The Market Perspective

Gasoline News Goes to the Front Page

Friday Feb 24, 2012

An old adage in this business has it that when financial news becomes front page news, the move is about to end. Just weeks ago, European leaders were announcing there was no hope for Europe or Greece and the Euro bottomed just about then aourn 128. 

Over the last two days, the President, who never missed a chance to criticize Bush when gas prices moved up, says he has no control over price. Gingrich, seeking a handhold for his one shot pony South Carolina win, promises $2.50 gasoline if elected, probably a sign of desperation. That's not a jab at Newt. OPEC began in 1961, they control most of the world's production, and have not managed to control price beyond a  few months in 1972 and 1979. 

But the socionomic point would be that when gasoline prices are seen as INEVITABLY going to $4 by the popular media, we should be looking for signs of a top in contrarian fashion.

Here is a nice all in one picture of what is happening. The main panel is the beaten down Euro. As with $4 gasoline, there are numerous predictions of a recovery to 1.40. As one can see that coincides with the downtrend line. If the Euro rises to that level, the 200 day MA should be about that price as well by that time. If this continues, what's reasonable, another month, or maybe March 9, the three year anniversary of the financial panic low?  That would make for a nice symmetry. And 3 is a FIB number. 

In the top panel gold has risen above its 50 day MA. At bottom crude oil has done likewise. Again, note the big drop in May for both oil and stocks. Count us as nervous nellies but we do not want to be long when that happens again. It is far better to sell two months too soon than two days too late!!!! We admitted yesterday that we exited energy too soon. But...

Energy Complex

Now same time frame but crude oil in the center, energy service XES at top and gasoline at bottom. 

I drew support resistance lines for crude in the center chart at what appears to be the nominal trading range. When oil broke above this resistance at 102.5 last March, it only spent two months up there before it crashed, all the way to 77.5 in just three months!  Really, trace that price action for yourself. 

Is it me or is XES a bit more leisurely in its move up at top?  At any rate crude oil is only 6.50 from its previous high. Of course no one in the popular media is pointing this out though we may hear of it on bloomberg or cnbc. 

At bottom gasoline has been on an absolute tear since January 1.  Let's look.

Gasoline

One of my earliest readers of TMP wrote complimenting me on my explanation of the slope function in the lower panel. The slope is the rate of change of the actual price in the main chart. As price moves higher and higher faster and faster, SLOPE gives us a fell for this. If prices moves fast enough it begins to take the shape of a parabola. This is known as a parabolic rise in price. The reason that is important is because all parabolic rises end in collapse. Look at the previous chart of crude oil going into May and then, look out below. 

I did not label this chart but I am guessing it now exhibits an extended fifth or final wave. Note the overbought condition of RSI at top. My point is that this confirms both the Presidential address on energy and the front page news in the last Republican debate, we can do better, the exact opposite of course of when Bush was last in office. 

Will oil go to $145 as it did in 2008. I doubt it but the wild card here is whether Israel might bomb Iran. The nonsense about sanctions hurting Iran's ability to sell oil are just that, China is a ready and willing buyer. And as Alan Abelson observed years ago, oil  is pretty slippery stuff. The socionomic point about bombing Iran is that the bombs would be on the potential nuclear facility not the oil fields. So a bombing raid would do nothing to change the actual oil supply. But it would certainly heighten tensions. 

And oil is the most emotional commodity in the world. So let's allow for a price spike if a bombing raid occurs. But that is a wild card and cannot be predicted. We can conclude that in traditional charting, gasoline is taking on parabolic characteristics which usually precedes the END of a move. 

After looking at how far along the gasoline chart has become, I think like Ulysses I will stay tied to the mast and out of long commodity positions. 

Addendum

My first buy of TVIX was filled yesterday at 16.77, I have other orders at 15.77 and 14.77 and  will add to the succession lower today. The gasoline chart is so extended that March 9 is begining to look like a potential end date for  this move but of course it could happen sooner. Stocks look poised to take out 1370 today which was another target. One Barrons Roundtable participant. Zulauf, said he would cover his shorts if the market did that. We of course are just now initiating a few mild short positions at this point. 

Socionomics

Did you notice in yesterday's WSJ that the original Batman Action Comic book sold for north of $320,000 while Superman fetched about $299,000?  That's positive social mood on boil for you. The WSJ is heavily promoting its monthly luxury magazine which appears tomorrow. Spring bright fashion colors, $300 K comic books, 20,000 sf McMansions, Hollywood types feverishly buying and selling mega million dollar homes, yep, it's all here!  Here is a screen shot of my list of luxury stocks.  The green bars say it all. 

 

London Fashion Swings Again - Thrusday Feb 22, 2012, WSJ

Nowhere was this excitement more evident than at fashion week, where prodigal children Stella McCartney and Alexander McQueen returned. Though both will still show their main collections in Paris next month, Stella McCartney unveiled a special evening-wear collection—in a memorable night that included a magic show and a flash-mob dance with top models Amber Valetta and Shalom Harlow—and Alexander McQueen debuted its more-affordable, military-infused McQ line in a leaf-lined warehouse-turned-woodlands.

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.

 

 

 

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 Face Book IPO; Commodities Strengthen

Wed Feb 1, 2012

Mark Hulbert interviews a Finance Professor on IPO history discovering that Facebook may be priced at 40x what it should be. 

TMP has already suggested that a Facebook IPO will likely be a socionomic top for the market run from March 2009; it looks even more that way now. 

The markets are picking pu this morning. Latecomers who piled in at SPX 1330 had to be disappointed so they were as the market promptly pulled back 30 points. It has worked off some overbought by sellin off in teh mornings and recovering later in the day. Whether more pullback lies ahead before an assault on 1345 we cannot know. 

This article suggests a contrarian solution to the Greek question.  As he points out a Greek exit would rally the markets. Elsewhere this morning Angela Merkel wants a say in Greek finances. The former alternative would sell a lot better in Greece.

this morning the Euro is back up to 1.319, gold is up $11. Nat gas dived yesterday so the bottom im prices may see a lower low. That is why we suggested purchasing royalty trusts with a fat dividend. 

GSCI

An article on page C1 of today's WSJ refers to corn, oil and tin as the comeback kids. Well let's add the euro at top to the list. This is the Goldman Sachs Commodity Index. The markets are coiling for a break above resistance at 5100; a further rally in the Euro is likely to fuel that break. 

The Rally Up Close

SPX hourly has been hugging its 50 hour MA. At bottom is the US dollar via UUP. The vault above 1300 occurred as the Dollar sagged after Jan 17. Further dollar weakness is likely to  propel the SPX higher.  

Negative Article on Transocean

Monday Jan 30, 2012

Today's WSJ has a highly negative article on Transocean RIG on page B9. The article discusses the strategy of growth thru acquisition that has led to an aging fleet of rigs. One contract was cancelled as RIG was slow to meet safety standards and some high level execs are leaving. 

This is th difficulty of investing in a single company. I did not buy a large position and "RIG is up 20% from 40 to 48 since our recommendation. We will see how this impacts the trading in RIG today. 

Note the article on South Carolina's pension fund on page C1. Note the graphs on page C3 which show that it is coming up short of its funding assumptions. This is precisely what caused Meredity Whitney to issue a warning about municipal bonds. So far her detractors have been correct, nothing has happened and muni bonds have rallied after selling off after her prediction. But, something has to give, states and cities cannot underfund pensions, deliver services, and keep the perks that unions in Wisconsin are demanding AND pay the muni bond holders. 

Page C5 features a positive article on gold coin buying This precedes an interest in metals investing. We recommended going long GDXJ and CEF at the end of December. 

And on page C8 The Euro looks for More Gains. This backs up our belief that the US  Dollar will fall probably during February. 

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.

x

 

Luxury Hits Some Resistance

Thursday Jan 25, 2012

BID dropped 1.40 today and RL likewise hit some resistance. I bought  a bit high on these tow, while I am still optimisitc they were aboe my buy price and I wa on some margin in one account, so I sold them at  profits. Just telling you what I am doing in my own account. 

A Luxurious Mood

Tuesday Jan 24, 2012 11 00 CST

Sothey's BID is doing better on a hihger art market.

Ralph Lauren RL jumped today as well.

Perhaps we could conduct some sort of socionomic index that reflects mood using luxury brands like BID and discretionary brands like Harley Davidson.

At any rate the pickup in these stocks today suggests the lul here is a consolidation amid the Chinese New Year.

VIX Complacency is at Hand!

Weekend January 21, 2012

 Overview

I think it will all come together this week. Bonds look to be breaking down as thCommitment of Trader report shows commericals short bonds and long the Euro. That should finally collapse TLT and the Dollar. While headlines have shownn an increase in confidence we are nowhere near the 

Why You Must own Stocks Now

headline that typically signals overt bullishness. We hope that you have bought in at our suggested lows August 8 and Ocdt 4 as well as added gold positions in GDXJ and CEF at the end of December. 

Now let's get to it. 

Bonds

TLT looks like the head and shoulders formation is finally breaking down. MACD has trailed off, and TLT appears to be breaking the suggested neckline. We shortened the time to three months to better illustrate out H and S top but TLT easily has the potential to fall to 104 or lower here. 

Currencies

The Dollar in green and the Euro in red black have swapped places almost exactly from their early May extremes. Another reversal should be at hand .It appears to already be underway with the improved bond auctions in Europe. Now th Euro should rally and the Dollar fall. This should, along with the collapse in bonds above, result in specatacular rallies in stocks, oil and gold , as well as improved sentiment and headlines. The latter in particular has been lacking in the 10 point rise in the SPX from 1200 to 1300. 

 Sootheby's BID

 

BiID exhibits a very high correlation to the overall stock market. Bidding at an auction is  an open expression of economic confidence.  And so BID has broken out of its downtrend. Is the previous high of 47 in the cards?

VIX

The VIX Volatilitiy Index is the red black bars, the SPX is the solid green line. Clearly they are inveresely correlated. The high for the SPX was about 1360 in late April when the VIX closed at 14.62 April 28. Friday's big down day  in the VIX took it to 18.28. Bottoming in VIX is a process. While the SPX lurched between 1280 and 1360, the VIX was moving sideways all the time. VIX is an indicator of complacency. Once complacency takes hold, investors stop paying a lot of attention, hence the surprise when VIX started back up in June, then took out those highs in July. AT 1315, the SPX is a mere 445 points from ts hihg for the year. SPX hit 1360.48 April 28 and then smidged higer to 1361.22 May 2, and it was over. 

Since this whole move is a rebound, let's not stay too long at this party. It will be better to exit with profits and confidence in tact, readying for the next down move than to try to extract every dime from the move. 

Energy

The high value of the Dollar has kept energy and energy services from breaking out though they have slowly been moving up. A drop in the Dollar Index from 81 to 76, which is reasonable, should jump oil back near its highs earlier this year at 115.  102.5  Recall in the previous paragraph we note that SPX peaked May 2, remember, it's All One Market.

It's worth posting this chart just to stare at the huge reversal that first week of May!  Again, let's not over stay this party!  Here RSI at top is over 50 and MACD is moving up, WTIC is above both MAs. It looks to exhibit a reverse head and shoulders pattern. 

To be clear, yes i expect another top in oil and then a dramatic reversal like what hapened May, 2011.  but nest time that will be the kick off to an extended down move, not just a six month correction. 

Gold

Gold moves in a different time frame than stocks. Stocks peaked in early May, gold in late August. Stocks are recovering faster but...gold looks  to have successfully re tested its 50 bar MA. The weekly MACD at bottom looks to be recovering nicely.

A Potential Scenario

GDXJ dropped from 40 to 25, 37%

Gold dropped from 1900 to 1550, 18%, half the drop of GDXJ, hence we recommended GDXJ. It too is moving up nicely. We have positions in GDXJ and Central Fund CEF. Now our scenario is that

the US Dollar is topping now and should drop from 80 to say 76.

that should move gold up, priced in dollar terms, along with oil and energy service. 

The Euro looks to be recovering now, see the second chart. It will top as the Dollar bottoms.

then a few weeks of months from now, the Dollar makes a higher low, the problems in Europe emerge again and stocks, the Euro, and oil peak. 

But what about gold at that point?  The answer is that no one knows. Will Gold and the Dollar become 'safe harbors' for trhe world as other currencies, like the overheated Brazilian Real fall?  That seems to be a reasonable guess. Taking out 1900 might, as james Dines has  suggested, begin the next big leg up in gold over $2,000. If that is the case our positions here in CEF and GDXJ will be fine long term holds. 

 BRIC

Here is profile of the cost of living in Brazil, now one of the highest cost countries in the world. Note a combo meal at MCD is $9.17, but wages in Brazil are far lower than in the US. This currencyis wildly inflated. This reflects the massive specualtion still rampant in developing countries which are already broadcasting ther slowdowns. China and Bombay are particularly moribund, here is BRIC.

Here is anothe rarticle on the Outrageous Cost of Living in Brazil.

The party has ended in India and China.

The main panel is India, the top is China; both are under their 50 week MAs. 
Remember this represents a substantial plurality of the world population in just these two countries. Then factor in the expectations for hte boom that will never end in BRIC and the fact that the countries surrounding China and India, like Viet Nam, Phillipines, are benefitting from high costs in India and China with work moving to those countries. When the music finally stops, and it is slowing already it won''t be pretty.

Natural Gas

Natural Gas is now trading at 2.4% of the cost of crude oil. This is a lopsided historic low and we continue to monitor for a chance to start accumulating as everyone else has given up. Again thanks to an alert TMP reader for mentioning HGT and SJT.  SJT a fund of nat gas producing properties dropped over 12% this week.That of course is the kind of throw the assets out the window mentality  that grabs markets at panic bottoms.  

Let me explain a how an REIT or a Royalty Trust funcitons. These invest in income producing real estate or in the latter case income producing oil or gas fields. An REIT pays out 90% of its net income to shareholders thereby avoiding income tax on itself. The problem arises when the income falls enough to fail to cover fixed costs. Then there is not income to pay out. This happened to many REITs in 1973-74. This occurred again in the 2008 meltdown. Mesabit Trust MSB is a similar arrangement but in the iron ore business. While MSB has been around since about 1918, the price of iron ore fell so dramatically in 2008 that the dividend had to be suspended. MSB bottomed at $5 and that was a great buy.

When dividends soar to the levels we are seing with HGT and SJT, 8-10%, while T bonds yield 2-3%, this is a warning that the dividend may be in danger. Acutally suspension of the dividend and a final swoon in price would ease the decision. As t is one wonders if either of these will first re visit their 2008 lows. 

Research in progress.....

Socionomics

Karl Rove had Romney winning three in a row in his last WSJ column, funny thing it did not work out thaty way, he won only New Hampshire. Recall the Rudi and Hillary were leading in their campaigns at one point in 2008. As Romney reported several times during his 2008 campaign, well, another silver as he put it to describe coming in second. In South Carolina he outspent Gingrich 2 to 1 and lost. 

I suspect that nominating Romney and losing the election will truly the the end of the Republican Party as it has been At the momenth the conventional wisdom is that nominating Gingrich will be the end as he will surely lose the White House and the House.  This underestimates the anger of conservatives who feel over looked by the elite NY Republicans and the media. And that anger and rejection was clear in the 40-26 defeat that Gingrich scored over Romney last night. To the conservatives, Romney is  the reincarnation of Ford, Bush I, Dole, Bush II, and McCain. Perhaps conservatives is not the right way to put it, but the group that wants to see someone make a real fight of it does not see that fight in Romney. 

Obama's numbers are coming back with the market and will continue to improve until the market tops. The ensuing decline we expect in the stock market  will make this a real race again. 

Reagan was of course also rejected multiple times by the party elite. It took Ford's loss to Carter to finally give Reagan his day. Gingrich is  much more like Nixon, making a comeback from a loss. After losing the Presidential race, Nixon then lost a race for Governor of CA and was completley written off, as Gingrich has been. Whether Gingrich can truly re-make himself in a way Nixon never really did (Nixon was unable to overcome his deep seated suspcions, and that is what brought him down) remains to be seen. 

 

 

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.

x