The Market Perspective

Social Mood and Oil Prices

Friday Feb 23, 2012

This Forbes Article Tired of High Gas Prices You Ain't Seen Nothin Yet is a good example of what I meant about the emotion surrounding crude oil pricing. 

The article admits, as I pointed out, there is no shortage of supply .And demand is down. A Univ of Houston professor is then quoted as, of course, blaming the Saudis, claiming in the familiar Houston chant that the Saudis control the oil price. Gee Prof don't the wish. 

Our point is that the article misses the big picture here. There is no mention of social mood which is driving prices on everything from 1939 comic books to Malibu homes to new levels. There are supply bottlenecks here thanks to our own government. And the patchwork quilt of crazy different grades of gasoline means we do not have a sell it anywhere to anyone gasoline formula which is jus plain nuts. 

I hope they will interview that same professor in a few months when I suspect prices will have mysteriously dived. Gee did the Saudis manage that as well?

OPEC always cheats in these situations. How else does one pay for the 1-77 Aston Martin for $2 M?

And it is the cheating on production that inevitably brings prices down, you know that supply and demand thing. The lure of $90 gross margin on oil is just too much, no way a Sheik is going to throttle back on that opportunity. 

But the charade that OPEC works marches on, at market tops. No one asks why OPEC fails to prevent prices from tumbling, but that's fickle social mood for you. 

 

Sell !

Sunday Feb 12, 2012

 

If We Were Perfect We Would Start a Religion.

Richard Ostberg, duPont Glore Forgan Class of 72-2

Internal Indicators hit new highs this week. It is clear we should have sold when the PAR SAR flashed a sell signal on our CEF and GDXJ positions but we made good profits. And should everything fall apart on Monday or later in what has to be a correctiion coming, we can watch from the sidelines waiting for the market to come to us. 

NASD Weekly Summation Index

for some reason my annotation tools are not working but one can readily see a wave one up from the August low, then a wave two down to the Dec low and then a wave three peaking this week. And so we sold, This would be our Chart of the Week, what else is there to say?  Interanl indicators and QQQ hitting new highs. 

The failure of TLT and the Dollar to follow VIX down suggests that we have begun a fourth wave correction. That is hard to see on the QQQ at top but quite obvious on the NYSI weekly. I believe Elliott Waves are easier to spot and more reliable on the indicators than on the price quit frankly. 

Dow Diamonds

 

Long time tech guru Bob Farrell at Merrill Lynch had ten rules One had to do with reversion to the mean. Note that DIA is about ten points over the 200 day MA. Near the Oct low it was ten points under the 200 day MA. It was oversold in Oct and overbought now, as the talking heads on CNBC of course all recommended buying this past week. Note how Chakin Money Flow increased and the maximum inflow of money came at the worst time to buy!

Oh well otherwise who would read the Market Perspective....

Crude Oil The Master Market

Robert Frost observed that Fog sneaks in on little cat feet. I would add that it leaves the harbor the same way. 

This is the USO Oil fund meant to duplicate the price of oil. Price has fallen below the 50 day MA. Now at bottom note that the money via the Chakin Money Flow is exiting as well, and in pretty impressive amounts. At top note the US Dollar has been climbing and after a correction turned up at week end.

Now couple the technical with two fundamental observatinons from the WSJ Weekend Edition.

Page B 4 China Commodity Imports Decline

Page B 18 Clearbrook crude oil plummets to $70 from $95, and that happened in the past week!  Clearbrook Minn represents the huge supply of oil coming from North Dakota. Well yes, there is supposedly no way to get that oil to the refineries on the Gulf Coast.

But as Alan Abelson observed decades ago, oil is pretty slippery stuff. It can pop up in the darnedest places. So let's go back to this same date, Feb 12, in 2008. What was happening then? 

Same chart, 2008

Note the similarity, the Dollar at top dipped a couple of times before really taking off in 2008. 

IN 2011-12 well the dollar has dipped a couple of times and oil peaked and

 

well it is not a perfect comparison but this is a good reason to bank our profits and see how this all plays out. NOte that USO lost over 75% of its value in a few months in 2008. The last failure of the kiss of the 200 day MA was truly The Kiss of the Spider Woman. Black Spider that is. 

We have written hundreds if not thousands of words describing the pent up negative mood emotions around the world. The same potential via Lehman that existed in 2008 lurks in Euro default, student loan default, Russian protests,  USA state financial failures, you name it. And so you say, well Dennis don't get so taken with yourself, you do go on. Yes I do but how is this next piece for truly weird, and I ran across it in the San Antonio paper no less, yep, Abe Lincoln as a Vampire Hunter...

Socionomics

No doubt some of you think I am just going on about socionomics, and how social mood shapes our perceptions. Well hw about, yes, Abraham Lincoln, Vampire Hunter?

As Dave Barry says, I can't mae this stuff up...

There is a good column in today's Express News about how the view of Lincoln changes with the times. It is apparently not on the internet so no link.

The 1940s and 50s saw Lincoln as a traditional post war hero. That puts him right there with Ike as the one who won the War. that is to be expected. 

By the 60s and 70s he was a counter culture figure in We Can Build You. Then he was a cyborg struggling to live in a world cominated by rapacious capitalism, really.

Speilberg will have a film viewing him through the prism of political genius. 

But with vampires on the loose in bookstores and theaters and tv, go figure, now presumably he is armed with a hammer and wooden stake....

Hey no kidding, this movie has a $70 M budget,

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.

 

 

 

Sell Positions Today

Friday February 10, 2012

I am selling my long positions today. While TLT and the Dollar have experienced modest pullbacks they have not powered the markets of oil, gold, or other commodties a lot higher. The market internals appear to be peaking, have peaked, or depending on the indicator, are running out of room to go higher. The risk reward is totally opposite what it was last August or October. 

 

So again we recommend selling positions here. There may be another 50 points left in the SPX but it is up form 1075 to 1350. 

Our reasoning is as follows.

Analysts on CNBC and Bloomberg have turned quite bulish. Yesterday one recommended Apple on a slight pullback. Apple is in a near vertical parabolic position, up from 360 in the fall to 490. It was a buy at 360.

QQQ has likewise powered to a new high.

While TLT and the Dollar have come donw that has not powered gold and oil higher as one would have expected. As we remarked yesterday no one seems interested. 

VIX dropped below 17.5 and bounced up 2.59% yesterday. The area under 17.50 is certainly associated with prior highs in the market.

Internal Indicators

Most important there is just not enough left for internal indicators to go higher. It seems far better to leave the party now than wait for a sudden surprise. Examples include

SP Bullish Percent BP of stocks over 50 day MA is 86.6%, over 200 is 79.6%

NYSE Summation Index

How much more can one expect. This is not coincident with a low risk buying opportunity. This is coincident with a high rist exit point. This is why we are exiting. It is truly incredible that the talking heads on CNBC are bullsih now. Note MACD is topping out as it did in November. 

NASD Summation Index

Likewise the NASD Summation Index is in nose bleed territory. Readers know that we have relied on teh summaiton index and had very good results following its lead. MACD is topping here as well in the lower panel. So the summation index for both NYSE and NASD seems to  confirm a top. 

NYSE Advance Decline

One might label this chart, as good as it gets. THis is the exact opposite from March 2009. Hm a new high in the A/D not matched by a new high in the actual index. Let's leave the party. 

GDXJ Market Vector Jr and CEF Central Fund both flashed daily sell signals on our PAR SAR indiator. 

GDXJ made a lower high than Sept or Nov and has turned down. Note the PAR SAR blue dots indicating a flashing a sell  signal. In the bottom panel slope is rolling over. 

I expected TLT to be much lower by now. It is not. The Dollar has dropped from 81.5 to 78.57. 

 

Despite my optimism GM has double topped at 26.5. Still that is a nice move from 20. 

Overall RIG, GDXJ, CEF, HPQ, WRE, WRI have performed well. Take profits. Note we are doing this ahead of what appears to be a potentially perilous March with a host of elections around the world. Note that we have written about a Perfect Storm of investing optimism but extreme negative social mood world wide. Those are incompatible events. 

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.

 

Greek Redux # 487

Thursday, February 9, 2012,  9:05 AM CST

Greece has about ten million population, less than half the size of Texas. Yet it remains front and center in the news. Whatever it will do has been discounted. An old adage has it that one buys the news and sells the fact. 

We have recommended being long, in advance of a Greek resolution When THE resolution is announced, you can bet that (and we are...)

the Euro will run to 1.40

TLT bond prices will fall

and stocks oil gold silver will rally in dollar terms. 

This morning the euro is slowing gaining momentum. 

Note the breakout above 132 which is 1.32 for the actual Euro. This is a sort of reverse head and shoulders formation with the neckline at 132. Note money flow, or commitment of traders if you will, is moving up in the lower panel. 

SPX is at 1344 under my 1345 barrier. TLT is again at its lower boundary, TBT at its upper boundary.

Will today be breakout day?  

PS see positive articles on GM in today's WSJ, Cruze versus Volt and Auto Sales in Indonesia

Take a look at the hourly chart, coiling for a break out?

Hourly charts when a stock is in a strong uptrend can give one a better idea of a good entry point.

We cannot know the future but GM previously failed at 26.5 and pulled back to 20, now the test is here again, I suspect the Hourly MACD at bottom makes a higher low as GM breaks out to head to 30. 

Euro Breakout?

Tuesday February 7, 2012

You went away and left long time ago
Now your knocking on my door
I hear you knocking
But you can't come in
I hear you knocking
Go back where you been

I begged you not to go but you said goodbye
Now your telling me all your lies
I hear you knocking
But you can't come in
I hear you knocking
Go back where you been

 Dave Edmunds, I Hear You Knocking Lyrics

 OIl and the SPX have been knocking on their respective moving averages. A weaker dollar today as well as weaker bonds meant the Euro is kncocking more loudly to come in as well. 

THe Dollar UUP, Bond TLT, Bearish Bonds TBT

In the top panel the Dollar represented by UUP has broken below its 50 day MA. 

In the main panel, bonds shown by TLT continue to put in lower highs. A decisive break of 116 will tell us the last holdout has given up.

In the bottom panel, TBT , a bet that bond prices will fall, is slowly making higher lows. 

Energy

After starting the day below yesterday's close, crude oil leaped 1.45% on the weak dollar.

Stocks did not do much today but crude oil is, as we said in the openning, knocking on its 50 day MA door.  A final drop in TLT under 116, and the UUP under 21. 75, is likely to rocket stocks through 1345 basis the SPX.

Social Mood at Buckingham Palace

 The Caption above Queen Elizabeths' photo on the front page of the WSJ today reads

After 60 Years, a Pledge to Dedicate Myself Anew

Translation

Camilla, No way, not now, not ever...are you going to be Queen while I am alive

Market Perspective Comment

Negative social mood is on the rise, even at Buckingham Palace....

Overview

Our Perfect Storm outlined in yesterday's post continues to unfold world wide

Negative social mood is widespread. 

• Romania's Prime Minister resigned Monday among nationwide protests over austerity cuts
• Neighboring Slovakia had the largest protests last Friday since the end of communism in 1989
• Greece Lays off 15,000 PUblic Workers
• Bret Stephens muses on how and whether Israel should bomb Iran on page A 11
• Don't miss Stephen Moore's Fairness Quiz on that same page
• And Obama doubles down on whether Catholics are more loyal to Obama or their own Pope, Cardinals, and BIshops in William McGurn's column ( I have been takig a look at this and will write a column on that very subject, an interesting bet on Obama's part)

We expect a breakout in commodities and stocks caused by a drop in bond prices and the dollar.

 

 

 

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.....

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. 

Monday Monday Can't Trust that Day

Monday Jan 30, 2012

Even CNBC kicked off today by noting that the SPX na dother indices are about to experience a 50 day MA crossing up over hte 200 day referred to as a Golden Cross. 

Today was typical of recent morning action and particularly monday action. The market sold off as the weaker European markets were still open when the NYSE began trading today. After  a brief move lower the markets recovered registering small losses on the day's close. This is working off the recent overbought condition and setting up a breakout through 1345 and eventually 1370. 

Gold and silver are the leaders with shallow pullbacks today and later recovering with  a slight negative close. 

TBT fell but may be making  a higher low here with a close at 18.49. 

Luxury goods have pulled back and commodity stocks like TIE have pulled back working off their hourly overbought condition. 

Energy Serivce XES looks to be making  a higher low. 

UUP could not better its high from Friday.

 

TLT - Hourly overbought

Is that the lower high in TLT we have been expecting, could be. 

Our overall view is unchanged that TLT and UUP will decline.

Even VIX jumped to an hourly overbought MACD reading today. 

Okay just updating. Short market pullbacks are necessary to prove the underlying support to sustain ongoing conditions. The SPX has now tested its 1300 level and good buying came in. 

Stay the course, higher oil, gold, silver, stocks lie ahead. By the way we noticed on the Business Insider site this morning that full serve gasoline in CA is $4.75....OH that's right the legislature just mandated a certain percentage of electric cars by a certain date. Do all other cars cease selling if the quota is not met, just wondering....

Thanks for reading The Market Perspective. 

Knocking One Out of the Park

Sunday Jan 29, 2012

Anyone who has been around the brokerage business for some time will tell you never to buy an option. Leveraged futures funds are second cousin to options requiring exquisite timing to avoid the future decay of re investing the fund has to do month to month. Fail to catch the big move at the same time and one can lose money while nothing is happening. 

With that caveat, here is a comparison of TLT the bond fund that I believe is about to decline in price, and TBT a 2x short bond ETF. 

TBT should b e an inverse mirror image of TLT, and the peaks and valleys of the corresponding

head and shoulders formations, inverse for TBT, show that is the relationship. The question is, how to profit from a fall in TLT without exposing one to big risk in TBT?

Hmm, how about adding to the TBT position as it moves up?  TBT is the main panel and the chakin money flow at bottom shows increasing interest. TBT needs a close over 20 and TLT needs a close under 115 to really get things going. 

It could be that a succession of orders starting at 20 and adding as TLT falls to a predicted 106 level would limit risk and be profitable.In short, do not buy 1,000 shares of TBT hoping against hope TLT falls. One might buy 100 share purchases (or what is appropriate for your size and risk level) and add at one dollar increments at TBT rises.

I presently own 200 shares of TBT at a price just over $18.

 This is not the sort of trade we specialize in here at TMP but hey, if we are right about the timing, this could be a lot of fun. Stay tuned. Again this trade does not fit the risk profile of the target reader for this blog. It may be better to watch this from the safety of your La Z Boy.

Gambling Trading Investing, There's a Difference

 

Saturday January 28, 2012

We added a new feature today, an audio track. This is my narration taking you through today's post. I look forward to your feedback on whether you found that any more interesting or enlightening than the text itself. But what with all the Tweeting Facebooking iPodding going on we thought we would get on board using Apple's Garage Band Program. 

 

TMP 12812 MP3

 

US Economy Picks up Steam

Front Page WSJ Weekend Edition today

The markets move closer and closer to a final break out run to a top in stocks and oil. Bonds and the dollar continue to weaken. I firmly believe TLT needs to return to its 200 day MA and the dollar needs to do likewise. 

Numerous sites are pointing to the increase in bullish percentage of stocks over various moving averages. This is  certainly true It is also true that in an extended bull market those percentages can stay high as long as money flows into various funds to support the market. We look for a top in February or March. 

Weekly NYSE A/D line, Here We go Again

For everyone who thinks this market cannot go higher, well take a look. After the Fall Indecision 2011, this indicator is back in gear and headed up. And look at RSI in the bottom pane.!  It is not yet exhibiting the overbought status of the last two years! Now look at our commodity analysis. 

GDXJ CEF The Dollar

GDXJ Junior Gold Miners is in gold, Central Fund CEF is in silver and UUP the dollar is in green. We recommended buying GDXJ and CEF at the end of December pretty well catching the low for the year. You can see the tax selling by discouraged investors in both funds. At that time CEF was trading near its Net Asset Value. It has now risen to a 5% premium to its NAV. UUP The Dollar in green continued higher amid all the Euro nonsense but has now begun its descent. This will only power gold, silver oil and other commodities higher. 

Meanwhile at the Gas Pump /  Crude Oil, Unleaded Gasoline and the Dollar

 

Crude oil is in red black, unleaded gasoline is the solid black line and the dollar UUP is in the top pane.

Crude bottomed first in October and took off. Gasoline languished till the end of the year, along with gold and silver in the first chart as a matter of fact. Since then gasoline has soared from 2.50 to 2.90 in about 45 days!  Now note how just this past week the lower dollar at top has gasoline soaring again.  It is important to look at an entire commodity complex not just one component.  While some are doubting crude's ability to power higher, it is really just testing its 50 day MA after breaking out. 

Now the important inter market analysis...in the last few days notice how the Dollar at top has broken down below its 50 day MA. 

Therefore you have the weaker dollar powering in chart two gold and silver and in chart three, the energy complex!  This is why the markets will go higher despite the high readings in bullish percentage.

 On Borrowed Time - Dollar, TLT, and the complacent VIX

Notice the high correlation of the dollar at top ad TLT bonds in the main panel!

Both broke their 50 day MAs at the same time. TLT managed to stagger back up to the underside of its 50 day MA. I expect this cross over attempt to fail That should result in the dollar and bonds falling together which, now look back at the first two graphs, will power stocks, gold, silver, and energy higher. Hopefully this explains why I am still expecting higher highs in stocks.  

In the lower panel VIX has fallen below 19 indicating a high degre of complacency, the polar opposite of Oct 4 when we recommended buying stocks.

Updates on Recommendations

One reader asks if it is time to sell RIG, up from 40 on our recommendation to 48.13 The answer is not yet. At 40 RIG was priced at 65% of book value, it has now risen to 73% of book value. Our thesis was that the largest offshore operator in the world could not be replaced by any other firm and this was an irrational valuation. The book value is $65 which frankly seems a reasonable target.

GM

GM recommended at 20 pulled back from its 200 day MA, perhaps there is support at 23, if the overall market powers higher it will take GM with it, the news has been favorable with the VOLT getting a clean bill of health and GM claiming to be the largest world car company again

Nat Gas

An ETF of futures has problems buying new contracts with the money available. As the rpice rises the fund cannot buy as much of the commodity as each monthly contract expires, but...

This looks like a bottom. The announcement that CHK will curtail its drilling program along with favorable comments, finally, from the administration were positive. Volume looks like the shorts closed out their positions and took now long positions. MACD turned up. I bought positions in HGT and SJT which pay 7.7% and 9.9% dividends with a long uninterrupted history of payments, even through the 2008 downturn.

Trading Frequency

Fidelity offered me their latest whiz bang software, Active Trader Pro.com (sounds great eh, I mean we all want to be active pros, right?) All I have to do is trade 120 times a year, that would be ten trades a month or about one every three calendar days. And that would be about $960 in commissions at 8 bucks a trade.

After writing this blog for over a year, I realized that is why many people don't make money at this game. There is a continuum of gambling trading investing. Here at TMP we try to fall in the latter category. 

Seasonally the market makes lows int the fall and tops out at tax time April 15, after May go away. On top of that we are in an 18 year cycle of stagnation. We have had two big drops in the market and a third, and worse ,lies ahead. So just trading, is not liable to make money for anyone other than Fidelity. 

Investing on the other hand is a matter of utilizing social mood, irrationally low valuations, and tracking internals like BP to seek extremes seen at prior market lows, for buying opportunities. Conversely we will do the same  in reverse to identify market tops. We are getting closer to one now. But the last move up will likely contain some great gains as money pours into the market from safe haven bonds and dollars. 

Additionally it is difficult to trade in individual stocks. Right now I own in one account  GDXJ, CEF, a couple of REITs, and two royalty trusts.

In my school retirement fund I moved into these funds below  in November December.

The account is up 23%. I missed the low in Oct 4 by simply not being ready and familiar with the myriad of Fidelity funds but the results ain't bad once I did get on board. I moved into Energy Services Nov 17, 18, and 28, now look at how important that timing turned out to be.  And rather obviously one neeeds to be comletely familiar with the technology and choices.

Nov 17 and 18 wer edown days for rthe fund, and it had just started up the 289th. Again I bought big in another account but scrabmled aboard later in this one. But note that by Dec 5, had I waited that long, to this point I would not have made any money. Timing, it's important....I managed to catch the low in Fid Global Commodities Dec 12 adn 14 and in Gold at the end of December. I mentioned this Fidelity account but not one repsonded with any interest. For many with self directed IRAs, this is applicable. Now Fidelity has a early withdrawal penalty if one does not stay in a fund for 180 days. I expect to have to pay that but such is the reality of the limited choices for such accounts. On the one hand Fidelity want you to trade a lot, just not in their funds.....

The reason for the heavy weighting in Energy Service is that sector performs even better when those services are in demand than energy itself. If all the off shore rigs, on shore rigs, fracking units, etc are unavailable, the companies are free to raise their fees, or the customer can do withtout whether the equipment is in use or not.

Anecdotally

Austin San Antonio is one of the stronger economic markets in all of America. High tech, military, government, major universities, NAFTA on I 35, and military base diversification all make this a desirable location. We drove from San Antonio to San Marcos yesterday, about half way to Austin. Now construction is underway at retail strip malls. We even spotted, yes, a new housing subdivision underway. With auto sales up and five months in a row of lower unemployment numbers the economy is picking up. Social mood has turned more positive.  

Socionomics

Steve Jobs told the WSJ he would not advertise Apple ins a newprint publication, only slick paper would do. The result was the creation of the WSJ.Magazine, clearly in league with Forbes lavish special issues and probably Town and Country. 

To Wit, from Deborah Needleman's Culture Club column

Entrepreneur Thomas Flohr is trying to give the conservative world of private jets a full fashion makeover by luring customers to his upstart VistaJet by the same measn tha tbring them to part wiht money for luxury handbags; the creation of desire. 

Whew, here at TMP we are certainly relieved to konow that the likes of Bono, Angelina, and Mick Jagger won't be flying on those 'boring staid' private jets any longer, finally an alternative!  We've certainly laid awake nights concerned at the mouse brown carpets and plain leather upholstery of Lears, Falcons, and Citations. And those paint schemes, viva graffitt tagged planes, andd did we mention his special Horatio Algeer touch, his 25 year old daughter is VIstaJet CEO...

Our point here is that dsplaying lavish lifestyles is front and center again At a time when the President himself seeks higher taxes on private jets, here is a guy saying hey look at my jet with graffitti all over hte tail!  Speaking of luxury...

The Ultra Luxury Boutique is on display at the Houston Auto Show. The brainchild of the two guys running the Houston Auto Dealers Assoc, this one has a special display for Lambos, Astons, and yes the only Porsched GT3 RS 4.0 in, yes, Voodoo Blue, in the USA. Again, flaunt it while you got it is a sign of an expanding market and the complacency the VIX is broadcasting. As Mimi Schwartz noted in her book on Enron, when the number of exotic cars in the parking garage grows it should tell you something. No economy screams instant wealth like the $100 a barrel oil economy of Houston. 

Apparently Coppola is out of the movie business, his new Italian hotel will open this month at 400 euros a room. 

Have you noticed the number of Distincitive Properties expanding in the Friday WSJ, end of paper?  Gambling on Bel Air and Malibu estates seems to be the real investment craze among the Hollywood set. 

 

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.

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