The Market Perspective

Risk On

Wed March 30, 2011

Yes I am quite aware that the DOW Industrials, Transports, and Utilities are moving up again, South Korea as well and if Goldman could buy North Korea it might also be going up. But….

Here is the one graph we have for you tonight.

Las Vegas Sands Corp., together with its subsidiaries, develops multi-use integrated resorts worldwide. It owns and operates The Venetian Resort Hotel Casino, The Palazzo Resort Hotel Casino, and The Sands Expo and Convention Center in Las Vegas, Nevada; and the Sands Macao, The Venetian Macao Resort Hotel, and the Four Seasons Hotel Macao, Cotai Strip in Macau, the People’s Republic of China. The company is also developing Marina Bay Sands, an integrated resort in Singapore; and Sands Casino Resort Bethlehem, an integrated resort in Bethlehem, Pennsylvania. Las Vegas Sands Corp. was founded in 1988 and is headquartered in Las Vegas, Nevada.

 

This past few days the WSJ ran an article on the NASD attempt to make a bid for the NYSE Euronext. The point was that the NASD was making a mistake, the deal is all about derivatives, the NASD is not about derivatives. But the headline said it all, A Deal, Any Deal.

Our point is that risk taking has returned. Never mind that we pointed out that dividends are below 3%, that p/es  are over 20 to one, that Chaos Stan stretches from Libya to Tadkistan.  The world is back to gambling. Please take the time to read the description of LVS I extracted from finance.yahoo.  RSI has held at the 50%level, I could be wrong, but I doubt it.  Why, let’s extend our look. 

Same company, different time frame. Now what do you think?

MACD peaked along in November along with emerging markets. The volume on LVS really go going when it was cheap, below $10. As you can see, the moving averages are coming to High Noon, will the 50 cross the 200, I doubt it. Note that volume is this stock is decreasing as the price increases.

This past weekend we allowed that the weekly A/D NYSE line was still headed up.  We also stated that we would rather buy TLT and short new highs than go long here.

The move up from next to nothing to $50 is an echo of the move up to $150 in 2007.

Art Cashin says to stay nimble, I say to stay out. No one was buying at Dow 7,000, now at Dow 12,000 everyone cannot wait to buy more GOOG, APPL, PCLN, CRM

A June High is expected. 

 

 

Cautionary Notes

Wed March 30, 2011

Wed March 30, 2011

We will post out Tuesday update tomorrow; it is long term view using one stock of where this market really is in terms of recovery. Stay tuned for that. In the mean time from the news today

In India Doubts Gather Ovewr Rising Giant's Course, WSJ 3/30/2011 Page A1

In recent months, the mood in teh planet's most populate democracy has soured badly - to the point that some of India$'s richest people have begun to complain that things are seriously amiss.

Observation Social mood is determined endogenously, from within a person not from outside sources. We pegged the Bombay Exchange as topping last November and said so right here. Now it is front page news that the mood has changed. Bear markets also happen in fractrals. Here is more evidence it is underway. Actually Jim Rogers in his round the world tours predicted that India would have lots of problems, too muchy red tape, too much bureaucracy. Indeed this article reports China has added ten times as much power as India has in the same period of time. The Article bylines, Flawed Miracle.

ON page C3 Trump's son in law is over his head in the most expensive property ever purchased, $1.8

billion at the time. Now he is $3.5 M a month short on the payments.

Observation How many building like that are still out there?

On page C11 REITS Make and About Face. Because of the bad news globally in the last sixty days, companies are thinking twice about making large space commitments.

Observation An REIT meltdown was a prominent feature of the 1973-74 bear market.

Has anyone noticed that gold and gold stocks look a lot like a distribution pattern since November?

Stock Market Denial

The Stock Market is in a State of Denial

First, you may have noticed that the market has not exactly ignored the problems.  The S&P 500 peaked about five weeks ago at 1344 and then proceeded to fall 7.1%.  It has since climbed back by 4.6% in a rally that looks somewhat anemic by past standards.  This type of action is actually typical of the way most bear markets begin.  Generally bear markets go through three psychological phases----denial, concern and capitulation.  Most often, but not always, the market rallies between each phase.  The denial phase is the initial downleg from the bull market high, and we are only at the start of that downleg now.

Read more: Comstock Partners, Business Insider

This pretty well sums up our thoughts  on where the markets sit now. Most market letters rarely discusss risk, but that is a main concern of this letter. Our view frankly is that  we exited stock positions prior to the Japanese earthquake, though we do not claim to be seismic experts. The point  then and now was that the risk was not worth staying long, as was quickly the case. We will take a very long view this weekend, listing reasons for being cautious as well as other factors that you are not likely to read in other letters.

The point of this letter is to prepare you for one of the great buying opportunities in the rest of this bear market, it is coming in a year or two. But to be prepared one must be informed, in cash, and aware of what is happening, as Kipling remarked, when others are losing their heads. We listed the reasons for exiting the stock market weeks ago and they are all equally valid now. The better bets will probably be made by taking short or defensive positions rather than going long now.

So, let’s begin.

 

Stock Market

Others are calling for  resumption of the bull trend, we are not so sure. Here the hourly chart of the SPX appears to have traced out four of five waves. At bottom the MACD is topped out. Note that the top of this latest rise is lower than the previous highs of February to early March. This is precisely what Comstock is pointing out. Wave 4 has not overlapped  so this is an acceptable interpretation, again we never claim to be Elliott Wave Experts.

Our longer term internal indicators are improving from the big sell off but are still below previous levels. The weekly advance decline chart is still in ‘pedal to the metal bull mode. Again the weekly A/D line is still headed up. It does not evidence topping action yet. 

We usually show the NYSE Summation Index but this is the NASD summation index. As you can see it got hit pretty hard, not back to last July levels but harder hit than the NYSE which is not shown. The usual suspects, APPL, GOOG, PCLN, are doing well. This is because quant formulas are simply selling out of declining stocks and moving to those still going up. This is the very definition of a crowded trade, more and more in fewer and fewer net positions.

The S & P has more than 50% of its stocks above their 50 day moving average. So what’s the problem?

 

Bonds 

Not surprisingly bonds show the opposite picture.  Stop reading here, go back to page 2, and compare!  We have lower highs in stocks and higher highs in bonds. This is the very point of tech analysis, listen to what the market is saying, the market is getting more defensive with more net bond positions. This is in spite of all the selling by PIMCO and the FED. Here we see a potential Wave 4 holding coming right back to the top of Wave 1. MACD is holding  a bit higher than at Wave 1 which is what should happen.

Our point here is that bonds are holding up rather well. Frankly we would rather put in some  bids for TLT at lower prices and see if those are filled orders this next week.

Given my failed attempt to establish a dollar position I am hesitant to even show the next chart but …

 

 

 

Currencies

 

Red black bars are the US Dollar. The black line is the Australian Dollar The Aussie is basically a commodity currency, tied to their production of all sorts of minerals. Note that at the extreme of the 2008 crash, the dollar rallied to new highs and the Aussie sank to a low along with commodity prices. Now with new highs in oil, gold, etc, the Aussie is at a higher high than in mid 2008. The US Dollar however, amid a ultra bearish positive sentiment reading of only 7%, is at a higher low. It took out the previous low from last fall. It did close up this week. We are inclined to believe that the slightly lower low resulted from the Japanese earthquake and the necessity of closing down the carry trade to bring Yen back to Japan.  Our point is that the US Dollar is at an extreme low, no one likes it, as commodity currencies like the Canadian Dollar and the Aussie seem to be hitting some resistance at high prices.  Recall that there is so far, no shortage of oil even though oil is over $100.

 Carry Trade – borrow US Dollars at near zero interest, invest the money at higher rates overseas, now those trades are closed, Dollars sold and Yen bought, hence the recent spike up in Yen and move down in the dollar, got it?  Yes Bill Griffith on CNBC was intoning that the Yen was at record highs against the Dollar but of course neglected to mention why.

We will then conclude with  a section entitled, What Could Go Wrong?

The Markets Now

• Stocks have regained most of their losses since 2008, mood has improved such that this weekend WSJ reports on page B1, Crisis Props are Falling Away, In other words, the Federal Government has given the all clear, don’t worry signal. This is actually a signal to worry, read on.
• Internals are slowly deteriorating, see page three. The internal top of most markets occurred in April of 2010.
• Bonds continue to show strength in spite of FED sales, PIMCO sales, assertions oil will soon be $150, a $14 trillion debt,  and gasoline  at $4. Why is this happening, what does the bond market know, what is the bond market seeing in the future?  Answer, danger in stocks and commodities.
• Are we Japan in 1989?  The headlines for Google and Apple (company of the year, decade, century) are similar to what we read about Japan in 1989. Since then Japan has had two lost decades.  Like Japan we have refused to write off bad loans, how many under water mortgages are there-40% of all existing mortgages despite all the stimulus.
• We noted prior to the earthquake that the flash crash could happen any time. We have noted that amazingly the market has rallied again and again just an internals are about to fall below moving averages possibly triggering massive computer generated sales. When the earth quake occurred, that is just what happened.
• Dividend yields are less than 3% on major stocks, P/Es are over 20, these are signs of market tops, not entry points
• A peak in commodity prices is the last phase of a bull cycle.  Oil prices were the last to top in the  summer of 2008. We are there again now, okay prices could go higher still.
• Time sequences (QE II ends in June)  suggest June, 2011 as a final top. As we said a few weeks back three months may seem like forever but now June is only two months off. 

This is the weekly chart of the SPX with the parabolic stop and reverse sell signal displayed. It is currently on SELL signal. It would require a weekly close over 1339 to generate a BUY signal. Now look back at how the top formed in late 2007 -2008. We are starting to see that same up and down action, signs of distribution at the top, pattern. Notice the RSI over throw above 70 is the  most extreme measure since the bottom in late 2008!  These are all warning signs of topping action!

Needless to say this information  is not featured on buy and hold CNBC or the front page of the WSJ. Believing you can get out in time is like believing the tsunami will not come two miles inland, it went instead six miles inland.

What Could Go Wrong – aside from Earthquakes, Tsunamis, Supply Chain Interruptions and Such

All the following events have occurred in the past, and could occur without warning again, this is why Nassim Taleb is famous for his Black Swan thinking.

• ChaosStan now extends from Afghanistan on the East to Libya on the West, revolt has spread from Central Asia to Libya in West Africa, and no one is in charge, anywhere.  This usually ends badly. Think Germany invades the Sudetenland as France goes on summer picnics.
• Three of the PIGS did collapse, Ireland, Portugal, and Greece, does anyone really think that is the end of it? Does anyone think the three have reformed?
• Cities and states are at war with their government unions. In 1976 it was only New York City that went bust, does anyone think the protestors in Madison, WI are going to become reasonable?  Just this morning a student reported to me that tiny Floresville, TX re-financed its ‘new civic center’, the reason, it could not make the payments so it got a new loan!  Houston, TX is already taxing non-profit churches to pay for street repairs; defaults take many forms.
• The Egyptian Stock Exchange closed in the wake of the revolt. When it re-opened, prices plummeted again. For those that think it cannot happen here…during my first sojourn as a stock broker, the exchanges had shortened trading hours two days a week. The computers of that era could not match up  the trades on ten million share days. Now at billion share days and ‘trading in the nano-seconds’ could it happen again. Such trades at the end of the day are DKed, which stand for Don’t Know. This means the exchange cannot match up the two counter parties. While that may sound strange indeed it was counter party failure risk that caused Greenspan to rescue Long Term Capital Management. The same fear caused Hank Paulson to rescue Bear Stearns, but not Lehman, and then the exchange did collapse. The inability of Lehman to pay off its short term commercial paper with long term non-performing mortgages locked up the short term funds market, and bang, no Exchange.
• DuPont Walston collapsed in 1974. It was then one of the five largest firms in terms of offices in the US. The offices were sold or assigned piecemeal to other brokerages. But it was months before clients could transfer their accounts where they wanted them transferred. Could that happen again?
• As recently as 2001 during my PhD stay at the University of Texas at Austin, a hacker stole 50,000 of  our social security numbers. Not to worry said UT; but hackers still abound. The next likely attack is not so much a back pack nuclear weapon as someone at multiple terminals in an unreachable Yemen or Tadkistan.
• Stephen Lerner wants millions of people to refuse to pay their mortgages which would collapse bank balance sheets. This is the same SEIU group that has helped stage rallies in Wisconsin. With 40% of mortgages under water, will he have to try very hard to pull this off?  Remember all the failed mortgages are still on the books.  As unemployment rises, and the 99 weeks of unemployment checks come to an end, many will simply stop paying. It will be impossible and impractical to evict them, then what?
• The Flash Crash was no accident but a triggering of sell stop orders by computers acting on quantitative models. A similar event caused portfolio insurance to run markets down in October of 1987. Flash crashes in other stocks have occurred. The events during the Japanese crisis are a dress rehearsal for what might happen in any of the above scenarios.

So, we do see this scenario as a high risk environment. I read a story about one rice farmer in Japan who never dreamed the waves would come six miles inland, but they did. He was scrambling to drive out of his muddy fields on narrow roads, realizing that if  one wheel of his vehicle veered into  the mud , that would doom his escape. This is a worthwhile parallel. If in fact a top is expected in June, the time to exit is now, not June, just ask the rice farmers.

Concluding thoughts in case you are still wondering where I stand

Rather than go into another litany of charts we would ask you to consider these things about the environment.  The landscape is just about where we were when I exited Ross Perot’s broker school (DuPont Glore Forgan) in April of 1973; hmm, here it is April of 2011.  How similar is it?

Nixon handily beat McGovern, Barack handily beat Bush.

Viet Nam was the endless war, now we have two or three wars.

Nixon and Kissinger had a plan for Viet Nam but no one knew what it was. Today Barrack has handed over leadership in Libya to France but France rejects NATO and now does is unwilling to take The Colonel out.

Gasoline prices were going up, rationing was taking place, now gas is over $4 in California.

Stocks were at fresh highs (DOW 1,000+), stocks are at fresh highs (DOW 12,000+).

Inflation was high, now inflation in commodity prices, deflation in housing prices.

REITs were a popular income stream, REITs are popular again. But retail space is probably double what it ought to be, can you see vacancies coming ?

Social mood had turned negative. Bill Cosby was out and Richard Pryor was in (ponder that change for a moment).  Radical groups were active the world over.  Today’s Sunday paper features a photo of riots in downtown London, forget Tunis, Tunisia.

The result was the worst melt down  since 1929. The DOW sank from 1,000+ to 577 by December, 1974.  Again we have had two of the four negative periods for stocks expected during an 18 year period of stagnation. We have two more to go, it is not a question of whether but when. Prepare now.  

 

 

The 'Sudden' Disappearance of the Mini Skirt

Thursday March 24, 2011

Page D6 of the March 24 WSJ heralds the sudden disappearance of the mini skirt.

From a mood stand point the timing is certainly expected. A classic theory has it that upbeat mood results in frisky fashion which conincides with bull markets. A move down in skirt lengths would then be coincident with the onset of a darker mood change, fearful, defensive, perhaps perparing for a bear market. This reflects our belief that the markets are transitioning to another bear phase. A final top should be in place by this June. Our expectation that 1300 on the S & P would be a short term top has been the case this week. We may see an overthrow of a few points, the Dow was up yesterday.

But the article clearly details the short skirts of the 1960s and 1990s, both bull markets. And it notes that skirts went long in the 1970s. That of course was a bear market. And so skirts are going longer, the defensive mood prevails. Such mood change is not pinpoint accurate, but it is noteworthy that splashy stars like Lady Gaga have been popular of late, this would be typical of an expansionary market.

If the skirt length indicator is correct, such spalshy stars will be replaced by lower key types the next few months.

 

Market Breakdown

Friday March 18, 2011

 

Regular readers are aware that we prefer to examine the internals of the market to the actual prices reported in the popular media. This chart shows why. We frequently cite the NYSE Summation Index so here is an update. The NYSI formed a large triangle and then fell completely out of it to the downside.

Our first target was the 1200 area. The internal action suggests that lower numbers lie ahead. We had shown this chart prior to the big sell off and suggested that the internals did not support the price advance in the averages, Whatever, the next major low should provide a fairly low risk buying opportunity, short term, just as last July did.

Friday Morning 7:07 CST

The UN finally slumbers into a vague threat of a French ( a first since the Suez Conflict against Nasser in the late 1950s in my memory) air strike, but not until Sunday. Perhaps this assumes  the Colonel will fold on that announcement.  At any rate things look better at  the Japanese nuclear plant.  US stock futures are up a bit pre market opening.

Bill Griffith was bonkers on CNBC over a new high in the Yen/Dollar relation. He never of course bothered to explain it. No doubt the carry trade has been encouraged by our Fed’s no interest rate policy is unwinding. Dollars are being sold to buy yen necessary  for rebuilding Japan.  Despite what you hear the Dollar is only back to its November lows.

The correction may extend into next week giving another opportunity to pick up some Government bonds.

More updates this weekend. 

 

Wave Count Update

Thursday March 17 2011

 

Our call for investing in TLT at recent low prices while exiting stocks at recent high prices was the right call, to say the least.  Now TLT should be exhibiting the opposite pattern of stocks, and it is. Here is an hourly chart of TLT, a fund of long term government bonds. As I have said Elliott Wave counts are never completely clear unti lit is all over. But it appears that TLT completed a third wave up yesterday. As I write in pre market opening Thursday Marcy 17, 2011, stocks are poised to bounce back. That indicates both TLT and SPX should be in their fourth corrective waves today. My suggested wave count is born out by the MACD at bottom and RSI at top rising and falling in the same pattern.

 

 

Sure enough the SPX is a virtual mirror image of the bond market, which has proven to be the ONLY safe harbor versus stocks, gold, silver, oil, etc. Truly risk assets are all one market.

Note Mort Zuckerman’s article I today’s WSJ page A19 on the anemic recovery, next to the article that TARP did little or nothing.

This means the stock market should recover today and tomorrow before a  new fifth wave low likely due by the end of March. One could add TLT purchases on a pullback today and tomorrow, things are not likely to get better for stocks any time soon. 

 

The Past as Prologue

Monday March 14, 2011

 

One of our themes in this letter is that we are half way through an 18 year cycle of economic uncertainty and zero growth.   This parallels 1930-1948 and 1966-1982. But don’t take my word for it, here Harvard Professor of History Niall Ferguson lays it out.

http://www.businessinsider.com/niall-ferguson-obama-carter-2011-3

The  indecision on the part of the administration in the Mid East reminds the Professor of Jimmy Carter and his Mid East difficulties. We have used that 1966-82 time frame frequently in this letter as a parallel.

 

In 1987 so called Portfolio Insurance worked in reverse to drive markets down faster than they would have fallen without insurance. Today we have all manner of ETFs, futures, options, and options on ETFs that will serve the same purpose.  ETFs compound speculation on the way up in markets. The manager of the ETF has to buy more of the corresponding asset to link the investment to the underlying contract be it copper or Chile.

Now that ETF assets are over one trillion, this will work the other way round to compound the acceleration on the way down as ‘investors’ sell out. Managers will have to sell shares into an empty market driving the price down even faster.

http://www.marketwatch.com/story/copper-slump-hits-materials-chile-etfs-2011-03-13?link=kiosk

This is already reflected in the charts of Copper and Chile ECH.

Last week we recommended exiting all stock positions if you had not already. The reasons were that the risk reward is fading and there is an increasing chance of another April 2010 Flash Crash. Everyone thinks they can get out in time. But the charts of Japan ishares argue otherwise. What happened in Japan last week is the perfect look ahead at what will be happening across multiple asset classes around the world as investors realize decreased demand and production will lower commodity prices.  It does not matter WHAT caused a Flash Crash in Japan, it happened. If one was long Japan, one was hurt. This is our point in recommending all stock positions be exited in our update one weekend ago.

 

Stock markets are quite oversold short term. The fact that TLT has two lower highs suggests a lack of fear, if the markets were really scared there would be two higher highs. This suggests TLT will fall back on a stock rally. I suspect the Goldman FED machine will leap into action this week, taking TLT lower into a more favorable buy level.

Can you see it all falling into place now?  Stock market peaks are often accompanied by natural disasters. The disaster slows the economy and demand. We certainly have that now with the devastation in Japan. Emerging markets, muni-bonds, and now commodities. Most investors of course will write this weakness off to the one time event in Japan. However this is not the case, the bear market is underway.

 

 

Mood Changes

Sat March 12, 2011

 

The Mood Change

This weekend we will demonstrate that the US Stock markets have probably joined other markets, which have already turned bearish. As we have said this is a process, not an event.

We will demonstrate that the social mood is turning more negative, an essential postulate of socionomics.

We will review our calls over the last few months.

Our aim here is to prepare, as the Japanese did for their earthquake, for this coming bear market well in advance by taking defensive positions. Those positions will consistently make good money while we await what should be a new low in all major market indices. At that point we will begin accumulating well managed, dividend paying stocks including pipelines, REITs, and various commodity investments.

There is virtually no one on CNBC or in financial publications like Barrons or Forbes describing the beginning of the third bear market since 2000; all are still looking for the latest hot stock.

So let us begin with look at the markets.

 

Diversification?

Financial planning types endlessly promote the idea of diversification. Their claim is that a balanced portfolio of stocks will withstand negative events. We present the above Chart as Exhibit One in deflating that argument. Here the black and red bars are the Dow Industrials, blue for the NYSE, red for the S & P, and green for the NASD. Note that all are in lockstep having topped the third week in February. This same pattern was evident in 2007 and 2008 as  US markets went down and recovered with a three plus month lag to emerging markets.

The Bear Markets Unfold

 

Purple – A Vanguard Municipal Bond fund double tops in August and Nov, 2010

Red Black – The Bombay Sensex Index tops in Nov after a torrid run from Sept, and then gives back all the gain by February.

Green – the SPX tops in February

Gold– Copper, the leading indicator for the traditional industrial economy tops along with stocks

Now let’s look at how those same markets per formed in late 2008-2008

In 2007, the SPX topped three moths before the Bombay and the municipal funs which peaked in February. Copper was coy, falling and then rising (along with oil not shown).

The lesson here is that all markets do not top at the same time. But we can see that in domino fashion, one after another did fall. Notably commodity markets held up the longest. They were also the first to recover.

On page B7 the WSJ has a story on investing in Emerging Markets. The writer warns that ‘those who bail now could miss some big opportunities.’ There is not a single mention of Ghost Towns in Mongolia, or overbuilt properties from Mumbai to Shanghai. Another long story on China suggests that unlike the Mid East with decades of poor leadership from one dictator, China rotates dictators (calling themselves Presidents of course) every ten years. A new one is due in 2012, he will no doubt have his hands full as the reality of overbuilding real estate comes home to roost.

 It is true that Russian ETFs are up while Brazil, India, and China have not fared so well. But Russia is more of an oil and gas play than a real industrial ‘emerging’ nation despite the plans of Putin for a some sort of Moscow Financial Center.

Gold Red – gold hits resistance at 1425

Silver – Silver plays catch up and joins in with a new high

Black – Oil makes a new high, and all appear to be pulling back.

MACD in the bottom panel makes  a lower high and appears to turn down

Our point here is that the All One Market Thesis is alive and well with

US Stocks, Gold, Silver, Copper, and Oil were all  hitting some sort of combined top this past week.

Now let’s get I our Time Machine and go back to 2008, same markets

 

Note, this is the chart for 2008. The markets topped in March, just as they are now. The markets sold off for a couple of months. Then oil played catch up and joined the party for the final hurrah in July. Then things fell apart.

This supports our thesis that history will repeat with an echo top in various markets this summer.

The Stock Market

We can be fairly confident that the stock market will not completely tank at this time. First the seasonal high due in May argues against it. Second the weekly summation index, shown below the NYSI,  while putting in another recent lower high, is still above its moving averages.

Third the weekly NYSE A/D line is not indicating a top quite

yet. All three moving averages are still headed up. The line has not broken any of them yet. Still we decided to exit stocks a week ago. The rate of change has slowed to near zero and the risk reward is just not there. This is particularly true if all participants decide to exit on the same day as happened last April. 

 

The Weekly SAR PAR has given its first sell signal since the entry generated last summer, note blue dot at the top, far right. The stout Money Flow in the bottom panel indicates plenty of confidence, again this is not over yet. A reasonable target would be the 50% retracement at 1171.4.

Where did the money go?

While Bill Gross was selling at PIMCO, the rest of the market was buying. It will be interesting to see how he spins this. This picture makes our strategy clear. Bonds have not yet ended their thirty-year bull market. This market is stair stepping higher. World stock markets, junk bonds, and municipal bonds have begun stair stepping lower. As always the more sophisticated bond market has taken notice. At bottom the MACD is just beginning to turn up. Note in late 2008 that bond prices peaked as stocks tanked. That is our core strategy idea.  We have exited stocks as the risk reward ratio has shrunk. We have recommended entering bonds at another multi-year low.

IEF is a fund of 7-10 year government bonds yielding about 3.2%. TLT is a similar fund of 20 year + bonds yielding about 4.2%.  

TLT is short term overbought. Note this is an hourly chart.  Stocks are short term oversold, down for the week. We could see some more pullback early this week in TLT and it can still be bought. Note the pattern of higher stair step lows in this hourly chart. This is the process of the market pulling back and finding buyers to substantiate the move up. Note, Bill Gross is finished selling and this chart shows it. The government of course never finishes selling bonds.

Commodity Markets from copper to oil to energy service companies appear to have temporarily topped. This is in line with the All One Market pullback. We are watching for opportunities here. There is still no oil supply interruption. Japan  is expected to buy less oil as its refineries recover from the tidal wave. After an uninterrupted move up from last July these markets need more of a rest before another advance. There will be numerous opportunities to play the energy market in short term vehicles like ultra short and long DIG and DUG but frankly we are not set up for readers to adequately monitor investments subject to such radical short term change.

 

The Market Perspective Record

From the blog, November 14, 2008 on Municipal Bonds

Retirees have crowded into high yield municipals and junk bonds. The result is as usual pictured below; everyone is heading for the exits at the same time as they realize both principal and income are in danger.  And it is not just New York and CA that are starting to melt. These charts are screaming, get out, go to cash, and take that extended cruise. 

Municipals have since seen record outflows with Congress demanding that Bearish analyst Meredith Whitney explain herself.

From the Blog, March 3, 2011

The inflation adjusted oil price chart shows that the 1980 peak of $36 translates to about $110 in today’s dollars. With oil at $102, that alone is a warning sign. We also noted that Floserve had eleven insider sales and no purchases, adding that the insiders are rarely wrong.

Crude hit a top of $107 the next week and has since retreated.

.

Sunday March 5, 2011

We now officially recommend exiting any long stock positions begun last July. This graph speaks to the lack of a good risk reward at this juncture.

The Dow dropped some 220 points last Thursday and was down over 1% for the week.

Conversely our recommendation to purchase TLT was up over 1% for the week. Bond guru Bill Gross bragged that he had sold all long government bongs from PIMCO’s Total Return Fund. This is high irony, the bond guru in America abandons bonds and embraces stocks as apparently stocks make a top.

Strategy

Stocks, oil, semiconductors, etc have all begun one last pullback before an expected final top the summer. Yes, tops take place at different times. The internals in the stock market like the summation index and the Advance Decline line are not sufficiently deteriorated to signal a mass sell off just yet.

In the mean time the smart money is accumulating government bonds as a safe haven amidst falling markets, which will no doubt be evident by the last quarter of this year.

Our strategy is to establish a safe haven in dividend paying government bonds  while most ignore the turn back to the bear phase of the stock market. Again, we noted ina post this past week that the Flash Crash was real, not an accident. We expect more of them late this year and early next year.

Eventually the markets will sink back to March 2009 levels. At that point, we will look to exit our bond purchases at nice profits. We will begin shopping for well managed dividend paying stocks then selling at multi-year lows.

 

Socionomics is the study of social mood and its results in social actions. It studies how waves of endogenously regulated social mood in turn regulate changes in the economy, political preferences, popular culture, etc.

Positive social mood results in market participation and inclusionary political and social action. Negative social mood results in a lack of market participation and rebellion. The ultimate negative social mood is war.

Now consider a few comments and events from this weekend WSJ.

Unless it is reversed, the administration’s Libya policy will convince the world that the US is a feeble friend and an ineffectual foe, paralyzed by its own ambivalence.

Eliot Cohen, John Hopkins’ Advanced  International Studies

EU Leaders Waver on Military Steps in Libya Summit,

 US Wary of Libya Role,

Libya Rebels Struggle to Regroup

Even liberal Democrats are unhappy with the Administration lack of leadership in North Africa. But the point for investors, as Cohen points out, is an echo of the failure in Viet Nam. Dictatorships expand into vacuums. Markets dislike uncertainty. The US has injected uncertainty with a lack of a clear policy. History is full of such failure from Chamberlain at Munich to the US waffling in Viet Nam to whatever we are doing in Afghanistan (see Peggy Noonan on Rumsfeld) to calls for help from Libyan rebels. All in all this is about what to expect midway through an 18 year cycle of stagnation, a lack of leadership, reminiscent of  the 1970s and 1930s.

Union fight leaves families, co-workers split A schoolteacher considers State Senator Larson a hero, her husband thinks the senator is a coward

Page A3, this is proof positive the New Civil War I have been describing is well underway

The NFL descended into turmoil Friday as negotiations between players and owners broke off. The onset of litigation sends a business that has long prided itself on stability into a rare period of uncertainty at a time of record popularity and revenues. (emphasis added)

This will not help retire the debt on monuments to bull market thinking like Jerry Jones Dallas Cowboys’ $1+ billion  new stadium in Dallas.

Lehman Probe Stalls: Chance of No Charges

Not one person has gone to jail as a result of the financial fiascos of 2008. Like the bailout of Long Term Capital Management  in 1998, this sends a simple message. If you are going to recklessly gamble with other people’s money, make sure you do it in a big way, so big that the government feels obligated to save you. This will only increase the resentment against Wall Street.

Social mood is breaking down even across the  dinner table between husband and wife. Initially the Libyan rebels were going to ‘do it on their own.’ Now they are wondering, where is the US?  Note the reversal at the NFL from a top of record proportions no less. This is precisely how tops occur and then reverse. 

 

 

 

 

 

Paint it Black

Thursday March 10, 2011

Paint it Black

The Rolling Stones, 1964-71

For  a Stylish Living Room, Paint it Black

The Wall Street Journal, Today

There was no lack of black in the markets today. Our recommendation to exit stocks, given this past weekend,  and one had time in a modest pullback Monday or an up day on Tuesday, to do just that, was timely.

While our recommendations may not seem exciting, avoiding excitement of the wrong variety is what this letter is all about. We recommended exiting stocks and have been recommending buying TLT for the last few weeks.

This is the hourly chart of TLT for the last month.  If you followed our recommendations  you were out of stocks and watched your boring investment in TLT jump to the upside today. If that is not a big call, well, I don’t know what a big call is.  Note the jump in volume shown by the blue arrow at right.  Price and volume, that’s the ticket. Resistance lies ahead at 92, expect a pullback and then a breach of that level.

 

Here is  the real picture of the internals of what is happening. The market actually topped internally, highs versus lows, in early 2010. The rally from last summer only came back to the down trend line. Now it is turning down again.

The transition to a bear market is  a process, it is not an event.

 

 

A Day of Rage is scheduled in Saudi Arabia tomorrow. But the oil chart looks toppy. The market realizes that more not less oil will be pumped to produce money to provide programs to satisfy the riots in the streets of North Africa. 

We close tonight with our All One Market Theme. Here the Spx in black and red bars is plotted with gold in gold, and oil in black. Our PAR SAR has generated a sell signal. Note all three markets are turning down.

We suggested TLT, it is turning up.

Have you ever been on the tiller of a sailboat?  Sailing is a good metaphor for investing. More on sailing and investing this weekend.

 

 

Nook as a Tablet

Wed March 9, 2011

In the last few days I read that Apple is the most admired company in the world.

And I got an invite from a service that sends e mails to a person detailing all the wonderful things apple is doing, quite a change from 1998 when Dell suggested they collapse the firm.

Now a $200 Nook can become an Android Tablet. AS the author of this article suggests, why not have B & N do this legitimately? My point is that if B & N can figure this out Apple is not liable to have the game to themselves for long

Apple is 20% of QQQQ; could things be a bit toppy for the QQQQ?