The Market Perspective

A Little Toppy Here?

Saturday March 24, 2012

Update

TVIX is now trading at its NAV around $8. But that was a sideshow compared to Friday. 

New e mails show Jon Corzine ordered $200 M of customer funds be moved to cover MF Global's credit needs

Apple experienced a flash crash  of 9% over three trades and was suspended for five minutes. The shares then regained their former levels. Interesting this does NOT show up on stockcharts.com

The IPO for BATS Global Markets went from $16 to zip in 9.5 seconds. The IPO was cancelled.

Check this out on page one of the weekend WSJ.

Gee I am feeling better about taking our profits in early February!  The point here is that in these days of high frequency trading coupled with total lack of SEC oversight,  anything can happen.

And, the MF Global debacle is still the only one I know of where honest customers have truly lost money through firm chicanery and the government has done nothing. Never before have customers lost money in  a brokerage firm meltdown. Apparently this does not bother anyone at the SEC. It should.

Meanwhile back at the markets....

Our exit in early February was a bit premature. But there is evidence of less and less broad participation to the upside. Here is a performance chart comparing  the large to small indexes.

Performance Chart - a Relative Ranking

The time period is also instructive as it takes us back to the prior high last July. Note the position of the indexes at that time. Then the Russell 200, small cap stocks was in the lead. Now the RUT is the lowest of the group. So small stocks are under performing. 

Now the SPX which is heavily weighted to big cap volume is in the lead. The turn down in the others suggests lagging participation. Note the Equal Weight SPX has also dropped. 

Summation Index

In the previous post I mentioned several methods including Elliott Wave, Gann Price and Time, and Lindsay's three peaks and a domed house. Regular readers are aware that we do not primarily use any of those methods. My experience after reading various publications for decades is no system works all the time. Since writing this blog I have been much more drawn to the internals of the market. The chart above shows us that it is the large  stocks like Apple that have pulled the main averages up while the other averages lag. 

We exited the market in early February. But Mr. Market, just to show us who is boss, continued up. This was in defiance of the Summation index which had turned down. 

I outlined the performance of the NYSE since the Summation Index in the main panel turned down. The best one can do is follow the indicators. And so the market has gone up for another month and a half. But we will be vindicated. The actual oscillator at bottom is negative and peaked at our exit. The trend line suggests the Summation index needs to fall further. And so, we suspect the recent market weakness will result in more sell off. 

Crude Oil versus Energy Services XES

In our previous performance chart the SPX has outpaced the RUT in the recovery since October. 

In this chart XES outperformed oil last year but now crude oil is ahead. The turn down in XES versus oil is an important divergence. This tells us investors see a correction coming. Note how XES turned down in late December predicting a low in the markets then.  Oil is the master market, the most emotional one we have. 

Gold

Please refer back to our Wednesday post. We showed how gold miners are back to their 2010 valuations. The miners have underperformed gold an silver by  wide margin. We also showed a preference for Central Fund, which has the bullion stored in Canadian vaults. 

Last July, gold, Central Fund and GDX Market Vectors were all trading together Now the green line, the miners are nearly back to late December levels. Central Fund is doing better. By the way our timing on an entry in late December was near perfect. We exited a bit early in February but hey, not bad!

Bonds

Bill Gross sells bond on March 10. Jim Rogers goes short bonds but admits he is a terrible market timer, apparently so. John Murphy and others declare the 30 year bull bond market at an end.

Well as Al Borland would say, I don't think so, Tim.  With all the excitement over TVIX I let this one get away from me at the bottom. Not the great buy it was at 110 but the bond bull market has not ended. 

Summary

The great buys were last fall in August and October and then again in gold at the very end of December. Now all the indicators are in maximum optimism territory, which is to say the market is not much of a buy. We exited in early February.

If gold makes a low, if the NYSI makes a low, say 600 or so, if the Dollar falls, 

it would be reasonable to expect CEF and gold and silver to rally. ON the performance chart GDXJ i snow below its December low!   CEF remains above it. 

An adage has it that 70% of the time, markets don't do anything, This is one of those times. 

In the crash of October 1987 so called Portfolio Insurance did the opposite of what it was supposed to do. It hastened the downfall of prices. Now TVIX has done the same. MF Global has stolen $1.6 B from its clients, and no one seems concerned. These are warning signs to avoid any and all such creative instruments. I regret mentioning TVIX. I did state I stopped buying it and had a small position. I suspect  one can exit on a small retreat in the market . But at any rate, it serves as a good reminder that firms will simply walk away from their risky offerings when their own captial is in danger, making it of course our danger. Remember Will Rogers warning about the return of your money rather than the return on it. 

Socionomics

We looked at the socionomic implications of  Hunger Games in our  March 15 post, that is probably the best socio comment for the time. It has since debuted.

Hmm, its box office receipts the first day outpaced The Dark Knight, the movie that kicked off ( in my opinion) the negative mood that led to the Fall, 2008 meltdown. A the time my college classes found my observations about  a coming downturn in mood puzzling, but that is exactly what happened. Then it was Lehman, now we have MF Global and Olympus in Japan. The investors lost their money in Lehman, not the customers. This time even the customers of MF have been left with an empty bag. I don't know where the top is here, 1440, or more?  But the higher it goes with less broad participation the great the fall is likely to be. 

In the meantime you might rent Puss N Boots. It is out and enjoying a run of popularity with the the markets and mood upbeat right now. I doubt this will be the case this fall so enjoy it while it lasts. 

Shootings in France and Miami may be foreshadowing a much more serious outbreak of late 1960s style violence.  

Unhappiness with gasoline prices also parallels the 2008 experience. Barack cannot simultanesouly make people believe he wants lower gas prices and appease his anti-carbon voting base. Peggy Noonan declares Romney the eventual Republican winner even while wishing he would start looking lke a winner. 

Yep, that's fickle social mood, the kind that precedes a collapse in mood. Both Democrats AND Republicans are unhappy with their candidates just as they were in 1979. 

Thanks for reading The Market Perspective

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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 ands 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.

 

 

 

 

Three Peaks and Domed House

Saturday March 24, 2012

Ed Carlson wrote an award winning book on the techniques of George Lindsay. 

Ralph Elliott has his five waves, W D Gann had price and time, Lindsay has three peaks and a domed house. Ed has issued another report updating this mechanical timing system. 

Calling the top has been elusive so far this year but the  latest report targets an October low this year. If you want a copy of the report drop me an e mail. 

Jim Rogers

Friday March 23, 2012

Here is a link to the Jim Rogers interview on CNBC yesterday. The video is available. 

Perhaps his bvest observation was that he hoped china shares would drastically drop the next couple of years, they he could buy them cheaply. We have noted the long slide in the Shanghai index.

Jim was

short US govt bonds, a bit late I thought

buying gold as it descends, who knows how low

bullish on Mynamar former Burma

liked China a lot lower

Jim has authored several books, two about his round the world trips, one on China, one on commodities and another for his daughter

Friday Pre market Opening

Friday March 23, 2012 6:16 AM CST

Here are some articles on the TVIX meltdown yesterday

Zero Hedge reports CS wil re open issuance of TVIX shares.  As ZH observes, where was the SEC?

http://www.zerohedge.com/news/credit-suisse-publicly-announces-reopening-tvix-share-issuance-hours-after-private-leak-crushesTVIX was tied to the futures market.

The next  report suggests that Credit Suisse is issuing more shares now. This might allow TVIX to eventually recover.  Zero Hedge in a later post assumes the NAV will rise gen the pop in risk.

 http://finance.yahoo.com/news/tvix-collapse-rocks-volatility-market-061429849.html

Facebook

At the same valuation and market cap, Facebook has one tenth the revenue of Google. 

 

 

The TVIX episode reminds me of the 'Portfolio Insurance' debacle in 1987. Designed to prevent losses in a meltdown, it was later determined that portfolio insurance actualy hastened the decline of stocks in October 1987. With hundreds of ETFs and ETNs the potential for meltdown is higher than ever. Add off exchange traded derivatives, and you have a devil's brew. Come to think of it, a subprime mortgage was an off exchange traded derivatve. 

Here is an article on the diminshed volume. There are also additional off exchange markets where stocks are trading which has decreased volume. 

http://finance.yahoo.com/news/2012-rally-stock-prices-trading-161237226.html

We suspect any losses in TVIX would be offset by gains in HDGE over  the next year, HDGE has not such difficulties as it literally represents shorts on actual stocks. 

Goldman Sachs is famous for saying one thing to clients and doing another for its own account.It is now toutting stocks as a great buy; could GS be shorting the same stocks it is peddling?

Comstock Partners

At the peak (in 2000) of 1550, the optimism was over 66.8 (extreme optimism is above 61.5%) at the peak in 2007 (at 1570) it was 69.2% and presently at (1405) we are at 68.2%. At the market trough of 2002 at 770 the optimism was 33.9% (extreme pessimism is under 55.5%) we were at 30.9 % in March of 2009 at 670. The latest movement up has not been confirmed by either the Transport Index or volume. We would expect this stock market to fall sometime soon if the rhythm the market has experienced over the past 14 years continues.

Read more: http://www.businessinsider.com/comstock-partners-we-are-in-a-secular-bear-marker-2012-3#ixzz1pwHF70wN

Cmstock Partners offers an explanation of the current cycle going back to year 2000 in this link above. They do not discuss the incredible over valuation of real estate in Brazil and China and every other emerging market. That will be another key but, this is a well done explanation. If you do not have time to read it now, be sure to do so this weekend. The optimism index is supplied by Ned Davis Research NDR. NDR was a favorite of Marty Zweig when he was featured on Wall Street Week. 

Thsi analysis is in line with my expectation that the market will get cut in half, again. As Comstock observes, hard to believe but yes it is coming. 

Meanwhile at the Dubai Boat Show...The helicoptor is really a handy touch, don't you think?

It's Great to be King

Mel Brooks, History of the World Part II

http://www.businessinsider.com/photos-check-out-the-amazing-scene-at-the-2012-dubai-boat-show-2012-3#and-a-good-place-to-go-if-you-need-a-small-hovercraft-21

TVIX - Whoops

Thursday March 22, 2012

 

TVIX should be up today but it is down, something is wrong. An alert reader sends us this update.

My apologies for suggesting a fund of futures we will avoid all such arrangements in the future. I own 300 shares. 

 

Credit Suisse, the sponsor behind the VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca:TVIX), temporarily suspended creations of shares of the exchange-traded note because assets in the security had grown beyond what the bank, in a press release, called "internal limits."

While Credit Suisse officials weren't immediately available to elaborate on the press release, it appears that the halting of TVIX creations has nothing to do with any sort of limit imposed by regulators.

What is clear is that the ETN's assets have been expanding rapidly in recent weeks. TVIX had $691.8 million in assets as of Feb. 21, according to data compiled by IndexUniverse. The ETN had just under $500 million in assets only two weeks ago.

"This suspension does not affect the early redemption rights of noteholders as described in the pricing supplement," Credit Suisse said in the press release. It stressed that other ETNs it issues aren't affected by the halting of TVIX suspension.

Volatility products related to VIX futures have grown in popularity since the market meltdown of 2008-2009. They are regarded as portfolio insurance because they spike in value when stocks are in full retreat. A double-exposure product that competes with TVIX, but in an ETF wrapper, is the ProShares Ultra VIX Short-Term Futures ETF (NYSEArca:UVXY). It now has about $27 million in assets.

One of the oldest and most successful VIX-related ETN is the iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca:VXX). It had just over $1 billion in assets as of the Feb. 21 close.

Read more: http://community.nasdaq.com/News/2012-02/creations-of-velocityshares-tvix-halted.aspx?storyid=123015#ixzz1prKngI7w

 

 

The Real Bull Market

Thursday March 22, 2012

Here is the real bull market, its beginning overshadows the others-stocks, gold, oil

US Dollar

Since September 2011, the US Dollar has crested both its MAs, retested the uptrned line twice, and now flirts with the 50 dya MA. 

Now here is the same template but for gold

Gold

Gold has been the inverse of the Dollar, topping when the Dollar bottomed. The current Dollar strength has gold on the run again, down $15 this morning to 1635.

Let's move in with the EMA 13 and 34

The tech jury is out on this one. It may be an inverse head and shoulders. It may be a series of lower lows if the dollar continues to rise. The market is 1635 this morning. Upcoming action at 1600 should be interesting. 

Stocks

The successful re test of 1340 caused the robot programs to kick in  with buy signals. The break through 

1370, the previous high really got things going. As we have suspected that resulted in short covering and going long by the same group, a double buy pushing the market to 1400. Once that spurt ended, we are now pulling back a bit, and the strong dollar is weighing in. 

 

A New Decade?

Wed March 21, 2012

Here is an excerpt from a recent post by a well known technician.

The plunge in the Nasdaq market during 2000 began the "lost decade" for stocks which have essentially trended sideways since then. The good news is the same Nasdaq market may be leading stocks into a better decade. Chart 1 shows theNasdaq Composite Index rising above its 2007 high to reach the highest level in twelve years. 

This is precisely what I referred to in the last post. Indeed we did not start a lost decade in 2000 but an 18 year period of well established cycles. This would be a sideways 18 year period of ups and downs, likely ending where we began. 

The irony of the now famous Eastwood Super Bowl Half Time ad is that indeed, we are just half way through the cycle. Detroit continues to flirt with bankruptcy. 

 

The fact that the NASD is back to 2/3 of its all time high should be a warning, not an encouragement. Internal measures of bullish percent and the summation index are also flashing warnings. And insider sales are strong again. The group that exited stocks in October, small investors, are buying now, another reverse indicator. LEt's take a look.

NASD

Indeed I will grant the RSI has yet to reach the overbought status it enjoyed in March 2000. But please, please note that the run up from 3000 only lasted four months!  And then it collapsed just as quickly. Then the run up was caused by euphoria over dot.coms. Today Apple leads the way followed by other techs like long suffering MSFT. I doubt we have enough tech stocks today to duplicate the year 2000 rise to a peak. But then I was not smart enough to load up on Apple either, so I could be wrong. Our point is that the crowd piling into the NASD now is unlikely to be clever enough to pile out in time, just like March 2000.

As we noted the existence of trading software has caused more herding than ever. In some Western states there are today examples of where Native Americans herded buffalo over cliffs to their death. The same thing happens now in markets via computerized robot buying and selling. 

For example. once we passed 1370, as I had suspected, programs covered short positions and put o longs, causing stocks to jump to 1400 in one day!  Since then not much has happened, the genera euphoria of March lives on. 

Gold Stocks Underperform

Wednesday March 21, 2012

Gold Stocks Underperform Gold

This is a ratio chart of the XAU index of gold stocks divided by the price of gold. It tells us that gold stocks have underperformed the price of gold-by a wide margin. 

GDX

GDX the index of large cap miners such as Barrick and Goldcorp is trading at the same price it did in 2008. Gold in 2008 was less than $1,000, today it is $1,651!

There are numerous articles speculating what this means. Do investors in mining shares doubt the sustainability of the gold price?  Are investors just more interested in owning the metal?

My answer to the last questions is an unqualified YES. Let's replace GDX with Central Fund, a closed end fund that holds the literal gold and silver bullion.

CEF

Here the rise in CEF from 12 to 22 closely tracks the rise in gold from 1,000 to 1,651. Investors want the real thing.  Recall that I recommended both GDXJ and CEF in late December. 

So, let's telescope in a bit closer on CEF as to where it might just become a good buy.

CEF Daily

Right now the blogs and webs are alive with various 'experts' gleefully announcing breakout, for the NASD in particular. But one can look at this chart and see that buying upside breakouts is a fool's game. One needs rather to have bought the breakdowns in July 2010, October 2010, and December 2010. 

Seems to me the best estimate here would be to buy what others disdain. Orders below this point for CEF ought to be entered in succession for lower and lower prices. If CEF were to trade below 20.5, no doubt a slew of sell orders would be activated, as apparently happened in late 2010. That was a great buy. It was not a sell signal. The availability of computer software has really reversed what one needs to be doing these days. Downside breakdowns are more often than not, buy signals. Upside breakouts are a signal to let the late comers have whatever it is. 

Yesterday Bernanke was campaigning against the gold standard. Who would want to give up the ability to fight unemployment he said?  Apparently none of the 50 million people on food stamps were there to answer that question. Or to observe that the 1966 Chevy which cost $3,600 today costs $26,000. That is a result of cheap dollars, not an increased living standard. The governments of the world are one gigantic GM always rolling debt over and never retiring any of it. Hence investors are literally going for the gold, the hard metal. 

At yesterday's close CEF traded 3.3% above its Net Asset Value. 

Bull Market Icon in the Bear

Tuesday March 20, 2012

Bear markets have a habit of turing former bull market icons into clay feet icons, think  John Edwardsor TIger Woods, or Arnold S. all hte result of bad decisions on their part.

A hard part of success is kowing when to exit. Carol Burnett knew when to end her tv show after a successful six year run. She remains in demand at live preformances. Lucille Ball just could not let go and without Desi to advise,  was trying to be Lucy into her 70s. 

Now Oprah looks to have  the same problem. The rumored $250 M Discovery investment in OWN is not paying off. OWN is laying off staff and bringing back, yep, Oprah. I suspect Ms. Winfrey got a 'margin call' on here involvement in the new cable network channel. But it is doubtful that her on air presence with Whitney Houston's relatives will turn this around. 

 

Tuesday - There's a Kind of Hush..

Tuesday March 20, 2012

The Big Picture nia the NYSE

One of the pleasures or writing the blog is exchanging ideas with others about 'the Big Casino.'

A particularly alert MP reader alerted me to the above instance. The NYSE, a much broader profile of stocks that the SPX, is up against its downtrend line from the 2007 top. This is a slow moving monthly chart, though the reader specifically mentioned the weekly. I looked at both. On the monthly the MAs have all come together on the MACD panel at bottom. So, it could go either way, hence the question mark in pink!

Social mood moves the markets. At the lows of the last two years, the headlines were littered with speculation about how much lower the market would or could go. Now at a fresh high, we are awash in speculation 

• Apple is worth whatever triple digit number one can name, dividend paying funds must buy the stock ( as though they had not already anticipating this) and hey how high in the four digits can it go
• Now that 1370 has been breached, the market HAS to go to 1440 or perhaps 1525

This weekend I posted a link to one site that suggested 1475, as good a guess as any I suppose. 

To put this in perspective, our blog title after all, the mood between the August 2011 and October 2011 low was, how much lower can or will this go?  At the October low when we bought, speculation on even lower prices was rife, the DOW plunged 400 points and that was it. 

Now we have the exct opposite of the herding instinct. Traditional technicians cite lines in the sand of 1340 and 1370 as must do Maginot Lines. I did note that Felix Z. was going to cover at 1370 creating a double buy on his short. I assume this happened in most computer driven models. Now that the shorts covered, the market zoomed to 1400 or so, and this morning Europe is down 1 %, the market has run out ov buyers. 

Daily NYSE

The different indexes display different patterns. The NYSE here has just poked above a downtrend line. THe SPX is a good deal higher as is the OEX thanks to Apple. But as I say the NYSE is a much broader indicator. 

Remember that the market is literally driven by computer generated buy signal. Most are trend following based on some regression formula. For a look at how much work has gone into such prognostication look at RATS - regression analysis of a time series. Go ahead, click on some of the links on that page and simply scan the pages, never mind the complex math. My point  here is that lots of time and effort has gone into attempting to simulate reality, or at least the combination of millions of decisions every day in teh stock market. Now that many of those decisions are made by machine, similar conclusions abound. This all works, until as Maggie Thatcher remarked about socialism, we run out of money. 

 Markets run out of money, and social mood, at the same time. Darn, that's good I need to remember that as an intro to my book!

Markets the world over have now duplicated what happened to the US in 2008. Rampant speculation in real estate from skyscrapers in emerging countries to absurdly high prices in Vancouver, Rio in Brazil, and China will [play out just as they did in the US.  

GDXJ versus the Dollar

This a ratio chart of GDXJ versus the US Dollar. The ideal buy was our suggestion at the end of September. Is similar situation setting up?  Despite my recent misgivings about gold and silver, it looks like it. The US dollar dropped quite a bit the last two days suggesting a temporary top, gee could the Euro rally amid the never ending Greek default talk, you bet it could. 

Eenrgy Services

The Energy Service sector is about where it was when I exited in February. It is turning up here after a correction. If the dollar drops, energy service and GDXJ will get going. 

So where are we?  I suspect the pattern of third, fourth and fifth waves in a final move up will keep all the computers warm and supply plenty of grist for the techs featured on market watch. But the same scenario of the last two years seems to be playing out with stocks and oil higher into April or later. 

I still have my HDGE positions and will put orders in to accumulate GDXJ and Fidelity shares of gold and Energy Service. We will buy some gdxj while everyone else piles into Apple.