The Market Perspective

Wave Patterns Clear Up

Weekend march 17, 2012

No Relief at the Pump

Overall demand for gasoline has fallen and is expected to hit an 11 year low this year, due to fuel efficiency and high gs prices.  

Weekend WSJ

 

The McMansion Effect is back in West Texas. There are several homes this size in a new development. Such top of the market excess is typical of an oil boom. This of course is also typical of real estate speculation in developing countries around the world. The 1986 crash in oil prices saw home values drop as there were no buyers. 

We have been cautious to the point that one reader chided us for pulling our succession of orders for HDGE, My response was that I still have the positions I established. We will be putting those orders back in now that I believe I have a better handle on the market. . 

We have frequently commented that there are other letters which specialize in Elliott Wave counts and that this is not one of them. Wavetimes.com written by Ramki Ramakrishnan is one of them. This post appeared on the Forbes website and makes the most sense to me. Readers will recall my pondering that the Summation Index has been dow for four weeks with but one day of correction in stocks. Here is a reasonable answer to the puzzle of how the summation index is down but the market is still up.

The answer is that we are in a complex 3-4-5 end of a B Wave extending all the way back to the October 2011 low. It should end in a 4 down and then final 5 up pattern. I had suggested a 1440 high earlier this week. Wavetimes.com suggests 1475, either is probably close enough to re establish our succession of orders for HDGE. Ramki is predicting  a price not a time objective at far right. 

 

Here is Ramki's comment about his blog.

My writing is not to much as to help you time the market or make investment decisions. Rather it is meant to illustrate how a professional investor/trader would think through various possibilities before exposing real money to the market. WaveTimes is where you come to learn, not to get tips. Good luck.

That resonates with what I am trying to do for readers and students. Far too many investment letters promise this or that and then forget their recommendations when they fail to pan out. 

 

Fundamentally the photo on the front page of the Weekend WSJ of a car being pushed into a gas station ( the owner ran out) as well as the McMansion in Odessa, Texas in the Estates of Shiloh, screams market top. While such qualitative evidence does not give us an exact date, the wave count above and our internal indicators, see below, as well as the seasonals suggest a top within hte next three months. Recall oil topped in early July in 2008. 

In my weekly newspaper column this past week, I observed that we do not have a lack of oil but a 

• supply chain problem with a lack of pipelines from the new fields in the north, the Senate vote was 56-42 against the Keystone Pipeline with a handful of Democrats in borderline races voting for
• multiple formulas for gasoline, thank you California, making this a  less than homogeneous product, this is ridiculous and would not be part of TMP Energy Policy
• and finally the fear of an Israeli attack o Iran
• and to that list we learn that the crack spread is not favorable for NE refineries, several are closing

A refinery makes money on the crack spread betwen what it pays for oil and what it can sell the refined product for, the absolute high or low price of gasoline or oil is not the control factor. 

But all of this sets the stage for another push to new highs in oil, along with stocks, just as they did in the spring of 2008. 

Crude Oil

 

The pink underscores highlight the seasonal nature of oil the last three years. A bottom formed in October, the market rallied into May, and then collapsed. So far the same pattern is on display. This fits well with out expectation of  atop in May for all these markets. 

Bonds

Money is moving from the safety of bonds to the risk of stocks, which of course is the wrong move at this time. The distance TLT is above its moving averages suggests that it has much further to fall and stocks have further to advance before we have a favorable buy for TLT. 

NYSE Summation Index

There is no point buying HDGE right here as the summation index is making a low confirmed by the MACD. One should be buying HDGE when the summation index is peaking. Granted the market never backed off but one day but still, the indicators are the indicators. This is another reason for pulling my existing orders, it makes more sense to place HDGE orders at lower prices. 

SPX HDGE

One hundred SPX points is about 2.5 points on HDGE. A SPX moved up from 1200 to 1300, HDGE moved down from 25.5 to 23. 1300 to 1400 meant HDGE dropped from 23 to 20.5, again 2.5 oints.  There is no assuarance of course, of where the SPX will top out. But another 100 points would project HDGE to 18.

So I will begin placing orders under 20 at .30 intervals. Let's choose an odd number like 19.63, then 19.33, 19.03

Bullish Percent

the trend here is still up!  This indicator, now at 83,  will peak at over 90!

 

Emerging Markets Shanghai and Bombay

Bombay is green and Shanghai is red black. These two giant Asian markets have tracked one another since their respective tops in late 2010. The weak rally in both has so far fallen short of the weekly moving averages. This is predictive of where the world economy is headed no matter how the talking heads spin it. 

Socionomics

The same political pattern is playing out now that played out at the same point in the last stagnate economic cycle. In 1976 a Democrat followed a Republican into the White House. He promised lower gasoline prices and a mid East peace effort. He was voted on as both ideas failed. 

Today a Democrat, having promised higher gasoline prices, now as them, much to his re election woes. He has widespread dissatisfaction with Iraq and Afghanistan. He has believed he could negotiate with Syria, just as Carter believed he could negotiate the hostage situation in Tehran. 

Meanwhile Robert Novack reports in his memoir  Prince of Darkness that Reagan had a terrible time getting th nomination then. Defeated Gerald Ford even suggested a co Presidency, an idea Reagan rejected. Finally Reagan got the nomination. Then as now the Republicans are unhapy with their choices. 

Same cycle, same set up, same social mood. Tmes change, people don't.

 

Thanks for reading The Market Perspective

Dennislelam@gmail.com

 

 

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.

 

Apple Grows to the Sky

Friday March 16, 2012

Henry Blodget is banned from the securities business for life. So, it's interesting to read what a certified Vampire Squid has to say about Greg Smith's assertions that GS clients are muppets.

Muppet is a British term for a foolish person on the other side of a trade.

Here is another explanation for the big jump after 1370 was crossed.  Barrons Roundtable investor Felix Zulauf was short the spx at the annual discussion in that publication in January. He stated he would cover his shorts if the market passed 1370. We thought that was about where one should START shorting. But our point is that if others like Felix did cover perhaps the both bought back their shorts and then put on longs, a double buy, rocketing stocks higher. 

Insiders continue to sell into this rally. 

Apple

Yesterday we showed the NASD from 1999. It jumped form 3,000 to 5,000 from Fall 1999 to early Spring 2000. That's a 66% increase.

Above Apple has jumped from 400 to 600 in the same time period, a 50% increase. A 66% increase would be 664. There are two articles on the AAPL stock price in today's WSJ, page A 13 and C 4. In the latter D Bank took it off the buy list. , Apple like Hyman Roth in the Godfather, makes money for its apartners.

But there is really only one reason any stock goes up, more buyers than sellers. As we noted LNKD is 799 price earnings while Apple is a more reasonable 12.  Bull markets always have a favorite, whether RCA in 1929, University Computing in 1966 or IBM and DEC in 1970. 

Since Apple is going up, as one article noted, even dividend paying mutual funds are buying it, and so it goes up. 

Gold

Gold is the red gold line and the SPX is the green line. Note the new preference for stocks over gold.

Weekly Gold with 13,21,34 EMA Ribbons

Here we put the 13,21,34 EMA ribbons on gold. At bottom we have the Commodity Channel Index. The CCI just dropped below 0 and gold was down another $10 last I looked this morning. Central Fund is trading at a 4%+ premium. 

Daily Gold, Same Indicators

Gold has traded in a 1550-1800 range since last August. it has not been able to get past 1800 to assault the 1900 top again. This suggests gold wants to test at least its lower range again. 

Nat Gas

The head article on the front page of the WSJ notes that cheap natural gas will be used in 58% of power generating upgrades. So, now we have the answer to where will the demand be to put a bottom in on price. SJT and HGT continue to firm. 

Hunger Games Melds with World Wide Negative Mood

 

 

Hunger Games is expected to do $100 M its first weekend March 23. The story  features a female heroine clearly modeled on My Fair Lady as follows

teens fighting for survival in a government-controlled world that hosts annual televised games in which young participants are forced to kill their opponents.

No wait I am thinking Audrey Hepburn and Rex Harrison in 1965, a  social mood high. 1965 as the end of an 18 year up cycle. My Fair Lady one year and the Sound of Music the nest were perfect exponents of positive social mood.

While markets are up now, Hunger sounds more like 2008's The Dark Knight, The City Has no Hope.  While the movie is compared with the vampire saga Twilight, other than a female lead, it seems to me this is not the proper parallel at all. Similar parallels in plot would be

The Most Dangerous Game

The Running Man - this article lists several parallels, clearly I am not the first one to see the similarities

Surviving the Game

Alen

The Prisoner

The Good The Bad and the Ugly

Surviving the Game was about a group of men that kidnap a homeless man to hunt him for sport. The plot is little different form Hunger Games. But, Surviving came out in 1994 when the mood was expansive and positive. Hunger on the other hand is an echo of 2008's The Dark Knight when the Joker relentlessly stalks an innocent city. Now vampires and  zombies are all over television, movies and books, so the time is right for this sort of story. World wide people are fighting back at governments from North Africa to Spain to Russian, where 100,000 recently took to the streets in zero degree weather to protest the government. 

Alien in 1979 is another example of timing and social mood. The second oil embargo had hit, America was in a malaise according to no less than the President. The story of a lone woman, an orphan, and a cat fighting an unknown powerful force resonated with a public struggling with their own forces of oil embargoes and double digit inflation. The story on screen resonated with the mood. Bingo, a series was born. Aliens in 1982 was the all too rare example of a sequel as good as the original as Ripley has Marine backups but faces a horde or Aliens. 

The Prisoner was another well timed epic of individual versus government. Debuting in 1967-67 it ushered in the long 1966-1982/4 bear market. It probably resonated with a nation increasingly uncomfortable being forced to fight the VIetnam War amid considerable protest. 

1967's Good Bad Ugly, is really the same story. Three unlikely individuals search for buried treasure amidst a horrific civil war which would take some 636,000 lives. The Draft Riots depcited in Scorceses's Gangs of New York depicts people conscripted against their will to fight an unpopular war. 

Hunger is coming to the screen at just about the same time Dark Knight hit debuted in 2008. Then the stock averages had moved higher and higher. But the mood was increasingly negative. Mood won the day as the markets plunged that fall. Hmm, could a social mood top be far off?

Socionomics holds that exogenous mood determines societal events. Negative mood resultes in the stock market lows of last fall. Now mood has moved the opposite direction with some 90% of SPX stocks above their 50 day Moving Averages. In August-October that number was well less than 10%. Mood is ever changing and its consequences and effects are all around us. The trick to to get 

'In the Mood' to take adbantage of such swings. 

 

Parabolic Blow Offs

Thursday March 15, 2012

 

Here is an interesting comparison by Doug Kass of Google in 2007 with Apple now.

Steve Colbert  on the Greg Smith op ed 'Why I am Leaving GS - as Colbert says Smith, after learning of the us versus them culture, he left after 12 years. I suspect Greg only left after making a great deal of money and lining  up  a hedge fund job. But what was that about winning table tennis in Israel?

A reader chided me for pulling my HDGE orders, though I bought another position as the market soared 200 points Tuesday. He was right, It is difficult to go against the herd. After viewing the Google Apple chart linked above, we take you to, yes the NASD a scant 13 years ago.

NASD - 1999 Top, and Decline

Talk about a change in social mood!  From November 1999, in four short months the NASD exploded 2,000 points or 66% to race from 3,000 to 5,000. It then collapsed in five waves. It completely eliminated the run up by the next November. This was the top of the dot.com mania, similar to the Apple iPad mania now. Even this morning various articles on Business Insider are gushing about the screen on iPad 3. 

So the question is, not whether greed got everyone on board but whether a parabolic sell stop order or good sense got everyone out. If one started shorting on the move up, one had to experience losses for four months, and increasingly so. We are just not mentally wired for such negative reinforcement. 

The name of this blog is Market Perspective and there is a lot of that in this NASD chart. 

I am holding my HDGE positions!

Gold Silver

Central Fund is still at a 3% premium over Net Asset Value. Gold dropped 1.86% and silver 3.56% yesterday. 

Natural Gas

Readers are aware we have been cheer leading for nat gas, now at a historic low to crude oil. Today 

Clyde Pittman makes the case for Gas to Liquid GTL technology as opposed to CNG, compressed natural gas which requires expensive pressurized tanks. This is a link, his letter in in the WSJ today. 

Stocks Two Views

Yes stocks are the most overbought in some time. 

Note the Commodity Channel Index at bottom is the most overbought since it collapsed last July!

but before you move all your money to the short side, understand this can go on for a while. 

Here the stochastic indicator is of no help at all, the market is just overbought, money is pouring out of bonds and into stocks, now of course, that the market is at a new high. Recall we suggested buying last August and October when the Stoch indicator was at its dead low.

Buying HDGE here is a rea test of your tolerance level. This is mid March and the markets usually do not seasonally top until April 15 or so, can you stand looking at your daily on line statements with higher and higher losses piling up if the Dow climbs higher?  With  200 points in one day Tuesday, is 14,000 out of the question?  Uh no that's just three more 200 point days with a few 30 pointers thrown in for good measure. 14,000 is a mere 7.6% above 13,000 but the constant drum beat that everyone else is making money while one is establishing losing positions, well that is what is called swimming upstream.

We mention all this to demonstrate just how important social mood is. When all should have bought, as one can see, all did not, now every one is on board.

Money Flow

Money Flow pretty much shows the same thing, it has actually tapered off a bit on this move up. 

We are evealuating new orders for HDGE CEF GDXJ. We want to buy CEF when it is at a discount to Net Asset Value NAV, we are not there yet. 

TLT, Dollar, VIX

The actual intraday move in the dollar was much larger than the .37 move up from the prior close. Again things are out of synch, the Dollar is moving up and stocks are moving up, not what one would expect. Complacency is high with VIX at 15.31 (but it went to 10 in 2007). So we have investors leaving the safe have of bonds, entering risk on haven of stocks but someone is also piling into the Dollar. 

When I see this sort of out of whack out of synch action, I am reluctant to take new positions in anything. We continue to monitor the markets  and will report. One can establish a succession of orders betting on a top in the market buying HDGE at pre-determined intervals. As our lead chart of the NASD zoomiung 66% in four months shows, such a strategy requires extreme confidence. And recall this is an election year. 

HDGE, CEF, GDXJ

Wednesday March 14, 2012

 

I still have all my HDGE positions, we are re evaluating the placement of orders. It may be that establishing new positions in GDXJ donw 4.8% today  and CEF down over 3% today  are much more timely at this point. 

No we are not buying Apple at these prices. 

Breakout for TBT

Wed March 14, 2012

We gave up on TBT but now it has broken out to the upside as we had originally thought it would. TBT is a bet on lower bond prices but comes with futures deterioration. 

Today the WSJ also features an article on page C 4 suggesting Energy Trusts as a way to play nat gas, this foolows our suggestion for HGT and SJT. 

Right and Wrong

Wed March 14, 2012 7:07 AM CST

Here is a good summary of trading activity yesterday. Clearly computerized trading kicked in after the FED meeting and JP Morgan announced a dividend increase and a stock buy back. 

Doug Kass suggests selling banks and bonds.

A Goldman Principal remarks on the 'Clients are Muppets' mentality as he checs out of the firm. This is a must read. 

AAPL hit yet hit another high but it is not an overpriced stock.  Its P/E is 16 wth earnings of $35.  At least Apple makes lots of money. For an over priced stock try say Linked In at 799 P/E. 

We have had some things right, but we got one thing wrong. What we have seen the past month is a very rare instance of hte Summation Index correcting, the stock market internals, while the overall price indexes failed to follow through. Let's look.

This is as Alice said in Wonderland getting curiouser. Consider the Summation index now. 

While the market has corrected internally, the price index such as the SPX or NYSE has not corrected at all. The one Tuesday decline of 200 Dow points has been it.  But, NYSI appears to be nearing a bottom. Those bottoms are followed by price rallies as the number of stocks declining hits a low and then reverses.  In December the index managed to fall one more time from this same point. 

New highs shot back up over 350. The VIX hit 13.99, a level not seen since June 2007. So complacency may be high but yes it can go lower, take a look. It appears to be have been a mistake to think that VIX could not go a good deal lower as it did in 2007.

Gold meanwhile dropped below both its 50 and 200 day MA no doubt triggering some sell programs. We have been right that gold would correct and we were right to sell in February when we did. 

GDXJ

GDXJ continues its ragged reverse head and shoulders pattern. It dropped a bit today. MACD has not yet turned up. 

We also thought bond prices would correct to the downside. Now that is happening. Yields jumped and priced dropped yesterday. 

Ten Year Note Yield

The ten year note  yield tracks the stock market. In the linked article,  Kass is mentions  yields breaking to a new high for the year. We put the 13 and 34 day EMA on this chart. The 13 broke to the upside in mid February.  Indeed we may have seen the low in yields.

Ten Year Note Yield Weekly

Note that today took the yield over its 13 week EMA. With MACD headed up and Federal Spending on boil, bond prices are likely to drop. We may have seen the low in yields last Octdober. That is significant.  

TLT dropped 2.04 for a new low in 2012.   The Dollar made a higher high, up .3 above both its moving averages. Crude oil held on to recent gains. Natural gas bounced off its recent lows. 

 Right- Our thinking was that the dollar would advance, gold and bond prices would drop. This would cause money to move out of safe haven bonds and into stocks forming a high in stocks. We noted the rollover in the summation in dex now four weeks into correction. We thought crude oil might extend to its 115 high of last year. We expected stocks could peak up here at 1400, though we are reluctant to put targets on moves. Both SJT and HGT, our most recent recommendations moved up supported by daily parabolic PAR SAR buy signals. 

Wrong - The overall stock  market never corrected along with the summation index. 

It now appears the market wants to go higher. Yes the trend is a bit over done but numbers toward 1440 look realistic now. Money moved out of bonds with TLT dropping and the ten year note yield moving up. With crude holding its gains, we need to see gold make a low, then the markets will be in synch again. Remember that the bullish percent can get high and stay high!

So we sold too soon in energy but made nice profits on the gold and silver trade entering at the lows at the very end of 2011. Our exit there was correct.  We still should have an opportunity to re enter there. Energy service and energy have not really moved a lot higher since our exit. And the move in stocks has been about 60 SPX points, half of which occurred yesterday!  The market spiked lower last August and October to end that move it is spiking higher now. 

New York Stock Exchange Index with MACD overlay

I overlaid the NYSE with the MACD. note that the two have moved in  synch from teh August low. A divergence occurred in October as prices went lower but the MACD did not make a new low. This time the MACD made alow but the NYSE really did not follow. 

I have a small position in HDGE and have cancelled other orders to buy. In pre market trading  gold is down another $36.90 this morning. My conclusion is that expecting the market to go down in an election year ignores the now close relationship betwen Wall Street and Pennsylvania Avenue. 

 

 

Banks Failing Stress Tests

 

 

These banks failed the FED Stress Test

Complacency Takes Center Stage

Saturday March  10, 2012

Complacency is taking center stage. Investors shook off the Tuesday retreat and bought the market back the rest of the week. Oddly, HDGE did not retreat much, none of my lower orders got filled. And the traders went home long the US Dollar at the end of the week. This is significant, it is another example of why weekly charts take precedence over daily charts. 

The blogshpere is alive with  observations that the XLF Financials and home builders and consumer discretionary are all pushing higher. But the real story, the US Dollar is higher as complacency  noted by the VIX is at a higher low. This is a dangerous combination. Let's look.

US Dollar versus VIX

The red black bars are the US Dollar. I tried several combinations but settled on the bars OHLC bars for both to make a point. Note that the the Dollar moved up from 79.07 below its 50 day MA to 80.04 above its 50 day MA at the end of the week. It also moved up on the weekly chart over that 50 bar MA. 

Regular readers are aware we like to create a dashboard of indicators. The move up in the Dollar is a defensive measure. This represents a move to safety. 

However at bottom the move down in the VIX is a sign of complacency, No Fear. The VIX is a fraction that shows the preponderance to bet on the downside. New lows in the VIX therefore represent a move to complacency. At the same time the Dollar is up. This is a dangerous combination, both bets cannot be simultaneously right. 

Our bet is that the Dollar investors have it right. The market is near all time highs, not lows. So let's take the long  view, as we said the weekly charts take precedence. 

VIX Weekly 

To emphasize the clarity of what we want you to grasp, we limited this to just the VIX. 

Now, as Donny Deutsch says, the Big Idea  What is the likely direction of this chart?

Note the reverse head and shoulders pattern. The Right Shoulder RS is higher than the Head, and right at the LS

MACD made a higher high in 2011, why is it that only TMP thinks that is cause for concern?

At bottom the MACD looks like it will bottom in the next few weeks to months. 

And, note that the 50 week MA has now crossed the 125 week MA to the upside!

Summation Index Weekly 

Okay so we are harping on this but..the market snapped back this week, yet the summation index has clearly turned down, see MACD at bottom. And the MACD also exhibits a five wave pattern. In the top panel the number of new highs peaked along with the summation index, But the price index continues up, again a dangerous divergence. 

So, couple this with the complacency of the low VIX and the strength of the Dollar, and we have the ingredients for a sharp sell off. 

Industrials Transport SOX

An alert reader notes that the big cap stocks are the last man standing at the end of a run. One can use the equal weighted  SPX versus the SPX to show this. Here we we show the Dow Industrial, the big 30 in red black versus the Transportation in blue and the Russell Small stocks RUT in red. Clearly we have a divergence here with the smaller stocks RUT and the Transports not confirming the move higher. This can go on for some time, so but it is another indication that a smaller number of stocks are in the lead, diminishing leadership. 

Energy in 2008 Four Years Ago

Energy Today

The main panels of crude oil then and now are remarkably similar. I went back and put the same time, from the previous October to now, March 10,  on the chart. This is amazing

Note that crude oil tested the 125 day MA line both times and then exploded to the upside-and in the same February March time frame. The dollar was falling in both time frames. The only real difference is that the SPX was falling then and is rising now. 

Oil dropped Friday but, the up trend is quite strong. All three moving averages are still climbing. 

The question is, does this portend a move to $145 as it did in 2008?  We don't lack for fundamental events to support it. The Iran Israeli bomb threat is certainly there. But if that is the case it will certainly set the stage for a dramatic ecomomic setback. 

I have a succession of orders for HDGE extending  below the $20 level. 

Socionomics

We are in West Texas this weekend, The oil field is literally on fire. Hiring signs abound on restaurants and shops.  Truck drives who can pass the drug test and have a commericial license, bingo you are a truck driver, make over $50,000. Check out Stephen Moore's column in the weekend WSJ written from North Dakota, yes we can drill our way out of this. A bottle of win is $4 higher here than in San Antonio. The same store features $12 cigars and silica gel for the humidor. 

A local band that gave up playing in 1999 when I left the area (oil was then $12, not $120 as Brent is now),  has ten dates set to play next month. Social mood is expansive, good times bring on a party atmoshphere. 

I author a weekly column for the Odessa American. This Sunday the paper quotes various experts who, of course, conclude it is different this time. This boom unlike 2008, or presumably 1981, is sustainable. 

What is not sustainable is ever higher oil and therefore transportation costs. That is evident in the lagging Transport index shown above. Already one index, the Permian Basin Petroleum Idex created by Karr Ingham has surpassed its 2008 high even at lower petroleum prices. 

Now recall that Meredith Whitney predicted massive municipal defaults.   One small commuinity that existed all of the  last century with no external debt. It  now will have $200 M in debt if a hospital bond issue passes. The new wealth for municipalities is created via a sales tax on oil field services. See our graphs above comparing this rise in oil prices with 2008. If the price of oil drops, the oil field service indsutry simply evaporates, and the sales tax along with it. A compounding effect occurs   as the propery tax evaporates  that will not be paid on soon to be empy industrial metal buildings. 

A municipality can default on sevices to citizens, salaries to employees, debt, or simply scale services back eliminating library, fire, and police protection, closing parkes and charging for road repair. Note Houston, TX is already taxing churches. 

So we have complacency in the oilfield as well as the stock market. Remember it's all One Market. Here individuals are living out of RVs, restaurants and convenience stores scramble for employees, there is a housing shortage. The same thing is occuring in emerging markets across the world including substantial markets like Tornto. 

Readers are advised to look back at our Tuesday March 6 post regarding the Metals XME, Steel SLX, Ford F, and Financials XLF indexes. These are basicaly commodity charts. And the long term trend here is down, Yes GDXJ looks like it can have another run up in the short term but world ecomomies are slowing. 

Bottom Line - We look for a pullback in stock prices and a forthcoming low in metals and mining. But the very longer term is clear, markets will be much lower in 2013 and 2014. 

Dennislelam@gmail.com

 

 

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.

 

 

 

Divergences SPX, Apple

March 9, 2012

We re entered orders for Hedge HDGE. these extend below the 20.00 recent low. Optimism is quite high, analysts are outdoing one another with calls for Apple to rise to 700-800 or even 1,000 or more. No one of course was making such predicitons when Jobs came back on board after Sculley's disastrous reign. 

SPS versus NYSI screams divergence

The blue lines in the main and lower panel are both 50 day Moving Averages MAs. At top price defied the internal indicator at bottom and rose again. The summation index NYSI though is cearly headed down and already at its 50 day MA. (note this is a bit of mismatch the main chart is the spx while the summation index is the New York Stock Exchange, a broader measure, but readers are more familiar with the price of the spx.) This is a classic divergence. Pardon my timidity the last couple of days, it is now more clear that this is in fact a very bearish development. This is why I placed a succession of orders for HDGE beginning at 20.37 and going below 20. With what will not doubt be a heavily government massaged employment report due this morning, the market may well make a spike up driving HDGE down in price. 

Here is another out of whack view of the divergence. The main panel is Apple, the lower is the NASD summation index. 

While the summation index has showed its hand at bottom, the price of Apple, the 12% gorilla of the QQQ, is up again. Reviewers cannot heap enough praise on the company it is now

the biggest capitaliztion company larger than Exxon

the most admired company on the planet, except perhaps at Foxcom

planning  new spaceship headquarters - this of course re enforces the out fo this world expectations and assumptions about the company

the rise from December is parabolic, but, if the market sells off to 1300 or so and then rebounds into April 15, expect Apple to come back vampire like from any sell off. No doubt a sell off will be cheered as a buying opportunity, and it might be, for  the incredibly nimble.