Better Hurry, This Sale Won't Last Much Longer!

Weekend June 9, 2012

 What happened in Wisconsin signals a shift in political mood and assumption...But organization and money aren't the headline. The shift in mood and assumption is.  

Peggy Noonan, WSJ June 9, 2012  What's Changed After Wisconsin,

As we regularly note on this blog, changes in social mood result in social action, not the other way round. Indeed the political season has officially kicked off with what was surely the second most important vote of 2012.  Public employee unions went 0 for 3 as Ms. Noonan notes in her column.  it's a real horse race now. Additionally mood shifted this past week from bear to the start of the bull. We suggested the market was putting in a bottom in our last two posts. We make that official in this update. That generated our title for this post, better hurry, this sale won't last much longer. 

 The market internals are signalling a bottoms they did at the Fall  2011 lows.

Recall however that from our final low at the very end of December 2011, the market internals peaked by the first week of February 2012. We exited and yes the overall stock market held up for two more months before collapsing in May. Our point is, ,  rallies are sharp and brief. As Art Cashin says, stay nimble, and as I say, read TMP.

Bullish Percent

 

The completion of a five wave pattern seems most clear in the 50 day BP. Note it made a slightly higher low than in October. That would be typical of a seasonally higher low for June than what we usually see in October. 

The Advance Decline below line seems to confirm this thesis. 

Here is the NYSE A/D volume graph shown below.We have both the A/D line and the A/D volume line turning up. In conjunction with the bullish percents shown in Chart one and yes both the NASD and NYSE summation indices are turning up. I show those so often readers may be getting a bit numb to those indicators so we will skip them for this update. The point is that we have multiple internal confirmations of a trade able low. 

Note that this indicator overshot its 200 day MA. That caused even more traditional chartists like the guys who write for stock charts.com to say, everywhere we look the world markets look just awful. That fails to remember that 'just awful' often occasions market lows. We have been telling readers this for weeks and now the moment is at hand. 

The Big Picture, You Are Here

I believe the move up from last october constitutes the fifth wave from the low that stared March 9, 2009. SPX appears to have completed four of the five waves of this fifth wave June 4. so we are now in the fifth of the fifth which should terminate the three plus year rally. If Wave Five equals Wave One of 200 points, the target would be the 1475 area. As always it is dangerous to establish price targets and use those exclusively. Rest assured we will be employing our full arsenal of internal indicators looking for an exit. But 200 points would take SPXA50R back to its higher levels of two months ago. 

SPX Crude Oil Gold

We have mentioned that gold will bottom first, and it did. We started recommending GDXJ when it dropped under 20. Here is a  look at how this played out. 

Gold did bottom first, May 16, Note the series of slightly higher lows after that including this past Friday. Crude oil in the main frame and stocks at top both bottomed June 4. 

GDXJ

The action Friday was typical of how a turn around takes place. After moving up in this nice trend channel from 17.5, GDXJ dropped a sharp 11.30 intra-day Thursday no doubt convincing late comers to sell. but by the end of the day Friday was trading in the middle of the channel where both MAs came together. I have a larger position in Central Fund CEF which recently traded at a discount to NAV. This is typically another sign of bottoming, it usually trades at a premium. I also have positions in GDXJ and Fidelity Gold.

Crude Oil, XES

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Here is the bigger picture. Most analysts are still negative on crude oil citing lack of demand, Europe, less driving in the US, higher mileage automobiles, etc. But crude oil is the most emotional of all commodities and is tied to the US Dollar.  Crude had an interesting day Friday. It was knocked down over 2.50 on the openning but recovered throughout the day.  I show XES the ETF for Energy Service at top. Note how it tracks crude oil. I added a position in XES Wednesday near its lows. Transocean RIG has returned to the area where we bought it in December. I may take a small positions but XES is a much better diversified play. RIG could have another blow up after all. 

Dollar versus Euro

The Spanish and Italian I shares actually moved up the last few days, Portugal too but just barely. Last week I showed the Dollar topping on the hourly charts. The closing high for the Dollar was May 31 at 83.04, two trading days before stocks and oil bottomed but after gold May 16.

The spike top in the Dollar looks similar to the tops in October and early January. Coupled with lows in Gold, and then stocks and oil, then add in small rallies in the beaten down Spanish and Italian markets and we have things comging together. A decline to the uptrend line at 79 would be enough to spark the one to two month rally in stocks, gold, oil we expect. 

This weekend the Eurozone agreed to loan Spain 100 B Euros. This is why it pays to add on the way down or at lows this past week. Surely this will get the Euro rally going. 

Brazil

Notice the increase in volume on the low at the end of May.

This past Wednesday I also added a position in EWZ. Brazil is a commodity play and also trades opposite the dollar. A return to the highs at 70 would be a 40% (20/50) move off the lows, this is not unrealistic. 

The Bottom Line

I have positions in CEF, GDXJ, XME, XES, EWZ.

I will follow this post with a 'big picture' post about where we look to be in 18 year cycle that began in March 2000. Sneak Preview, It Does not Look Good...

Socionomics

Everyone from Obama to Dave Dewhurst, the former apparent shoe in for Texas Senator to replace Kay Bailey, got a wake up call this past month. Social mood is dramatically shifting. Rlomney really wants to be President. John McCain and Sarah Palin never seemed on point in 2008; Romney won't be making that mistake. Recall how quickly he campaign responded to the idea that his wife, whoraised five children, never had a job. 

Actually if Pakistan, Palestine, Syria, Egypt, Greece, Chaos Stan don't blow up before the election it will be surprising. My point is that there is no lack of negative mood which could escalate into a larger crisis. 

Thanks for reading The Market Perspective

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.

 

Comments

[cheap mbt sandals]

a modest spur to induce others to come forward with valuable contributions; throw a sprat to catch a whale

[Julie Turner]

Professor - could you post a chart with a 5 wave count from '09?? I am not seeing that count...thanks!!

[TAMUSA School of Business]

Julie

I did not like the action today at all. Will be updating.

IN answer to your question, now that I look at the weekly chart for the spx it may be that we finished five waves up from March 2009. Richard Russell turned bearish today saying we have a primary bear market now underway.

For example, the drop in RGR is simply amazing, a good company losing half its value in a month.

Oddly the summation indexes were both slightly positive today, how can that be?

The long term charts are all negative as I showed, it may be that the better idea is to step aside altogether here.

Take a look at this article

http://www.forbes.com/sites/greatspeculations/2012/06/11/stock-market-rally-presents-last-chance-to-get-out-before-big-plunge/

Dennis Elam