Up Up and Away

Sunday Oct 23, 2011

We're still looking for Wave B to the down side. In the meantime Mr. Market took off Friday to demonstrate just how dangerous it  can be when we try to predict one day in advance!  The Dow Industrials and Transports both appear to have confirmed the move up with fresh highs. The NYSE and NASD summation Indices are doing likewise. Santa is coming to Wall Street early this year. This is the confirmation of the move up from the August and October lows we have discussed here. Likewise TLT and the VIX have pulled back.

The best investing idea at this point would be gold and silver mining stocks. We will look at GDX and GDXJ. Individual mines of course are always subject to both natural and man made disasters (strikes, poor management, demands by foreign countries to fund their costs). 

Dow Industrials Transports

Both indices recovered nicely on Friday confirming new highs in each index. 

The Dashboard TLT, VIX, SPX

TLT and VIX represent fear and risk off attitudes. At top TLT is coming down and in the main panel VIX has broken below its 50 day MA. In the bottom panel SPX has broken above its MA. VIX has not really broken down out of its 30-47.5 range quite yet.

NASD 100 (QQQ) and the Bullish Percent

In defense of our comments from last Thursday, the NASD 100 on the daily chart is rather over done. It was down Wed Thur and then rallied with the rest of the market Friday. AAPL is holding it back. 

At top we posted the bullish percent indicator for this index. Some 76% of NASD 10 stocks exhibit a bullish formation on their point and figure charts. At bottom the MACD is over done to the max but not paying much attention to our musings. The weekly chart however is just now turning up. So there you have the trade off. 

Weekly NASD Summation Index

And here is the weekly summation index for the overall NASD. It is challenging a down trend line, not drawn but one can visualize it extending from the January 2011 top. Note the strong up move the last two weeks. The next challenge is to vault the two moving averages. Again we are still wondering if a Wave B might pull things back. The news from Europe is that neither Sarkozy nor Merkel are having much luck getting agreement on what to do in Europe, what else is new the last 500 years eh?

I own both SEA and URA, two contrary plays. The Baltic Dry Index is picking up, even Greek stocks rallied Friday. SEA is Guggenheim Shipping a group of shipping companies. URA is the Global Uranium group both are  out of favor. Be sure to read the interview in the WSJ this weekend with the CEO of a large utility. As he says, one can really throw away money on wind power. And with natural gas everywhere and cheaper than ever, of course the Administration hates, natural gas. 

URA, SEA

Neither has participated in the rally thus far but both appear to have made bottoms at the Oct 4 low. Both of course are completely out of favor in the media. As Steve Kaplan says, to buy low and sell high, first you have to buy low. Speaking of which....

Weekly GDXJ, GDX

An alert reader who follows such things informs us that he expects a significant low this week in gold. The charts of mining stocks seem to back up that notion. The main panel is GDXJ, the so called junior miners. The weekly PAR SAR is in sell mode. We extended the chart to last summer where GDXJ bottomed at 24; GDX hit 50.  

Daily GDXJ, GDX

The drop in GDXJ Thursday generated a daily sell signal which is what we would expect if an important cycle low lies ahead this week. We suggest entering a succession of lower orders. Place them at odd dollar amounts. Allocate the same percentage of money for each buy. Remember that gold stocks tend to make dramatic lows, so place orders at what you consider bargain levels. Do this at the start of this week so your orders are placed in advance. 

GDXJ

27.73

27.17

26.62

26.08

25.55

25.03

24.52

Each of these order is 98% of the previous order. So there is logical spacing, and there is no reason not to continue the orders even lower .There is always the chance to get a spike low washout thanks to short sellers and those that toss shares at market lows. No one knows where the lows will finally be. Note the spike low Oct 4. Unless one had placed an order ahead of time, you would not have bought at 26. The same procedure of course can be applied to GDX. GDXJ appeals to me as it is half the price of its larger brother. 

Buying Hecla HL violates my rule of not owning a single mine But

It is the largest US silver miner

HL has been around since 1891

Insiders have been buying below 7.29 this year

http://finance.yahoo.com/q/it?s=HL+Insider+

 Mines are in North America, which is to say not Africa or South America subject to expropriation and such

Book value is $3.73, it has 1.35 in cash per share

 The January high was 11.50, so HL is less than half its prior high

If it turns out that silver still has a ways to go lower one can certainly hold at these levels. And that is my point about properly spaced orders, imagine that HL could go even lower than you think. One would be buying right into book value at 3.73. We certainly think gold and silver have further to go to the upside in this decade. Just months ago everyone wanted in at $50 silver, now we hear little about it, only that there are riots in Greece. 

Socionomics

Alas, pity Jacqueline Soiegel, on C1 of the weekend WSJ her 90,000 'home' stands unfinished. The bank has demanded the sale. By comparison Vanderbilt's Biltmore is 135,000 sf but is now a hotel and attraction. Siegel made his money in a perfect socionomic moment, Westgate Resorts is America's largest time share company. A time share is the idea that one can sell shares in say a $50,000 apartment for $20,000 a week. If one can do that for every week of the year, one has sold the apartment for $1 million dollars. This is apparently what Jim and Tammy Faye Baker had in mind but never quite pulled if off. 

This reflects the belief that there is no end to a mania. Siegel admits, 'he was cocky.'  He had 15 housekeepers and a chef. He laid off 6,000 of the 12,000 Westgate Employees. Clearly those that never profited from the success were the first losers in this scheme. 

The home is, of course, in Florida. Florida also experienced a land bust in the 1930s. Apparently Siegel never studied much market history.....

Charles Ponzi, inventor of the scheme which bears his name, died broke in a charity hospital in Rio. On his death bed he made this comment.

"Even if they never got anything for it, it was cheap at that price. Without malice aforethought I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over."

Without realizing it Siegel was putting on the same show, just decades later. 

Comments

[Valentin Tristan Jr.]

We have seen the high for the year dating back on May of 2011. The DOW was at 12807. Recently in early October the DOW saw a rally from the lows of October 3, 2011. The Dow was @ 10623 and rallied to a high of 12272. That was a 1649 point rally. Since it broke to the upside from its trading range everybody expects the DOW to rally into a new high for the year. This is only a Bear market rally define by the Dow Theory as “secondary moves tend to be faster and sharper than the preceding primary trend.”Since the primary trend which is down took five months from high to low and it took one month to gain 1649 points that qualifies it as a secondary move. The market tends to fool the greatest amount of traders it can so it’s only logical to break to the upside to get more investors in the market since back in October everybody was talking about how the bear had arrived. The market perform one last gasp up before everybody knows that we are truly in a bear market and the trend is definitely down for some time to come. If you want to know more about the Dow Theory go to this web site: http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:dow_theory
Predication time: The Dow will revisit 10623 before the end of the year and if that supports does not hold then it can go all the way to 10000 points in the Dow. So by year’s end the Dow will be between 10000 – 10623 points.