The Market Perspective

Markets Closed Today

Monday February 20, 2012

 The SPX is at 1368. That means it is a mere 2.3% to reach 1400. Our judgement was it was not worth the risk of being long when the reversal occurs and so we exited a week ago. We listed three  reliable indicators this weekend

Dow Theory

Summation Index

Bullish Percent 

All of which are flashing warnging signals. One comment on this blog is whether the market might celebrate the March 9 low with a three year anniversay high. Given the bullish percent in the high 80s, another two weeks would surely take it over 90% at which point the exit bell would be ringing loudly. 

Recall the violent reversal of this past May and of course August. Relax and enjoy the show for now. 

Divergences

Sunday February 19, 2012

Commodity producing firms and some energy service companies are sounding discordant  notes. CNBC is as usual cheer leading for the market. Al those green dots, stocks opening to the  upside on the opening are more a reverse indicator. Once everyone is in and the money runs out, the market tops out. We have noted how the bullish percent indicators are near their decade highs, as well as the summation indices. 

The media continues to magnify the importance of the 'trophy' stocks making new highs. Let's take a look. 

NYSE Summation Index Early Warning System

We have three reliable indicators flashing Early Warning Signals of  a top.

NYSE Summation Index

Dow Theory Non Confirmation by th Transports

Bullish Percent of Stocks over 150 day Moving Average

Here is the New York Stock Exchange Summation Index. We can easily count five waves up. And this week recorded the FIRST NEGATIVE WEEK since the take off in December. We constantly harp about the market internals. ONe can easily see the NYSI here identified the dead low of August, the next low of October and now the high in February. Gee, whew, I feel a lot better about being in cash with exposure to natural gas. 

Dow Theory Anyone?

In July the Indus trials failed to confirm the new high in the Transports. This time the Transports are failing to confirm th new high in the Industrial. One can see how August turned out as a result?  Again this suggests extreme caution. While it may appear that all are easily making money (don't they always on CNBC?) note the violent reversal in late July when things turned. 

 

Bullish Percent INdicator  150

Still topping is a process. The popular averages like SPX push higher, the Dollar forms stealth higher lows, the Bullish Percent over 150 days is at nose bleed 88.6!!!!!

We overlaid the BP indicator with the actual SPX. Both are coming to a crescendo. The BP may be making  slightly lower high than on its last visits to this area. The alarming thing of course is that previously the price index was much lower. Now both are in social celebration mood!

 

Commodity Funds

To listen to the media one would think all stocks are making new highs, not quite. Here Metals ad minint XME, GDXJ junior gold miners in gold and Patterson PTEN have all been making lower highs, for a year!

Insider selling in tech stocks and mining stocks is up, buying is simply not happening. 

Crude Oil

Most investing websites, subscription services, and such almost never admit an error. To read them one would think that someone had finally 'figured it out' No Fear, No Losses, No Dollar Left Behind, We Captured the Whole Move..... 

We will not be so bold. It looks like my original analysis of oil going higher on a break over 102.50 was correct. The weaker dollar in green via UUP is in the bottom panel. That weakness friday finally lifted oil over the resistance. Continued talk of Israel potentially bombing Iraq of course helped things along as well.So s this a break out ot the upside, or a fake out designed to lure on in at the wrong moment.

Yes I exited the Energy Services, was that a mistake, well before you jump  in tak a step back look at the Dollar. 

US Dollar

At bottom crude oil has turned up, but in the main panel the Dollar has made  a higher low. And it remains above the buy level for the PAR SAR. 

THE DOLLAR AND CRUDE OIL WILL NOT BOTH CONTINUE TO ADVANCE. I just wanted to emphasize that point. 

Notice the nice stair step up pattern to the dollar, no one on CNBC seems to notice. Could that explain the decline in GDXJ and XME?  You bet it does. 

I see France officially retired the Franc this week, now its Euros or nothing. The never ending Greed drama is just postponing a real fall out on what to do. The Greeks are not going to adopt an austerity program past the first loan re payment date, nor will Spain, Italy or Portugal. 

Now remember it is All One Market, on one side, stocks, gold, oil on one side and the Dollar and US Govt Bonds on the other. so which is going higher, and for how long, oil or the Buck?  I ran the same chart but with WTIC in the main panel, it too is on a weekly PAR SAR buy signal. So the jury is out.

GM

My call on GM also appears to ave been correct. As soon as Romney called for the government to sell its GM stake, GM shot up7.22% for th week.Readers may recall my sheer speculation that it would be in the best interest of the Obama campaign for GM to shoot back to or past it high of $40. Hmm, is David Axlerod reading The Market Perspective?

After I sold it pulled back to the MA and then took off, another example of how the quant programs funds utilize have the moving averages as their trigger. Should we get back in the GM water, probably.This is of course the psychological problem of getting out, tough to go back. I will leave this one to rreaders and their own risk preference. This is also the difficulty of trading in individual stock. The funds will claim they have some winner at quarter end, GM might be it. 

 

San Juan Royalty Trust

 

And now something great to report on our strategy. We recommended SJT and HGT, two natural gas realted trusts paying nice fat dividends. Several readers e mailed pointing out obvious weakness in SJT which in fact promptly took a dive after our recommendation. But for now it appears both at attempting to put in bottoms. Confirmation comes from CHK which jumped just over 4% for the week. Nat gas futures jumped 4.7% for the week. 

One reader points out the lack of natural gas fueling stations. This is true for cars not so for trucks. Most large truck stops on the interstate at least have propane re fueling now. As we have remarked many pickups in the western states have been modified to run on propane. I would not be surprised to see Congress pass a tax credit incentive for doing this for pickups and SUVs. IT is relatively easy to mount an extra LNG tank in the bed of a pickup truck. And remember the best selling car in the US is still the Ford F 150 pickup. 

Socionomics

Obama's percentages peak?

http://iemweb.biz.uiowa.edu/graphs/graph_Pres12_WTA.cfm

Bob Prechter is publishing an Academic Paper showing the high correlation of a bull stock market to the winner of the White House. Not surprisingly Obama's chances  have risen to a new high with the market!  If the summation index, bullish percent, and Dow Theory are correct, he should be peaking for the time being right about now.

The Republicans remain a mixed bag with hundreds of delegates to be decided in by March 9. 

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 ands 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.

 

 

 

Cash is Cozy

Thursday Feb 16, 2012

We exited the markets last Friday. Since then positions like RIG and GM and GDXJ have headed sharply lower. We noted yesteday that hte earnings of Apple have boosted the entire expectation for the SPX, without it future earnings growth is much lower. It it typical for peaking markets to focus on a handful of stocks. WANG and DEC in 1972, MSFT in 1990s, now Apple. The party ended dramatically yesterday on an outside reversal day in Apple. 

This is  a tech textbook case of a topside reversal. Wednesday the overall market finally closed down not up for the Day. Tuesday it closed up, sucking in the last few to climb on board too late. 

Wednesday Apple went higher and then lower than the previous day's trading, an outside reversal day, there are no more buyers up here. NOte the huge volume spike in the lower portion, on a down day. Note how far Apple is above its MAs. 

We put the NASD summation index in the top panel. We noted earlier this week it was curling over to the downside. THe impact of that will be felt the next few days ina market that has had few corrections thus far this year.

Socionomics

in the last couple of wees we noted a sale of a vintage Ferrari for $12, th return of the McMansion, the new skyscraper in Cambodia, and now, yes a fitting 'halo' for the market run -  $2 M Aston Martin 1-77

Aston wisely partnered with 'Dubai' investors on its split from Ford. And these are truly toys for the uber wealthy in Dubai, floating on $100 oil. 

 

 

 

 

 

 

 

 

Fittingly  the celebration of wealth is joined by a return to the dot.com era as

we have noted in the valuation of CRM-

yes an 8,708 price earnings ratio. Frothy....

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. 

 

 

 

 

 

 

 

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. 

Stocks Regain Former Highs

eSaturday February 4, 2012

Dow at Highest Since May 2008 A1

The blue-chip stock index rose 156.82 points to its highest level since May 2008, several months before the financial crisis, as better economic news encouraged investors to set aside their fears and focus on fundamentals.

WSJ Weekend Edition, Today

Overview

In less than a month stocks will celebrate their three year anniversary from the March 9, 2009 low at SPX 666. We expect various sectors to top in the next few weeks or months at the latest. Yesterday we noted that  the sectors are moving in different time frames, Oil has perhaps completed a recent correction and is now moving higher, gold started a correction from its $200 run yesterday. Stocks and oil are moving higher, bonds may have finally begun their descent, the dollar is strolling to the downside, and gold is correcting form its recent run. 

The weekend WSJ headlines that Jobs Report Powers Stocks Higher. This is nonsense, it was positive social mood that is powering stocks higher. It is everywhere from improved approval for Obama to $32 M Ferrari prices to colorful fashions on the runway. 

Stocks

In his epic non-fiction book The Right Stuff, Tom Wolfe notes that there are some fighter pilots who fly by the book of instruments. They will focus on their  instruments even if the readout is wrong. The result can be flying the plane into the ground. Had the pilot looked up, outside the cockpit, to notice the approaching ground, he could have taken evasive action, but no. 

Today's fund managers are just like Wolfe's erstwhile pilots, focusing on quantitative programs to tell them what to do. Yesterday found me wondering if the SPX would close over 1345. Well how about 1344.90? AT 1345 the SPX is only 1.8% from its 2011 high at 1370. I have made the point that breaching the 1370 level will no doubt generate buy signals in quantitative programs. That is foolish, buying near all time highs but such is the reality of such programs. Add the fact that everyone is using basically the same program, hello to the herding instinct. 

There are lots of pros shorting the market. Wil they cover their shorts at some point, that requires buying back the position. Will they then go long, that requires establishing fresh new longs. That would bring a double dose of buying power into the market. 

Individuals are draining money from bonds and going long stocks at these levels, otherwise TLT would not have dropped over 2% yesterday. Yes it is incredible to see this many folks going long now, that were fearful of doing so last August and October. But that's what we do here at TMP, observe crowd behavior and market internals to hopefully improve our investing resutls. 

But back to the 1.8% Solution. The market could breach 1370 in a day or two, or in a week or two, no way to know but looks like momentum is  building here.  I am laying out the ground work to make the case that vaulting over 1370 could result in an even sharper short term run up, a parabolic final rush to new highs, exactly the opposite of the rush to new lows on October 3-4. Then we had a 400 point down day in the Dow. Again the reasons for this would be

• Bears having to buy to cover their short positions
• Bears establishing new long positions
• Individuals are  fearful of losing out, abandoning bond positions that are now crumbling, lured by ever higher stock  prices, hey, everybody's doing it!  If that seems unlikely, consider this headline on the Fidelity.com page that greets individual investors with their accounts at Fidelity.

Fidelty.com Home Page

Nasdaq vaults to 11-year high on surge in jobs

REUTERS—4:43 PM ET 02/03/12

A surge in hiring in the world's largest economy last month drove the Nasdaq to an 11-year high on Friday as optimism grew that the labor market is on a steady path to recovery. The broad-based gains on solid trading volume also sent the Dow Jones industrial average near a four-year high.

• Jobless rate at 3-year low as payrolls surge
• New York sues banks over electronic mortgage system
• Wall Street analysts struggle to predict Apple
• Factory orders up, business spending rises

Hey sounds great right!  And as we will show you this is precisely where the money is now flowing. This is of course the opposite of our recommendations. 

The Crowd - Sell Low, Buy High

SPX Money Flow

The Chakin Money Flow Indicator is at bottom. The blue line is a 50 day MA for Money Flow. Note that money flowed OUT of stocks at the August and October lows.  Fear was so pervasive that as muchmoney flowed out at the higher lows in December as at the lower lows of October! Now that the market is back near previous highs, money flow has soared to new heights, higher in fact than at the  last March high!   Now look at the same time period, same indicators, for bonds via TLT.

TLT

 The funds flow for TLT is the exact opposite SPX which is to say just as badly timed. Note that money flowed into TLT as stocks pulled back through Nov and December. Fear that the markets would crash below 1075 DOW again pushed investors into bonds when they should have been buying stocks. 

Now notice that TLT dropped 2.15% on Friday alone. Is this the final break below the trading range of 116-122?  I am guessing that is what this relatively large drop coupled with the negative funds flow at bottom is telling us. The one unknown is whether the fall will accelerate or engage in a tug of war stair stepping down to the 200 day MA. 

 GDXJ

See our Friday Feb 2 update where we speculated gold was ahead of itself. I would peg support at 28 for GDXJ. Note that gold began its rally after crude oil. Crude oil probably finished its correction this past week or will early next week.

Energy Services XES

After three to four months of fluctuating between the moving averages, XES broke out on Friday over the 200 day MA. Again this wil trigger further buying. At top crude oil picked up. Its breakdown to the 96 area may have knocked out a few players. Generally Energy Services are much more better predictor of energy activity than energy itself.  

Other Recent Suggested Positions

My Fidelity  account is up 30% from its early November cash position. Here is the breakdown.

Once crude oil breaks through 102.5 for a weekly close, it could rapidly move towards the 2011 high at 115. ONce stocks vault  1370 and oil through 102.5, both ar likely to take off  as there would be little selling resistance above those levels. 

 

GM - Up 7.69% Friday, a couple of readers e mailed that they sold on the way up at 23-24, the trouble with that is incurring  taxable gains, and they probably did not buy back in time as the train left the station on the way up again Friday, 31 is a realistic objective and much higher if the SPX hits 1425

RIG - Back in bull formation after the negative article in the WSJ, 49.20, original buy at 40, book value is 65

CEF - A pullback here may be a buying opportunity though adding anything now may be a short term position. 

Natural Gas - Continue to think a low is forming here with CHK, Natural Gas Futures and royalty trusts making slightly higher lows. 

TBT - Has moved back to th upper band of its range, no break out yet. It has made three higher lows sinc eits bototm Dec 19. It jumped 4.22% Friday. both the 8 and 13 day Exp MAs have crossed above the 34 day MA. MACD has moved up nicely. So far so good. I have a speculative position in TBT. As mentioned in our original post in this, not a trade for everyone.  See Sunday Jan 29, 2012

Emerging Markets

Brazil has joined the US market in regaining most of its 2011 highs. Bombay has put i about 2,00 points form its December low. Shanghai is a disaster and has not recovered significantly. It stands at 2300 down from its April high over 3,000.  With both Bombay and Shanghai in weak positions the die is cast for a tumble in the Far East as things melt in the West this year. 

SOX

The semi conductor index is following the US market, now at 430, April high around 450. 

My Expectations 

 The Dashboard of VIX  TLT and the Dollar is falling into alignment with indicators that flash warnings of a potential top in stocks. That may occur in the next few weeks. 

• VIX hit a new low for its move at 17.10
• TLT dropped over 2% Friday and is at the bottom of its range, below the 50 day MA. Its 200 day MA is 107.11.
• The Dollar continues a stair step down pattern, the Euro has yet to take out 1.32, there are still numerous articles about Greece and now Portugal and Spain and their difficulties. We need to see something more ppositive about Europe to get more dollar correction. I am surprised the Dollar is still this high given the move up in energy and gold. 

We will be selling equity positions as these indicators fall into place and yes we will make it plain and clear at that time. Once stocks and energy top along with a Dollar pullback and a low in TLT near the 200 day MA at 105-107, what will gold do?  I expect the Dollar to move up later this year and for TLT to advance as investors move back to safety. But will gold go its own way as an international currency or fall with oil?  In 2008 it fell along with everything else. But we did not have the European crisis we have now. And I expect all this to happen amid a Far East China meltdown. That will collapse the Pacific Rim economies and their currencies. Will they rush to gold?  We will simply have to monitor the situation to tell. 

All Aboard! 200 Day BP

This internal indicator is still climbing. The Bullish Percent is 79. The previous top in April saw a reading over 90%. So there is some room to go for a spectacular reversal from the August low. AT bottom note the MACD weekly is still climbing. But also note the drop last May, we want to be OUT and taking defensive positions before that happens again. 

Socionomics

100,000 Protest in Moscow Protestors braved zero degree F temperatures to protest the candidacy of Vladimir Putin.The election is March 4. I can easily imagine the above chart topping out, bullish percent, a month from now.  In other words, if Putin 'wins' social mood world wide may be as good as it gets at that point. 

Apparently the 'state' bussed in demonstrators of its own across town. That sounds like an echo of what we are seeing in the Wisconsin recall of their Governor. Unions  are busing in protesters for demonstrations to force the state to continue to pay all state employee benefits.  This article mentions a siege mentality in Wisconsin.   That term dates back to the Middle Ages when one group would surround a defended castle and set in for a protracted who can last the longest battle, a siege. A date has not been set for the recall electionbut enough signatures were gathered so that there will be one. If that also happens i March, we have another puzzle piece.  I moved my original piece about the New Civil War to the top of this blog for the time being. We viewed On the Waterfront in Ethics class this weekend and the maps are quite informative about what was happening in 1954 as well as now. 

Just checking, the actual US Civil War began April 12, 1861 and ended April 9, 1865, pretty close to this same time frame. 1865 plus the Fib number of 144 takes us to 2009, the year of the low in Stocks so far for this period of stagnation. 

Meanwhile Greece ponders spending cuts. Greece has 14.4 billion in EU bonds maturing March 20.  Of course Greece does not have 14.4 B in Euros and at this point has not negotiated a loan. If nothing changes Greece defaults March 20. 

Romney has won Nevada as I write. The next Super Tuesday will take place on March 6, 2012, and will involve contests in Alaska, Georgia, Idaho, Massachusetts, North Dakota, Ohio, Oklahoma, Tennessee, Vermont and Virginia. It should be all over by then.  

Our point is that speculation on Russian elections and US nominees and Greek default will end in a cluster of days in March, only a month off. Recall that the low in 2009 was March 9 so we are nearing hte three year anniversary of that date. It seems reasonable then to muse that positive social mood may well peak by March. If confirmed by our internal indicators a powerful argument will present that the top in markets is in. 

A wiki article makes this point about the Ides of March. Hmm, not much has changed in 2,000 years, eh?

In modern times, the term Ides of March is best known as the date on which Julius Caesar was killed in 44 B.C. Caesar was stabbed (23 times) to death in the Roman Senate by a group of conspirators led by Marcus Junius Brutus and Gaius Cassius Longinus. The group included 60 other co-conspirators according to Plutarch.^[2]

 

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 ands 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.

PS  Bob Prechter's Group sent me a nice 14 page review of Fibonacci numbers. I mentioned that in the Civil War comment above. This will also figure in the new Fox Series Touch. Touch stars 24 Veteran Keifer Sutherland. He plays a single Dad with a son who can only communicate with numbers. The premier episode was well done and I look forward to having Keifer back in an alternate role to Jack Bauer. 

I cannot post the e book on this blog as I do not have access to a server or FTP. Drop me an e mail however and I can send you a copy. As swe near a market peak I would be interested in your comments on our work here. 

 2415 words today, gee I did get a bit carried away this weekend but as we near the top I want readers to be very aware and ready to change positions.....

Are the Miners Ahead of Themselves?

Friday Feb 3, 2012

GDXJ is up 30% from its December low where we recommended buying  and CEF is up 27%. I suspect they need a short term rest. 

GDXJ Daily

The MACD is definitely toppy. And price is approaching both the 200 day MA and the November high of 31. So expect some backing and filling. I will not be selling my positions in either GDXJ or CEF.   Surprises in bull markets tend to be to the upside, see the exciting conclusion of our analysis of GMCR later in this post. 

GDXJ  Weekly

 

The far more important weekly chart tells a different story.

• A glance at the MACD in the lower panel reveals that all of 2011 was a correction for GDXJ. MACD topped at this time in 2010 and bottomed a year later in that same time window of 2011. MACD is just now turning up. 
• Indeed, note the PAR SAR signal  just kicked in on the buy side two weeks ago. 
• And it is still shy of its 50 week MA

The weekly chart then explains our urgency in recommending a buy in this area. 

And there is the continuing slow slide in the Dollar and gain in the Euro. We have no way of knowing when the Euro might break to the upside but that will no doubt support the gold arena. 

West Texas Intermed Crude Oil

Crude oil has been correcting its overbought condition after leaping from 77.5 to 102.5, a jump of 32%. Notice this is about the same as CEF and GDXJ!  It would make no sense for crude to fall apart with stocks and oil up. Our take is that crude is just re testing the 200 day MA. It might have a short throw under as it did in December to coax a few players out  of longs and into shorts. Then it should resume an assault on higher prices. 

This post demonstrates the different markets move in slightly different time frames. Crude oil moved up before gold. And so its correction began sooner. Gold may be beginning a correction now. 

GMCR

Readers may want to re examine our reasoning in yesterday's post but SHAZAM volume soared yesterday on a 23.85% gain. Whle we can only hope that such futures analysis will be correct, this is a good example that the funds are looking for stocks that have not moved yet.  With  70% of the NASD 100 above their 200 day MAs, and great earnings, no doubt GMCR popped up in many quantitative programs yesterday as a buy, note the volume increase at the bottom. This is also a great example of the herding instinct of fund managers, magnified by all following similar investing programs. 

Friday 7:37 AM CST

Readers will note that we pay scant attention to the white noise of statistical reports like this morning's jobs report. Such reports, particularly in an election year, are often revised the following month. As the saying goes, in a bull market al reports are bullish and in a bear, all reports are bearish, no matter what the report says. 

Reports hold that demand for oil is low and supplies high. But our analysis above is correct, I just checked and CNBC is reporting crude up 75 cents and the Dow Industrials up about 100 points. Gold is off 8.30 but then we expected that given the analysis above. Perhaps crude oil has now completed its correction. 

Thanks for reading The Market Perspective. We hope it has improved your investing results.

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. 

Using Moving Averages as Signposts

Tuesday January 31, 2012

Richard Russell, the dean of market letter writers, warns that Patience is one of the necssary ingredients of investing. A TMP reader mentioned AUY Yamanna Gold and we took a look.My purpose here is not to necessarily recommend AUY ( Investors Daily has a positive piece on it) but to use it as a good example of how the market does observe 50 and 200 day Moving Averages MAs. 

 

First note that the MACD is only really useful here in helping identify lows. 

Second AUY did form a pattern of higher lows, bounded by the MAs, and that is the foucs of this post. 

June - AUY breaks over the 50 only to re test the 200. It then takes off through both.

Sept  - AUY tops out and then comes back to test the 200 day MA. It forms a second higher low. 

Dec - AUY forms a lower high and then pulls back to the 200 day MA again It then repeats the pattern from October, moving up from teh 200, hanging around the 50, and then Ka Boom.

Trying to trade in and out using he MAs as buy and sell signals would only have made money for your broker. Gold is in an uptend. The 200 day MA was a useful buying level.   The 50 day MA is more magnetic, price seems to hang around before making a move.  This is what frustrates most investors. but price spent very little time hanging around the 200 day MA. 

Moral of the story, there is no magic bullet, patience to buy the lows is the key to success. Placing successive GTC orders around the 200 day MA and below would have been been the way to accumulate a longer term position. 

Class dismissed. 

Jim Rogers- Nyet to Facebook IPO

Monday January 30, 2012

Legendary Jim Rogers won't be buying shares in an IPO for Facebook. As he notes the sellers are usually smarter than the buyers.

My guess, and I don't know when the IPO would be scheduled, is that the market wil probably top in the same timer period of the IPO. The biggest IPO in history after the 20087 meltdown, would be an inclusionary socionomic moment, just the event to cap the recent run from 1075 to what, say 1400 on the SPX.