in art prices caused by the economic down slide, Clark dramatically increase the pace of his acquisition. Many collectors were hurt by the crash and began it liquidate their holdings, flooding  the market with quality paintings at discount prices. Clark bought  M W Turner's Rocket and Blue Lights in 1932 (Elam-near the dead low for the stock market) from Charles Schwab who was forced to sell it hat half of what he had been offered during the 'boom period.' IN 1933 alone  Clark bough a dozen paintings  form Duran Reul in NY and five more form Knoedler in NY and Paris including works by MOnet and Pissarro.

Learn from history. While bullish enthusiasm for near everything is bubbling the markets to highs again, we are safely in cash for the most part. It is time to shift the thinking to the bargains that lie ahead. These will be much greater bargains than most can imagine, whether in the art or stock market or real estate world. 

Luck is the intersection of preparation, experience, practice, and forethought. Clark had it, Schwab did not in the above example.  This is a political year and one can bet Washington will attempt all sort of shennigans to keep the markets elevated, certainly going into the election.

Ex Apple

Wed February 15, 2012

Be sure to read today's WSJ page C1

Apple's Sze Clouds Market

INcluding Apple suggests companies are on track in the S & p to increase earnigns 6.6%.

Excluding Apple suggests 2.8%.

Note our comments in the previous post

PCLN closed at 576.94 with a 30 P/E.

Salesforce CRM closed at 131.60 and no this is not a misprint with a 8,773.33 P/E.  Indicated EPS are only 2 cents. This folks, is dot.com territory.

Stock Market as an Election Predictor

Wednesday February 15, 2012

2000 Bush versus Gore

Let's take a look at the last few election cycles for clues from the stock market. The dot.com mania peaked in March 2000 with the NASD hitting 5,000.  It was then joined by the SPX at what would be the high point for the 1982-2000 rally. Then the usual seasonals took over, after May go away. An echo occurred in September when the SPX was unconfirmed by the NASD making another new high. NASD of course would then eventually fall to 1250. 

Bush beats Gore

2004 Bush versus Kerry

Here the two indices seemed to be more in lock step. The markets hit the low for te year in August. But remember, other than political junkies most ordinary folks don't get interested in elections until after Labor Day. If that was the case, it saved Bush's bacon as the market soared right into the election. 

Bush beats Kerry

2008 Obama versus McCain

No contest. After Labor Day the market melted right into the election. With eight years of Bush to blame the market handed Obama a victory.   The overall McCain Palin mismatch didn't help but here we are focused on the market's influence. 

Now

The market follows its seasonal pattern of making a high in what looks to be February -April. We of course cannot project the graph to November. But it may be rather difficult to keep things on this high of a level. The Greek Meltdown,Israel and Iran, massive debt here and long term unemployment. And the market has recovered most of its post March 2009 loss. March 2012 will be the three year anniversary of the low. 

Meanwhile

Markets are exhibiting the sort of on again off again behavior hat makes predicting during the seasonal high period difficult. We are not making excuses, and after a pullback there may be one more chance to participate again. 

 

 

 

But for now the summation index indicates that our exit was appropriate. Risk is high here. 

NYSI exhibits a potential five wave completion pattern and in the lower panel MACD has topped out just as it did in November. A decline followed.  The wild speculation in Apple is similar to Netflix earlier and Priceline LULU and Salesforce. 

PCLN closed at 576.94 with a 30 P/E.

Salesforce CRM closed at 131.60 and no this is not a misprint with a 8,773.33 P/E.  Indicated EPS are only 2 cents. This folks, is dot.com territory.

And we know how that ended.  A headline this morning says that Buffett is plowing into tech stocks. I have no idea, we are not doing that at TMP. 

 

 

 

 

 

 

 

Energy Service Flashing Negative Signals

Tuesday Feb 14, 2012

The market had a  bounce Monday after out exit on what was regrettably a down day Friday. See our reflections on Strategy in a recent post. 

But the evidence is quickly mounting that the deision to exit was correct, if a few days behind the orthodox top. 

We also noted the increase in insider selling last week. Note we bought in October when the insiders did as well. An alert reader brought Mark Hulbert's report to our attention.  Also note the video link about hte lagging Transports potentially flashing a Dow Theory Sell Signal. 

Transports

Transports look ot be completing some sort of third wave. Note the downturn in MACD aat bottom. This is not screaming sell just slipping out of the trading room when most are not noticing. And the Trannies are way ahead of their trend line. 

Socionmomics

Social mood is positively expanding  as noted in our comments about the skyscraper in Cambodia and the return of the McMansion in friday's WSJ. Now Bloomberg jumps on board. 

Yet another alert TMP reader brought this to our attention. It dovetails nicely with new highs in Ralph Lauren RL. 

 

Bloomberg has just announced a magazine catering to the luxury market. " Bloomberg Pursuits"

 

Magazine will be sent to those with an average household income of more than $450,000. while Chanel, Cartier, and Porsche amongst others have all bought ads for the first issue.

 

Publications like Departures sent to Platinum and Centurion cardholders of American Express show increased ad expenditures up 46 % and its pages up 39.4% from same period a year ago

We are always gratified to hear from readers as we are all in this together. 

Energy service is the leading indicator for Energy which reflects surging demand for everything in the economy. Here are couple of early warning signs.

Patterson PTEN

While Patterson is only one company its concentration ins work over and drilling rigs makes it a real Boots on the Ground oilfield indicator. It briefly rallied in November and then collapsed ever since as the overall market moved higher. Now it is a bare $2-3 off the market panic low in October. LIttle or money at bottom is flowing into the stock. 

This is a divergence. The oil market is up while Energy Service is down. After the high in oil in 1981, the number of rigs working in the US continued to soar over 4,500, a number not seen since. But the price of oil started a slow descent. Now we have the reverse. Energy service investing down, with oil still up. Recall our observation that North Dakota oil fell just last week from $95 to $70. 

 

 

And there's more.

RIG

Monday yesterday was na outside reversal day in RIG, to the downside. An outside reversal occurs when the range exceeds the prior day range to a new high and low and price declines. The buying is exhausted. 

And this is happening well below total book value for RIG. 

Insider selling, expansive social mood, a very weak PTEN, and an outside reversal day in RIG, 

all of which supports our idea of taking profits last week. 

OH looks like GM finished five waves up from December, support at 23.5.  We bought at 20 and sold Friday around 25.5.

Various articles in the media and on the WSJ op ed page today suggest that the Greek vote is mere window dressing. The population, busy burning down Athens, does not eralize the economy has been floating on a sea of spending via government borrowing. Now the borrowing has ended and the huge transfer payment economy of government employment is ending. This explains the US Dollar re surgence. 

The market of course will do everything it can to keep the majority long as warning signs are ignored. Not the euphoria over Apple hitting $500, now the most valuable stock on the planet. The media will continue reoporting stocks hitting new highs convincing the average viewer that all stocks are rising. 

The seasonal pattern is a final high before tax time April 15. That may come a bit early this year but we are watching from the sidelines. This is a high risk market where most stocks are way elevated from their October lows and the majority are now over MAs, where as less than 15% in some cases were over those indicators this past fall. 

thanks for reading TMP.

A Time to Sell - Strategies.

Sunday Feb 12, 2012

We regularly visit the topic of social mood on this blog. Psychology is a big part of investing. Indeed the more I study markets the more I negative mood forcing market bottoms, such as last August and October. Those are identified by low reading on bullish percents and the summation index. The latter is a lagging index but certainly lows there coincide with lows in the market. Positive mood causes markets to soar, witness this January, one of the best ever. But once everyone is in, the money and mood run out and the market reverses.

One can probe market bottoms buying in dribs and drabs or with a succession of lower orders, averaging down if you will. Once the market reverses, one will have bought some at the very lowest prices. 

Getting out however is a different matter. It is a matter of timing for price and of personal psychology. 

A succession of higher and higher orders will not of course guarantee that the entire position gets sold. Then if the market violently reverses, profits can evaporate quickly. And of course all stocks do not top at the same time. We have noted the different timing cycles of say oil versus gold. One simple indicator is to watch the total value of the account, once it stops gaining, one needs to look for topping action. That happened in all our accounts the last two weeks. And now that computers can track our holdings with intra nd daily totals, that brings up the issue of personal psychology. 

Your account is gaining in value through January. The gains continue into February. Naturally one starts extrapolating these gains via a sort of inspired regression ever higher. Positive social mood starts taking over, of course it does. But then the numbers stop rising. Now, one can utilize moving averages or the parabolic stop and revers PAR SAR indicator to lace a trailing stop sell order. But then of course, one is guaranteed to be selling on a down day. The psychology effect then is this. Let's say in December we had $10,000 invested to keep things simple. By the end of January it is $12,000, then $12,500. This of course induces all sorts of mental self congratulations and confidence, a dangerous combination. Placing stops under the positions might result then in an exit on a day like Friday, the biggest down day of the year. You move the stop sell orders up daily, and then return Friday afternoon to find you sold everything and now you have, $11,975. 

On the one hand you did well, you have 1,975 more than in December, nice going. But having seen the 12,500 number, one might well fret that over $500 was left on the table, how could you have missed, in  retrospect, the top?  This is foolish, one never has the money until the trade is closed and the money in the account. But we are humans. 

Conversely one might have sold on an up day, your account has swelled to say $12,100 by Feb 1. And so you sell capturing all those gains. Then you watch as the market continues to gain, and you think gee I could have had more!  So, which is the better alternative?

I suspect selling on an up day is th better idea. One is not subject to a severe reversal. One captures all the gains to that point. And one can then plan to buy again on a day when most investors are fearful, the summation index is down, and the BP indicators have reversed. 

You will earn every dollar you make trading the markets. It is hard as you have to do the opposite of what most people are doing. When the talking heads are recommending Apple at 475 you need to be looking for an exit strategy. When the DOW is down 400 points Oct 3-4, you need to buy. 

This is not a business for sissies. 

 Learn to be happy with your successes. There is always a coulda woulda shoulda success story and the media will find it and broadcast it at tops. Conversely they will beat the drums over the endless bad news from Greece or Slobovia or wherever at market bottoms. 

If you are making more money that a bank account would make, you are doing something right. 

Our suggestions of GDXJ CEF RIG GM HPQ and stock indices bought in October should have performed well if you bought in our time frame. More later today on what's next. 

A Different Perspective on GM

Monday February 5, 2012

We don't endorse conspiracy theories, end of world Mayan Calendar theories or palm reading here at TMP. We rely on market experience, social mood, hard nosed accounitng and market analysis. On January 28, we presented a comparison of GM versus Ford Motor. We oted that if GM traded for the same P/E as Ford, GM would trade at $177. 

At any rate, I got to thinking, let's take a Barack Obama perspecdtive on Government Motors. Sure the bailout was a pay off to reliable union contributors. But, in this election year. what would be the one thing that would absolutely positively without question, put the Republican criticism of the bailout on thin ice?

Hmm, what if the goverment sold its GM stock, and recovered its investment?  Imagine Barack turning to Romney during the debate to answer the charge that the bailout should not have happened. Imagine that Barrack reveals that yes, the Government will be able to sell all the stock over a few weeks, 500 M would be one large trade, at yes, $53. Now what does Mitt have to say, think of the jobs, dealers, customers saved. Think of world markets to conquer. Thik of the re openning of th GM Saturn Plant in TN. 

This would be Romney's worst nightmare. 

 

Barack should have called his budy Warren Buffet to negotiate the kind of deal for us that Buffet got from Goldmand Sachs. Yes Preferred stock with a fat dividend and a jillion warrants. But no, we got Tim Geithner and about 500 M shares of common stock, period. 

I did a search and discovered that the Govt needs to fetch $53 a share on its 500 M shares to get back to 

The current earnings of $4.57 would only require a modest P/E of 11.59, about double what it is now. Sure that's a jump but still modest by today''s standards. 

Company    P/E

Ford        7.77

Toyota    46.53

Tata        8.7

Honda     26.84

NIssan    10.7

 

And if you believe the promise dof $8-10 B a year, even a more modest p/e could be supported. So what has to happen?  Well Gaparino points out in Bought and Paid For that Wall Street supported Obama, despite his recent negative coments. Sure Wall Street is donatig to Romeny but why ot hedge the bet, either way Wall Street wins. 

Goldman, Morgan, Bank of America (all bailout recipients)  start talking up  the stock. A few of the big mutual funds quietly move in and ramp up their purchases. Warren B. likes railroads, how about cars?  GM starts consistely doing 20 M shares a day, a few analysts point out that at SPX 1350 one needs to buy low p/e stocks that have potential to be priced higher, like, well GM, hey it trades for what Nissan trades for and has 20.44 cash per shre in the bank. Is  2x multiple of cash per share unreasonable?  

Is this sheer political specualtion on my part?  Absolutely

Would it be the best thing that could happen to the Obama campaign in the battleground Midwest states? Absolutely

Therefore it falls in that gray realm between the plausible and the probable but certainly well ahead of possible. 

We initiated a position based on fundamental investing. This again is NOT a prediction for $53. But with the election likely to be decided on the outcome of a single state, and only a hadful really in contention, I thougth it would make an entertaining specualtion for our readers. 

 

GM

Monday Feb 6, 2012

Here is a favorable article on GM earnings. Note that GM is free of Federal Income Taxes for years to come.GM jumped 7% Friday no doubt on earnings rumors. 

Natural Gas Update

Sunday February 5, 2012

Here is a positive article on HGT.

 

Here is a negative article on SJT.

this author attempts to project the future dividend payout. He suspects it drops to two cents a month taking SJT to $15. As we stated in our original analysis, a cut in the dividend that sent SJT to a lower low than this would be a buy signal, the final washout in price.  In other words, a dividend cut would wash out the last of the sellers.  This author is not a contrarian but is trying to squeeze the last couple of bucks out of the trust to the downside. My take was that this was a better bet on an eventual low in natural gas than say CHK that already pays a low dividend.

Here is an idea on hedging SJT.  

Here is a positive idea on SJT.

News on the latest SJT dividend.

News on latest HGT dividend

 

I will investigate further tomorrow.  

The Sideways Correction Continues

 Thursday Feb 2, 2012

Jim Grant's Interest Rate Observer sells for $965 a year, a bit more than TMP. So it is worth reading 

what Jim, the former credit market writer for Barrons, has to say about the monetary system.  He notes that the present fiat paper system only dates back to Nixon; one recalls that the gold system was alive and well 2012 years ago with the Wise Men. 

 

GMCR

 

 

An alert TMP reader asks about his recent purchase in GMCR.  Perhaps the most telling thing here is that people viewing GMCR also viewed  LULU, NFLX and PCLN, all those have been some of the hottest stocks, So GMCR is in play among the hot stock group, I don't think  this one is going to do a NFLX dive.

Earnings news is quite favorable, net sales growth  up 85%

Note in the bottom panel that money flow is improving and has really just turned positive since the Sept decline.

The PAR SAR is on a buy signal. 

Lord Keynes observed that playing the stock market is rather like guessing the winner of  a female beauty contest, the winner will not necessarily be the apple of your eye, but the one the entire crowd likes best. GMCR seems to now be in that very position.   Here is why. 

To wit though, it is just now over its 50 day MA, that triggered a buy in quantitative  programs. The 200 day lies well above at 76.21, that is the next target as many stocks are at or above their 200 day MA already. So the funds are looking for stocks that  have some get form 50 to 200 potential left in them. Remember that over 58.98% of NASD stocks now exhibit a bullish point and figure pattern.  And 73% of NASD stocks are over their 200 day MA. GMCR is in the 27% that are not. So odds are money will flow into the 27% of which this stock is one!  So the funds are looking for the stocks that have room left to run. 

I suggest holding  for an assault on the 200 day MA, Yes there is resistance at 60, but be patient...

Caution, buying anyone stock is more difficult than an index of stocks. While the news for 4th quarter 2011 was great for GMCR, it was lousy for Proctor and Gamble, who would have known? But I thought this was a good opportunity to demonstrate both tech and fundamental analysis. All my best wishes to readers with their picks!

NASD BP 200

I mentioned this indicator in the above comments about GMCR. Wow, what a social mood change form October!  Recall the big drop in the market last May, we do not want to overstay our welcome here.  

UUP Dollar TLT Bonds GDXJ Gold Miners

This is happening in such a fashion that El Erian and Bill Gross at PIMCO  are not noticing it. PIMCO has  bet massively long here at the top of the bond market after selling out at the bottom last May.  

At top the Dollar is coming off its highs shown in the UUP green linne. 

At bottom Gold stocks anticipated this with year end tax selling and then buying began the last couple of days i December when we recommended going long. 

Notably TLT a bond fund, topped right at the low of GDXJ December 19. Since then TLT has made a series of lower highs and lower lows, a bearish formation.  Conversely TBT is making higher lows. 

So where are we?

SPX

 For some reason the annotation tool which allows me to label the charts is not working so

SPX moved up in a Wave 1 from late November. Wave 2 was hard down. Wave three has run some 100 poits. Under the rule of alternation, Wave 4 is sideways if Wave 2 was down. That is happening now. Wave 2 lasted about 2 weeks, and it is difficult to say but apparently Wave 3 ended at 1330 Monday a week ago. 

That suggests we hae another week of sideways action. So where is Wave 5 likely to take us. Again targets are dangerous as we tend to fall in love with them. But, Wave 1 ran 100 points from 1160 to 1260. If Wave 5 carries 100 points, 1300 + 100 suggests at leasat 1400. If TLT really tanks, the markets could better 1400. 

Also note that hte 50 day MA just crossed the 200. This was covered on CNBC the WSJ and in various websites as a buy signal. So of ourse the market immediately had to start going sideways  to frustrate the late buyers. It is likely to do so into next week at least. 

Unlike Jim Grant out opinions don't cost $965 a year but we hope our musings have helped you. But, even if we catch on with Marketwatch, I don't see myself in a bow tie....More this weekend. 

Hawaii of China

Monday Jan 30, 2012

Some are calling for a 'soft landing' in China citing how the Chinese govt is reigning in speculation. 

Well take a look at these photos of Chinese Hawaii.  Just as we have Snow Birds who come to Central and South Texas to escape the northern winter in the US, here are developments just for the same group in China. 

In a country of well over a billion people, these are amazing photos. It is cearly well into the day when they were shot but notice there is not a person, or rarely an auto or even a bicycle or moped in any picture. 

Recall that banks loan real money for to buy the brick and mortar for such projects. But once complete the project is worth is discounted present value of future rentals, I am assuming rents since none of these are sold. A plunge in the PV means a plunge in the market value or the real value of the loan on the books of some Chinese govt backed bank. 

This won't end well.

Shanghai

Since breaking below the 200 day MA in May, the SSEC has had two failures just over the 50 day MA

and looks like it is setting up for another. Meanwhile the US SPX has rallied well over 20% from its Oct. lows. This is an ominous warning for all the Pacific Rim economies all of which are 'leaning' on China. 

The April high 3057.33, the Friday close 2319.12, a drop of 24.14%, a true bear market. Notice you hear little to nothing  about the Chinese growth economy in the media these days. Japan has had its first trade deficit in decades and all the news is on Europe. 

Meanwhile back at th SPX Ranch...

Recall that most software computer programs which generate buy and sell signals are couched in the action of th 50 and 200 day MAs. In August therefore when the 50 crossed over the 200 to the downside, a cascade of sell orders were generated and the market fell sharply. 

Now we are looking at the same thing in reverse. When the 50 crosses the 200 to the upside we are likely to have short positions being covered and fresh longs established. I covered this last week in  some daily updates. But it is pretty clear in this chart what is aobut to happen. The pullbacks the last few days and tenative pullback this morning are typical of the hesitation on the long side. 

I don't know when it wil happen, the bfreak out that is,  but February is shaping up to be an interesting month.