Saturday Sept 24, 2011
Gold futures dropped 5.8% Friday, the biggest one day loss in five years as investors rushed to cash out of some of their most profitable investments in the hopes of making up for losses elsewhere.
The DJIA plunged 6.4%, its worst week since October 2008. The dollar has soared against its rivals. The euro has tumbled 6% in September while emerging currencies like Brazil's real have been punished.
Weekend WSJ Page One 9/24/11
Buggs and the Gang say good bye to the gold, silver and copper rally.
The above quote could also serve as a summary of what we have had to say this year-emerging markets topped last Nov, the US market internals have been weaker all year, and gold and silver are in a parabolic move up.
Stocks appear to have a short term bottom this past week. Otherwise markets are breaking down around the world as the dollar strengthens taking metals and oil down.
Risk On Risk Off - TLT versus the SPX
TLT a fund of long maturity Govt bonds is in red black, the green bars are the SPX.
TLT appears to have had a key reversal island top the past two days. It soared to a final high of 123.87 Thursday. It registered a lower high at 123.36 Friday. It then reversed closing down 1.86% on the day.
My conclusion is that money is now leaving the safe haven of bonds and returning to stocks. AT bottom the reverse happened in SPX the last two days. SPX made an oh so slightly higher low than on August 8, and then also reversed slightly to the upside. The lack of news and general overall exhaustion did not generate much of a rally the last day of the week.
Admittedly there is no lack of bad news. The House did not pass a spending bill, FEMA will shortly run out of money, etc.
Let's take a close up look at SPX and the Volatility Index VIX
This is a sixty minute chart going back to the August 8 low. SPX is in green red at bottom in the main panel, the VIX is in red black at top. VIX is exhibiting lower highs. The SPX if in fact it bottomed thursday made a slightly higher low, amazing isn't it?
NASD New Lows
QQQ at top mimics the NASD 100. The main chart is the number of new lows for the NASD.
Wikipedia indicates there were 2,872 stocks in the NASD last January. So over 20% hit new lows Thursday. This is an extreme, at least for recent activity.The pullback Friday looks like the pullback August 9.
However I am concluding that the final low is not in yet. This is more likely a short term stop in a fifth wave to the downside.
This week Art Cashin, director of floor operations for UBS and CNBC commentator each day about 7:55 AM CST has an interesting theory. He noted the Thursday Monday effect of crashes. He described it as a down day Thursday, nothing much Friday, and then the trap door falls open on Monday. He noted selling usually continues into Tuesday morning. Could that happen? Of course it could. The daily MACD has not bottomed on most stock indices. The NYSE Summation Index is not clear nor is the Weekly New High New Low.
Intraday the DOW lost about 1,000 points this past week.
Anybody with charting software can see the previous support level last summer at 1025. And most writers are looking for this level. It may be that Wave 4 topped Friday a week ago. This past week could have been a Wave A or One in a final fifth wave lower. The MACD in the bottom panel could allow another 100 point drop. But that might be delayed for another week to recover from the heavily oversold condition, see the second chart. That would take the seasonal sell off into October which marked the internal lows in 1987 and 2008.
The Dow Industrials and Transports are flashing sell signals by making new lows. Fed Ex indicates slowing shipments in China; Fed Ex and UPS both had big drops this past week. And then there is our infallible PTEN indicator.
Patterson PTEN
Regular readers are aware of our call for a top in PTEN at 34 that would replicate Summer, 2008. Check. That would indicate a fall in the price of oil, see top panel, check. That would indicate a slowdown in world economic activity, check, it's on every page of the first two sections of the WSJ this weekend. In fact PTEN is eerily displaying the exact same pattern from 2008! In the bottom panel MACD is doing the same, heading south.
Let's be clear, Thursday was probably a stop along the way to eventual lower stock prices.
Currencies
See page A 10 in the Weekend Journal for an excellent graph of Emerging Currencies headed south. Brazil has recently become the world's most expensive country measured by rents and meal prices. That will be quickly changing. We noted the top in the Bovespa last November.
Copper versus the US Dollar
Earlier this week we mentioned that Jim Chanos was finally seeing the weakness he has forecast in China. This weekend Mercedes notes falling demand for its cars in China. China has been a one man band buying metals and commodities around the world. As the Dollar soared, copper tanked.
Copper ia in red, the US Dollar is the solid black line. As the Dollar soars, things priced in dollars recede.
Silver
When the margin calls come, everything gets sold. Lately gold and silver bulls have claimed that the two metals were independent of such things and were therefore a store of value that would not be sold. Apparently this is not the case. One can see how high silver rose above its 200 week moving average. It should now be starting a third wave down.
The Chicago Mercantile Exchange hiked gold/silver/copper margins by 21/16/18% after stocks closed Friday. So investors were liquidating to cover other positions and now are slapped with higher margins amid falling prices.
We have consistently avoided the gold and silver markets to our regret. But we were not long at the top. Our preferred vehicle is Central Fund CEF which also tanked this week. A return to the 200 week MA at 14 seems reasonable here. We promise to monitor CEF for a least risk entry.
Summary
Stocks appear to have made an intermediate low this past week. That should support a near term rally.
Bonds topped as stocks bottomed. The parabolic rise has likely ended. The same pattern emerged last summer with QE II, bonds topped within days of the announced buy back and then went south for five months.
Metals tanked with the dollar rally. The Collapse in copper will soon collapse the 'Country Store' economy of Australia which has served that function for China. Brazil and Bombay will likely encounter more rapid sell offs than we have seen thus far.
|
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 and 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