The Market Perspective

Looking Ahead - Fundamentals

Friday Jan 6. 2012

 

The Article on Australia's boom, how long is it likely to last on page A 11 of today's WSJ is a must read. As the article says, unless the business cycle has been repelaed there will be a pullback. All the countries depending and betting an a never ending China boom will likely be facing a serious pullback later this year. That will be part of what 'causes' the markets to turn down later this year. 

The front page story on Barnes and Noble is also interesting.  The delay in challenging Amazon with a E reader has put Barnes Nook reader behind Kindle. How long before Apple offers books the way it offers musci? The real fall ou there though is that with Borders out and now Banrnes pulling back. all the strip malls expecting Barnes to move in are pressed to find an alternate. JCP dropped a couple of bucks yesterday proving that Howard Davidowitz estimate of way too much retail space is correct. 

Elsewhere Kodak faces a bankruptcy. But to do what I wonder, okay, shed some debt, what next, sell more patents?  The kiosk bet in Walgreens et al did not pay off as folks moved to exchange photos by cell phone. And so EK never had an E Reader nor a cell phone. The idea of moving to computer printers still seems to cling to the paper based exchange of ideas. 

Who's next, well the horse race industry has been another loser and is now demanding slots at the track. Well then who needs the track?  One wonders if online gambling will be to Vegas and Riverboat Gambling as e readers have been to brick and mortar sales of paper books. 

Catch a Falling Knife..

Saturday December 16, 2011

Catch a falling star and put it in your pocket
Never let it fade away
Catch a falling star and put it in your pocket
Save it for a rainy day

Recorded by Perry Como, 1957

Another famous dictum of investing is to avoid the temptation to catch a falling knife, one never knows how low it might go. Borrowing from the Perry Como tune, Gold was a star just a  few moths back. Now the blogs are outdoing one  another in doomsday predictions of further lows. Dennis Gartman went so far as to declare the entire gold bull market at an end. Is this the chance to put a star in your pocket, for that rainy day when the trillons of debt sloshing around the world has to be faced down?  We take a look today. 

This past week 

Tuesday - we stated that it sure felt like a dramatic cycle low of some sort was at hand, the next day gold collapsed %76.

Wednesday - We showed a  five wave pattern up in the dollar and a five wave pattern down in the Euro

Friday - We noted that the indicators were out of synch. Investors had taken a polsition almost as defensive as at the August and October lows, TLT soars. But the VIX continues down. 

The WSJ reports that Currency Bets are Tabled Until the New Year. The options column  reports that 'fear gauges' declined substantially Friday. This would seem to bolster our argument for  the Dollar and Euro have reached an extreme. But it may be that all trading will slow into the holidays. 

Generals fight the last war and investors worry about the last crash. Funds and small investors have shunned stocks to embrace low yield bonds in a frenzy not seen since late 2008. It seems unlikely the market will fall and reward such defensive action. 

So let's look at each of the major markets. 

Currencies

US Dollar versus Euro

The Dollar pulled back the last two days and the Euro, well, at least did not fall any further. The dollar is in red and green, the Euro is in black. This is not enough to call a top in the buck or a bottom in the Euro but  along with the report in the WSJ suggests the market hit some sort of extreme. Again lower volatility for the mext two weeks may delay a resolution until next year. 

Bullish Percentage 200 Day SPX

THe BP on the longer 20 day MA exhibits three higher lows. 
A reverse head and shoulders pattern is testing the 50 day MA for the indicator.

This chart has to turn up to keep the bullish case alive.  

Dow Diamonds

We used the DIA to exhibit the Chakin Money Flow at top. 

DIA has formidable resistance at 122 or 12,200. It has not been able to break through in the last two months. In the top panel note how quickly investors money out on even a modest pullback. MACD at bottom indicates the total lack of interest investing in DIA. 

SPX

The very big picture as we have reported, is that the stock market internals and price probably both peaked earlier this year. ONe can easily see the longer term 200 day MA in red is trending down.  but the market needs to lure more people back in before it really begins the plunge back to March 2009lows. A re test of the 200 day MA once more seems possible. 

New York Stock Exchange Hourly

The  NYSE hourly chart as well as the SPX and QQQ have the same general look. the hourly charts have re traced about half the advance from the FED action in late November. The MACD at bottom is  turing up. 

The Bond Market - Defensive Action to the Max

At top the VIX continues its steady slow decline. TLT in the main panel is a defensive investment. As the SPX fell near 1200 this past week ore money poured into this fund of long term government bonds. Volume in the vertical bars at bottom however was less. So TLT now sports a triple top even though the stock market has made progressively higher lows. As Dr. S[pock might say to Captain Kirk, this is irrational. Eventually this defensive posture will not be rewarded. 

Gold

THe last time GDXJ traded at this price, about $25-26, gold was selling for $1200, that is a $400 discount to where it is now. The vertical blue line marks that last spot.  Gold has been the strongest bull market around. This seems the most logical way to establish a position in this market. AFter the big price tumble this may take a good while to get going to the upside again but buying when no one else wants it is the way to enter the metals market. Recall that gold languished for a couple of years at the $300 level from 1998-2000. 

Energy Services

The Energy Services SPDR seems to be making a bit of a bottom on its hourly chart. It stopped falling Wednesday. Energy services are often the key to what is about to happen in the energy sector. 

So we are cautiously optimistic that a rally will begin in stocks, now that investors are safely in bonds 

the reason to support this position as advanced in the charts we have shown are

• Sentiment is uniformly terrible, which is typical of a market low, the media keeps beating the drum that European banks will be downgraded, see our photo of the Italian Welfare Minister earlier this week, ie leaders are in tears
• the Dollar Euro rubber band appears to have stretched to its limit
• The fear level indicated by TLT returning to its recent highs, when stock prices were much lower than they are now is irrational, Bill Gross at PIMCO has been wrong all year and is likely wrong again on his bond bet
• The bullish percent charts along with hourly charts of the NYSE and XLE look favorable to at least a rally
• The sell off in GDXJ is providing a relative low risk entry

 

Dennislelam@gmail.com

 

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance and no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

 

 

 

 

 

The Trend is Still Down

Sunday June 26, 2011 11:11 AM CST

Stock Markets

I decided to take another weekly look at where we are now and where we were, using our Time Machine, prior to the 2008 crash. First here is the MACD indicator behind the SPX.

We did not get on 'the bottom is in bandwagon' this past week.  We have stated several times we thought this would at best parallel last summer. As you can see in summer 2008, the next buy signal using this MACD indicator will not occur

until the faster moving black line crosses over the slower moving red line!  The market is nowhere near that happening!

Indeed if the 2010 experience is any guide we need a much more dramatic drop in price from here  Note the big one week drop in May of 2010! The bottom panel features  the 200 week moving average indicator. It  is also nowhere near exhibiting the reverse head and shoulders pattern  it put in from June to August in 2008. 

But there is an alternative. The market does not have to bottom this summer. Let's look at summer 2008. Jules  Verne please set the Machine to the 2007-2009 period.

It is easy to see how everyone was lulled to sleep as the indicator held up right into September, 2008.

Regrettably stockcharts does not have information for our preferred 1973-74 period when things just kept melting down for two full years. Frankly I expect that is what our eventual analog will be. Let me be clear. I would not be surprised to see the market stair step down from now through 2012 with impressive rallies back up as we have shown using hourly charts. This is  how the 1930-31 drop occurred as well as 1973-74. The absence of a real crash allows most of the participants to continually think the bottom has arrived only to be fooled again. Likewise those in the market are convinced to stay and buy more. 

Now remember my reference in yesterday's post to the WSJ article suggesting Junk Bonds were a buy now? I disagreed, just to remind you.  Let's take a look. 

As Al Borland might say on long running TV hit Tool Time, I don't think so Tim!  Indeed this may well be another early warning indicator of trouble. Investors have piled into Junk and REITs (is there a difference?) in search of yield. Here one can see the internals peaked last November along with Emerging Markets. 

Hmm, actually now that I compare the current action of Junk with the SPX in 2008, Junk looks very much like that  slow meltdown that fooled most of the market, see the similarity?

The bottom line is that this analysis backs up our conclusion last week that we have at best a rough summer ahead. 

Socionomics

Many  futuristic movies have a negative view of society. Mad Max showed this kind of anarchistic violence, Waterworld was the same, and Terminator was a more organized Star Wars us versus the Empire type fight.  The original Dirty Harry debuted in 1971, five years into that bear market. That film featured a detective unable to arrest a killer. Now consider what is happening. 

We suggest you read this review of To Die in Mexico. As a San Antonio resident I am considerably more worried about the 120 M people south of the border than I am about Afghanistan. Now that the Cartels are controlling large swaths of the population, it is doubtful they will give that territory back without quite  fight. Note our  June 15  post about teens sporting  Narco Polo T shirts.

The latest crime  trend in the USA is robbing pharmacies. Hydrochodone pills bring $50-80 on the street. And it is certainly easier to run out of the store with a few bottles as opposed to the sacks of cash the deNiro gang toted off in the movie Heat. Hmm, there are  no serial numbers on loose pills either. This article tells the chilling story of an 81% increase in pharmacy robberies from 2006 to 2010. And of course pharmacies usually are not as well protected as banks. And with the U-6 unemployment at 16%, expect more not less of this sort of thing. 

Here is the unvarnished look at unemployemnt from www.shadowstats.com. Jon Williams has the data to back up his assertion that the government has massaged and changed reporting methods to make things look better than they are. 

Note the shadowstats blue line for U 6, the total number who have given up and are now permanently out of work has risen throughout the stimulus period.  The red U 3 number is the one reported each month. Note it ticked up at the recent May high in the stock market. 

It is not hard to link those unemployment numbers with pharmacy robberies. 

As we say, the news is in the paper but it takes some analysis to provide context as to what it all means for an investor. Caution, more trouble ahead. 

Thanks for reading The Market Perspective. 

You can reach me by clicking on my name. 

Dennis Elam

 

 

At the Bookstore

Sunday May 28, 2011

We are in the transition to a bear market. Hence mood, news stories, and public interests are exhibiting many potentially confusing cross currents. 

In a bull market all news is bullish. No matter what happens the markets go up. For example one might expect to see the following hypothetical story. 

Despite the refusal of Palestinian Leader Abbas to recognize the State of Israel, investors bid Israeli based Teva Pharma even higher. 

In a bear market all news is bearish.

Investors were looking for a positive ray of hope with Secretary of State Hillary Clinton's latest visit to the troubled Middle East but she returned empty handed. The Palestinian Leaders walked away from recognizing the legitimate existence of Israel. Not surprisingly, shares of Israeli Teva Pharma dropped yet again. 

Now those news events were hypothetical, I made them  up but no doubt one can find similar real reports. 

As we transition to a top in the markets, some sectors have already signalled a downturn. The Shanghai Stock Exchange topped months ago. So we hear nothing about the SSEC. Instead the media reports on what it still going up. like Linked In or Yandex. But social mood is well into a bear market already. 

What we offer here is a Market Perspective, hence the name of the Blog. As a college professor I can attest that most groups of people (students for example) see but do not observe. They hear but they fail to synthesize the words into a meaningful learning context. 

Don't take my word for it, here are a few of the volunteer reviews off Amazon for Stephen King's latest, Full Dark, No Stars,  though the title does  reveals what to expect. 

King at his gritty, gruesome, giddy best, so be sure to check under the bed before getting started

the only thing you can count on is that "there are always worse things waiting.

This is an honest book. Each story seems to revolve around the theme that there is a monster inside each one of us. 

How remorseless can a person be?

If you are looking for some really gory parts, then 1922 is the best you will get.

Or here are a couple of professional evaluations of Full Dark.

 

King [is] the most wonderfully gruesome man on the planet… The pages practically turn themselves."

-- Carol Memmott, USA Today

"Full Dark, No Stars is an extraordinary collection, thrillingly merciless, and a career high point."

-- The Telegraph (UK)

Well you get the drift, light holiday reading eh?  King is a champion of the macabre so it is not accident that he is back on top with readers. Why, because his works resonate with a negative mood. 

 

There are multiple best seller lists.  The store I was in rated Full Dark as number 3,

The Vampire Diaries The Return of Midnight as number 4

Dead Reckoning, A Sookie Stackhouse novel as number 2. The HBO series True Blood is based on the Stackhouse series. 

Now before I go on let me put what I am about to show you in context. Promotions are nothing new. In Jean Shepherd's delightful Christmas Story Ralphie locks himself in the bathroom to use his new Little Orphan Annie Secret Decoder Ring. What does  the famous gal have to say?  It turns out to be in his words, a a crummy commercial. 

In the bull market of the 1950s, Walt Disney kicked off the first promotion of my lifetime. He combined the Davy Crockett story with a Sunday Night tv series, linking that to the new Disneyland Frontierland amusement park. Every young boy on the block wanted  a Davy faux coonskin cap. Clearly this was a bull market event, positive hero worship.  Now fast forward to today's promotion. 

Look no further than Page 11 of the Best Buy ad insert in today's Sunday paper. Really, I am not kidding. It is typical for Best Buy to feature the latest DVD release on all the tv ads in the weekly brochure. And so on page 11 we find the following. 

When you buy Season Three of True Blood at Best Buy you get, yes, the Best Buy Exclusive True Blood Magnet!  

I suppose the idea is that this is the perfect addition to your refrigerator collection. But wait there is more!

For those of you who have not watched the series, Vampires have come out of the closet and become mainstream characters. In helpful fashion a new drink, True Blood, has been invented to spare the throats of the rest of us. So, yes, for $2.99 you can get  a bottle of True Blood. I of course cannot vouch for how well that slakes the taste of a genuine vampire. And for $12,99 you get the, of course, True Blood T Shirt. As the ad says,

bring home the extras and get a true taste of the show!

Now putting all this together, how far is that promotion for True Blood, mood wise, from Little Orphan Annie or Davy Crockett?  Class, the correct answer is, about as far as you can go. The amazing thing is that so few people grasp the significance of what is happening. 

At this point the media is treating all this as fictional fun and games. But clearly with this much mateiral on display there is a 'thirst' for horror. This is indicative of a negative social mood. And that social mood is on display around the world. Today's paper reports on Moscow police brutally breaking up a demonstration by gay men. The police are described as brutes by participants. 

The cross currents are on display in WSJ.com where Matthew McConaughey is modeling men's cologne, Cartier and Louis Vuitton offer stunning diamonds, and even Chanel and Ralph Lauren  are now in the watch business. This is significant in that Vuitton made its mark in the luggage business and Chanel has not previously offered watches. The message here is that the luxury market has expanded to allow more non-traditional participants get a piece of the action. So the  luxury market  is still expanding,>  While such observations do not constitute market timing, they provide a useful window on social mood. At present WSJ.com is responding to the whims of readers to display wealth and emulate movie stars like McConaughey and Michael Fassbender. 

Oh remember the classic trench coat made famous by Bogart in Casablanca?  London Fog made them in my college days for about $175. Fassbender models one by Burberry Prosum. This venerable British fashion label is back from the moribund with new management. No wonder, the coat lists for $2,395. 

Well there you are. Sherlock Holmes used to tell Watson that the best place to hide something is right in the open.All the clues to social mood and where it is about to take us are right here in the open. But it takes a socionomist to point them out.

As the Scouts say, Be Prepared. 

 

TLT Update

Wed Evening after Market close May 25, 2011

The red black bars are TLT a preferred holding, the solid black line is the SPX. Note the near mirror perfect inverse relationship Bonds up, stocks down  I mentioned selling calls against my TLT positions and it looks like we caught the secondary high for TLT, the first high was May 17. 

The low in stocks we have talked about appear to be  in place now. And so TLT topped out for the time being. Now expect TLT to bottom as stocks top in mid June. That will be the last chance to add TLT at a favorable price. This chart clearly demonstrates why we like TLT expecting stocks to sink for the next 12-18 months starting in June. 

Strategy

I own  in one account 600 shares of TLT bought at approximately 92. 

I sold six June 17 (expiration date) calls with a strike price of 96 yesterday, these are at the money calls. I did it in two batches for an average sales price of $89 per 100 shares. Tomorrow I will buy some puts using the money from the calls. The idea is that by the June 17 expiration,

the calls will be worth nothing, I expect TLT will be below 96 as stocks top. 

The puts should rise in value, that is a trickier play but selling calls against a position which is at a profit in a bull market is an excellent way to enhance returns. We may buy the calls back fi they lose 75% of their value, we shall see. 

Plan to purchase more TLT at the low which should be mid June. 

Socionomics

Negative social mood is ramping up fast, the Egyptians are going to try Mubarak for Murder, he should  have left the country when he could!  No doubt other Arab dictators are taking note. 

Thanks for reading our blog, we encourage your comments and constructive thoughts. 

Special Report

We would like to send you Ed Carlson's Special Report targeting a June High, Ed is a Certified Market Tech and this report confirms what we have been predicting. Just send us an e mail with your e mail address. We will send the report this weekend. 

dennislelam@gmail.com

 

Market Breakdown

Friday March 18, 2011

 

Regular readers are aware that we prefer to examine the internals of the market to the actual prices reported in the popular media. This chart shows why. We frequently cite the NYSE Summation Index so here is an update. The NYSI formed a large triangle and then fell completely out of it to the downside.

Our first target was the 1200 area. The internal action suggests that lower numbers lie ahead. We had shown this chart prior to the big sell off and suggested that the internals did not support the price advance in the averages, Whatever, the next major low should provide a fairly low risk buying opportunity, short term, just as last July did.

Friday Morning 7:07 CST

The UN finally slumbers into a vague threat of a French ( a first since the Suez Conflict against Nasser in the late 1950s in my memory) air strike, but not until Sunday. Perhaps this assumes  the Colonel will fold on that announcement.  At any rate things look better at  the Japanese nuclear plant.  US stock futures are up a bit pre market opening.

Bill Griffith was bonkers on CNBC over a new high in the Yen/Dollar relation. He never of course bothered to explain it. No doubt the carry trade has been encouraged by our Fed’s no interest rate policy is unwinding. Dollars are being sold to buy yen necessary  for rebuilding Japan.  Despite what you hear the Dollar is only back to its November lows.

The correction may extend into next week giving another opportunity to pick up some Government bonds.

More updates this weekend.