The Market Perspective

Thursday Morning

Thursday Sept 21, 2011

 

I have placed orders both at the market and below for QQQ, RL, BID, TIE and others. 

The market is exhibiting exactly what I demonstrated in my post last Monday, higher lows. 

Buying Opportunity?

Thursday Sept 21, 2011 8:30 AM CST Market Open 

Stocks slumped 282 DOW points after the delayed FED announcement yesterday. Such announcements usually result in the exact opposite of what will eventually happen. 

An example would be Reagan's announcement at 10:00 AM during trading hours that Greenspan would replace Paul Volker as the FED Chairman. The long bond immediately dropped the limit at the time of 300 basis points. It then recovered. The sharp drop was a buying opportunity. 

Recent FED announcements have had similar consequences. 

30 Yr Bond Price

As I write the S & P is only down 19 points, but gold has dropped $71 and silver is down 8% and oil has dropped near $5. This is precisely what we told you would happen on a strengthening dollar. But I suspect what we will see is the QQQ hit that lower trend line I described Monday Sept 19. 

Stocks will bottom when the VIX and TLT hit their tops just as we have described to you in recent updates. The anticipation and reaction to the FED announcement is simply compressing the time frame. Hence it may all be over  in one full day's trading as the FED really started yesterday at 2:30 PM EST.

9:36 AM CST

Interestingly even amid the panic selling this morning the VIX is registering a lower high. the previous highs occurred at higher stock market valuations. This tells us that believe it or not, there is less fear this morning via the VIX than there has previously been. 

 

The Solution to the Debt Problem is...More Debt

Wed Sept 21, 2011

This will not end well. Casey Research has a good post on Zero Hedge, nothing really new here but...the end result in a few years will be hyper inflation as a result of all the Central Bank money printing. At that point the debt service cost via the then higher interest rates will overwhelm government budgets. We are not there yet but the path is clear. 

The article makes the point that even 'conservatives' like Dick Cheney now believe that deficits do not matter. Cheney misses the point that during Reagan interest rates were declining. To be piling on debt at the bottom of the interest rate cycle is sheer madness, and ignorance of history. 

Chanos on China

Wed Septs 21, 2011

Jim Chanos  a famous short seller, has been short China for some time. He is long Chinese casinos, I am skeptical on that one, but this is a good summary of the train wreck coming for the Pacific Rim. As we have warned all the countries leaning against China are going to tank once this become reality. 

The indicator at bottom shows the correlation between SSEC and the USA QQQ, which is to say there is none of late. This is technically known as a divergence. Shanghai is headed south while the US still celebrates luxury goods like Ralph Lauren. This bear market in SSEC is now ten months old. Yet the world still believes China is the engine of growth. Clearly this is not the case. 

A Carnival Tonight

Wednesday Sept 21, 2011

PSEUDOLUS]
Something familiar,
Something peculiar,
Something for everyone:
A comedy tonight!

Something appealing,
Something appalling,
Something for everyone:
A comedy tonight!

Nothing with kings, nothing with crowns;
Bring on the lovers, liars and clowns!

Old situations,
New complications,
Nothing portentous or polite;
Tragedy tomorrow,
Comedy tonight!

Something convulsive,
Something repulsive,
Something for everyone:
A comedy tonight!

A Funny Thing Happened on the Way to the Forum (Greece is once again center stage)

The FED is going to announce something today after seven straight up days of market advance. The idea that the FED is going to change something is indeed a carnival idea. 

There have been massive withdrawals from stock mutual funds, perhaps more so than in 2008. The result is that now millions of investors are watching the market go up while they make nothing. No matter what the FED does, the most likely outcome is that the same investors will now be piling back into the market at prices higher than the August 8 lows. 

As we have mentioned, fear is still high with the VIX over 30. Insider selling continues in the gold and silver mining stocks. Buying continues in out of favor URA and TIE by insiders. So a grudging rally is likely to continue. 

Bullish Percentage

The action versus the 50 and 200 day moving averages is amazing isn't it?  We told you the internal high for the market was last February. February was the last time the BP was over its 50 day MA. Since then it has failed every time, well eventually. It is now poised to challenge it once again. Our bet is that this time it succeeds. This will drag investors back into the market. 

World Central Banks can only print money or lower the interest rate. They have done both to no result other than juice the markets higher. The welfare roles grow, unemployment is stuck, and the President calls for higher taxes.  But don't take your eye off the market. The low was August and the near term surprise is much more likely to be to the upside. 

The Picture of Frustration

After a series of down, up, down, up, down, and now up again, LVS is right back where it was in February. This is typical topping or distribution pattern at the end of a big move such as the one from March 2009. We have noted that others in this group like Boyd and MGM are already succumbing to bear market woes. 

More later today after market close and the latest FED hand wringing. 

Six Days and Counting, The Buck Also Rises

Tuesday Sept 20, 2011

Despite al the worry, QQQ is now up six days in a row. Today makes seven with a FED announcement on the way. 

At bottom On Balance Volume is broke over its resistance line on the daily chart. Note, Apple made a new high yesterday. As 12% of the QQQ Apple  is powering it higher. 

If you're not making money you may simply be in the wrong index. With Apple and AMZN powering the QQQs, it is clearly in the lead. 

This Performance Chart ranks the recent relative performance of one index to another. The QQQs in red orange are simply outperforming the others.  Then in order are the DOW, New York Stock Exchange (the market) and finally the Russell 2000 small caps. This is bear market behavior. Recall that in the early 1970s investors focused on the Nifty Fifty thinking those stocks would withstand selling pressure. But this is a symptom of the bear market where funds crowd into fewer and fewer stocks pushing them higher to the exclusion of the other, note the hapless RUT 2000 going nowhere. 

In the last couple of months NFLX and OPEN  have  lost half their value. Once the funds dump a stocks the move down is vicious. 

At any rate the party continues, speculations runs high over some kind of stimulus from the FED. The  world bankers see these charts as well. No doubt there will be another attempt at goosing the economy but the last chart today tells the story.  We mentioned short term overbought this weekend, the QQQ shrugged that off yesterday to finish higher. 

VIX remains stubbornly above 30. And the SPX/NYSE turned down yesterday. The rally is in QQQ.

Pass the iPad and enjoy the rally in high tech. 

While we never intended to be stock pickers here, and I have small positions in these stocks, here are a couple that look like low risk plays. 

SEA a fund of screened international shipping companies is bouncing along at 17.  

TIE has experience massive insider buying this year and is moving up, moving averages flashing a buy signal now. 

As always set percentage maximums for your positions before entering orders. 

 

The Beaten Down  Buck 

Yes my worst call of 2010 was to go long UUP. But reward comes to those with patience. Yes crude oil has a buy signal this weekend but the longer term fate of commodities ( and therefore Australia and Canada), gold, silver, oil, and stocks is shown above. Note that oil reversed May 1 the exact day the US Dollar shown via UUP reversed to the upside. Note the surge in volume in the lower panel in May and now in September. Now UUP has, gee imagine, climbed  above its 200 day MA. As the EU lurches from one hastily cobbled deal to another to 'save' the Euro, Greece, and the French and German bank bond holdings, the world scrambles into the Dollar. Everything is priced in dollars. 

All the talking heads and consumer advocates will soon get what they want, lower gasoline prices, and a much slower economy. 

Socionomics

IN today's WSJ

-Note the increase in Greek Suicides, the ultimate negative mood. the story of a vegetable dealer who tragically took his own life reveals that "a local custom of free flowing often informal lending kept his business afloat for years" which is to say  Mr. Petrakis was a microcosm of Greece itself, or pre bust GM or IL or CA today, simply rolling debt, always generating cash from financing to use the Cash Flow Statement term, but never from operations.

Bret Stephens, page A 13,  extrapolates to the larger picture, "Europe  is a geographical expression", to which I would add, so is South America, again on page one note the creation of new currencies in Brazil, now one of the most expensive countries in the world but with a large poor population. Brazil like Canada and Australia is a commodity economy, the Stronger Dollar dooms its growth and its Bovespa has been in decline since Nov. 2010....

Our Original Thesis In August

Monday Sept 19, 2011 7:00 AM CST

Our original thesis at the August low was for a top by mid September. This last week was either the set up for just that or we continue to see the kind of dramatic ups and down so typical of bear market rallies. 

Note one of our final comments in the summary section this weekend.

It was that the market was short term overbought. That is now clear as the NASD is already down 26 points this morning overseas. 

Was that all there is or is this another swoon before a recovery?  We are back on watch and will update as necessary. 

As I mentioned at the time, we sold most of our positions and presume that you did likewise. As we said let's watch the VIX and TLT here. 

This same pattern exists for Ralph Lauren RL and Soothebys BID, the latter being an excellent approximation for the market. RL hit a new all time high this past week. 

As the saying goes the market is climbing the Wall of Worry but so far staying in a reasonably well defined channel. The market just opened, this is a sixty minute chart, let's keep an eye on the lower trendline now about 54.

 

Cat and Mouse

Saturday Sept 17, 2011

Well the Dow was up about 500 points this week, but TLT is still high. Let's take a look at our Fear Dashboard.  VIX and TLT continue to play cat and mouse with the major stock averages.

VIX Volatility Index

Yes there is a lot going on here but bear with us. This chart is as much of an all in one psychology indicator for the market as I can compile. 

At top TLT a fund of long government bonds, is a fear indicator. It rises in price along with VIX, an index of put buying, bets the market will go down. Notice that TLT is staying above its 20 day Exponential Moving Average, so fear is still high, investors are still holding long Govt Bonds. 

Next down is the VIX itself. It is recording lower highs. But it remains stubbornly above its lows at 30. 

The solid black line is the New York Stock Exchange Index. It moves opposite the VIX and TLT at top.August 8 was inflection day for VIX and NYA, both a high and a low. Since then the VIX and NYSE index ( yes the symbol is NYA) have been warily eyeing one another. VIX has not broken below 30 and the NYA cannot seem to get over 74000-7500, note the price for the NYSE on left scale . The reason I am using the NYSE index is that at bottom I have the summation index for the NYSE, it does not seem right to use the S & P in the main panel and the NYSE summation index at the bottom. 

Both the NYSI summation index and the NYSE are rising. So what does all this mean?

The low was August 8. But most investors, fearing another 2008 meltdown, exited the market and still are fearful of returning even as they watch the market climb 500 DOW points this past week. 

Now, I mentioned two weeks ago that it looks a lot like 2008, and in Europe it just plain is 2008, the big European banks are trading at Fall 2008 levels. And some high flying stocks here like Net Flix have shed 100 points this past week. But

As I said in an earlier update, my conclusion is that I sold too early, indeed the Grinch came early. I still have long positions in SEA, URA, HPQ TIE and others.  And what is most likely to happen is.....

investors are still fearful as evidenced by the high level of VIX and  price of TLT. We will not top out until VIX drops under 20 and we see a rush out of TLT and into stocks. Then, we can worry about a high being recorded. 

A/D Volume Reveals Panic Low

This chart of the Advance Decline Volume on the NYSE also nicely confirms that the panic low is now in place. The low was August 8, note red arrow at bottom. Now, note how the next day volume did a huge outside reversal day to the upside. We put three moving averages on the indicator. Notice how the shortest blue 8 bar MA keeps moving UP after Aug 8. Prior to August 8 it was moving down.  

SPX

A return to 1275-130 almost seems too obvious but

that would be a +61% re trace

and that area is marked by lows in June and July. 

QQQ Hourly chart

We are a buyer of QQQ on a return to the lower channel line. Remember we are nowhere near a low in the VIX or TLT and that has to happen to indicate a high in the market. The QQQs are red hot Apple, AMZN, GOOG, et al and those stocks are still being bought. 

Crude Oil Flashes Weekly Buy Signal, Recovering from 30% Drop

If we are right other markets should confirm a rally, crude oil did that last week.Notice that one blue dot at the far lower right in the main panel?  That's  a PAR SAR buy signal. And below it the MACD looks to be bottoming. Crude oil collapsed about 30% from 115 to 75. It is now experiencing a counter trend recovery along with stocks. Patterson PTEN, an energy service stock is at top. It should also recover a few dollars. 

The SOX index of semi-conductors is also moving out of a base from 330 to 360. Its 200 day MA at 410 is a good target. 

Netflix

Before one gets too carried away playing this bear market counter trend rally, recall that TMP has spotlighted what we believe have been numerous over valued stocks-like Netflix. Note it lost half its value in less than two months-now that's  a bear market!  This is what happens when all the hot hand hedge funds run one up, and then abandon the stock. A Heard on the Street article speculates that other carriers are still too high priced. On the weekly chart NFLX appears to have some support at 100!.

While this on line retailer has been hurt, the recession and $3.50 gasoline have made winners of Amazon and E Bay. 

Emerging Markets

Shanghai has lost 22% since November, 2010 and shows little sign of recovery. Brazil and Bombay have bounced since August 8. 

And the Big Story is - the European Banks versus the US Dollar

Before going any further, click here to review what we told you August 8, 2011.

No, really now, click and go back and read before going any further here....In that post we compared the start of a potential bull market in the US Dollar with the CEF fund in 1999. the charts are the same. 

 

We put the Australian Dollar in the top panel. The Aussie is tied to the Chinese Economy. Australia as we have said is a sort of Country General Store of commodities for China's expansion. We have previously noted the weakness already in Australian real estate as it has gotten got speculative. One can see that the Aussie Dollar is the opposite of the US Dollar. On the monthly chart the US Dollar needs a close over 79 to generate a PAR SAR buy signal. At bottom MACD is slowly turning up. 

The reason the US Dollar is in demand is simple-the European banks need them but the US banks are afraid to lend. Numerous articles in the WSJ this past week detail that Central Banks all over the world are therefore loaning the EU Central Bank Dollars. And so a world awash in US Dollar denominated debt, needs dollars to pay the debt, simple as that. Or as Johnny Carson used to quip to his audience, How Bad is It?

BNP Paribas, Large French Bank

The French and German banks lost half their market capitalization in about two months. And so German PM Angela Merkel had to say that Greece would not go bankrupt, ie, default on bonds held by French and German banks. Yet one year Greek debt is trading to yield 70%, the market has spoken. This is just another rearrange the Deck Chairs on the Titanic ploy hoping to change the inevitable. Our counter trend rally in US Stocks will end when the Europeans face reality again in the next month or two. 

The European bank stocks are now back at levels last seen in the Fall, 2008 meltdown, confirming our forecast that it looks a lot like 2008, at least in Europe!

Summary

The low for the time being, August 8, is in. Stocks are putting on a counter trend rally leaving the investors who fled this summer wishing they were back in. And so they will slowly buy back at higher prices. Note we suggested buying August 8-10. This will bring the VIX back down below 20, and raise interest rates on the long bond, bringing TLT down as well. Both TLT and VIX remain elevated indicating the extent of fear still in the market. 

We had originally expected the rally to end by mid September. But the combined action of VIX, TLT and crude oil argue against that for now. Best estimate is that the oversold condition of European banks needs to improve before it is obvious that there is still no solution other than default for Greece.A that point the counter trend rally in US stocks will probably end. 

After the big run up this past week, the stock market is overall short term overbought. This suggests a bit of pullback before another attempt at breakout, watch the VIX 30 level. 

European banks and bourses are well into serious bear market territory. Various writers suggest an alternate Euro for the responsible countries like Germany, Netherlands, Denmark with the Club Med letting he existing Euro float. But whatever, this is not going to work. The bankrupts won't stand for even minimal austerity and the Germans won't stand for bailing them out. 

Socionomics

The demand for luxury goods continues unabated. In the Weekend WSJ, Dan Neil tests  the Bentley Mulsanne priced at

$324, 480. He notes that the  Bentleys Gone Wild 'high' production of the GTC (Paris Hilton drives one) caused it to be labeled the Beverly Hills Chevy, oh the stigma of availability to the masses. Presumably the Mulsanne's pricing will reaffirm the brand's exclusivity.

Note to readers. Bentley is now owned by VW. Rolls autos are owned by BMW. England no longer owns a single car company of its own.

 

And the market can't get enough Ralph Lauren. The RL Polo registered a new all time high this past week. I guess it just goes to show the value of long term John Templeton investing.....

People exhibit the desire to show off wealth in good times. The RL chart is a literal depiction of that. Note the sideways action from 2000-2003 as the market fell. Again the same thing happened from 2007-2008. So far though, only the most nimble had orders in at 105 to catch it on the drop from 145, it is over that price already-cheers and pass the Grey Poupon.....

Our job will be to identify the next major low expected in late 2012 or early 2013 when major lows and values will be available. 

 

Thanks for reading The Market Perspective, we hope it has aided your investing results.

 

[email protected]

 

 

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.

 

 

 

The Grinch Arrives Early

Friday September 16, 2011

Readers

I have been literally swamped this past week with other duties than my first love, tracking the markets for you. Here is a summary of where we are, the Fall Low came early, investors have been side tracked by the European shenanigans. My weekly column sums this up. Expect a return to our weekend updates by this Sunday. Thanks for reading The Market Perspective!

The Grinch Arrives Early

 

The devious, anti-holiday spirit of the character has led to the name "Grinch" becoming a term used to describe a person opposed to Christmas time celebrations  or to someone with a coarse, greedy attitude. 

Dr. Seuss creation, The Grinch

Seasonally the stock market usually makes a low in September or October. That sets the stage for a rally into the next year, usually beginning in November. This year, the Grinch, who throws a wrench in things, arrived early, August 8-9 to be specific. And European antics have further taken investor eyes off the ball. Let’s take a look.

The era of financial asset domination fittingly ended with the dot.coms in March of 2000. The cheerleading for the NASD at 5,000 was accompanied by a new wave of companies, raising lots of money in public offerings, but making no money in their operations. And so, that provided a fitting end to the financial bull market from 1982-2000. While investors were gaga over stocks, the real buys of course were in commodities. By March, 2000 crude oil has just pulled itself up from $12 to $30.

Since then stocks have trended sideways while commodities of all types have had spectacular run ups, oil hit $145 in 2008, and co fell back to $35. But, remember that price?  Yes, the correction for oil in 2008 stopped at the top for oil from year 2000,which was the mid $30s.  

Different markets move at different rates of speed. Imagine a crowded highway of eighteen wheelers,  motorbikes, economy cars, and luxury sport models all speeding along. They speed up and slow down at different rates  rom one another.

The same thing has happened since 2000 and will continue to happen.

Crude oil lost 25% of its value from late July to August 8. The Energy Service Sector swooned along with it. Now, Patterson PTEN, and crude oil, are slowly making a series of higher lows. Crude oil actually flashed a buy signal on our weekly charts, the first since its high in May. The Grinch low for Fall, 2011 is in. We are likely to experience a continued slow rally in stocks and oil and energy service for another couple of months. This, as we said in the opening, has surprised investors  expecting, a seasonal low later this fall. But after all, if one has been watching the news ‘across the pond,’ it was easy to be distracted.

The Club Med countries, Portugal, Spain, Greece, threw financial parties giving  the French and German banks some real headaches. The reason is that those banks lent money to the countries which were clearly violating their European Union fiscal accords. Portugal, Spain, Greece (and Italy)  spent and promised more than they took in, period, never mind the fancy financial jargon. Now they are unable to pay pensioners, the bills, and their creditors, the banks.

The result has been a literal repeat of 2008 for European banks. BNP Paribas (France)  and Deutsche Bank  (Germany) both had their stock prices cut in half from July to September.  Investors feared a Greek bankruptcy would spread domino like across the Mediterranean leaving the banks holding worthless bonds (Remember the Trojan Horse, beware Greeks bearing gifts?)

With European banks melting like ice cream cones on July 4, German Prime Minister Merkel declared no such Greek bankruptcy would happen on her watch!  And so for the time being, the bleeding has stopped. The EU Central Bank  and other Central Banks are loaning dollars to  the French and Germans. And so, the latest once every two months European ‘fix’ for Club Med is in, for now.

Not surprisingly, the exact recent low for the US Dollar occurred May 1, just as oil, stocks and banks began tanking. The buck advanced above its daily moving averages. I suspect the Dollar will consolidate those gains for the next couple of months while oil, stocks, and even European Banks breath a sigh of relief. The Grinch has been chased away for the time being.

Investors cheered on luxury goods maker Ralph Lauren which hit a new high this week.

And so, confidence returns to the fashion runway, and the oil field, for the next couple of months, or weeks.... 

 

Socionomics Update

Thursday Sept 15, 2011

Gerald Celente at the Trends Journal believe Thins are Going to Get Much Worse.. society is Breaking Down.

Regular readers of TMP are quite aware this is a period of repeating negative social mood. We are in year 12 of a 18 year cycle of economic stagnation. I quite agree that the two parties are of little use to you and I but of a lot of use to themselves. 

Celente has in interesting idea in that we should be able to vote on issues not politicians. I am not particularly inclined to agree that we should vote on line. Just last week my e mail was hacked and ATT and Yahoo cannot seem to do anything about it. So on line voting sounds like a terrible idea to me.