The Market Perspective

A Crest Approaches

Sunday Oct 16, 2011

 

But here's the bottom line.  If I don't hear from you I'm basically working in a vacuum and it's not very much fun to toss pebbles into a pond without seeing some ripples.  If you like something a little then check a box under the post.  Like it a lot?  Tell me why.  I actually wrote something that changed your life?  Wow.  I'm not sure I can handle that level of responsibility.

Kirk Tuck

http://visualsciencelab.blogspot.com/

Kirk writes an excellent blog on photography, linked above. On Oct 3 he decided to quit writing and get back to work to spend more time as a photographer. As he says above, if I don't hear form you I am working in a vacuum. Like Kirk I would like to hear your thoughts. 

Most sites I read were adamant the markets would melt right to 950. When they did not, the pay for sites simply dropped that prediction. Predictions are just that and one can wish for a bit more humility in such writers but no doubt that is not how subscriptions are maintained. 

Constructive comments are welcome at

[email protected]

 

The seasonal  lows came early this Fall. They occurred August 8 and October 3-4. We are now in a corrective recovery.  Wave A up appears to be peaking perhaps this next week. That would be followed by a Wave B down and then C up, probably with a Santa Claus Rally. 

 

 

Weekly High Low

This indicator is back to zero. That means the worst is over, or alternatively the best chance for bargains ended two weeks ago. 

We have reported that the buying has been in the high techs. Indeed the Weekend WSJ features shoppers lined up for the new iPhone. 

Russell Small Caps versus High Tech QQQ

The QQQ emulate the NASD 100 which are dominated by high tech stocks like apple. The Russell represents smaller cap stocks. Clearly the QQQ has outperformed the other indices. It may be that the QQQ is the new Nifty Fifty, a name for the leaders prior to the 1973-74 meltdown. 

THe NYSE remains in a sideways formation. This may be the case for the remainder of the correction. Here is an updated wave count. 

One can now label the low as the end of Wave 5. I overlaid the Summation index, the NYSI. It bottomed with Wave Three. Fifth Waves are weaker in nature and the Summation Index shows that fewer stocks made new lows at Wave Five. MACD at bottom suggests that Wave A up should crest and lead to a B down and then final C up to end this sequence. That should take us into the New Year. 

 In re-reading our Oct 3-4 posts we should have been more aggressive in recommending buys at that point. This was a remarkable up down Wave Four giving both bulls and bears reason to believe they were right. 

A pullback between now and Thanksgiving would give one more buying opportunity but for a short term gain. 

Gold Bottoms Before Stocks

We have remarked that gold would bottom before the overall stock markets. Gold is in red/black. Note it bottomed in late September before the Oct 4 low in stocks. 

A move up in the Dollar will likely contain gold from moving up further, see the last two charts. 

Market Vector Juniors

GDXJ moved from the lower 20-28 zone to the higher 32-42, and now seems to be in Middle Earth of 28-32. THe weekly MACD is quite low. 

THe Dollar and GDXJ

GDXJ is shown at top. Note its bottom was coincident with the high for the US Dollar. 

Now the Dollar looks like it will find support right at the intersection of the MAs. This was also the previous upper resistance level, now new support. Our conclusion is that 

The Dollar will bottom probably this next week, look for more Euro Bank Worry headlines

That will cause QQQ and other stock indices to peak and begin a correction. 

That would coincide with a Wave A peak, see the third chart for the NYA. 

After being burned by the Dollar weakness for so long, no one believes this recovery is for real. But that would mean that Europe will somehow save Greece, Portugal, Spain, Italy, etc. This is not likely to happen. 

VIX Confirming Analysis

SPX is in green, note how it moves opposite the red black VIX index. With the MACD for VIX near its lows, this seems to confirm that the stock  market is near to breaking over into a Wave B pullback. VIX is falling out of its recent trading range. 

Summary

The Five Wave Move which constitutes Wave One in the big picture completed Oct 4. 

Markets will now likely stage a recovery move into the New Year. Wave A up of an A B C should be near completion. That A B C pattern will comprise a Wave Two recovery. 

Then in the early part of next year, a vicious Wave Three should begin to the downside. Recall that our internal top this year occurred in early February. 

Commodity prices were saved by the bell with oil bottoming near $75. It has recovered confirming the rally in stocks. Expect it to stay above $75 into next February. '

XLF, the bank index, recovered to 12.5 after hitting a new low at 11. This will again be the undoing of the markets.  Banks are one of the very weakest sectors. 

 

Thanks for reading The Market Perspective!

[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.

 

 

Another Week, Another Ferocious Rally

Thursday Oct 13, 2011

I believe the Fall Low is in. This year it happened August 8. We detailed those lows via the number of new lows August 8 and Oct 3-4. Readers might refer back to those time frames. 

Money has flowed faster into QQQ shown in green, the high tech index reflecting Apple and Amazon. The NYSE is in red black and has lagged. But the NYSI summation index has poked its head above its moving average. This prompted me to suggest earlier this week that the Fall Low is in-it occurred August 8 and Oct 3-4. 

The time between now and Thanksgiving will likely see more up and down but with less ferocity. UUP the US Dollar moved up sharply and took stocks down with it. Even this morning a small bump in UUP is turning stocks down. 

Some of the laggards have still not moved much. There is the opportunity to put orders in well below existing market levels. For example a succession of orders placed lower and lower starting about 54 for the QQQ will not doubt pay off by the time this rally tops out. 

One reader  post on our blog suggested Dow 12,000 as a target. The better idea is to target the internals topping out, when Bullish Percent rises over 75, when the NYSI regains new highs. when VIX falls under 20, and when we read that government bonds, TLT, are really getting slammed, those will be the clues to exit positions taken August 8 and Oct 4.

Bill Gross sold when TLT was below 90 earlier this year, we were buying. 

He waited untile TLT got over 100 to start buying again, admittedly our exit was early. 

Perhaps he will start dumping his purchases when TLT sags again. And yes we expect TLT to pull back as stock peak probably after the New Year. 

And, as the Dollar pull back from its recent rally we will be looking to add, yes finally, shares of gold mining companies. 

As a matter of fact, one should begin placing a succession of lower and lower orders, spaced into equal percentages of investment for GDXJ. I would suggest beginning at the 28 level and placing successive orders lower and lower at odd amounts. in other words, do not place orders at even amounts such as 28, 27.75 but levels like 29.93 and such. We cannot know how low GDXJ will go. And good buys can only come from having an order in before the low is reached. In GDXJ below unless one already had a limit buy order in near 26 prior to that level being reached, one would certainly not have gotten it at that level. Even staring at the computer screen when the markets are open is rarely a clue to when the low is reached, but it is always clear afterwards.  Start placing orders now. Gold is still in a bull market. Gold Shares as Dave Rosenberg has noted are likely to dominate in the next part of the gold rally beginning next year. 

NOTE - Do not jump in early. Decide on what dollar  amount you would like in gold and silver stocks. Remember that they always go to absurdly low valuations in a sell off, so place orders accordingly. Which is to say, lower and lower. 

Hmm I just checked, Hecla HL has a book value of 3.73 and is trading just under 6 with a recent low of 5.

Coeur d Alene CDE is already trading below its book value.

Silver Standard SSRI is trading at half its April high, now 1.5x book value. It is bouncing off last summer's lows. I got several calls about the necessity of buying silver earlier this year. Lately I have not heard from anyone regarding silver investments. That's a positive sign for investing. 

After all the media hype about gold and silver earlier this year, as usual, no one is ringing a bell at the bottom when they should be.

 

 

 

 

 

A Matter of Time Perspective

Late Tuesday Night 10/11/11

I have received some thoughtful comments the last few days either by e mail or on the blog commentary. I think we are arguing about time frames, so I looked at the long term NYSI.

NYSI has bounced off its lower trend line. I have made it clear that I believe we are in  an extended bear market for the next two years. However I also believe we have bounced off the lower trendline of an existing on going bear market.  Breaking above the 50 day MA means a move to the upper trendline. That would mean a rally, to the upper trendline!

I don't see falling apart at this point, it is still too early in the bear market. 

Summation Index Perks Up

Tuesday Oct 11, 2011

We said this weekend we would let you know when the first indication of a real turn occurred. It happened yesterday. The powerful rally has turned up the important summation index. Volatility and Bonds are turning down. 

John Paulson has had a horrible year but has been telling anyone who will listen that the market looks good ahead. He may be right. VIX at bottom finally nicked it 50 day MA. And in the main chart the NYSE SUmmation Index NYSI has broken its 50 day MA to the upside. This is the first break since the August collapse. 

My take is that we are likely to have some more sideways action but that both bears and bulls will be frustrated for the next month. 

The Retail Spider XRT had a nice run and is up against resistance at 50, the QQQ for high tech looks much the same. 

The Summation Index has proven quite reliable, take a look at its performance last summer versus now, they are very similar patterns. 

Last summer NYSI bumped, pulled back to a lower high and then took off. The same thing appears to be happening now. The Hedge funds all got short in August. Retail investors dumped all their funds this summer by the end of August. The one false break lower to S & P 1075 caused the mechanical charting programs to go short again. The simple big picture is  that the market then  ran out of sellers at  1075. Too many people are looking at the same charts. As Steve Kaplan says, the technical charing books need to be re written now that we all have the same charting software. 

Predicting anything from the weather to the market is a percentage game. My estimate is that we are not likely to take out 1075 this fall. As VIX and TLT fall there will be a a rush to get on the train and pout money back into the market. Surely thousands of small investors watched the rally this past week wishing they had not sold. It is too early in the bear market for a complete collapse which is what they expected. 

Take note, the rally the last few days was fueled by those who went short at 1075. Now they are doing the exact opposite, piling back in chasing the rally. It ain't over yet, place orders for anything you want below the market not here after hundreds of points of rally. 

Putting It to MGM

Monday Oct 10, 2011

We have been consistently bearish on MGM and its prospects in macau. There is an article on the number of puts versus calls in today's WSJ on page C 7. MGM has fallen 40% in the last three months.

Now gambling revenue in Macau is not rising as fast as most analysts thought. This is not the case for the analysis at TMP. Overbuilding in China will lead  to a slowing economy and less gambling revenue, just as it did here in 2008.

Markets are up in European trading this morning, the rally continues, squeezing the hedge funds that are short.

Dexia

 Oct 9, 2011

 

An alert Tx A & M Student raises the issue of Dexia. This is a French Belgian Bank that has failed due to Greek debt exposure, the EU is injecting funds to prop it up. This of course raises the debt equity ratio even higher for the bank. So far I would say this is the Bear Stearns event, both were 'rescued.'

The trouble will start with a non rescue Lehman event. 

We're Not There Yet

Weekend October 9, 2011

A closer examination of the market action reveals that....

the market is acting very much like it did prior to the lows of Fall 2008. While we have experienced a remarkable rally in stocks this past week, bear markets are notable for such occurrences. The excitement has been in high tech and retail. Even oil joined the party but oil service stocks are still locked in huge downtrends. Regular readers remember that all year we looked for a top in Patterson PTEN this summer at 33-35. Since that happened, the markets have fallen apart and PTEN has yet to bottom. Gold and silver also continue to correct. 

On the other side long dated bonds and the US Dollar are correcting off recent highs but... are still in uptrends. The VIX continues its pattern of upward and sideways activity. As we said it is looking a lot like 2008. 

We have been preparing you for extreme negative social mood. It is here now with sit in protests backed by very organized groups. The President's poll numbers have fallen to new lows. On the other side different Republican candidates' fortunes rise and fall as the public is enchanted and the disenchanted with one after another of them. Romney, Bachman, Perry, no not Christy, and now Cain. Social mood is dispirited on both sides of the aisle. This is typical of bear market activity. 

Stock Market

As our title suggested, we are not there yet. I cycled through daily then weekly and then monthly and bingo, there it is. The two green arrows highlight remarkable rally in summer 2008 before things fell apart in October. The market has now experienced a similar rally but a couple of months later. In the lower panel MACD has yet to bottom. 

In October, 2008, Joe Granville announced the internal low for the market. Let's look back to see what he meant. 

October 2008

There are about 3,200 NYSE stocks. So October 2008 saw a new low in 2/3 of all issues. Now that's a low! Exactly how does that compare to what has happened so far?

2011

 

The answer is that the market has already matched the number of new lows for November 2008 at 1400. It has not matched the extreme of 1,000 more at 2,400. This information in conjunction with the lower lows of the Weekly Summation Index in the next chart tells us that there is a high potential for yet another meaningful low in the market before THE LOW is seen. 

NYSE Summation Index

While there a many technical tools, most are clouded by market weight. A look at the NASD 100 gives a handful of stocks like AAPL, GOOG, and AMZN that nifty fifty extra dimension that excludes the real activity of the smaller capitalized stocks. That is not the case with the summation index for the NYSE. Remarkably this indicator just topped at -250, just as it did before the final plunge in Fall, 2008. 

While this suggests trouble ahead, it also suggests a remarkable buying opportunity. There are few to no sites talking about this. 

The most remarkable thing is that, given the weakness in these indicators, the DOW is somehow over 11,000! In my mind that opens the potential for some sort of October, 1987 crash that would dramatically lower the overall level of stock valuation. 1987 occurred amidst an overall bull market. We are now in an overall bear market so the potential for such an occurrence is even higher. While we or anyone else can only speculate, another Lehman type event has not occurred, thus far. 

The difference between TMP and other sites is that we examine what the market is doing internally. Most other sites focus on the price action alone.Nothing wrong with the latter but we think the better laboratory is the above focus. Here is what we have termed The Dashboard, a look at price indicators. 

The Dashboard VIX TLT

The top three indicators are the opposite of the All One Market Theory. UUP, the Dollar, TLT, long dated government bonds, and VIX the volatility index are all opposite stocks, gold, oil, commodities. You tell me, VIX has backed down but TLT and UUP remain in uptrends. VIX has only posted a higher low, the top two are simply correcting recent excess. 

The green line is the NYSE stock index. It has yet to post a higher high, period. Until it does the markets are headed down. 

The Energy Complex

We are still in the early stages of the overall bear market. We still expect much lower final prices before this is done in 2013. So it may be that PTEN hits say 12.50 and oil drops to the $60-65 level for new lows at this point. PTEN has broken both MAs but there is considerable support on the way up in the 12.5-15 area. Whether that will mean anything with Syria shooting its citizens and riots in most Arab countries we cannot know. We do know the MACD in the lower panel has not bottomed. Crude oil at top has broken down. THe energy service sector shown by PTEN is much more sensitive than the absolute change in price for oil. 

The Real Economy

Fitzgerald and Hemingway were right, the rich are different, they have more money. Here is a performance chart which shows the dramatic difference in luxury goods, the leading on line retailer, and the rest of the economy. 

From left Costco COST is the up market warehouse retailer, quite different from Sam's, and doing well.

Next in line is Ralph Lauren RL in blue, really doing well. Like Apple RL has a strong balance sheet, great margins, and a loyal following that keeps buying in the downturns. 

Amazon AMZN is in the green. Again, AMZN AAPL really skew the QQQ and NASD 100. Compared to the last two, Wal Mart WMT and the XRT for Retail ETF, shoppers are clearly buying from AMZN. They may

be shopping at Best Buy to inspect the goods but the buying is at AMZN. Hmm I looked at Best Buy BBY is at -26%, I can't fit that on the capture to print on this page!

Retail is a huge part of the economy, as the last bar shows, not much happening there. 

GDX Gold Stocks

Gold stocks have vastly underperformed gold since the 2008 lows. Gold remains in a sold uptrend. In the next phase up it may be that gold stocks join the party But first we are probably set up for a wash out to discourage those that stuck around for the last year of up down action. 


 GDX Market Vectors looks to be falling out of its one year trading range. At bottom Slope has rolled over.I would not be surprised to see some sort of wash out in the lower 40s. Yes gold stocks will bottom before the overall market. So this bears watching. Most of the gold stocks are doing a bounce, the old lows are now new resistance, here that would be the 52-55 level. 

Recommendation

We suspect lower stock prices lie ahead with the seasonal roughest part of the calendar in front of us.  The Summation Index NYSI must turn up for a bottom to be in place. The rally of the last week looks very much like the same thing that occurred in summer 2008. Pick your bargains now, place limit orders at low, low prices. There are some excellent buys ahead in gold stocks. Patience will pay off. 

Thanks for reading The Market Perspective!

[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.

 

 

 

Hiding in High Tech

Thursday Oct 6, 2011

The markets staged an impressive rally this past week. Money has flowed to the high tech area. But the banks are still  in trouble and the VIX has yet to break down. In short, October ain't over yet. 

Here is the XLF, the bank index. Take a look at the weekly chart we posted in the Oct 1 update last weeend. If there is a Plunge Protection Team, they are clearly watching this chart and bought to prevent the XLF from falling through the $11 area. There is no support as the weekly chart shows (again see Oct 1 update) below $11.

 At top RSI have fallen below 50% which is bear territory. AT bottom we circled the big volume days and yes the market jumped both times, but clearly the XLF remains in a downtrend. It is not even close to challenging the 50 day MA which is in downtrending mode. IN a bear market old support becomes new resistance. The $12 level is now the new resistance. Clearly it would take repeated days of over 200 million shares to reverse this downtrend. 

VIX Volatility Index

VIX is not quite a mirror image in that it has not gone to a new high, the strength in the high techs is preventing that.But the uptrend above the 50 day MA here is almost as strong as the downtrend in the first chart. Indeed Zero Hedge notes that EU ministers have realized the world still does not believe the European banks can withstand the perceived shocks to come. This is also apparently the case for the American banks as the XLF shows. 

XLK Technology Index - similar to QQQ

LIke QQQ,  XLK  benefited from money pouring in at the 22.5 support level. And it has flattened the 34 bar moving average. But, look closely, do you see it?  As with the XLF the old support level of 24.5 in June is being challenged as the new resistance level. The moving averages have clustered at 24. AT bottom one can see it would take a huge volume surge to get this moving through 24.5 again. 

Our conclusion is that money have fled the bank and gold sectors to attempt to hide in the high tech sector. So have things improved enough overall to call a bottom?

NYSE Summation Index

The simple answer is - NO. Notice that the NYSI turned down right at the 50 bar MA. Even the impressive rally this week has not improved the prospects. The reason is that the rally was concentrated in the high techs and not broad based enough to improve the overall internals of the market. 

We wil be the first to report a break to the upside but as one can see the 50 bar MA is still in a decided downtrend. 

Goldman GS

GS, the smartest guys in the room, is now back to Fall 2008 levels. This tells us the markets are expecting another Lehman type event, will it happen?

MGM China

One more by the way, MGM closed at $8.73. Readers will recall my prediction that doubling down in Macau would be a bad bet, that is apparently how MGM planned to make enough to solve its problems in Vegas. Well in Hong Kong Dollars on the left scale the Macau MGM has lost half its value from the high after the IPO. The Shanghai SSEC made another new low yesterday as well. 

QQQs Rally At Day's End

Tuesday Oct 4, 2011

Let's hop in the time machine and examine a couple of important bottoms, specificaly the Wave 3 and 5 lows in Fall 2008 and Spring 2009.

Nov 2008

 
After two months of collapse, QQQ rallied out of the blue Nov 24, and bang the third wave was done.

March 2009

 
Wave 5 ended March 9 as CNBC's Mark Haines famously called the bottom of that bear run.

Now, today

 

That is a pretty impressive outside reversal day at far right. It is even more so on the one month chart but I went back to include the two prior lows in August. Now

the QQQ reversed at previous support

QQQ put in a clear outside reversal day, a lower low and higher high than yesterday

MACD is in position to rally

Incredibly the low was just oh so slightly higher than the previous lows

While this all may sound tenuous, add the fact that every technician on Planet Earth is absolutely positive that the S & P is going to 1,000, we must be going lower, the WSJ posted a long article yesterday on how no one trusted the stock market, all this is typical of market bottoms,  note one reader posted a DOW  8700 prediction on this blog...could Mr. Market be faking everyone out?

 

The Dashboard

 
The Black red bars in the main panel are UUP the US Dollar on an hourly basis. This past weekend I suggested the Dollar was overdone (imagine me saying that...) and due for a correction. AT top TLT is a fund of long govt bonds. The point is to juuxtaspose 'flight to quality choices' risk off which are TLT and UUP against QQQ which is the NASD 100. Note the MACD at bottom is actually tracking UUP. It is about to bend over. This is more significant in that this is a recent top for UUP.

I don't know if this is THE low but I am not short after looking at these graphs. Now finally consider that all the world is looking at the same graph.

 

Note that the DIA overshot the previous low at 106. All  those following the charts went short on the break below 106. And then the market reversed today. At bottom money has been flowing out of stocks since May. Who is left to sell?

The social mood  hallmarks of a bottom are here, with massive negative news on the markets, protests the world over, all the talking heads are outdoing one another on even more dramatic calls for new lows.

An announcement  on the Greek debt problem, Bernanke wished for that today, would tank the dollar, rally the euro and boost stocks.

By the way, gold and silver stocks look to be washing out with new lows today. We'll update that next time.  

Son of Smoot, Here we Go Again

Tuesday Oct 4, 2011

One of the many disasters of the Great Depression was the passage of the Smoot Hawley Tariff bill. This imposed tariffs on imported goods, just when trade was turning down anyway. This led to other countries doing likewise slowing trade everywhere. 

Now on page A 15 in today's WSJ, the Senate 'moves forward' on a similar bill. This time the villain is the Chinese yuan. The Bill would allow the Treasury Dept to impose tariffs if it finds a currency is 'misaligned'.

For Senators of course blaming our problems on China rather than our own $14 T debt is a handy dodge. But a terrible idea at this point in time. The White House is silent. Beginning a trade war with such a large trading partner is not a good idea. 

Note I wrote this before reading all  the WSJ today. The lead editorial expresses the same opinion.