Weekend September 8, 2012
Commodity markets rose nicely this week. One reader asks if this was due to China's decision to re boot infrastructure investment. The media is always seeking to link a market event with a news event. I would say that simply our Hour Glass analogy is at work. All the sellers are out of GDXJ and other mining plays and all the buyers are in REITs, now the Hour Glass turns and the financial sand runs the other way.
We anticipate various highs in commodity and stock markets. We will track our usual internal indicators for clues of a top. Remember this month is the quarter end. All the funds that have embraced bonds or stock indexes will want to show they own the winners in their quarter end reports. That will be another river of money to furnish buying power for moving commodity plays higher.
As we set records for the lowest number of people working in years, 47 million on food stamps, 11 million on SS disability, and tens of thousands in part time jobs or giving up looking for work, it is clear the economy is beginning another Year 1973,2000,2008 turn down.
Mort Zuckerman notes the birth rate has fallen to a 25 year low. Millions more now have disabled SS status.
Your one man media center also writes a weekly newspaper column and is quoted in the Odessa American. Odessa is ground zero for the West Texas oil boom as the center of the Permian Basin. The Permian Basin consists of some 50 counties which produce about 15% of all the oil and gas in the continental US.
We recently mentioned that a news event can cause markets to excessively gyrate, often taking out stop orders above and below the market. Then once the orders are all filled, the market goes back to where it was. Check out crude oil on the jobs data. Apparently traders took the increased pool of those giving up looking for work as a lower demand rate for oil and gasoline. Crude dropped two dollars, and then as trader watched gold soar it quickly recovered. We are seeing the seeds of the eventual world wide inflation that will result from failed government stimulus packages around the world.
The Rally Gathers Steam
We rely on internal indicators of market performance rather than attempting to guess price targets for indexes. We will watch as the Summation index and other internal indicators return to their maximum levels visited at previous market highs.
This weekly chart shows what we mean by Gathering Steam, the NASI jumped above all the MAs, and set a new high. This looks to be a the start of a third wave, the most powerful in the series, for the NASI.
TLT the Mirror Image of NASI
Notice how TLT is beginning an apparent third wave down on its daily chart as NASI above embarks on a third wave in its weekly chart. Money flowing out of the bond market will power stocks and commodity plays higher. I used the return to 126-128 to buy back the put positions which were sold at 121. I own Sept 122s and Oct 121s. Note the large daily range Friday and the drop though the 67 day MA. MACD is curling over at bottom. Now step back and look at the bigger TLT picture. Again our Hour Glass analogy dictates examining how close these various markets are to breaking down so that one, TLT, can fuel the others.
If we are correct that TLT is beginning a third wave down, the assault on the longer term MAs will come quickly.
Now look at similar action in the Dollar. These two are now 'getting in synch' to the downside which should spur the rush to the downside in both.
This is an intra-day range of 1.3 taking out all the MAs to the downside. This is why the headline shown next is only focused on what stocks have done. It ignores the other markets like the dollar and bonds.
As Usual the Brokerage Firms Get it Wrong
I encountered this headline when logging into my Fidelity Account this morning.
One will never see this kind of headline at a genuine market top. At genuine market tops the brokerage firms are wondering just how much higher it will go and advising you on 'how to play the rally now.'
Compare this headline with the NASI chart above which clearly shows a rally underway.
SPX The Stock Market
A couple of readers told me they were going short at 1420, I hope not. As we predicted, the break out is now a reality. Note On Balance Volume advancing at bottom sorry stock charts cut that off, at top RSI is overdone but that is the nature of a bull market.
GDXJ Weekly Breakout
The red green resistance line nicely shows the break to the upside by turning from red to green. How high is up, I am thinking much much higher, possibly a return to 40 but then we don't like to pick targets.
The moves in COPX KOL and REMX are just getting underway.
The copper market has been beaten down on the idea that building is off. Well, for the time being
demand for new homes is heating up. Better get there fast as the Journal reports
Demand for Freshly Built Homes Is Heating Up, and Steep Bargains Are Vanishing Fast. Here's How to Get a Good Deal
this of course is dead wrong, it is not the time to be buying an expensive new home. But our point is that this kind of thinking is likely to spur the copper miners back to their old highs.
REITs and other Dividend Plays
Here is an Hour Glass view of what has been happening in the markets. The last dollar was in by April 2011 in mining stocks. Advisers began beating the buy dividend paying stocks drum, and the market did. By this past June GDXJ had been cut in half. The Morgan Stanley REIT index looks to be topping out at 925.
Stop and think what a capital intensive operation a gold mine really is. It takes lots of capital, machinery, and just plain hard work to extract gold. All this requires lots of time. But the decision to invest in a gold mine can clearly turn on a dime. And that is just what happened in July.
In the 1973-74 melt down REITs were some of the hardest hit stocks. I can recall REITs sold as widow and orphan investements that were trading below the offer price while stock still remained in the underwriter syndicate. Back then that would have been Dean Witter and duPont Walston, which means the price of the offering was falling even as they were unable to unload all the shares they themselves had purchsed. Think Facebook today.
Even in the healthy economy of San Antonio I observe new strip malls that remain empty. The employment report shows an increasingly large number of people who have given up looking for work. The entire support group for Word Press works from home; there are no offices. CPA firms routinely hotel their work space by having employees reserve space when they need to be in the office. Law firms continue outsourcing more tasks. Now couple that with video conferencing and web cams common to most laptops and it is not hard to see the work from home trend catching fire. And by the way, for Moms iwith small children that solves the day care question.
Shanghai - The Empire Strikes Back!
The move up Friday, 3.7% says it all. I have looked at Chinese ETFs but they either do not seem to offer a lot of upside or they are so thinly traded, less than 10,000 shares a day that i would not recommend them. KOL, REMX, or COPX look to be better plays if you are not in at this point.
August 25, 2012 we featured a stark photo of Marion Cotillard dressed in black, tough as nails said the inscription. Here is the latest Runway trend, leather. Brilliant colors are in as we have showed but this is an image of what to expect this spring. Dark colors are associated with a much darker mood, it's coming.
But really this one is Timex priced compared to the top of the line.
The Glashütte Original "Grande Cosmopolite Tourbillon," a highly complicated watch that contains 500 parts and shows 37 different time zones, has a limited edition of 25 and nearly all have been presold, at €325,000 a piece, since its unveiling in March. For some watch connoisseurs, their collection isn't complete without a "Lange 1" (from €23,000 for yellow gold).
A Random Socionomic Walk Thru the Weekend WSJ
A3 The Brooklyn Mets Basketball arena at $1 billion is just being completed as the country's most expensive professional sports arena - The Skyscraper Theory holds that massive projects are usually planned at the end of an extended market run up, which means the project invariably opens just as the market and economy begin tanking, this article notes that the neighborhood is still waiting for the other projected benefits to come to fruition
A7 Canada has closed its Iranian Embassay and is expelling all Iranian diplomats in Canada. Historically such actions are the last hurrah before hostilities break out.
And in rapid fire order
US Blacklists Militants in Pakistan
Shooting of Cleric Stokes Tensions in Kenya
china Push Haunts Hong Kong Vote - some of the biggest anti-Beijing protests in recent history
tens of thousands of protesters many yong and clad in black, a symbol of opposition ot the new curriculum now link that to the photo of the movie star in black we showed last week and the photo
Merkel Bucks German Anger
Peggy Noonan - The fight over including a single mention of God in the Democrat Platform, that was extreme, the huge NO vote on restoring the mention of God - It's too bad Peggy nas not studied socionomics so that she would recognize what is happening. Markets make tops and bottoms on just this, extreme social mood
The Carmel Pine Cone - we search the news so you don't have to
Clint Eastwood declares his speech as Mission Accomplished in this interview. Our point is that we now have diametrically opposing views of the two parties. There will be no reaching across the aisle after this election no matter who wins, and that existence of negative mood will drive the markets down.
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