Weekend June 17, 2012
My Fidelity Account displays gain in green and losses in red. Friday, the losses frrom buying on the way down all turned to a net green. That means collectively the portfolio is moving up, despite the numerous negative blogs, websites, and advisories.
I first began in this whacky business as an employee of Ross Perot at duPont Glore Forgan. As we exited our six month training program everyone was optimistic about the market, Nixon had been re elected in a landslide and the Dow was near 1,000. In the next 18 months the Dow lost half its value bottoming in December 1974 at 577. Beware the crowded trade.
One of my classmates talked me back in to obtaining a license again in 1984. After reading Ian McAvity's Deliberations I concluded, unlike Ian, that a huge turn was at hand in the bond market. And that oil prices were coming way down. I was able to convince one person, who happened to be in charge of a multi-million dollar bond portfolio, then under water. We went long and the profits rolled in. But the social mood was uniformly negative that bond prices would advance. one career realtor told me she doubted we would ever see single digit mortgage rates again, period. Note by the way that we now have the exact opposite view, after thirty years of advancing bond prices.
Our point is that market reversals begin amidst a mindset convinced the current direction of the market is the only possible direction. And a bull market begins amidst convincing negative news. Consider these snippets from the Weekend Journal.
Continental Drift Adds to Challenge
Europe Braces for Test of the Euro with Election in Greece
Italy Counter Talk It's Next to Fail
Spain Debt has Fund Worried
Carrefour Checks Itself Out of Greece (at a loss)
Italian Bond Futures
Whatever is going to happen in Europe, it is already baked into the cake of events. Here Italian bond futures are higher than they were in january, and actually moved up the last three days. So our take is that all this blather about Greek elections and other headlines above are typical media rear view mirror thinking, all couched to keep the public in the wrong investment, long term bonds.
In addition a market bottom is noted for the adoption of extremely defensive positions. Bill Gross added Treasury bonds to his portfolio, again, at a significant market top.
So, we have social mood all one way, lots of negative news to re enforce fear, and gurus like Gross added to the fear by, as he has consistently the last two years, doing the wrong thing at the wrong time. So, the conclusion is obvious, a bull rally is at hand.
There is no way the markets are going to crash with the public in full blown defensive posture, safely harbored in bonds.
TLT is a full 20 points higher now than it was at the very worst of the 2008 crisis! Yet the stock market DOW has doubled! There is no way all these defensive positions will be rewarded. MACD is at a multi-year high. Gross has done it again. The market cannot collapse until the public is pulled out of bonds and back into stocks.
US Dollar versus Aussie Dollar
The other main risk off asset is the US buck. The Aussie Dollar exhibits an almost perfect negative correlation, so they move opposite one another. The stock rally on Friday was spurred on by the drop in the US Dollar at far right. The Aussie has begun a significant move up. The rush for the exits in the Dollar has begun.
If defensive, risk off assets of bonds and the Dollar are topping we should see gold taking off followed by stocks and oil, let's take a look.
The weekly gold chart look to be picking up. MACD appears to be making a bottom. The MAs have converged above teh 55 week Exponential MA. The correction has been going on since last September. Gold is up $100 from its lows; and the Central Banks have rthemselves become buyers.
Crude is lagging on the weekly chart but we think this is a higher low as crude has made each year for the last three years.
XES Energy Services
A return to 44 would be a near50% move in XES, Energy Service is always more volatile than energy itself. A further drop in the US Dollar will be the energy markets moving.
XME Metals and Mining
XME features a nice mix of companies. It has not moved up but is testing long term support like XES so these can still be bought.
FCG Natural Gas
Our prediction of a low in natural gas was correct, our attempts at capitalizing on it have not done so well. But FCG looks a lot like XME and we think is worth a shot here.
An alert reader of the Market Perspective sends this note.
Natural-Gas Futures Up Sharply as Switching From Coal Continues
Natural-gas futures spiked 14.2 percent higher on an EIA report that gas in storage increased by a lower than expected 67 billion cubic feet last week, a sign that utilities were still switching from coal to gas in quantity, the Wall Street Journal reported today. The EIA raised its estimate for average gas prices in 2012, cut its forecast for the peak amount of gas in storage from 4.096 trillion cubic feet to 4.015 trillion cubic feet, and predicted that utility demand for the fuel will increase 20 percent in 2012.
Summation Indexes NYSE and NASD and SPX
Here is a look at the important lows of the last two years, as well as this one! Note that the low in the NYSE, main chart, NASD top, and the SPX al line up pretty well. Again we rely on internal indicators for calling market turns. Recall that we exited long stock positions in early February, though the averages held up two more months thanks to Apple and a few other hot stocks.
So there you have it. We think an important low has been made in gold, and is being made in oil and gold. The next couple of months should see sharp rebounds in stocks, gold, and oil.
Our weekly newspaper column appears in the next post. The resurrection of the popular television show Dallas melds perfectly with the return to displaying wealth via lavish homes, jewelry, and expensive autombiles. Recall our observation that an early 1960s Ferrari GTO had become the world's most valuable car. A syndicated column in today's San Antonio paper features the $300,000 Ferrari FF. Costco now carries Breitling watches selling for well over $1,000. This is the exact opposite of what was happening in March of 2009. So mood has shfited full tilt, Yes a stock market top is coming but the public has to be pulled back in first.
What better way to celebrate a last bull run than with Bobby and JR?
Thanks for reading The Market Perspective
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.