Energy Service Flashing Negative Signals

Tuesday Feb 14, 2012

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

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

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

Transports

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

Socionmomics

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

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

 

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

 

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

 

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

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

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

Patterson PTEN

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

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

 

 

And there's more.

RIG

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

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

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

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

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

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

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

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

thanks for reading TMP.