Weekend Sept 22 2012
Dennis Elam will address the State Convention of the Structural Engineers Association of Texas Friday September 28 2012 at the La Villita Center at 9:00 AM CST.
Professor Elam Phd CPA has addressed many professional groups in the Central Texas area as he did as a Securities Professional when living in the Permian Basin. He has commented on markets on both radio, television, and in his weekly newspaper column. Contact us if you need informtative and entertaining updates of continuing Professional Education on the markets or accounting issues.
Weekend Wall Street Journal
So far the measures have fallen well short of birding a nearly $1 Trillion funding gap in state pensions.
Page A1 Weekend WSJ
The number of hourly workers at Harley is half the level of three years ago.
Page B1 Harley Gets Leaner
Already at its lowest point in more than 3.5 years, China's stock market suffered its worst week in nearly a year....the week's 4.6% sell off.....
Page B5 Chinese Shares Take a Drubbing...
The Transports are the first major index to reflect an underlying change in the market. The market is saying, yes the economy does matter. You can't just close your eyes and buy everything anymore.
Page B5 Late Sell off Pinches Stocks
As we have noted there are plenty of negative news stories out there. But the Social Mood switch has not been pulled from Bull to Bear yet. I expect it will happen before the Election. This explains our exit from fresh highs in the market this past Tuesday. Please read our preceding section on manging risk.
Now let's take our usual weekend look at the markets.
Bullish Percent 200 Day Moving Average
The pullback in this bullish percent this past week is just what we expected. Notice a could of things.
the indicator is finding support where it bounced in March and April, well assuming it tuns up this week
three MAs have converged as the index moves higher, that is usually the precursor to a move up
as this is the 200 day bullish percent indicator it is the last to top out. It lacks a mere seven to ten points from doing just that. We are in the last inning folks. And once it tops out at 80-85, the indicator loses any further predictive value. Then one is just guessing what will happen next.
The Dow Theory
Charles Dow created his Industrial and Transport Indexes in 1896. At the time he had not created the Utility Index. The theory was that one sector that transported goods needed to confirm the sector that manufactured goods for the market to have a sustainable advance. It was a good theory then and now. The transports are the gold line. I went ahead anyway and threw in the Utilities in the green line. I left the blue 50 and red 200 day MAs to demonstrate that the industrial were going where no other Dow Index was going, up. An alert reader of TMP brought this to my attention which is also why I included the quote on the Transports in today's opening. Again this is a massive non confirmation that is telling participants they should not be in the market. Can you hear Charles calling from the nineteenth century?
The Rate of Change
A rate of change ROC goes up as the market moves faster and faster short term. This means the market is moving from an arithmetic rate, say 1.2x to a geometric rate say x squared. The ROC in the bottom panel is moving up. That reflects the increasing steepness of the move up in the main chart shown by the two green lines at far right.
Strong markets finish in parabolic moves up as the crowd rushes in at the last and least opportune time. So this is confirming along with all the other indicators on this page and this past week that we are approaching a top.
Chinese Shares Take a Drubbing
We noted way back on NOvember 28, 2010 that the SSEC was probably putting in a top. It did. Now the move down is accelerating again. This is another massive non confirmation in addition to the Transports not confirming the Industrial. Like Wiley Coyote running off the cliff this means the downturn in the Industrial Stocks will be that much worse when the social mood switch is thrown to the negative position.
Copper has long been the pulse of an economy. Copper is used for wire in homes and in electronic devices and we might say the USA is now one big electronic device. This is a near textbook pattern of a developing Elliott Wave. Wave One comes from an oversold position, see RSI at bottom. Wave Two corrects sideways. Wave three is the strongest, see RSI at bottom again. Wave Four demonstrates alternation to Wave Two with a more dramatic drop.
All of which sets the stage for a Wave Five Move up over the next two to three weeks. Note that Wave Four Held above all the MAs. Copper should be a good proxy for the entire commodity group.
The two hour chart of the Dollar shows enough recovery to begin heading down over the next couple of days. At top TLT the bond fund looks the same way.
Luxottica Group - Ray Ban, Oakley
Luxury goods are enjoying a final burst to the top. Market tops are evidence by the desire to Show Off Trappings of Success. The number of Distinctive Property Ads in the WSJ, multi million dollar star home sales, the move up n luxury good stocks, the most expensive Ferrari ever just produced, and just this week...the richest man in Saudi Arabia announced the financing had been completed for one kilometer high building Originally he wanted a mile high building. This would have been impossible four years ago but that's social mood for you.
The Kingdom Tower
This article quotes a price of $1.2B but that cannot be right. Gerald Hines bought a Dallas Office Property a few years back for $300 M. A one kilometer tall structure will surely cost many times that, other articles have mentioned $30 billion. But the announcement of the tallest structure ever that will take until 2018 to complete, my estimate for the end of this era of stagnation, is surely a fitting Announcement of a Forthcoming Market Top.
The Skyscraper Theory posits that skyscraper projects are planned near the end of stock market and economic booms. Social mood is expansionary leading to a 'Anything Goes Burst of optimism' to build the biggest building yet. Remember the fable of Jack's Beanstalk. Then after years of construction the project is either cut back, sidelined, or opens to a miserable real estate market. Here are a few examples.
The first phase of City Center the biggest privately funded project in US History opened in 2010 amid the bust. It opened in Las Vegas which up to 2008 was Boom Town USA.
Now Macau has become the biggest gambling center in the world. Considering the look of the SSEC Index chart shown earlier, I'd say that's a bad bet, pun intended. I suggest you use this guide to plan a trip there a year or two from now, I suspect rates will be a lot lower then...
The Bottom Line
Negative divergences abound from the Transports not confirming the Industrial to the SSEC not confirming the boom in Macau. Bullish Percent indicators are within single digit ranges of former highs. As we showed in the previous post, the VIX is quietly making a series of higher lows. These indications suggest a top of multi year significance will form, possibly before the Election.
The Dollar and TLT have rallied back this past week, the Dollar had a weak Day Friday.
I have sold stock position and now hold a few option positions vastly reducing my overall market exposure ad turning some profits into cash. We will look to add HDGE in the near future.
Thanks for reading The Market Perspective
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